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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 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)
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<S> <C>
DELAWARE 41-1569769
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
10000 VALLEY VIEW ROAD, EDEN PRAIRIE,
MN 55344-9361 (952) 947-8700
(Address of principal executive offices (Registrant's telephone number,
and zip code) including area code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of common stock held by non-affiliates of Registrant,
based upon the last sale price of the Common Stock reported on the Nasdaq
National Market tier of The Nasdaq Stock Market on March 24, 2000 was
$160,545,880. Common stock outstanding at March 24, 2000 was 10,825,894 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Registrant's Annual Meeting of Stockholders to be held on June
2, 2000 are incorporated by reference in Part III, Items 10, 11, 12 and 13, of
this Form 10-K.
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PART I.
This Annual Report on Form 10-K (the "Form 10-K") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All forward-looking statements are
inherently uncertain as they are based on current expectations and assumptions
concerning future events or our future performance. We caution readers not to
place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date this report was filed. Forward-looking
statements are not descriptions of historical facts. The words or phrases "will
likely result," "look for," "may result," "will continue," "is anticipated,"
"expect," "project," or similar expressions are intended to identify
forward-looking statements, and are subject to numerous known and unknown risks
and uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified in the "Risk
Factors" filed as Exhibit 99 to this Form 10-K, and in our other filings with
the Securities and Exchange Commission (the "SEC"). We undertake no obligation
to update or publicly announce revisions to any forward-looking statements to
reflect future events or developments.
We were incorporated in Delaware in 1986. Unless the context otherwise
indicates, all references to the "Registrant," the "Company," or "CIMA" in this
Form 10-K relate to CIMA LABS INC., a Delaware corporation.
We have registered "CIMA(R)," "CIMA LABS INC.(R)," "OraSolv(R)," and
"OraSolv(R)SR" as trademarks with the U.S. Patent and Trademark Office. These
registered trademarks are used in this Form 10-K. We also use the trademarks
"DuraSolv(TM)," "PakSolv(TM)," "OraVescent(TM)SL/BL" and "OraVescent(TM)SS" in
this Form 10-K.
Triaminic(R)and Softchews(R)are registered trademarks of Novartis.
Zomig(R)and rapimelt(R)are registered trademarks of AstraZeneca. Pepcid(R)is a
registered trademark of Merck. Tempra(R)is a registered trademark of
Bristol-Myers Squibb. Quicklets(TM)and FirsTabs(TM)are trademarks of
Bristol-Myers Squibb. Zydis(R)is a registered trademark of R.P. Scherer
Corporation. Claritin(R)and Reditabs(R)are registered trademarks of
Schering-Plough. WOWTab(R)is a registered trademark of Yamanouchi Shaklee
Pharmaceuticals. Flashtab(R)is a registered trademark of Laboratories
Prographarm. FlashDose(R)is a registered trademark of Fuisz Technologies Ltd.
ITEM 1. BUSINESS
COMPANY OVERVIEW
We develop and manufacture fast-dissolve and enhanced-absorption oral drug
delivery systems. OraSolv and DuraSolv, our leading proprietary fast-dissolve
technologies, are oral dosage forms incorporating taste-masked active drug
ingredients into tablets which dissolve quickly in the mouth without chewing or
water. We currently manufacture and package five commercial products
incorporating our proprietary fast-dissolve technologies. We develop
applications for our technologies that we license to pharmaceutical company
partners. We generate revenue from licensing fees, product development fees,
selling products we have manufactured that use our fast-dissolve technologies
and royalties. We currently have agreements with American Home Products,
AstraZeneca, Bristol-Myers Squibb, N.V. Organon, Novartis and Schering-Plough.
We believe that the attributes of our OraSolv and DuraSolv fast-dissolve
technologies may enable patients in certain age groups or with limited ability
to swallow conventional tablets to receive medication in an oral dosage form
that is more convenient than traditional tablet-based oral dosages. Both OraSolv
and DuraSolv technologies incorporate taste-masked active drug ingredients into
tablets that have the following potential benefits:
o ease of administration;
o improved dosing compliance; and
o increased dosage accuracy compared to liquid formulations.
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Our proprietary technologies enable our pharmaceutical company partners to
differentiate their products from competing products. In addition to providing a
competitive advantage in the marketplace, our proprietary technologies also may
enable our pharmaceutical company partners to extend the product life cycles of
their patented drug compounds beyond existing patent expiration dates. Improving
compliance also can provide benefits to the healthcare system by enhancing
therapeutic outcomes and potentially reducing overall costs.
In addition to OraSolv and DuraSolv, we are developing several new
technologies. Our OraSolv SR (sustained release) product adds sustained or
controlled release properties to the coatings that surround the active drug
ingredient. We also are developing new OraVescent drug delivery technologies,
OraVescent SL/BL (sublingual/buccal transmucosal) and OraVescent SS
(site-specific transmucosal). Using the fast-dissolve technology of our OraSolv
products, we designed the OraVescent technology to improve the transport of
poorly absorbed and large molecule active drugs across mucosal membranes in the
oral cavity or the gastrointestinal tract.
INDUSTRY OVERVIEW
CURRENT DRUG DELIVERY METHODS
Medications are available in a variety of delivery forms, including solid
dosage forms, liquids, transdermal delivery methods, inhalation devices and
products and injections. Due to ease of administration, patients generally
prefer to receive medications in an oral tablet form over other delivery
methods. Children and the elderly, however, as well as those with certain
physiological or medical conditions, frequently experience difficulty in
swallowing tablets. These patients often receive medications in liquid form or
through injections as an alternative to tablets.
TRENDS AFFECTING THE DRUG DELIVERY INDUSTRY
Several significant trends in the healthcare industry have important
implications for drug delivery companies. After a drug loses patent protection,
the branded version of the drug often faces competition from generic
alternatives. Over the next four years, branded drugs with 1999 U.S. sales of
over $20 billion will lose patent protection. We expect producers of these
branded drugs to seek differentiating characteristics for their products to
defend against generic competition. We believe pharmaceutical companies will
adopt innovative drug delivery technologies, such as fast-dissolve and
taste-masking, as an increasingly significant means to differentiate their
branded products.
The significant trend towards direct-to-consumer marketing and recent focus
on patient rights may encourage the use of innovative drug delivery
technologies. In 1999, pharmaceutical companies spent an estimated $2 billion in
the U.S. on direct-to-consumer marketing and promotion of prescription
medications. Spending in the U.S. on direct-to-consumer marketing and promotion
is estimated to increase to approximately $7 billion a year by 2005. In
addition, there is also a growing trend in the U.S. to provide patients with
greater choice and more patient-friendly forms of treatment. We believe the
trend toward patient empowerment and patient rights, combined with
direct-to-consumer marketing, may give consumers greater influence on the type
or dosage form of medication a physician will prescribe. Patient-friendly
attributes, such as fast-dissolve and taste-masking, will become a more
significant influence in pharmaceutical marketing.
The growth of managed care organizations has focused providers and payors
on using healthcare resources efficiently, including increasing the
cost-effectiveness of medical treatments. We believe that patient non-compliance
with medicinal dosing regimens is widespread, and that such non-compliance
results in unnecessary costs to the healthcare system. Many managed care plans
and other insurers actively manage the costs of prescription drugs for their
clients by monitoring efficacy, quality, cost and compliance of medications.
Payors often encourage using therapies that improve patient compliance,
including those that use innovative drug delivery technologies, and we believe
these therapies will become more widespread.
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MARKET OPPORTUNITY
In March 2000, Specialty Pharmaceuticals estimated that sales of drugs
using drug delivery technologies would grow from approximately $11 billion in
1998 to approximately $24 billion in 2003. Net revenue to the drug delivery
industry, comprised of product sales, royalties and manufacturing fees,
similarly was estimated to grow in that time period from $1.1 billion to $2.9
billion. Drug delivery companies are expected to mature from research companies
to product development and product marketing companies, as innovative drug
delivery systems are commercialized and companies integrate manufacturing and
marketing functions to increase sales revenues.
BUSINESS STRATEGY
We intend to establish ourselves as the leader in fast-dissolve and other
innovative drug delivery technologies. We intend to implement the following
business strategies in pursuit of this objective:
o we will develop and protect innovative drug delivery technologies;
o we will collaborate with pharmaceutical companies for the marketing of
our technologies;
o we will identify attractive opportunities for pharmaceutical product
development; and
o we will control our technology through product manufacturing.
OUR TECHNOLOGY AND PRODUCTS
We currently manufacture five commercial products incorporating our
proprietary fast-dissolve technologies. Revenue from sales of our products were
approximately 36%, 14% and 54% of our total revenue in 1999, 1998 and 1997,
respectively. Our revenue also includes product development fees and licensing
revenue for development activities, which were approximately 58%, 81% and 46% of
our total revenue in 1999, 1998 and 1997, respectively. We also receive revenue
from royalties from product sales, which were approximately 6% and 5% of our
total revenue in 1999 and 1998 respectively. We had no revenue from royalties
from product sales in 1997. Less than 10% of our total revenues in 1999, 1998
and 1997 was from product sales and product development and licensing activities
outside the U.S.
ORASOLV
Our OraSolv technology is an oral dosage form, which combines taste-masked
drug ingredients with a fast-dissolving system that contains a low level of
effervescence. The OraSolv tablet dissolves quickly without chewing or the need
for water. Taste-masking coats the active compound, permitting the active
ingredients to be swallowed before they contact the taste buds. The
taste-masking process is effective with a wide variety of active ingredients,
both prescription and non-prescription.
FAST-DISSOLVE. To create our fast-dissolving tablets, we combine the
taste-masked active drug ingredients with fast-dissolving tablet materials,
which can include a variety of flavoring, coloring and sweetening agents, all of
which are generally recognized as safe materials, and commonly used tablet
ingredients, such as binding agents and lubricants. We add an effervescent
system, composed of a dry acid and a dry base, to the tablet formulation to
cause a mild effervescent reaction when the tablet contacts saliva. This
reaction accelerates the disintegration of the tablet through the release of
carbon dioxide. As our OraSolv tablet dissolves, it releases the coated
particles of drug into the saliva, forming a suspension of the drug in the
saliva, which is then swallowed.
TASTE-MASKING. To prevent or minimize patients from tasting drug
ingredients with unpleasant tastes, we taste mask the drug active ingredients in
our OraSolv products. The active drugs are taste-masked using a variety of
coating techniques. The coating materials prevent the active drug substance in
the OraSolv tablet from contacting the patient's taste buds, and provide for the
immediate or controlled release of the active ingredient in the stomach. We
currently purchase taste-masked drugs from outside vendors for use in our
over-the-counter products. We are developing taste-masked active ingredients for
use in prescription pharmaceutical products, the first of which we expect to
commercialize in 2000.
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SUSTAINED RELEASE. Our OraSolv technology also can be combined with a
sustained release formulation and used in FDA-approved products. We incorporate
time-release beads in our tablet, to provide the benefits of a sustained or
controlled release of drug ingredients with the improved convenience of a
fast-dissolve formulation that allows easy swallowing of the sustained release
active ingredient. To date, we have not commercialized a product incorporating
the sustained release properties of our OraSolv technology.
DURASOLV
Our DuraSolv technology is a fast-dissolve oral dosage system that we
designed to improve manufacturing efficiency and reduce production costs. A
significant component of the manufacturing cost for our OraSolv products
currently lies in the sophisticated packaging system necessary to protect the
softer, more brittle OraSolv tablets. DuraSolv is a higher compaction, more
durable, solid oral dosage system formulated to achieve the primary benefits of
the OraSolv fast-dissolve dosage form, but capable of being packaged in
conventional packaging such as foil pouches or bottles at much higher production
rates and with lower packaging costs. DuraSolv is an appropriate technology for
drug products requiring lower levels of active ingredient. Consumer testing has
demonstrated high acceptability of this technology, comparable to that of
OraSolv.
We recently completed development of the DuraSolv dosage system, and in
February 2000 we were granted a U.S. patent for this technology. Currently, we
are developing products for two pharmaceutical company partners using this
technology.
ORAVESCENT
Our OraVescent technology is an enhanced-absorption oral drug delivery
system intended to improve the transport of active drug ingredients across
mucosal membranes. This technology may improve the bioavailability, and
accelerate the onset of action, of some molecules. We have conducted the first
human testing and have initiated two prototype projects with pharmaceutical
company partners using this technology. We expect to perform additional human
clinical testing in the first half of 2000.
AGREEMENTS WITH PHARMACEUTICAL COMPANY PARTNERS
Our business development efforts focus on entering into development,
licensing and manufacturing supply agreements with pharmaceutical companies. Our
agreements provide that the collaborating pharmaceutical company is responsible
for marketing and distributing the developed products either worldwide, or in
specified markets or territories. Our collaborative agreements typically begin
with a product development phase. If successful, this phase may be followed by a
development and license option agreement for the development of product
prototypes. We will subsequently enter into license and manufacturing supply
agreements to address commercialization of products. Alternatively, we may
develop product prototypes internally and enter directly into a development,
manufacturing or license agreement for commercialization of those products.
We have manufacturing supply agreements with two pharmaceutical company
partners for all of our products that are currently being sold in the United
States and Canada. We are currently negotiating manufacturing supply agreements
with other pharmaceutical company partners for several prescription products.
Generally, these agreements define the terms by which we will manufacture and
release for shipment a product for a pharmaceutical company partner and the
obligations both parties have relating to payment for product and services, as
well as defining the process of communicating and agreeing to expected
production requirements and other economic terms for product supply. These
agreements have varying terms of duration ranging from 3 to 10 years and are
generally cancelable by either party with appropriate notice. However, in the
pharmaceutical industry, parties to manufacturing supply agreements generally
consider these arrangements long-term due to the complexity and lead-time
required to qualify a new manufacturer with the FDA, which could take up to a
year for the new manufacturer to scale-up and produce validation lots. Our
pharmaceutical company partners direct us on the timing and quantities of our
product shipment to them. We do not consider the backlog for our products to any
of our customers to be significant.
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The table below sets forth the partner, product brand name, market segment
and technology for each of our major collaborative agreements.
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PHARMACEUTICAL PRODUCT MARKET
COMPANY PARTNER BRAND NAME SEGMENT TECHNOLOGY
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American Home Products Undisclosed Undisclosed DuraSolv
AstraZeneca Zomig Anti-migraine DuraSolv
Bristol-Myers Squibb Tempra Pediatric OraSolv
Analgesics
N.V. Organon Undisclosed Undisclosed OraSolv
Novartis Triaminic Pediatric OraSolv
Cough/Cold
Schering-Plough Undisclosed Undisclosed OraSolv SR
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AMERICAN HOME PRODUCTS. In January 2000, we entered into a Development and
License Agreement, and a Supply Agreement with American Home Products for a
DuraSolv formulation of an undisclosed prescription product. We receive
development and milestone payments upon achieving specific milestones under the
agreements, and will receive royalties on any sales of the prescription product.
ASTRAZENECA. In September 1997, we entered into a Development and License
Option Agreement with an affiliate of AstraZeneca to develop an OraSolv and
DuraSolv formulation of AstraZeneca's prescription anti-migraine drug, Zomig. We
received product development and option fees under the agreement. In October
1998, we completed a major milestone, a clinical study on the OraSolv
formulation of Zomig. In May 1999, we entered into a definitive License
Agreement with an affiliate of AstraZeneca, which provides that we will receive
license and product development fees, and milestone payments upon achieving
specific milestones under the agreement, and will receive royalties on any sales
of the prescription product. In August 1999, European regulatory approval of the
DuraSolv formulation of AstraZeneca's Zomig rapimelt was received. In September
1999, AstraZeneca launched Zomig rapimelt internationally. We expect the U.S.
regulatory submission for the Dura Solv formulation of Zomig rapimelt to be made
in the second quarter of 2000. Revenues from AstraZeneca represented 18% of
total revenues in 1999.
In connection with a $3.5 million loan from AstraZeneca that we received in
December 1999, we granted AstraZeneca a first right of refusal to exploit any
new technology to which we may have the right from time to time and which may
have application in conjunction with any technology or products of AstraZeneca
or its affiliates.
BRISTOL-MYERS SQUIBB. In June 1997, we signed a global non-exclusive
license agreement with Bristol-Myers Squibb, covering multiple products to be
developed using the OraSolv technology. We started manufacturing commercial
quantities in 1997 of the OraSolv dosage form of Tempra, Bristol-Myers Squibb's
pediatric analgesic. Mead Johnson, an affiliate of Bristol-Myers Squibb,
introduced Tempra in Canada during 1997. We received product development fees
and will receive royalties on Tempra. During 1998, Bristol-Meyers Squibb decided
to discontinue marketing Tempra in the U.S., but expects to continue marketing
Tempra in Canada through its affiliate, Mead Johnson. In the fourth quarter of
1998, the agreement was amended to return to us the rights to pediatric
analgesics in the U.S. We will continue to receive at least minimum royalty
payments in connection with sales in Canada through 2002.
N.V. ORGANON. In December 1998, we entered into a Development and License
Option Agreement with N.V. Organon, the pharmaceuticals business unit of Akzo
Nobel. In December 1999, Organon exercised its option and we signed an exclusive
license for an OraSolv formulation of an undisclosed prescription product. We
receive license and product development fees, and milestone payments upon
achieving specific
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milestones under the agreement, and will receive royalties on any sales of the
prescription product. Revenues from N.V. Organon represented 26% of total
revenues in 1999.
NOVARTIS. In November 1997, we entered into a Development and License
Option Agreement with Novartis that covers the use of OraSolv technology with
the Novartis Triaminic non-prescription product line. We received option and
product development fees in exchange for the license option and development
work. In July 1998, we signed an exclusive license and a supply agreement with
Novartis, which include an option to a second exclusive license covering
additional products. We received product development and milestone payments upon
achieving specific milestones under the agreement, and will receive royalties on
any sales of Triaminic. In July 1999, Novartis launched nationally three
Triaminic products using our OraSolv technology. Revenues from Novartis, which
were principally product sales, represented 42% of total revenues in 1999.
SCHERING-PLOUGH. In August 1997, we entered into a Development and Option
Agreement with Schering-Plough. In exchange for development work and a license
option, we received an option fee and product development fees. The agreement
calls for the development of an OraSolv SR version of an undisclosed, currently
marketed prescription product. Our development of this product currently is on
hold.
INTELLECTUAL PROPERTY
We actively seek, when appropriate, to protect our products and proprietary
information by means of U.S. and foreign patents, trademarks and contractual
arrangements. In addition, we rely upon maintaining trade secrets and further
contractual arrangements to protect certain of our proprietary information and
products.
We hold seven issued U.S. patents and five issued foreign patents covering
our technologies. The core U.S. and European patents relate to our fast-dissolve
and taste-masking technologies. We also have 28 U.S. and foreign patent
applications pending, including two European Patent Office filings.
A description of our issued U.S. patents and their dates of expiration are
set forth in the table below. The majority of these patents are
composition-of-matter patents. The actual scope of coverage for a patent is
governed by the specific claims applicable to the patent. The descriptions set
forth below are intended solely to identify patents relevant to various
technologies, and are not intended to represent the scope of these patents.
<TABLE>
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EXPIRATION
PATENTED TECHNOLOGIES DATE
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Core OraSolv fast-dissolve and taste-masking 2010
technology.
The production of compressed effervescent and 2010 and 2012
non-effervescent tablets using a tableting aid
developed by us.
Effervescent pediatric vitamin and mineral supplement. 2010
The formulation of a base coated, acid effervescent 2013
mixture manufactured by controlled acid base
reaction. The obtained mixture can be used in the
formulation of acid sensitive compounds with OraSolv
technology or other effervescent based products.
Taste-masking of micro-particles for oral dosage 2015
forms.
Core DuraSolv fast-dissolve and taste-masking 2018
technology.
</TABLE>
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Our success will depend in part on our ability to obtain and enforce
patents for our products, processes and technology, to preserve our trade
secrets and other proprietary information and to avoid infringing the patents or
proprietary rights of others. We cannot be sure that our patent applications
will be granted, that the coverage of any patents issued will provide adequate
protection or competitive advantages for our technology or that our competitors
will not challenge, infringe or circumvent our issued patents.
We rely on trade secrets and proprietary know-how to protect our products,
processes and technologies. To protect our rights to trade secrets and
proprietary know-how, we require all employees, consultants and advisors to sign
confidentiality agreements that prohibit the disclosure or use of confidential
information to or by any third party. These agreements also require disclosure
and assignment to us of discoveries and inventions made by these individuals
while devoted to our activities. These confidentiality agreements may not
prevent employees, consultants or advisors from disclosing our confidential
information, and may not adequately protect our confidential information if
unauthorized use or disclosure occurs, and we may not have adequate remedies for
a breach of these agreements. Furthermore, our trade secrets may otherwise
become known or be independently developed by competitors.
Our patents or proprietary information may become the subject of
litigation. We cannot be sure that any litigation concerning our patents or
proprietary information will be resolved in our favor. The costs of litigation,
and the diversion of our resources during litigation could have a material
adverse effect on our business and financial condition. See "Item 3. Legal
Proceedings."
We may desire, or be required to obtain, licenses from others with respect
to materials used in our products or manufacturing processes. We cannot be sure
that the required licenses will be available to us on commercially reasonable
terms, if at all, or that any licensed patents or proprietary rights will be
valid and enforceable.
RESEARCH AND PRODUCT DEVELOPMENT
Our research and product development efforts are focused on developing new
product applications for our drug delivery technologies and expanding our
technology platform to new areas of drug delivery. At December 31, 1999, we had
31 scientists and other technicians working on research and product development,
including 13 individuals with post-graduate degrees.
Our research and product development personnel, support systems and
facilities are organized to develop drug delivery formulations from bench-scale
through full-scale commercial production under current good manufacturing
practice conditions. The key goals for our research and product development
efforts are:
o develop innovative drug delivery products and systems that fulfill
pharmaceutical companies' needs and meet our strategic goals;
o develop, expand and support systems to fulfill good manufacturing
practice production at commercial levels required by pharmaceutical
company partners;
o recruit and train high-quality technical and scientific personnel; and
o support our intellectual property portfolio development.
For the years ended December 31, 1999, 1998 and 1997, we spent
approximately $4.4 million, $3.3 million and $3.4 million, respectively, on
research and product development. We estimate that most of these expenditures
were directly related to product development activities for which we received
fees and licensing revenues from our pharmaceutical company partners.
MANUFACTURING
Our manufacturing facility is located at our headquarters in Eden Prairie,
Minnesota. We completed our first production line in 1996, which has an
estimated production capacity of 200 to 220 million tablets a year. We
anticipate using substantially all of our existing capacity to satisfy our
anticipated production requirements in 2000. We are developing a second
production line using state-of-the-art material transfer and blending systems
and integrated high-speed tableting and packaging operations, which we expect
will at least
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double our existing capacity. We expect to begin construction of the second
production line in the first half of 2000, with operations to begin in the
second half of 2001. We currently anticipate spending approximately $10 to $12
million to construct the second production line.
In November 1999, we started construction of a coating unit to provide
taste-masked active ingredients for our pharmaceutical company partners. We
anticipate spending approximately $4.0 million for its construction, and expect
to begin operations in the first half of 2000. We expect to commercialize our
first coated active ingredient in 2000 for a prescription pharmaceutical company
partner. The coating unit will give us capacity to taste mask the active drug
ingredients we will use in the products to be manufactured on our two production
lines. We believe an in-house coating capability will be a key factor in signing
new agreements related to prescription pharmaceutical drugs.
We developed and implemented PakSolv, a proprietary packaging process that
allows high-speed packing of soft, brittle tablets without breakage, into
specially designed protective, child resistant packages and normal blister
packages. We believe that this technology, which is the subject of two patent
applications, gives us a competitive advantage.
We currently purchase taste-masked active ingredients for each of our
non-prescription products from a single source of supply. We expect to continue
to purchase taste-masked active ingredients for our non-prescription products.
We expect to be capable of manufacturing taste-masked active ingredients for new
prescription products in the first half of 2000. We believe that all other
ingredients used in the manufacture of our products are readily available from
multiple suppliers or from our pharmaceutical company partners.
We plan our manufacturing cycles in advance of actual production in order
to address lead times our suppliers may require to satisfy our requirements. We
generally do not stock significant quantities of raw materials for a product in
excess of a partner's orders nor do we manufacture finished product in excess of
a partner's orders. Although to date we have been able to satisfy our
pharmaceutical company partners' requirements for product, any extended
disruption in our supply of taste-masked active ingredients for non-prescription
products or in our supply of certain packaging material could have an adverse
effect on our business, and potentially damage relations with our pharmaceutical
company partners.
COMPETITION
Competition among pharmaceutical products and drug delivery systems is
intense. Our primary competitors for developing drug delivery systems, and
manufacturing the products we develop, include other drug delivery,
biotechnology and pharmaceutical companies. Many of these competitors have
substantially greater financial, technological, manufacturing, marketing,
managerial and research and development resources and experience than we do. Our
products compete not only with products employing advanced drug delivery
systems, but also with products employing conventional dosage forms. These
competing products may obtain governmental approval or gain market acceptance
more rapidly than our products. New drugs or future developments in alternative
drug delivery technologies also may provide therapeutic or cost advantages over
our current or future products.
Fast-dissolve tablet technologies that compete with our OraSolv and
DuraSolv technologies include the Zydis technology developed by R.P. Scherer
Corporation, the WOWTab technology developed by Yamanouchi Shaklee
Pharmaceuticals, and the Flashtab developed by Laboratories Prographarm. The
Zydis technology is a fast-dissolving oral drug delivery system based on a
freeze-dried gelatin tablet. The WOWTab and Flashtab technologies are
fast-dissolving technologies used in an oral fast-dissolving tablet, which are
similar to our DuraSolv tablet. Fuisz Technologies Ltd., a wholly-owned
subsidiary of Biovail Corporation, also has a fast-dissolving oral drug delivery
technology called FlashDose. All of these companies have licensed their
technologies to a number of pharmaceutical companies, but only R.P. Scherer has
successfully produced commercial prescription products using fast-dissolve
tablet technology. Only products using our fast-dissolve tablet technology and
the technology of Scherer have been commercialized in the U.S. Scherer has
commercialized its Zydis technology in a major prescription product in the U.S.,
Claritin Reditabs. We believe that certain pharmaceutical companies may be
developing other fast-dissolve tablet technologies, which may compete with our
technology in the future.
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The principal competitive factors in the market for fast-dissolving tablet
technologies are compatibility with taste-masking techniques, dosage capacity,
drug compatibility, cost, ease of manufacture, patient acceptance and required
capital investment for manufacturing. We believe that our fast-dissolving tablet
technologies compete favorably with respect to each of these factors. In a 1997
quantitative consumer study we conducted, significantly more consumers preferred
the OraSolv formulation to the Zydis formulation of the same drug. We believe we
also offer potential pharmaceutical company partners the largest selection of
oral fast-dissolve drug delivery technologies.
GOVERNMENT REGULATION
Numerous governmental authorities in the U.S. and other countries
extensively regulate the activities of pharmaceutical manufacturers. In the
U.S., pharmaceutical products are subject to rigorous regulation by the Food and
Drug Administration. The federal Food, Drug, and Cosmetic Act and other federal
and state statutes and regulations, govern, among other things, the research,
development, testing, manufacture, safety, storage, record keeping, labeling,
advertising, promotion, marketing and distribution of pharmaceutical products.
If we fail to comply with the applicable requirements, we may be subject to
administrative or judicially imposed sanctions such as warning letters, fines,
injunctions, product seizures or recalls, total or partial suspension of
production, or FDA refusal to approve pending premarket approval applications or
supplements to approved applications, as well as criminal prosecution.
FDA approval generally is required before a new drug product may be
marketed in the U.S. Many over-the-counter, or OTC, drug products are exempt,
however, from the FDA's premarketing approval requirements. Prescription drug
products with proven safety and efficacy profiles may be "switched" to OTC
status through the submission to and approval by the FDA of an addendum to an
existing new drug application. In addition, certain drug products may require
premarket approval, but may be approved through a shortened procedure under
Section 505(b)(2) of the Food, Drug, and Cosmetic Act, an approach generally
used when a new delivery system is added to an existing drug product.
Our initial product was an OTC drug product that did not require FDA
premarket approval. However, OTC drug products remain subject to various ongoing
FDA regulations, good manufacturing practice requirements, general and specific
OTC labeling requirements (including warning statements), advertising
restrictions related to product labeling, and OTC drug ingredient
specifications. OTC products and their manufacturing facilities are subject to
FDA inspection, and failure to comply with applicable regulatory requirements
may lead to administrative or judicially imposed penalties.
We expect that our pharmaceutical company partners will seek any required
FDA approvals in connection with the introduction of new products we develop for
them under a collaborative agreement. The FDA submission and approval process
may however, require significant commitments of our time and resources. The FDA
approval process may delay, or prevent, marketing of our products. We cannot be
sure that approvals will be obtained, or that any such approvals will be on the
terms or have the scope necessary for successful commercialization of these
products. Even after an application or a supplement or addendum is approved,
existing FDA procedures may delay initial product shipment and materially reduce
the period during which there is an exclusive right to exploit patented products
or technologies.
Prior to marketing a product internationally, we may need foreign
regulatory approval. Foreign approval procedures vary from country to country
and the time required for approval may result in delays in, or ultimately
prevent, marketing. We expect our pharmaceutical company partners to obtain any
necessary government approvals in foreign countries. However, we may have to
spend considerable amounts of company time and resources to support the
submission and approval of these foreign filings. In addition, our manufacturing
facility may be subject to inspections by foreign agencies, similar to the FDA,
to allow for the marketing of our products in a foreign country.
Our manufacturing facility is registered with the FDA. We must inform the
FDA of every drug product we have in commercial distribution and keep an updated
list of those drugs. Our manufacturing facility also is inspected by the FDA and
must comply with good manufacturing practices regulations at all
10
<PAGE> 11
times during the manufacture and processing of drug products. The FDA inspected
our Eden Prairie facility in November 1996, while the Brooklyn Park facility was
last inspected in January 1997. We were not cited during either inspection. We
cannot guarantee that FDA inspections will proceed without any compliance issues
requiring time and resources to resolve. Our facilities also must be inspected
by, and we have received a license from the Minnesota Board of Pharmacy for the
manufacture of drug products.
We are subject to regulation under various federal, state and local laws,
rules, regulations and policies regarding, among other things, occupational
safety, environmental protection, the use, generation, manufacture, storage, air
emission, effluent discharge, handling and disposal of certain regulated
materials and wastes, and product advertising and promotion. We believe that we
have complied with these laws and regulations in all material respects, and we
have not been required to take any action to correct any material noncompliance.
We do not currently anticipate that any material capital expenditures will be
required in order to comply with these laws or that compliance with these laws
will have a material effect on our business or financial condition. We are
unable to predict, however, the impact on our business of any changes that may
be made in these laws or of any new laws or regulations that may be imposed in
the future. We cannot be sure that we will not be required to incur significant
compliance costs or be held liable for damages resulting from any violation of
these laws and regulations.
EMPLOYEES
As of March 1, 2000, we had 99 full-time employees, with 68 employees in
Eden Prairie and 31 in Brooklyn Park. Of these employees, 55 are engaged in
manufacturing, 32 in research and development and 12 in executive management and
office support. None of our employees are subject to a collective bargaining
agreement nor have we ever experienced a work stoppage. We believe our employee
relations are good.
We believe our success depends in part on attracting additional senior
management personnel, as well as attracting and retaining highly skilled
scientific, business development and manufacturing employees. We face much
competition for these individuals from other companies and from research and
academic institutions. We cannot be sure that we will be able to attract and
retain high-quality employees.
LIABILITY INSURANCE
Providing health care products is inherently risky. We may from time to
time get sued as a result of our business. We carry product liability insurance
coverage, subject to annual renewal, determined on a "claims made" basis in
amounts we deem adequate, including coverage through a general liability
umbrella policy. We also carry a general business insurance policy in amounts we
deem adequate, in addition to the coverage of our general liability umbrella
policy. We do not carry any insurance to cover the financial risks associated
with a potential FDA mandated recall of a product. Although we have not been
subject to any product liability claims to date, any such claim could have a
material adverse impact on us.
ITEM 2. PROPERTIES
We lease a 75,000 square foot facility in Eden Prairie, Minnesota, a suburb
of Minneapolis, which houses our corporate headquarters, manufacturing facility
with adequate space for two production lines and the coating unit now under
construction, and warehouse space. The lease has an initial term expiring on
June 1, 2009. We have the option to extend the lease term for one period of ten
years with a minimum annual base rent (exclusive of real estate taxes and
maintenance fees) of $500,000 for the first five years, and $550,000 for the
second five years of the ten-year option term.
We also lease 32,000 square feet of office, research and development,
manufacturing space and warehouse space in Brooklyn Park, Minnesota. The lease
expires in September 2001 and is renewable at our option for two additional
five-year periods.
We believe our existing facilities are adequate to meet our anticipated
needs.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
On October 29, 1997, we instituted an opposition proceeding in the European
Patent Office seeking cancellation of a patent owned by Laboratories Prographarm
of Chateauneuf, France. We alleged that publications exist which are prior art
against the European patent, including an international patent application owned
by us, which was published prior to the priority date of the European patent.
Subsequently, Prographarm changed the claims in its patent and refiled, but the
European Patent Office has not yet responded.
On February 27, 1997, the U.S. Patent and Trademark Office suspended
prosecution of a U.S. patent application owned by us to consider our request
that an interference proceeding be declared between a pending U.S. patent
application owned by us and a U.S. patent owned by Prographarm. We are seeking a
determination by the U.S. Patent Office that either (i) our personnel are the
prior inventors of the invention encompassed by the Prographarm U.S. patent and
accordingly that we are entitled to claims directed to the same invention in a
new patent to be owned by us, or (ii) a determination that the claims are
unpatentable to us or Prographarm. Either ruling would result in the
cancellation of the Prographarm U.S. patent. We are making the same factual
allegations in the European opposition with the addition of, our pending U.S.
patent application and the priority date of such pending application.
Subsequently, Prographarm changed the claims in its patent, refiled and
submitted to re-examination in the U.S. Patent Office, and has offered to amend
its claims. The U.S. Patent Office granted a re-examination, but to our
knowledge, a final decision has not been reached.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and their ages as of March 1, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
John M. Siebert, Ph.D. 60 Chief Executive Officer and President
John H. Hontz, Ph.D. 43 Chief Operating Officer
David A. Feste 48 Vice President, Chief Financial Officer and Secretary
</TABLE>
Our executive officers serve at the discretion of the board of directors
with no fixed term. There are no family relationships between or among any of
our executive officers or directors.
Dr. Siebert has been our President since July 1995, Chief Executive Officer
and President since September 1995, and a director since May 1992. From 1992 to
1995, Dr. Siebert was Vice President, Technical Affairs, at Dey Laboratories,
Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert was with Miles,
Inc. Prior to 1988, Dr. Siebert held a variety of management positions with E.R.
Squibb & Sons, Inc., G.D. Searle & Co. and The Proctor & Gamble Company. He
received a B.S. in Chemistry from Illinois Benedictine College, an M.S. in
Chemistry from Wichita State University and a Ph.D. in Organic Chemistry from
the University of Missouri - Columbia.
Dr. Hontz has been our Chief Operating Officer since January 2000. From
1997 to January 2000, Dr. Hontz was our Vice President of Research and
Development. From 1995 to 1997, Dr. Hontz was senior Group Leader of Product
Development at Glaxo-Wellcome, a research-based pharmaceutical company. From
1987 to 1995, Dr. Hontz was Section Head of Product Development for
Burroughs-Wellcome, which was acquired by Glaxo in 1995. Dr. Hontz received his
B.Sc. in Pharmacy from the
12
<PAGE> 13
Philadelphia College of Pharmacy & Science, his M.S. and Ph.D. in Pharmaceutics
from the University of Maryland and his M.B.A. from Duke University.
Mr. Feste has been our Vice President, Chief Financial Officer and
Secretary since March 2000. From 1995 to 1999, Mr. Feste was Vice President and
Chief Financial Officer for Orphan Medical, Inc., a pharmaceutical company. From
1992 to 1995, Mr. Feste was self-employed as a financial consultant. From 1985
to 1991, Mr. Feste worked for Tonka Corporation, most recently as its Corporate
Vice President of Financial Services and Audit. Mr. Feste received his B.S. in
Accounting from the University of Minnesota and is a Certified Public
Accountant.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Common Stock trades on The Nasdaq Stock Market under the symbol "CIMA."
The following table presents for the periods indicated, the range of high and
low closing sales prices for our Common Stock for the years ended December 31,
1998 and December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter ......................................................... $ 4.97 $ 2.59
Second Quarter ........................................................ 4.88 3.25
Third Quarter ......................................................... 3.91 2.75
Fourth Quarter ........................................................ 3.53 2.09
1999
First Quarter ......................................................... $ 3.44 $ 2.53
Second Quarter ........................................................ 4.63 2.63
Third Quarter ......................................................... 8.38 4.63
Fourth Quarter ........................................................ 13.50 6.00
</TABLE>
HOLDERS
As of March 24, 2000, our Common Stock was held by 75 stockholders of
record and we estimate that there were approximately 1,700 beneficial owners of
its Common Stock on that date.
DIVIDENDS
We have never declared or paid any dividends and do not anticipate paying
dividends on our Common Stock in the foreseeable future. We currently intend to
retain future earnings, if any, for use in our business. The board of directors
determines whether or not to make any dividends on our Common Stock and bases it
decision on the conditions then existing, including our earnings, financial
condition and requirements, restrictions in financing agreements, business
conditions and other factors.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net sales .......................................... $ 4,839 $ 1,097 $ 2,628 $ -- $ 151
Product development fees and licensing revenues .... 7,818 6,141 2,282 1,472 684
Royalties .......................................... 735 374 -- -- --
-------- -------- -------- -------- --------
Total revenues ........................................ 13,392 7,612 4,910 1,472 835
Operating expenses:
Costs of sales ..................................... 7,546 4,476 4,376 -- 240
Research and product development ................... 4,388 3,307 3,364 5,403 6,505
Selling, general and administrative ................ 2,836 3,138 3,487 2,909 3,658
-------- -------- -------- -------- --------
Total operating expenses .............................. 14,770 10,921 11,227 8,312 10,403
Other income (expense):
Interest income, net ............................... 10 152 337 498
448
Other income (expense), net ........................ 106 (30) 142 (4) 13
-------- -------- -------- -------- --------
Total other income .................................... 116 122 479 494 461
-------- -------- -------- -------- --------
Net loss: ............................................. $ (1,262) $ (3,187) $ (5,838) $ (6,346) $ (9,107)
======== ======== ======== ======== ========
Net loss per share:
Basic and diluted loss per common share ............ $ (.13) $ (.33) $ (.61) $ (.72) $ (1.16)
======== ======== ======== ======== ========
Weighted average number of shares outstanding:
Basic and diluted .................................. 9,615 9,610 9,519 8,827 7,822
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments .... $ 2,481 $ 2,723 $ 4,423 $ 10,263 $ 3,559
Total assets ......................................... 19,270 14,916 17,328 22,065 15,519
Long-term liabilities ................................ 3,510 231 -- -- --
Accumulated deficit .................................. (45,977) (44,715) (41,527) (35,660) (29,259)
Total stockholders' equity ........................... 11,574 12,656 15,837 21,021 14,282
</TABLE>
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We develop and manufacture pharmaceutical products based on our proprietary
OraSolv and DuraSolv technologies. We have agreements with several
pharmaceutical companies regarding a variety of potential products, with an
emphasis on prescription products. We currently manufacture five commercial
products using our fast-dissolve technologies. These products include Triaminic
for Novartis, Tempra for Bristol- Meyers Squibb and Zomig for AstraZeneca. We
operate within a single segment: pharmaceutical product development. Our
revenues are comprised of three components: net sales of products utilizing our
proprietary fast-dissolve technologies; product development fees and licensing
revenues for development activities we conduct through collaborative agreements
with pharmaceutical companies; and royalties on the sales of products we
manufacture, which are sold by pharmaceutical companies under licenses from us.
In addition, we are currently developing other drug delivery technologies.
Revenues from product sales and from royalties will fluctuate from quarter
to quarter and from year to year depending on, among other factors, demand for
our products by patients, new product introductions, the seasonal nature of
some of our products and pharmaceutical company ordering patterns. Our ability
to generate product sales and royalty revenues in excess of our current forecast
for 2000 and 2001 may be constrained by our manufacturing capacity. We expect
our second production line, now being developed, to be operational in the second
half of 2001. Revenues from product development fees and licensing revenue will
fluctuate from quarter to quarter and from year to year depending on, among
other factors, the number of new collaborative agreements that we enter into;
the number of product development milestones we achieve under collaborative
agreements, including making submissions to, and obtaining approvals from, the
FDA for products in development; and the level of our development activity
conducted for pharmaceutical companies under collaborative agreements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES. Our total revenues were $13.4 million in 1999, as compared to
$7.6 million in 1998 and $4.9 million in 1997. The increases in revenues in each
year are due principally to increased development activity for new products that
resulted in significantly higher product development fees and licensing revenue.
In 1999, total revenues also increased due to higher sales volume of commercial
products.
Revenues from net sales of products using our drug delivery technologies
totaled $4.8 million in 1999, as compared to $1.1 million in 1998 and $2.6
million in 1997. The increase from 1998 to 1999 was due to increased shipments
to Novartis that began in the second quarter of 1999. The decrease from 1997 to
1998 was due to the decision by a pharmaceutical company to discontinue U.S.
distribution of a product line. We expect revenues from net sales of products
using our drug delivery technologies to increase in 2000 due to anticipated
shipments and pricing increases.
Product development fees and licensing revenues totaled $7.8 million in
1999, as compared to $6.1 million in 1998 and $2.3 million in 1997. The increase
from 1998 to 1999 was due to our increased development activity for proposed new
products and the achievement of development milestones for N.V. Organon and
AstraZeneca. The increase from 1997 to 1998 was due to our increased development
activity for proposed new products and the achievement of development milestones
for Novartis, AstraZeneca and Schering-Plough.
Royalties totaled $0.7 million in 1999, as compared to $0.4 million in
1998, and we received no royalty revenue in 1997. The increase from 1998 to 1999
was due to increased sales by Novartis of Triaminic. Royalties paid by
Bristol-Myers Squibb in 1998 and 1999 on sales of Tempra were based on annual
minimum contractual payments, which will expire in 2002. We expect royalties to
increase in 2000.
15
<PAGE> 16
OPERATING EXPENSES AND GROSS MARGIN. Cost of sales totaled $7.5 million in
1999, as compared to $4.5 million in 1998 and $4.4 million in 1997. The increase
from 1998 to 1999 was principally due to an increase in sales of Triaminic
products to Novartis. Cost of sales from 1997 to 1998 were approximately the
same even though production unit volumes decreased, principally due to an
increase in manufacturing overhead in 1998.
Gross margins on product sales from 1997 through 1999 were negative because
we had significant excess production capacity and product sales for each of
these years did not cover fixed manufacturing overhead costs. We expect to be
operating at or near full production capacity until our second production line
is operational, which is expected in the second half of 2001. We expect our
gross margins to improve in 2000 due to anticipated price increases on an
existing product line and expected unit volume increases. Future gross margins
will depend principally on the pricing of our products, our ability to
effectively use our manufacturing and plant capacity, and changes in our product
lines and mix of products.
Research and product development expenses were $4.4 million in 1999, as
compared to $3.3 million in 1998 and $3.4 million in 1997. The increase from
1998 to 1999 was principally a result of our increased development activity on
fast-dissolve prescription products for N.V. Organon and American Home Products.
From 1997 to 1998, these expenses were consistent, as the level of product
development activities between years was comparable. We expect these expenses to
increase in 2000.
Selling, general and administrative expenses were $2.8 million in 1999, as
compared to $3.1 million in 1998 and $3.5 million in 1997. The decline in these
expenses year over year was due primarily to a restructuring of management
responsibilities, which began in 1996 and ended in 1999, resulting in a general
reduction in management headcount and related expenses. We expect these expenses
to increase in 2000.
OTHER INCOME. Other income was $0.1 million in 1999 and 1998, and $0.5
million in 1997. Other income consists primarily of interest income on invested
funds, net of interest expense on bank lines, loan agreements and capitalized
leases. Other income has declined since 1997 as we used cash to fund business
operations and our level of invested funds decreased. We expect other income to
increase beginning in the second quarter of 2000, as a result of our sale in
March 2000 of common stock in a private placement, described below.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through private and
public sales of equity securities and revenues from product sales, product
development fees and licensing revenue and royalties.
Net working capital increased from $2.9 million at December 31, 1998 to
$4.2 million at December 31, 1999. The increase from 1998 to 1999 was
principally due to the positive effect of a $3.5 million loan we received from a
pharmaceutical company partner, which was partially offset by approximately $2.8
million in expenditures for capital improvements to our manufacturing facility.
We invest excess cash in interest-bearing money market accounts.
We signed a one-year secured revolving line of credit agreement with Wells
Fargo Business Credit, Inc. in July 1999. The agreement provided a credit
facility of $2.0 million, primarily for working capital purposes, secured
principally by inventories and accounts receivable. At the end of 1999, we owed
the lender approximately $0.2 million. We repaid the lender all amounts borrowed
in January 2000 and notified the lender in March 2000 that we would not renew
the agreement in July 2000, thus terminating the facility's availability.
In December 1999, we received a $3.5 million unsecured loan from one of our
pharmaceutical company partners. We may repay this loan at any time, but if the
loan is not repaid by the time we are due royalties under a license agreement
with an affiliate of the lender, the affiliate may offset up to half of the
royalties otherwise due to us and the lender will treat the amount offset by its
affiliate as a payment by us
16
<PAGE> 17
on this loan. Interest is payable on the outstanding balance of the loan at
LIBOR plus one half of one percent. Interest accrues quarterly and is added to
the then outstanding principal balance of the loan.
In March 2000, we issued 1.1 million shares of common stock through a
private placement. We received approximately $19.4 million in net cash proceeds
and expect to use the funds for capital additions to our manufacturing facility
and for working capital. We have invested the net proceeds in interest-bearing
money market accounts, pending such uses.
We currently expect to spend approximately $10.0 to $12.0 million during
2000 and 2001 to complete various manufacturing facility improvements, including
construction of a coating unit and a second production line. We expect to
finance the costs of construction with the proceeds of the private placement of
common stock described above. We believe our cash and cash equivalents, together
with the net proceeds from the private placement of common stock and expected
revenues from operations, will be sufficient to meet our anticipated capital
requirements for the foreseeable future. However, we may elect to pursue
additional financing at any time to more aggressively pursue development of new
drug delivery technologies and expand manufacturing capacity beyond that
currently planned. In addition, other factors that will affect future capital
requirements and may require us to seek additional financing, include the level
of expenditures necessary to develop new products or technologies, the progress
of our research and product development programs, the need to construct a larger
than currently anticipated manufacturing facility to meet demand for our
products, results of our collaborative efforts with current and potential
pharmaceutical company partners, and the timing of and amounts received from
future product sales, product development fees and licensing revenue and
royalties. We cannot be sure that additional financing will be available to us
or, if available, on acceptable terms.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 will be effective for fiscal years beginning in 2000. We do not currently
hold derivative instruments or engage in hedging activities.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in
Financial Statements." SAB 101 requires that license and other up-front fees
received from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. We have
not completed our analysis of the impact of implementing SAB 101 on the
reporting of our product development fees and licensing revenue, but expect to
complete this analysis by the end of the first quarter of 2000. We currently
expect to implement SAB 101 in the first quarter of 2000, if applicable, and
estimate that the cumulative effect of any resulting accounting change will be
in the range of $1 to $2 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investments consist of debt securities with contractual maturities of
less than one year. Therefore, we do not believe our operations are exposed to
significant market risk relating to interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Our financial statements as of December 31, 1999 and 1998 and for each of
the years ended December 31, 1999, 1998 and 1997 begin on page F-1 of this Form
10-K.
17
<PAGE> 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant.
The information required by this item is incorporated by
reference herein from the information under the caption "Election of
Directors" contained in our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation
of proxies for our Annual Meeting of Stockholders to be held on June
2, 2000 (the "Proxy Statement").
(b) Executive Officers of the Registrant.
Information concerning our Executive Officers is included in this
Form 10-K at Part I, Item 4A, under the caption "Executive Officers of
the Registrant."
(c) Compliance with 16(a) of the Securities Exchange Act of 1934.
The information required by this item is incorporated by
reference herein from the information under the caption "Section 16(a)
Reporting" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference herein from the information under the caption "Executive
Compensation" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by
reference herein from the information under the caption "Stock
Ownership" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by
reference herein from the information contained under the caption
"Certain Transactions" contained in the Proxy Statement.
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<PAGE> 19
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). Financial Statements
<TABLE>
<CAPTION>
PAGE NUMBER
IN THIS
DESCRIPTION ANNUAL REPORT
----------- -------------
<S> <C>
Audited Financial Statements:
Report of Independent Auditors F-1
Balance Sheets F-2 and F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Statement of Changes in Stockholders' Equity F-6
Notes to Financial Statements F-7 to F-13
</TABLE>
(a)(2). Financial Statement Schedules
The following financial statement schedule should be read in conjunction
with the Audited Financial Statements referred to under Item 14 (a)(1) above.
Financial statement schedules not included in this Form 10-K have been omitted
because they are not applicable or the required information is shown in the
Audited Financial Statement or Notes thereto.
<TABLE>
<CAPTION>
PAGE NUMBER
IN THIS
DESCRIPTION ANNUAL REPORT
----------- -------------
<S> <C>
Schedule II - Valuation and Qualifying Accounts: Years Ended December 31, 1999, 1998 and 1997 F-14
</TABLE>
(a)(3). Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
------ ----------- ------
<S> <C> <C>
3.1 Fifth Restated Certificate of Incorporation of CIMA. (1)
3.2 Third Restated Bylaws of CIMA. (12)
4.1 Form of Certificate for Common Stock. (2)
4.2 Rights Agreement, dated March 14, 1997, between CIMA and Norwest Bank Minnesota, N.A. (3) (3)
4.3 Form of Stock Purchase Agreement dated March 13, 2000 between CIMA and certain Filed
institutional investors. herewith
10.1 Letter Agreement, dated January 28, 1998, between CIMA and Joseph R. Robinson, Ph.D. *# (4)
10.2 Development and License Option Agreement, dated November 18, 1997, between Novartis (4)
Consumer Health, Inc. and CIMA. *
10.3 Employment Agreement, dated October 29, 1997, between CIMA and John M. Siebert, Ph.D.# (5)
10.4 Development and License Option Agreement, dated December 2, 1998, between N.V. Organon (10)
and CIMA. *
10.5 Real Property Lease, dated March 6, 1998, between Braun-Kaiser & Company and CIMA. (4)
10.6 Equity Incentive Plan, as amended and restated. # (12)
10.7 1994 Directors' Stock Option Plan, as amended. # (7)
10.8 Form of Director and Officer Indemnification Agreement. (2)
10.9 License Agreement, dated July 1, 1998, between Novartis Consumer Health Inc. and CIMA.* (8)
10.10 Supply Agreement, dated July 1, 1998, between Novartis Consumer Health Inc. and CIMA. * (8)
10.11 License Agreement, dated January 28, 1994, between SRI International and CIMA. * (2)
10.12 Non-Employee Directors' Fee Option Grant Program. # (9)
10.13 License Agreement, dated June 26, 1997, between Bristol-Myers Squibb Company and CIMA. * (9)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
------ ----------- ------
<S> <C> <C>
10.14 Development and Option Agreement, dated August 11, 1997, between Schering Corporation and (5)
CIMA. *
10.15 Development and License Option Agreement, September 10, 1997, between IPR (5)
Pharmaceuticals, Inc. and CIMA. *
10.16 Real Property Lease, Amendment No. 8, dated September 23, 1998, between Principal Life (11)
Insurance Company and CIMA.
10.17 License Agreement dated May 28, 1999, between IPR Pharmaceuticals, Inc. and CIMA. * (12)
10.18 Credit and Security Agreement dated July 14, 1999, between Wells Fargo Business Credit, (13)
Inc. and CIMA.
10.19 Loan Agreement dated December 15, 1999 between Astra AB and CIMA. * Filed
herewith
10.20 License Agreement dated December 29, 1999 between Organon International AG and N.V. Filed
Organon, and CIMA. * herewith
10.21 Development and License Agreement dated January 14, 2000 between CIMA and American Home Filed
Products Corporation. * herewith
10.22 Supply Agreement dated January 14, 2000 between CIMA and American Home Products Filed
Corporation. * herewith
23.1 Consent of Ernst & Young LLP. Filed
herewith
24.1 Power of Attorney. Filed
herewith
27.1 Financial Data Schedule. Filed
herewith
99.1 Risk Factors. Filed
herewith
</TABLE>
* Denotes confidential information that has been omitted from the
exhibit and filed separately, accompanied by a confidential treatment
request, with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934.
# Management contract, compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K.
.
(1) Incorporated herein by reference to the correspondingly numbered
exhibit to CIMA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(2) Filed as an exhibit to CIMA's Registration Statement on Form S-1,
File No. 33-80194, and incorporated herein by reference.
(3) Incorporated by reference herein to Exhibit 2 to CIMA's Current
Report on Form 8-K, filed March 25, 1997.
(4) Incorporated by reference to the correspondingly numbered exhibit
to CIMA's Annual Report on Form 10-K for the year ended December 31,
1997, File No. 0-24424.
(5) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, File No. 0-24424, and
incorporated herein by reference.
20
<PAGE> 21
(6) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, File No. 0-24424, and incorporated
herein by reference.
(7) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, File No. 0-24424, and
incorporated herein by reference.
(8) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, File No. 0-24424, and
incorporated herein by reference.
(9) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, File No. 0-24424, and incorporated
herein by reference.
(10) Incorporated herein by reference to the correspondingly numbered
exhibit to CIMA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 0-24424.
(11) Incorporated herein by reference to the correspondingly numbered
exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
(12) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, File No. 0-24424, and incorporated
herein by reference.
(13) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 0-24424, and
incorporated herein by reference.
(b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1999.
(c). Exhibits
See Item 14(a)(3) above.
(d). Financial Statement Schedules
See Item 14(a)(2) above.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Eden
Prairie, Minnesota, on the 29th day of March, 2000.
CIMA LABS INC.
By: /s/ John M. Siebert
--------------------------------------
John M. Siebert
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934 this report has been
signed by the following persons on behalf of the Registrant and in the
capacities indicated as of March 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John M. Siebert Chief Executive Officer (Principal Executive Officer) and Director
- --------------------------------------------------
John M. Siebert
/s/ David A. Feste Vice President and Chief Financial Officer (Principal Financial
- -------------------------------------------------- and Accounting Officer)
David A. Feste
* Director
- --------------------------------------------------
Terrence W. Glarner
* Director
- --------------------------------------------------
Steven B. Ratoff
* Director
- --------------------------------------------------
Joseph R. Robinson, Ph.D.
By: /s/ John M. Siebert
----------------------------------------------
John M. Siebert, Attorney-In-Fact
</TABLE>
* John M. Siebert, pursuant to the Powers of Attorney executed by each of the
officers and directors above whose name is marked by a "*", by signing his name
hereto, does hereby sign and execute this Annual Report on Form 10-K on behalf
of each of the officers and directors in the capacities in which the name of
each appears above.
22
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CIMA LABS INC.
We have audited the accompanying balance sheets of CIMA LABS INC. as of December
31, 1999 and 1998, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CIMA LABS INC. at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/Ernst & Young LLP
Minneapolis, Minnesota
February 11, 2000, except for Note 9
as to which the date is March 17, 2000
F-1
<PAGE> 24
CIMA LABS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,480,698 $ 2,722,590
Accounts receivable:
Net of allowance for doubtful accounts
$36,000-1999; $0-1998 3,058,258 1,654,796
Inventories, net 2,772,429 479,045
Prepaid expenses 73,042 79,866
------------ ------------
Total current assets 8,384,427 4,936,297
Other assets:
Lease deposits 318,699 345,146
Patents and trademarks, net 207,243 204,648
------------ ------------
Total other assets 525,942 549,794
Property, plant and equipment:
Construction in progress 2,150,508 72,204
Equipment 8,817,331 9,314,867
Leasehold improvements 4,783,420 4,757,169
Furniture and fixtures 604,204 604,204
------------ ------------
16,355,463 14,748,444
Less accumulated depreciation (5,996,024) (5,318,107)
------------ ------------
10,359,439 9,430,337
------------ ------------
Total assets $ 19,269,808 $ 14,916,428
============ ============
</TABLE>
F-2
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,402,726 $ 670,597
Accrued expenses 1,229,179 835,043
Notes payable 195,748 --
Advance royalties 137,084 459,105
Current portion of long term debt 150,000 --
Current portion of lease obligations 71,485 64,998
------------ ------------
Total current liabilities 4,186,222 2,029,743
Long term debt 3,350,000 --
Lease obligations 159,660 231,145
------------ ------------
Total liabilities 7,695,882 2,260,888
Stockholders' equity:
Convertible preferred stock, $0.01 par value
Authorized shares -- 5,000,000
Issued and outstanding shares -- -0-
Common stock, $0.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares --
9,646,241--1999
9,610,394--1998 96,462 96,104
Additional paid-in capital 57,454,661 57,274,274
Retained earnings (deficit) (45,977,197) (44,714,838)
------------ ------------
Total stockholders' equity 11,573,926 12,655,540
------------ ------------
Total liabilities and stockholders' equity $ 19,269,808 $ 14,916,428
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 26
CIMA LABS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 4,839,511 $ 1,097,465 $ 2,628,069
Product development fees and licensing 7,817,846 6,140,894 2,282,166
Royalties 735,107 373,764 --
------------ ------------ ------------
13,392,464 7,612,123 4,910,235
OPERATING EXPENSES:
Cost of sales 7,545,341 4,475,867 4,376,412
Research and product development 4,388,902 3,307,582 3,363,544
Selling, general and administrative 2,836,573 3,137,952 3,487,239
------------ ------------ ------------
14,770,816 10,921,401 11,227,195
OTHER INCOME (EXPENSE)
Interest income, net 10,327 152,366 336,310
Other income (expense) 105,666 (30,567) 142,255
------------ ------------ ------------
115,993 121,799 478,565
------------ ------------ ------------
NET INCOME (LOSS): $ (1,262,359) $ (3,187,479) $ (5,838,395)
============ ============ ============
Net income (loss) per share:
Basic and diluted $ (.13) $ (.33) $ (.61)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,615,280 9,610,104 9,518,679
</TABLE>
See accompanying notes
F-4
<PAGE> 27
CIMA LABS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,262,359) $ (3,187,479) $ (5,838,395)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,635,017 1,653,319 1,051,679
Loss on impairment of assets 358,291 -- --
Gain on sale of property, plant and equipment -- 4,734 --
Changes in operating assets and liabilities:
Accounts receivable (1,403,462) (56,982) (1,350,236)
Inventories (2,293,384) 151,574 (96,032)
Prepaid expenses 6,824 66,939 (74,925)
Accounts payable 1,732,129 541,885 (135,658)
Accrued expenses 394,136 214,462 (91,178)
Advance royalties (322,021) (282,300) 491,405
------------ ------------ ------------
Net cash used in operating activities (1,154,829) (893,848) (5,860,984)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,819,700) (406,686) (772,262)
Purchases of short-term investments -- -- (29,469,496)
Proceeds from maturities of short-term investments -- 3,277,300 33,789,358
Proceeds from sale of property, plant and equipment -- 33,000 --
Patents and trademarks (105,305) (88,841) (111,470)
------------ ------------ ------------
Net cash (used in) provided by investing activities (2,925,005) 2,814,773 3,436,130
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 180,745 5,700 654,582
Proceeds from long term debt 3,500,000 -- --
Proceeds from notes payable 195,748 -- --
Security deposits on leases 26,447 (304,495) 250,000
Payments on capital lease obligations (64,998) (45,300) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 3,837,942 (344,095) 904,582
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (241,892) 1,576,830 (1,520,272)
Cash and cash equivalents at beginning of period 2,722,590 1,145,760 2,666,032
------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,480,698 $ 2,722,590 $ 1,145,760
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of equipment pursuant to capital lease -- $ 341,443 --
</TABLE>
See accompanying notes.
F-5
<PAGE> 28
CIMA LABS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------- ADDITIONAL PAID- EARNINGS
SHARES AMOUNT IN CAPITAL (DEFICIT) TOTAL
------------ ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1996 9,411,589 $ 94,116 $ 56,586,958 $(35,659,942) $ 21,021,132
Stock options exercised 191,968 1,920 652,662 -- 654,582
Exercise of stock warrants 4,837 48 28,974 (29,022) --
Net loss -- -- -- (5,838,395) (5,838,395)
------------ ------------ ------------ ------------ ------------
Balance at Dec. 31, 1997 9,608,394 96,084 57,268,594 (41,527,359) 15,837,319
Stock options exercised 2,000 20 5,680 -- 5,700
Net loss -- -- -- (3,187,479) (3,187,479)
------------ ------------ ------------ ------------ ------------
Balance at Dec. 31, 1998 9,610,394 96,104 57,274,274 (44,714,838) 12,655,540
Stock options exercised 35,847 358 180,387 -- 180,745
Net loss -- -- -- (1,262,359) (1,262,359)
------------ ------------ ------------ ------------ ------------
Balance at Dec 31, 1999 9,646,241 $ 96,462 $ 57,454,661 $(45,977,197) $ 11,573,926
============ ============ ============ ============ ============
</TABLE>
F-6
<PAGE> 29
CIMA LABS INC
Notes to Financial Statements
December 31, 1999
1. BUSINESS ACTIVITY
CIMA LABS INC., a Delaware corporation, develops and manufactures
fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and
DuraSolv, CIMA's leading proprietary fast-dissolve technologies, are oral dosage
forms incorporating taste-masked active drug ingredients into tablets which
dissolve quickly in the mouth without chewing or water. CIMA develops
applications for technologies that are licensed to pharmaceutical company
partners. The Company currently manufactures and packages five commercial
products incorporating its proprietary fast-dissolve technologies. Revenues are
generated from license agreements, product development fees, products
manufactured using fast-dissolve technologies and royalties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers highly liquid investments with maturities of ninety days
or less when purchased to be cash equivalents. Cash equivalents are carried at
cost which approximates fair market value.
PATENTS AND TRADEMARKS
Costs incurred in obtaining patents and trademarks are amortized on a
straight-line basis over sixty months. Accumulated amortization was
approximately $ 728,000 at December 31,1999 and $625,000 at December 31, 1998.
The Company periodically reviews its patents and trademarks for impairment in
value. Any adjustment from the analysis is charged to operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives ranging from three to
twelve years. Depreciation expense was approximately $1,533,000 in 1999;
$1,538,000 in 1998; and $919,000 in 1997.
INVENTORIES
Inventories, consisting of materials and packaging, are valued at a standard
cost method using the first-in first-out (FIFO) for inventory turn over and
control. Inventories are shown net of reserves for obsolescence of approximately
$537,000 at December 31, 1999 and $157,000 at December 31, 1998.
IMPAIRMENT OF LONG - LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flow
estimated to be generated by those assets are less than the assets' carrying
amount. During the year ended December 31, 1999, the Company recognized
approximately $358,000 of impairment losses on equipment no longer used in
operations with an original cost of $1,200,000. The cost and associated
accumulated depreciation have been removed from the equipment balances on the
accompanying December 31, 1999 balance sheet.
F-7
<PAGE> 30
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock issued to Employees ("APB25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income taxes
are provided for temporary differences between financial reporting and tax bases
of assets and liabilities.
REVENUE RECOGNITION
Sales of product are recorded upon shipment or per contract requirements and
agreements. Product and development fees are recognized as the services are
provided and milestones are completed. Revenues from license agreements are
recorded when obligations under the agreement have been substantially completed.
Royalties are recorded when earned.
RESEARCH AND DEVELOPMENT COSTS
For financial reporting purposes, all costs of research and development
activities are expensed as incurred.
EARNINGS (LOSS) PER SHARE
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the period. Fully diluted and basic net loss per share
are the same because the effects of common equivalent shares from stock options
are excluded from the computation as their effect is antidilutive.
RECLASSIFICATIONS
Certain amounts presented in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation.
ADOPTION OF RECENT STAFF ACCOUNTING BULLETIN
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 requires that license and other up-front fees received from
research collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earnings process. The Company expects to implement
SAB 101 in the first quarter of 2000 and estimates that the cumulative effect of
the resulting accounting change will range from $1 to 2 million.
F-8
<PAGE> 31
3. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
The Company has a $2,000,000 bank line of credit payable on demand expiring July
14, 2000. Interest is paid at prime plus 2% (10.5% at December 31, 1999). The
line is secured by accounts receivable and inventory. At December 31, 1999,
$195,748 was outstanding on the line. The Company paid $60,000 in interest for
the year ended December 31, 1999 and $24,000 for the year ended December 31,
1998.
LONG-TERM DEBT
In December 1999, the Company entered into an agreement with one of its
pharmaceutical partners whereby the Company received a loan of $3,500,000.
Timing of the loan repayments is based upon royalties due to the Company from an
affiliate of the lender that signed a license agreement with the Company in May
1999. The Company shall pay the lender 50% of any royalty amount due per the
license agreement with the affiliate. The term of the loan is three years,
unless the loan repayments based on the royalty amounts due to the Company have
not yet covered the loan principal plus any unpaid interest. In such a case, the
loan will be extended in annual increments. Interest is payable on the
outstanding amount at LIBOR plus one half of one percent, accrues quarterly and
is added to the then outstanding balance. The loan becomes payable in full upon
the sale of the Company or a change in control, as defined in the agreement. If
the loan becomes payable in full, the affiliate shall withhold 100% of the
royalties due until the outstanding balance and any accrued interest are paid in
full. The Company does not expect to have any repayment obligations to the
lender before the second half of 2000.
4. INCOME TAXES
The Company's deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Significant components of deferred income taxes as of December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Deferred assets:
Net operating loss $ 18,716 $ 18,475
Accrued vacation 86 75
Inventory reserve 217 63
-------- --------
19,034 18,613
Deferred liability:
524 625
Depreciation and amortization
-------- --------
Net deferred income tax asset 18,510 17,988
Valuation allowance (18,510) (17,988)
-------- --------
Net deferred income taxes $ -- $ --
-------- --------
</TABLE>
The Company may be subject to federal income taxes when operations become
profitable. The Company's tax operating loss carryforwards of approximately $46
million may be carried forward to offset future taxable income, limited due to
changes in ownership under the net operating loss limitation rules, and expire
in the years 2001 to 2019.
F-9
<PAGE> 32
5. LEASES
OPERATING LEASES
The Company leases office, research and development and manufacturing facilities
in Brooklyn Park and Eden Prairie, Minnesota. The 75,000 square foot Eden
Prairie facility houses the general and administrative offices and the
manufacturing operation. The lease has an initial term expiring on June 1, 2009.
The rent payments will be recalculated on June 1, 2001 and 2006, based on a
market index. The Company has an option to extend the lease for one ten-year
period. The Company also has the option to renew this lease for two additional
five-year terms.
Future minimum lease commitments for all operating leases with initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 .................................................... $ 629,160
2001 .................................................... 640,460
2002 .................................................... 459,030
2003 .................................................... 380,460
2004 .................................................... 380,460
Thereafter .............................................. $ 1,902,300
</TABLE>
Rent expense of operating leases, excluding operating expenses, for the years
ended December 31, 1999, 1998, and 1997 was $525,000, $519,000, and $517,000
respectively.
CAPITAL LEASES
The Company has three leases between 48 and 60 months in length extending
through 2003 with Norwest Equipment Finance, Inc. The deposit balance for the
leases is $278,048 at December 31, 1999, and is reviewed on an annual basis in
December and adjusted to the balance required to secure the assets being leased.
Future minimum lease commitments for all capital leases with initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000................................................ $ 90,499
2001................................................ 90,499
2002................................................ 75,644
2003................................................ 9,986
--------
266,628
Less lease interest:.............................. (35,483)
--------
Total $231,145
========
</TABLE>
6. STOCK OPTIONS
The Company has an Equity Incentive Plan ("the Plan") under which options to
purchase up to 2,650,000 shares of Common Stock may be granted to employees,
consultants and others. The Compensation Committee, established by the Board of
Directors, establishes the terms and conditions of all stock option grants,
subject to the Plan and applicable provisions of the Internal Revenue Code. The
options expire ten years from the date of grant and are usually exercisable in
annual increments ranging from 25% to 33% beginning one year from the date of
grant.
F-10
<PAGE> 33
The Company also has a Directors' Stock Option Plan which provides for the
granting of non-management directors of the Company options to purchase shares
of Common Stock. The maximum number of shares with respect to the non-management
directors plan which options may be granted is 410,000 shares.
Shares available and options granted for the Equity Incentive Plan are as
follows:
<TABLE>
<CAPTION>
NON-
SHARES INCENTIVE QUALIFIED WEIGHTED AVERAGE
AVAILABLE STOCK STOCK TOTAL EXERCISE PRICE
FOR GRANT OPTIONS OPTIONS OUTSTANDING PER SHARE
---------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at Dec.31, 1996 367,480 765,859 340,569 1,106,428 $ 6.27
Granted (390,700) 292,604 98,096 390,700 5.89
Forfeited 203,038 (166,575) (36,463) (203,038) 7.32
Exercised -- (149,217) (42,751) (191,968) 3.24
---------- ---------- ---------- ----------
Balance at Dec.31, 1997 179,818 742,671 359,451 1,102,122 5.71
Granted (492,679) 101,428 391,251 492,679 4.47
Reserved 400,000 -- -- --
Forfeited 230,955 (156,259) (74,696) (230,955) 6.88
Exercised -- (2,000) -- (2,000) 2.85
---------- ---------- ---------- ----------
Balance at Dec.31, 1998 318,094 658,840 676,006 1,361,846 5.08
Granted (395,273) 330,596 64,677 395,273 6.51
Reserved 250,000 -- -- --
Forfeited 279,024 (126,641) (152,383) (279,024) 5.01
Exercised -- (30,087) -- (30,087) 5.76
---------- ---------- ---------- ----------
Balance at Dec. 31, 1999 451,845 859,708 588,300 1,448,008 $ 5.47
Exercisable:
December 31, 1997 506,460 $ 5.27
December 31, 1998 556,626 $ 5.21
December 31, 1999 649,137 $ 5.51
</TABLE>
The following table summarizes information about Equity Incentive Plan options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE NUMBER WEIGHTED
NUMBER CONTRACTUAL OUTSTANDING EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE AT 12/31/99 EXERCISE PRICE
- ------------------------------ ---------------- --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 2.625 - $ 3.00 125,745 8.6 years $ 2.77 14,419 $ 2.94
$ 3.01 - $ 4.00 254,625 8.0 years $ 3.79 237,300 $ 3.88
$ 4.01 - $ 5.00 356,000 8.0 years $ 4.42 104,000 $ 4.52
$ 5.01 - $ 7.00 312,033 6.0 years $ 5.81 162,168 $ 5.83
$ 7.01 - $ 8.00 98,125 6.0 years $ 7.76 68,750 $ 7.82
$ 8.01 - $ 10.1875 247,470 8.0 years $ 9.79 62,500 $ 9.02
- ------------------- --------- --------- ------ -------- ------
$ 2.00 - $10.1875 1,448,008 7.4 years $5.47 649,137 $ 5.51
========= ========
</TABLE>
F-11
<PAGE> 34
Shares available and options granted for Directors Stock Option Plan are as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NON- AVERAGE
INCENTIVE QUALIFIED EXERCISE
SHARES AVAILABLE STOCK STOCK TOTAL PRICE PER
FOR GRANT OPTIONS OPTIONS OUTSTANDING SHARE
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at Dec.31, 1996 147,500 -- 202,500 202,500 7.93
Granted (56,070) -- 56,070 56,070 3.92
Reserved 60,000 -- -- -- --
Forfeited -- -- -- -- --
Exercised -- -- -- -- --
------------ ------------ ----------- ------------
Balance at Dec.31, 1997 151,430 -- 258,570 258,570 7.06
Granted (37,860) -- 37,860 37,860 2.96
Forfeited -- -- -- -- --
Exercised -- -- -- -- --
------------ ------------ ----------- ------------
Balance at Dec.31, 1998 113,570 -- 296,430 296,430 6.54
Granted (40,960) -- 40,960 40,960 2.27
Forfeited 4,320 -- (4,320) (4,320) 1.30
Exercised -- -- (5,760) (5,760) 1.30
------------ ------------ ----------- ------------
Balance at Dec.31, 1999 76,930 -- 327,310 327,310 $ 6.17
</TABLE>
Options outstanding under the plans expire at various dates during the period
from March 2000 through December 2009. Exercise prices for options outstanding
as of December 31, 1999, ranged from $2.6250 to $10.1875 per share. The weighted
average fair values of options granted during the years ended December 31, 1999,
1998 and 1997 were $3.71, $4.36, and $5.64 respectively. The Company issued
warrants to purchase 189,801 shares of its Common Stock at $6.00 per share. Of
these warrants, 77,506 were exercised during 1996 and 4,837 during 1997. The
remaining 107,458 warrants have expired.
The Company has elected to follow Accounting Principles Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998, and 1997 respectively; risk-free interest rates of
5.50%, 5.00%, and 5.70%; volatility factor of the expected market price of the
Company's common stock of .682, .630, and .649; and a weighted-average expected
life of the option of 5 years.
In management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options because
the Company's employee stock options have
F-12
<PAGE> 35
characteristics significantly different from those of traded options and have
vesting restrictions and because changes in the subjective input assumptions can
materially affect the fair value estimates. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In addition, option
valuation models require input of highly subjective assumptions.
During the initial phase-in period, the effects of applying Statement 123 for
recognizing compensation cost may not be representative of the effects on
reported net loss or income for future years because the options in the Stock
Option Plans vest over several years and additional awards will be made in the
future.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss (in thousands) ...... $ (2,433) $ (4,240) $ (6,477)
Pro forma net loss
per common share,
basic and diluted ................. $ (0.25) $ (0.44) $ (0.68)
</TABLE>
7. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) plan (the "Plan") which covers substantially all
employees of the Company. Contributions to the Plan are made through employee
wage deferrals and employer matching contributions. The employer matching
contribution percentage is discretionary and determined each year. In addition,
the Company may contribute two discretionary amounts; one to non-highly
compensated individuals and another to all employees. To qualify for the
discretionary amounts, an employee must be employed by the Company on the last
day of the Plan year or have been credited with a minimum of 500 hours of
service during the Plan year.
The 401(k) expense for the years ended December 31, 1999, 1998 and 1997 was
$38,000, $36,000 and $29,000.
8. EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with the current President and
Chief Executive Officer in 1997 to continue in said position. The agreement
includes provisions for compensation, stock options and bonuses based upon the
achievement of certain performance targets. The agreement expires on December
31, 2000.
9. SUBSEQUENT EVENT
In March, 2000, the Company completed a private placement of 1.1 million shares
of common stock at $19 per share, before commissions and expenses. The offering
provided approximately $19.4 million in net cash proceeds to the Company.
F-13
<PAGE> 36
CIMA LABS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS LESS BALANCE AT END
DESCRIPTION YEAR AND EXPENSES DEDUCTIONS OF YEAR
------------ ---------------- ------------ -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Reserves and allowance deducted
From asset accounts:
Allowance for doubtful accounts ......... $ 0 $ 36,000 $ 0 $ 36,000
Obsolescence reserve .................... 156,770 379,966 0 536,736
------------ ------------ ------------ ------------
TOTAL ....................................... $ 156,770 $ 415,966 $ 0 $ 692,736
Year ended December 31, 1998:
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts ........... $ 32,150 $ 32,150 $ (64,300) $ 0
Obsolescence reserve ...................... 46,388 110,382 0 156,770
------------ ------------ ------------ ------------
TOTAL ....................................... $ 78,538 $ 142,532 $ (64,300) $ 156,770
Year ended December 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts ........... $ 0 $ 32,150 $ 0 $ 32,150
Obsolescence reserve ...................... 140,795 0 (94,407) 46,388
------------ ------------ ------------ ------------
TOTAL ....................................... $ 140,795 $ 32,150 $ (94,407) $ 78,538
</TABLE>
F-14
<PAGE> 1
EXHIBIT 4.3
STOCK PURCHASE AGREEMENT
CIMA Labs Inc.
10000 Valley View Road
Eden Prairie, Minnesota 55344
The undersigned (the "Investor"), hereby confirms its agreement with you as
follows:
1. This Stock Purchase Agreement (the "Agreement") is made as of the date set
forth below between CIMA Labs, Inc., a Delaware corporation (the
"Company"), and the Investor.
2. The Company has authorized the sale and issuance of up to 1,200,000 shares
(the "Shares") of common stock of the Company, $.01 par value per share
(the "Common Stock"), subject to adjustment by the Company's Board of
Directors, to certain investors in a private placement (the "Offering").
3. The Company and the Investor agree that the Investor will purchase from
the Company and the Company will issue and sell to the Investor
shares, for a purchase price of $ per share,
or an aggregate purchase price of $ , pursuant to the
Terms and Conditions for Purchase of Shares attached hereto as Annex I and
incorporated herein by this reference as if fully set forth herein. Unless
otherwise requested by the Investor, certificates representing the Shares
purchased by the Investor will be registered in the Investor's name and
address as set forth below.
4. The Investor represents that, except as set forth below, (a) it has had no
position, office or other material relationship within the past three
years with the Company or its affiliates, (b) neither it, nor any group of
which it is a member or to which it is related, beneficially owns
(including the right to acquire or vote) any securities of the Company and
(c) it has no direct or indirect affiliation or association with any NASD
member. Exceptions:
-------------------------------------------------------------------------
(If no exceptions, write "none." If left blank, response will be
deemed to be "none.")
Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.
DATED AS OF: March , 2000
--
------------------------------------
INVESTOR
By:
---------------------------------
Print Name:
-------------------------
Title:
------------------------------
Address:
----------------------------
AGREED AND ACCEPTED:
CIMA LABS INC.
By:
----------------------------
Title:
-------------------------
<PAGE> 2
Exhibit 4.3
ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES
1. AUTHORIZATION AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of the Shares.
2. AGREEMENT TO SELL AND PURCHASE THE SHARES; SUBSCRIPTION DATE.
2.1 At the Closing (as defined in Section 3), the Company will
sell to the Investor, and the Investor will purchase from the Company, upon the
terms and conditions hereinafter set forth, the number of Shares set forth on
the signature page to which these Terms and Conditions for Purchase of Shares
are attached as Annex I (the "Signature Page") at the purchase price set forth
on such Signature Page.
2.2 The Company proposes to enter into this same form of Stock
Purchase Agreement with certain other investors (the "Other Investors") and
expects to complete sales of Shares to them. (The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the "Investors,"
and this Agreement and the Stock Purchase Agreements executed by the Other
Investors are hereinafter sometimes collectively referred to as the
"Agreements.") The Company will accept executed Agreements from Investors for
the purchase of Shares commencing upon the date on which the Company provides
the Investors with the proposed purchase price per Share and concluding upon the
date (the "Subscription Date") on which the Company has (i) executed Agreements
with Investors for the purchase of Shares in the aggregate amount of at least
$10,000,000 and (ii) notified Deutsche Bank Securities, Inc. (in its capacity as
Placement Agent for the Shares, the "Placement Agent") in writing that it is no
longer accepting Agreements from Investors for the purchase of Shares.
2.3 Investor acknowledges that the Company intends to pay the
Placement Agent a fee in respect of the sale of Shares to the Investor.
3. DELIVERY OF THE SHARES AT CLOSING. The completion of the purchase
and sale of the Shares (the "Closing") shall occur not later than March 17, 2000
at a place and time (the "Closing Date") to be specified by the Company and the
Placement Agent, and of which the Investors will be notified in not less than
two business days in advance by the Placement Agent. At the Closing, after
receipt of payment therefor, the Company shall arrange delivery to the Investor
of one or more stock certificates representing the number of Shares set forth on
the signature page hereto, each such certificate to be registered in the name of
the Investor or, if so indicated on the Stock Certificate Questionnaire attached
hereto as Exhibit A, in the name of a nominee designated by the Investor.
The Company's obligation to issue the Shares to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) receipt by the Company of the purchase price for the Shares
being purchased hereunder as set forth on the Signature Page hereto; (b)
completion of purchases and sales under the Agreements with the Other Investors;
and (c) the accuracy in all material respects of the representations and
warranties
1
<PAGE> 3
made by the Investors and the fulfillment in all material respects of those
undertakings of the Investors to be fulfilled prior to the Closing.
The Investor's obligation to purchase the Shares shall be subject to
the following conditions, any one or more of which may be waived by the
Investor:
(a) Investors shall have executed Agreements for the purchase of
Shares in the aggregate amount of at least $10,000,000;
(b) the satisfaction of all of the conditions set forth in the
Engagement Letter between the Company and the Placement Agent;
(c) the Closing of the purchase and sale of the Shares shall occur on
or before March 17, 2000;
(d) the representations and warranties made by the Company in this
Agreement shall be accurate in all material respects and the undertakings of the
Company shall have been fulfilled in all material respects on or before the
Closing; and
(e) the Company shall have delivered to the Investor a certificate
executed by the chairman of the board or president and the chief financial or
accounting officer of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to the Investor, to the effect that the representations
and warranties of the Company set forth in Section 4 hereof are true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date, and that the Company has complied with all the agreements and satisfied
all the conditions in this Agreement on its part to be performed or satisfied on
or before the Closing Date
Subject to clauses (a) through (e) above, the Investor's obligations
are expressly not conditioned on the purchase by any or all of the other
Investors of the Shares that they have agreed to purchase from the Company.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents and warrants to, and covenants with, the Investor, as
follows (which representations and warranties shall be deemed to apply, where
appropriate, to each subsidiary of the Company):
4.1 ORGANIZATION. The Company is duly incorporated and validly
existing in good standing under the laws of the jurisdiction of its
organization. The Company has full power and authority to own, lease, operate
and occupy its properties and to conduct its business as presently conducted and
is registered or qualified to do business and in good standing in each
jurisdiction in which it owns or leases property or transacts business and where
the failure to be so qualified would have a material adverse effect upon the
business affairs and prospects, condition (financial or otherwise), properties,
assets or operations of the Company ("Material Adverse Effect"), and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.
2
<PAGE> 4
4.2 DUE AUTHORIZATION. The Company has all requisite power and
authority to execute, deliver and perform its obligations under the Agreements,
and the Agreements have been duly authorized and validly executed and delivered
by the Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 NON-CONTRAVENTION. The execution, delivery and performance
of the Agreements, the issuance and sale of the Shares to be sold by the Company
under the Agreements, the fulfillment of the terms of the Agreements and the
consummation of the transactions contemplated thereby have been duly authorized
by all necessary corporate action and will not (A) conflict with or constitute a
violation of, or default (with the passage of time or otherwise) under, (i) any
material bond, debenture, note or other evidence of indebtedness, or any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or its property is bound, where such conflict, violation or
default is likely to result in a Material Adverse Effect, (ii) the charter,
by-laws or other organizational documents of the Company, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority binding upon the Company or its property,
where such conflict, violation or default is likely to result in a Material
Adverse Effect, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any material
bond, debenture, note or any other evidence of indebtedness or any material
indenture, mortgage, deed of trust or any other agreement or instrument to which
the Company is a party or by which it is bound or to which any of the property
or assets of the Company is subject. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States is
required for the execution and delivery of the Agreements and the valid issuance
and sale of the Shares to be sold pursuant to the Agreements, other than such as
have been made or obtained, and except for any securities filings required to be
made under federal or state securities laws.
4.4 CAPITALIZATION. The Company has the authority to issue
20,000,000 shares of Common Stock, and 5,000,000 shares of preferred stock, $.01
par value (the "Preferred Stock"). As of March 9, 2000, 9,714,263 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding. The Company has not issued any capital stock since
September 30, 1999 other than pursuant to employee benefit plans disclosed in
the Company's SEC Documents (as defined herein). The Shares to be sold pursuant
to the Agreements have been duly authorized, and when issued and paid for in
accordance with the terms of the Agreements, will be duly and validly issued,
fully paid and nonassessable and free and clear of all pledges, liens and
encumbrances. The certificates evidencing the Shares are in due and proper form
under applicable state law. The outstanding shares of capital stock of the
Company
3
<PAGE> 5
have been duly and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and were
not issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. Except as described above , there are no outstanding
rights (including, without limitation, preemptive rights), warrants or options
to acquire, or instruments convertible into or exchangeable for, any unissued
shares of capital stock or other equity interest in the Company, or any
contract, commitment, agreement, understanding or arrangement of any kind to
which the Company is a party and relating to the issuance or sale of any capital
stock of the Company, any such convertible or exchangeable securities or any
such rights, warrants or options. Without limiting the foregoing, no preemptive
right, co-sale right, registration right, right of first refusal or other
similar right exists with respect to the issuance and sale of the Shares. Except
as described herein, there are no stockholders agreements, voting agreements or
other similar agreements with respect to the Common Stock to which the Company
is a party. No further approval or authority of the shareholders or the Board of
Directors of the Company will be required for the issuance and sale of the
Shares to be sold by the Company as contemplated in this Agreement. No
shareholder of the Company has any right (other than any right that has been
waived or has expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement (as hereinafter defined)) to
require the Company to register the sale of any securities owned by such holder
in such Registration Statement. Subject to the accuracy of the Investor's
representations and warranties in Section 5 of this Agreement, the offer, sale,
and issuance of the Shares in conformity with the terms of this Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and from the registration or qualification requirements of
the laws of any applicable state or United States jurisdiction.
4.5 LEGAL PROCEEDINGS. There is no action, suit or proceeding
before or by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened, against or affecting
the Company which, singly or in the aggregate, might result in any Material
Adverse Effect or which might materially and adversely affect the consummation
of this Agreement, nor, to the best knowledge of the Company, is there any
reasonable basis therefor. The Company is not in default with respect to any
judgment, order or decree of any court or governmental agency or instrumentality
which, singly or in the aggregate, would have a material adverse effect on the
assets, properties or business of the Company.
4.6 NO VIOLATIONS. The Company is not in violation of its
charter, bylaws or other organizational document, or in violation of any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company, which
violation, individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect, or in default (and there exists no condition which,
with the passage of time or otherwise, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any bond, debenture, note, loan agreement or any other evidence of
indebtedness in any indenture, mortgage, deed of trust, lease, sublease, voting
agreement, voting trust or any other material agreement or instrument to which
the Company is a party or by which the Company is bound or by which the property
or assets of the Company is bound, which would be reasonably likely to have a
Material Adverse Effect.
4
<PAGE> 6
4.7 GOVERNMENTAL PERMITS, ETC. With the exception of the
matters which are dealt with separately in Sections 4.1, 4.12, and 4.13, the
Company possesses and is operating in compliance with all necessary franchises,
licenses, certificates, consents, authorities, approvals and permits and other
authorizations from any foreign, federal, state or local government or
governmental agency, department or body that are currently necessary for the
operation of the business of the Company as currently conducted, except where
the failure to currently possess could not reasonably be expected to have a
Material Adverse Effect, and the Company has not received any notice of
proceedings relating to the revocation or modification of any such permit or any
circumstance which would lead it to believe that such proceedings are reasonably
likely, which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would be expected to have a Materially Adverse
Effect.
4.8 INTELLECTUAL PROPERTY.
(A) The Company has ownership or license or
legal right to use all patent, patent applications, inventions, know-how,
copyright, trade secret, trademark, trade names, applications for registration
of trademarks, service marks, service mark applications, licenses, customer
lists, designs, manufacturing or other processes, formulae, computer software,
systems, data compilation, research results or other proprietary rights used in
the business of the Company as now conducted and as proposed to be conducted and
material to the Company (collectively, "Intellectual Property") other than
Intellectual Property generally available on commercially reasonable terms from
other sources. All of such patents, trademarks and registered copyrights have
been duly registered in, filed in or issued by the United States Patent and
Trademark Office, the United States Register of Copyrights or the corresponding
offices of other jurisdictions and have been maintained and renewed in
accordance with all applicable provisions of law and administrative regulations
in the United States and all such jurisdictions.
(B) All material licenses or other material
agreements under which (i) the Company is granted
rights in Intellectual Property, other than Intellectual Property generally
available on commercially reasonable terms from other sources, and (ii) the
Company has granted rights to others in Intellectual Property owned or licensed
by the Company, are in full force and effect and, to the knowledge of the
Company, there is no material default by the Company thereto.
(C) The Company believes it has taken all steps
required in accordance with sound business practice
and business judgment to establish and preserve its ownership of all material
copyright, trade secret and other proprietary rights with respect to its
products and technology.
(D) The Company does not have any knowledge of,
and the Company has not given or received any notice of, any pending conflicts
with or infringement of the rights of others with respect to any Intellectual
Property or with respect to any license of Intellectual Property which are
material to the business of the Company.
(E) To the knowledge of the Company, the present
business, activities and products of the Company do not infringe any
intellectual property of any other person, No
5
<PAGE> 7
action, suit, arbitration, or legal, administrative or other proceeding, or
investigation is pending, or, to the best knowledge of the Company, threatened,
which involves any Intellectual Property, nor, to the best knowledge of the
Company, is there any reasonable basis therefor. To the Company's knowledge,
there exists no unexpired patent or patent application which includes claims
that would be infringed by or otherwise have a Material Adverse Effect on the
Company. To the knowledge of the Company, the Company is not making unauthorized
use of any confidential information or trade secrets of any person. Neither the
Company nor, to the knowledge of the Company, any of its employees have any
agreements or arrangements with any persons other than the Company related to
confidential information or trade secrets of such persons or restricting any
such employee's engagement in business activities of any nature. To the
Company's knowledge, the activities of the Company or any of its employees on
behalf of the Company do not violate any such agreements or arrangements known
to the Company which any such employees have with other persons, if any.
(F) The Company is not subject to any judgment,
order, writ, injunction or decree of any court or
any Federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, and has not entered into or is not a party to any contract which
restricts or impairs the use of any such Intellectual Property in a manner which
would have a material adverse effect on the use of any of the Intellectual
Property.
(G) To the best knowledge of the Company, no
Intellectual Property used by the Company, and no services or products sold by
the Company, conflict with or infringe upon any proprietary rights of any third
party. The Company has not received written notice of any pending conflict with
or infringement upon such third-party proprietary rights.
(H) The Company has not entered into any consent,
indemnification, forbearance to sue or settlement agreement with respect to
Intellectual Property other than in the ordinary course of business. No claims
have been asserted by any person with respect to the validity of the Company's
ownership or right to use the Intellectual Property and, to the best knowledge
of the Company, there is no reasonable basis for any such claim to be
successful.
(I) The Intellectual Property that are material
to the business of the Company are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or cancelled or is the
subject of cancellation or other adversarial proceedings, and all applications
therefor are pending and are in good standing.
(J) To the best of its knowledge, the Company
has complied, in all material respects, with its obligations relating to the
protection of the Intellectual Property which is material to the business of the
Company.
(K) To the best knowledge of the Company, no
person is infringing on or violating the Intellectual Property.
4.9 SECURITY MEASURES.
6
<PAGE> 8
The Company takes security measures designed to enable the
Company to assert trade secret protection in its non-patented technology.
4.10 FINANCIAL STATEMENTS. The financial statements of the
Company and the related notes contained in the Company's SEC Documents present
fairly, in accordance with generally accepted accounting principles, the
financial position of the Company as of the dates indicated, and the results of
its operations and cash flows for the periods therein specified. Such financial
statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified.
4.11 NO MATERIAL ADVERSE CHANGE. Since September 30, 1999,
there has not been (i) any material adverse change or any development involving
a prospective material adverse change in or affecting the condition, financial
or otherwise, or in the earnings, assets, business affairs or business prospects
of the Company, whether or not arising in the ordinary course of business; (ii)
any transactions entered into by the Company other than those in the ordinary
course of business, which are material with respect to the Company; (iii) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company; or (iv) any loss or damage (whether or not insured) to the
physical property or assets of the Company which has been sustained which has a
Material Adverse Effect.
4.12 NASDAQ COMPLIANCE. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed on The
Nasdaq National Market (the "Nasdaq Stock Market"), and the Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq Stock Market. The Company is not aware of and has not
received any notice of, any efforts or actions to terminate the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq Stock Market. The Company shall comply with all requirements of the
National Association of Securities Dealers, Inc. with respect to the issuance of
the Shares and the listing thereof on the Nasdaq Stock Market at all times
during the period beginning on the date hereof and ending two years from the
date of effectiveness of the Registration Statement.
4.13 REPORTING STATUS. The Company has filed in a timely
manner all documents that the Company was required to file under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the 12 months
preceding the date of this Agreement. The following documents (the "Company's
SEC Documents") complied in all material respects with the SEC's requirements as
of their respective filing dates, and the information contained therein as of
the date thereof did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under where they were made not
misleading:
(A) The Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (the "10-K");
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(B) The Company's Quarterly Reports on Form 10-Q
for each of the quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999;
(C) The Company's proxy statement for its 1999
Annual Meeting of Shareholders; and
(D) All other documents, if any, filed by the
Company with the Securities and Exchange Commission since December 31,
1998 pursuant to the reporting requirements of the Exchange Act.
4.14 NO ACTION. The Company shall take no action or
authorize any action to be taken on its behalf, including in connection with the
offering and sale of the Shares to other investors or the offer or sale of
additional securities of the Company following the Closing, that would
materially frustrate the consummation of the transactions contemplated herein.
4.15 FOREIGN CORRUPT PRACTICES. Neither the Company nor, to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, have (i) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to disclose
fully any contribution made by the Company or made by any person acting on its
behalf and of which the Company is aware in violation of law or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
4.16 NO MANIPULATION OF STOCK. The Company has not taken and
will not, in violation of applicable law, take, any action outside the ordinary
course of business designed to or that might reasonably be expected to cause or
result in unlawful manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
4.17 ACCOUNTANTS. Ernst & Young LLP, who the Company expects
will express their opinion with respect to the financial statements to be
incorporated by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 into the Registration Statement (as defined below)
and the Prospectus which forms a part thereof, are independent accountants as
required by the Securities Act and the rules and regulations promulgated
thereunder (the "Rules and Regulations").
4.18 CONTRACTS. The contracts described in the SEC Documents
or incorporated by reference therein are in full force and effect on the date
hereof, except for contracts the termination or expiration of which would not,
singly or in the aggregate, have a Material Adverse Effect. Neither the Company
nor, to the Company's knowledge, any other party to such contracts is in breach
of or default under any of such contracts which would have a Material Adverse
Effect.
4.19 ENVIRONMENTAL. Except as would not, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect,
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(a) the Company is in compliance with all applicable
Environmental Laws (as defined below);
(b) the Company has all permits, authorizations
and approvals required under any applicable Environmental Laws and is in
compliance with the requirements of such permits authorizations and approvals;
(c) there are no pending or, to the best knowledge
of the Company, threatened Environmental Claims against the Company; and
(d) under applicable law, to the best knowledge of
the Company, there are no circumstances with
respect to any property or operations of the Company that are reasonably likely
to form the basis of an Environmental Claim against the Company.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) Federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or any chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
4.20 LABOR MATTERS. No labor dispute with the employees of
the Company exists or, to the best knowledge of the Company, is imminent.
4.21 COMPLIANCE. The Company has conducted and is conducting
its business in compliance with all applicable Federal, state, local and foreign
statutes, laws, rules, regulations, ordinances, codes, decisions, decrees,
directives and orders, except where the failure to do so would not, singly or in
the aggregate, have a material adverse effect on the condition, financial or
otherwise, or on the earnings, assets, business affairs or business prospects of
the Company.
4.22 PROPERTIES. The Company has good and marketable title
to its properties, free and clear of all material security interests, mortgages,
pledges, liens, charges, encumbrances and claims of record except as described
in the SEC Documents. The properties of the Company are, in the aggregate, in
good repair (reasonable wear and tear excepted), and suitable for their
respective uses. Any real property held under lease by the Company is held under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the conduct of the business of the Company.
The Company owns or leases all such properties as are necessary to its business
or operations as now conducted.
4.23 TAXES. The Company has filed all material tax returns
required to be filed, which returns are true and correct in all material
respects, and the Company is not in default in the payment of any taxes,
including penalties and interest, assessments, fees and other charges, shown
thereon due or otherwise assessed, other than those being contested in good
faith and for which
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adequate reserves have been provided or those currently payable without interest
which were payable pursuant to said returns or any assessments with respect
thereto.
4.24 TRANSFER TAXES. On the Closing Date, all stock transfer
or other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold to the Investor
hereunder will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been fully complied with.
4.25 CONTRIBUTIONS. To the best of the Company's knowledge,
neither the Company nor any employee or agent of the Company has made any
payment of funds of the Company or received or retained any funds in violation
of any law, rule or regulation.
4.26 USE OF PROCEEDS; INVESTMENT COMPANY. The Company
intends to use the proceeds from the sale of the Shares for working capital and
other general corporate purposes. The Company is not now, and after the sale of
the Shares under this Agreement and under all other agreements and the
application of the net proceeds from the sale of the Shares described in the
proceeding sentence will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
4.27 PRIOR OFFERINGS. All offers and sales of capital stock
of the Company before the date of this Agreement were at all relevant times duly
registered or exempt from the registration requirements of the Securities Act
and were duly registered or subject to an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws.
4.28 INSURANCE. The Company maintains and will continue to
maintain insurance of the types and in the amounts that the Company reasonably
believes is adequate for its business, including, but not limited to, insurance
covering all real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against by similarly situated companies, all of which insurance is in
full force and effect.
4.29 OTHER GOVERNMENTAL PROCEEDINGS. To the Company's
knowledge, there are no rulemaking or similar proceedings before The United
States Food and Drug Administration or comparable Federal, state, local or
foreign government bodies that involve or affect the Company, which, if the
subject of an action unfavorable to the Company, could involve a prospective
material adverse change in or effect on the condition, financial or otherwise,
or in the earnings, assets, business affairs or business prospects of the
Company.
4.30 NON-COMPETITION AGREEMENTS. To the knowledge of the
Company, any full-time employee who has entered into any non-competition,
non-disclosure, confidentiality or other similar agreement with any party other
than the Company is neither in violation of nor is expected to be in violation
of that agreement as a result of the business currently conducted or expected to
be conducted by the Company or such person's performance of his or her
obligations to the Company. The Company has not received written notice that any
consultant or scientific advisor of the Company is in violation of any
non-competition, non-disclosure, confidentiality or
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similar agreement.
4.31 LEGAL OPINION. The Company shall cause to be delivered to
the Investors and the Placement Agent by counsel to the Company a customary
legal opinion pertaining to the availability of an exemption from the
registration provisions of the Securities Act and to such counsel's knowledge as
to any misstatements or omissions in the Company's SEC Documents.
4.32 OFFERING MATERIALS. Other than the SEC Documents (the
"Offering Materials"), the Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the offering
and sale of the Shares. The Company has not in the past nor will it hereafter
take any action independent of the Placement Agent to sell, offer for sale or
solicit offers to buy any securities of the Company which would bring the offer,
issuance or sale of the Shares, as contemplated by this Agreement, within the
provisions of Section 5 of the Securities Act, unless such offer, issuance or
sale was or shall be within the exemptions of Section 4 of the Securities Act.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.
5.1 The Investor represents and warrants to, and covenants with,
the Company that: (i) the Investor is an "accredited investor" as defined in
Regulation D under the Securities Act and the Investor is also knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to, investments in shares presenting an investment decision like that
involved in the purchase of the Shares, including investments in securities
issued by the Company and investments in comparable companies, and has
requested, received, reviewed and considered all information it deemed relevant
in making an informed decision to purchase the Shares; (ii) the Investor is
acquiring the number of Shares set forth on the Signature Page hereto in the
ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such Shares or any arrangement
or understanding with any other persons regarding the distribution of such
Shares other than as contemplated in Section 7 of this Agreement; (iii) the
Investor will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Shares except in compliance with the
Securities Act, applicable state securities laws and the respective rules and
regulations promulgated thereunder; (iv) the Investor has answered all questions
on the Signature Page hereto and the Investor Questionnaire attached hereto as
Exhibit B for use in preparation of the Registration Statement and the answers
thereto are true and correct as of the date hereof and will be true and correct
as of the Closing Date; (v) the Investor will notify the Company immediately of
any change in any of such information until such time as the Investor has sold
all of its Shares or until the Company is no longer required to keep the
Registration Statement effective; and (vi) the Investor has, in connection with
its decision to purchase the number of Shares set forth on the signature page
hereto, relied only upon the Company Information provided to the Investor by the
Company in contemplation of this offering and the representations and warranties
of the Company contained herein. Investor understands that its acquisition of
the Shares has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or registered or qualified under any state securities
law in reliance on specific exemptions therefrom, which exemptions may depend
upon, among other things, the bona fide nature of the Investor's investment
intent as expressed herein. Investor has completed
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or caused to be completed and delivered to the Company the Investor
Questionnaire attached hereto Exhibit B, which questionnaire is true and correct
in all material respects.
5.2 The Investor acknowledges, represents and agrees that no
action has been or will be taken in any jurisdiction outside the United States
by the Company or the Placement Agent that would permit an offering of the
Shares, or possession or distribution of offering materials in connection with
the issue of the Shares, in any jurisdiction outside the United States where
action for that purpose is required. Each Investor outside the United States
will comply with all applicable laws and regulations in each foreign
jurisdiction in which it purchases, offers, sells or delivers Shares or has in
its possession or distributes any offering material, in all cases at its own
expense. The Placement Agent is not authorized to make any representation or use
any information in connection with the issue, placement, purchase and sale of
the Shares.
5.3 The Investor hereby covenants with the Company not to make
any sale of the Shares without satisfying the requirements of the Securities Act
and the Rules and Regulations thereunder, including in the event of resale under
the Registration Statement, the prospectus delivery requirement under the
Securities Act to be satisfied, and the Investor acknowledges that the
certificates evidencing the Shares will be imprinted with a legend that
prohibits their transfer except in accordance therewith. The Investor
acknowledges that there may occasionally be times when the Company, based on the
advice of its counsel, determines that it must suspend the use of the Prospectus
forming a part of the Registration Statement until such time as an amendment to
the Registration Statement has been filed by the Company and declared effective
by the SEC or until the Company has amended or supplemented such Prospectus.
5.4 The Investor further represents and warrants to, and
covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) this
Agreement constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Investors
herein may be legally unenforceable.
5.5 The Investor understands that nothing in this Agreement or
any other materials presented to the Investor in connection with the purchase
and sale of the Shares constitutes legal, tax or investment advice. The Investor
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of Shares.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Investor herein
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shall survive the execution of this Agreement, the delivery to the Investor of
the Shares being purchased and the payment therefor.
7. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.
7.1 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(A) subject to receipt of necessary information from the
Investors, prepare and file with the SEC, as soon as practicable, but
in no event later than thirty (30) days after the Closing Date, a
registration statement on Form S-3 (or, if the Company is ineligible to
use Form S-3, then on Form S-1) (the "Registration Statement") to
enable the resale of the Shares by the Investors from time to time
through the automated quotation system of the Nasdaq Stock Market (or
the facilities of any national securities exchange on which the
Company's Common Stock is then traded) or in privately-negotiated
transactions;
(B) use its reasonable efforts, subject to receipt of
necessary information from the Investors, to cause the Registration
Statement to become effective as soon as practicable and within ninety
(90) days after the Registration Statement is filed by the Company.
(C) use its reasonable efforts to prepare and file with the
SEC such amendments and supplements to the Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
the Registration Statement current and effective for a period not
exceeding, with respect to each Investor's Shares purchased hereunder,
the earlier of (i) the second anniversary of the Closing Date, (ii) the
date on which the Investor may sell all Shares then held by the
Investor without registration or without regard to any volume
limitations by reason of Rule 144(k) of the Securities Act or (iii)
such time as all Shares purchased by such Investor in this Offering
have been sold pursuant to a registration statement.
(D) furnish to the Placement Agent and to the Investor with
respect to the Shares registered under the Registration Statement such
number of copies of the Registration Statement, Prospectuses and
Preliminary Prospectuses in conformity with the requirements of the
Securities Act and such other documents as the Investor may reasonably
request, in order to facilitate the public sale or other disposition of
all or any of the Shares by the Investor, provided, however, that the
obligation of the Company to deliver copies of Prospectuses or
Preliminary Prospectuses to the Investor shall be subject to the
receipt by the Company of reasonable assurances from the Investor that
the Investor will comply with the applicable provisions of the
Securities Act and of such other securities or blue sky laws as may be
applicable in connection with any use of such Prospectuses or
Preliminary Prospectuses;
(E) file documents required of the Company for normal blue
sky clearance in states specified in writing by the Investor, provided,
however, that the
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Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so
qualified or has not so consented;
(F) during the period when copies of the Prospectus are
required to be delivered under the Securities Act or the Exchange Act,
will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act within the time
periods required by the Exchange Act and the rules and regulations
promulgated thereunder;
(G) bear all expenses in connection with the procedures in
paragraph (a) through (f) of this Section 7.1 and the registration of
the Shares pursuant to the Registration Statement; and
(H) advise the Investors, promptly after it shall receive
notice or obtain knowledge of the issuance of any stop order by the SEC
delaying or suspending the effectiveness of the Registration Statement
or of the initiation of any proceeding for that purpose; and it will
promptly use its commercially reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal at the earliest
possible moment if such stop order should be issued.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 7.1 that the Investor shall furnish to
the Company such information regarding itself, the Shares to be sold by
Investor, and the intended method of disposition of such securities as shall be
required to effect the registration of the Shares.
The Company understands that the Investor disclaims being an
underwriter, but the Investor being deemed an underwriter by the SEC shall not
relieve the Company of any obligations it has hereunder, provided, however, that
if the Company receives notification from the SEC that the Investor is deemed an
underwriter, then the period by which the Company is obligated to submit an
acceleration request to the SEC shall be extended to the earlier of (i) the 90th
day after such SEC notification, or (ii) 120 days after the initial filing of
the Registration Statement with the SEC.
7.2 TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION.
The Investor agrees that it will not effect any Disposition of the Shares or its
right to purchase the Shares that would constitute a sale within the meaning of
the Securities Act except as contemplated in the Registration Statement referred
to in Section 7.1 or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Investor or its plan of distribution.
(A) Except in the event that paragraph (c) below applies,
the Company shall: (i) if deemed necessary by the Company, prepare and
file from time to time with the SEC a post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or a
supplement or amendment to any document incorporated therein by
reference or file any other required document so that such Registration
Statement will not contain an untrue statement of a material fact or
omit to state a material fact required
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to be stated therein or necessary to make the statements therein not
misleading, and so that, as thereafter delivered to Investors of the
Shares being sold thereunder, such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (ii) provide the Investor copies of any documents filed
pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the
Company has complied with its obligations in Section 7.2(b)(i) (or
that, if the Company has filed a post-effective amendment to the
Registration Statement which has not yet been declared effective, the
Company will notify the Investor to that effect, will use its
reasonable efforts to secure the effectiveness of such post-effective
amendment as promptly as possible and will promptly notify the Investor
pursuant to Section 7.2(b)(i) hereof when the amendment has become
effective).
(B) Subject to paragraph (c) below, in the event: (i) of
any request by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration
Statement for amendments or supplements to a Registration Statement or
related Prospectus or for additional information; (ii) of the issuance
by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose; (iii) of the
receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose; or (iv) of any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated
therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or any omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of
a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
then the Company shall deliver a certificate in writing to the Investor
(the "Suspension Notice") to the effect of the foregoing and, upon
receipt of such Suspension Notice, the Investor will refrain from
selling any Shares pursuant to the Registration Statement (a
"Suspension") until the Investor's receipt of copies of a supplemented
or amended Prospectus prepared and filed by the Company, or until it is
advised in writing by the Company that the current Prospectus may be
used, and has received copies of any additional or supplemental filings
that are incorporated or deemed incorporated by reference in any such
Prospectus. In the event of any Suspension, the Company will use its
reasonable efforts to cause the use of the Prospectus so suspended to
be resumed as soon as reasonably practicable within 20 business days
after delivery of a Suspension Notice to the Investors. In addition to
and without limiting any other remedies (including, without limitation,
at law or at equity) available to the Investor, the Investor shall be
entitled to specific performance in the event that the Company fails to
comply with the provisions of this Section 7.2(b).
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(C) Notwithstanding the foregoing paragraphs of this
Section 7.2, the Investor shall not be prohibited from selling Shares
under the Registration Statement as a result of Suspensions on more
than three occasions of not more than 30 days each in any twelve month
period, unless, in the good faith judgment of the Company's Board of
Directors, upon advice of counsel, the sale of Shares under the
Registration Statement in reliance on this paragraph 7.2(d) would be
reasonably likely to cause a violation of the Securities Act or the
Exchange Act and result in potential liability to the Company.
(D) Provided that a Suspension is not then in effect the
Investor may sell Shares under the Registration Statement, provided
that it arranges for delivery of a current Prospectus to the transferee
of such Shares. Upon receipt of a request therefor, the Company has
agreed to provide an adequate number of current Prospectuses to the
Investor and to supply copies to any other parties requiring such
Prospectuses.
(E) In the event of a sale of Shares by the Investor, the
Investor must also deliver to the Company's transfer agent, with a copy
to the Company, a Certificate of Subsequent Sale substantially in the
form attached hereto as Exhibit C, so that the shares may be properly
transferred.
7.3 DELAY IN EFFECTIVENESS OF REGISTRATION. In the event that
the Registration Statement is not declared effective within ninety (90) days
after the date of filing of the Registration Statement, the Company shall pay to
each Investor liquidated damages in an amount equal to 0.25% of the number of
Shares purchased by Investor pursuant to this Agreement for each week after the
filing date of the Registration Statement that the Registration Statement is not
declared effective. Such liquidated damages shall be paid through the issuance
of additional Shares at such time as the Registration Statement is declared
effective. Such additional Shares shall also be registered within thirty (30)
days of issuance under the terms and conditions described in Sections 7.1.1(a) -
(g) hereof.
7.4 INDEMNIFICATION. For the purpose of this Section 7.4:
(A) the term "Selling Stockholder" shall include the
Investor and each person, if any, who controls the Investor within the
meaning of the Securities Act or any affiliate of such Investor;
(B) the term "Registration Statement" shall include any
final Prospectus, exhibit, supplement or amendment included in or
relating to the Registration Statement referred to in Section 7.1; and
(C) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(I) The Company agrees to indemnify and hold
harmless each Selling Stockholder from and against any losses,
claims, damages, liabilities or
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expenses, joint or several, to which such Selling Stockholder
may become subject (under the Securities Act the Exchange Act,
or any other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably
withheld), insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, including the Prospectus, financial
statements and schedules, and all other documents filed as a
part thereof, as amended at the time of effectiveness of the
Registration Statement, including any information deemed to be a
part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A, or pursuant to Rule 434, of the
Rules and Regulations, or the Prospectus, in the form first
filed with the Commission pursuant to Rule 424(b) of the
Regulations, or filed as part of the Registration Statement at
the time of effectiveness if no Rule 424(b) filing is required
(the "Prospectus"), or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission
to state in any of them a material fact required to be stated
therein or necessary to make the statements in any of them, in
light of the circumstances under which they were made, not
misleading, or arise out of or are based in whole or in part on
any inaccuracy in the representations and warranties of the
Company contained in this Agreement, or any failure of the
Company to perform its obligations under this Agreement or under
law, and will reimburse each Investor and each such controlling
person for any legal and other expenses as such expenses are
reasonably incurred by such Investor or such controlling person
in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability,
expense or action and the Company will reimburse such Selling
Stockholder for any reasonable legal or other expenses
reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim, provided, however,
that the Company shall not be liable in any such case to the
extent that such loss, claim, damage or liability arises out of,
or is based upon, an untrue statement made in such Registration
Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such
Selling Stockholder specifically for use in preparation of the
Registration Statement or the failure of such Selling
Stockholder to comply with its covenants and agreements
contained in Sections 5.1, 5.2, 5.3 or 7.2 hereof or any
statement or omission in any Prospectus that is corrected in any
subsequent Prospectus that was delivered to the Investor prior
to the pertinent sale or sales by the Investor.
(II) The Investor agrees to indemnify and hold
harmless the Company (and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act,
each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses,
claims, damages or liabilities to which the Company (or any such
officer, director or controlling person) may become subject
(under the Securities Act or
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otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise
out of, or are based upon, (i) any failure to comply with the
covenants and agreements contained in Section 5.1, 5.2, 5.3 or
7.2 hereof, or (ii) any untrue statement of a material fact
contained in the Registration Statement but only to the extent
that such untrue statement was made in reliance upon and in
conformity with written information furnished by or on behalf of
the Investor specifically for use in preparation of the
Registration Statement, and the Investor will reimburse the
Company (or such officer, director or controlling person), as
the case may be, for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any
such action, proceeding or claim; provided, however, that the
Investor shall not be liable for any such untrue or alleged
untrue statement or omission or alleged omission of which the
Investor has delivered to the Company in writing a correction
before the occurrence of the transaction from which such loss
was incurred, and the Investor will reimburse the Company, each
of its directors, each of its officers who signed the
Registration Statement or controlling person for any legal and
other expense reasonably incurred by the Company, each of its
directors, each of its officers who signed the Registration
Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action.
(III) Promptly after receipt by any indemnified
person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.4, such
indemnified person shall notify the indemnifying person in
writing of such claim or of the commencement of such action, but
the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any
indemnified party under this Section 7.4 (except to the extent
that such omission materially and adversely affects the
indemnifying party's ability to defend such action) or from any
liability otherwise than under this Section 7.4. Subject to the
provisions hereinafter stated, in case any such action shall be
brought against an indemnified person, the indemnifying person
shall be entitled to participate therein, and, to the extent
that it shall elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice
from such indemnified party, shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified person. After notice from the indemnifying person to
such indemnified person of its election to assume the defense
thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense
thereof, provided, however, that if there exists or shall exist
a conflict of interest that would make it inappropriate, in the
reasonable opinion of counsel to the indemnified person, for the
same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel
at the expense of such indemnifying person; provided, however,
that no indemnifying person shall be
18
<PAGE> 20
responsible for the fees and expenses of more than one separate
counsel (together with appropriate local counsel) for all
indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any
action unless the indemnifying person shall have approved the
terms of such settlement; provided that such consent shall not
be unreasonably withheld. No indemnifying person shall, without
the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of
which any indemnified person is or could have been a party and
indemnification could have been sought hereunder by such
indemnified person, unless such settlement includes an
unconditional release of such indemnified person from all
liability on claims that are the subject matter of such
proceeding. Notwithstanding the provisions of this Section 7.4,
Investor shall not be liable for any indemnification obligation
under this Agreement in excess of the amount of gross proceeds
received by the Investor from the sale of the Shares.
(IV) If the indemnification provided for in
this Section 7.4 is unavailable to or insufficient to hold
harmless an indemnified party under subsection (a) or (b) above
in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to (a) reflect the relative
benefits received by the Company and the Investor from the
placement of Common Stock or if the allocation provided by
clause (a) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative
benefits referred to in clause (a) above but the relative fault
of the Company and the Investor in connection with the
statements or omissions or inaccuracies in the representations
and warranties in this Agreement that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative
benefits received by the Company on the one hand and each
Investor on the other shall be deemed to be in the same
proportion as the amount paid by such Investor to the Company
pursuant to this Agreement for the Shares purchased by such
Investor that were sold pursuant to the Registration Statement
bears to the difference (the "Difference") between the amount
such Investor paid for the Shares that were sold pursuant to the
Registration Statement and the amount received by such Investor
from such sale. The relative fault shall be determined by
reference to, among other things, , whether the untrue statement
or the omission or alleged omission to state a mutual fact or
the inaccurate or alleged inaccurate representation or warranty
relates to information supplied by the Company on the one hand
or an Investor on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement. The provisions set forth in
Section 7.4 with respect to the notice of the threat or
commencement of any threat or action shall apply if a claim for
contribution is to be made under this Section; provided,
however, that no additional notice shall be required with
respect to any threat or action for which
19
<PAGE> 21
notice has been given under Section 7.4 for purposes of
indemnification. The Company and the Investors agree that it
would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if
the Investors were treated as one entity for such purpose) or by
any other method of allocation which does not take into account
the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include, subject to the
limitations set forth in this Section 7.4, any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), no
Investor shall be required to contribute any amount in excess of
the amount by which the Difference exceeds the amount of any
damages which such Investor has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The Investors' obligations in this subsection to contribute are
several in proportion to their sales of Shares to which such
loss relates and not joint.
(V) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who
were represented by counsel during the negotiations regarding
the provisions hereof including, without limitation, the
provisions of this Section 7.4, and are fully informed regarding
said provisions. They further acknowledge that the provisions of
this Section 7.4 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its
business in order to assure that adequate disclosure is made in
the Registration Statement as required by the Act and the
Exchange Act. The parties are advised that federal or state
public policy as interpreted by the courts in certain
jurisdictions may be contrary to certain of the provisions of
this Section 7.4, and the parties hereto hereby expressly waive
and relinquish any right or ability to assert such public policy
as a defense to a claim under this Section 7.4 and further agree
not to attempt to assert any such defense.
7.5 TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions
precedent imposed by Section 5 or this Section 7 upon the transferability of the
Shares shall cease and terminate as to any particular number of the Shares upon
the passage of two years from the effective date of the Registration Statement
or when such Shares shall have been effectively registered under the Securities
Act and sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Registration Statement covering such Shares or at
such time as an opinion of counsel satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
7.6 INFORMATION AVAILABLE. So long as the Registration Statement
is effective covering the resale of Shares owned by the Investor, the Company
will furnish to the Investor:
20
<PAGE> 22
(A) as soon as practicable after it is available
(but in the case of the Company's Annual Report to Shareholders, within
120 days after the end of each fiscal year of the Company), one copy of
(i) its Annual Report to Stockholders (which Annual Report shall
contain financial statements audited in accordance with generally
accepted accounting principles by a national firm of certified public
accountants); (ii) if not included in substance in the Annual Report to
Stockholders, its Annual Report on Form 10-K (the foregoing, in each
case, excluding exhibits); (iii) if not included in substance in its
Quarterly Reports to Shareholders, its quarterly reports on Form 10-Q;
and (iv) a full copy of the particular Registration Statement covering
the Shares (the foregoing, in each case, excluding exhibits);
(B) upon the reasonable request of the Investor,
all exhibits excluded by the parenthetical to subparagraphs (a)(ii),
(iii) and (iv) of this Section 7.6 as filed with the SEC and all other
information that is made available to shareholders; and
(C) upon the reasonable request of the Investor, an
adequate number of copies of the Prospectuses to supply to any other
party requiring such Prospectuses; and the Company, upon the reasonable
request of the Investor, will meet with the Investor or a
representative thereof at the Company's headquarters to discuss all
information relevant for disclosure in the Registration Statement
covering the Shares and will otherwise cooperate with any Investor
conducting an investigation for the purpose of reducing or eliminating
such Investor's exposure to liability under the Securities Act,
including the reasonable production of information at the Company's
headquarters; provided, that the Company shall not be required to
disclose any confidential information to or meet at its headquarters
with any Investor until and unless the Investor shall have entered into
a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
7.7 RULE 144 INFORMATION. For two years after the date of
this Agreement, the Company shall file all reports required to be filed by it
under the Securities Act, the Rules and Regulations and the Exchange Act and
shall take such further action to the extent required to enable the Investors to
sell the Shares pursuant to Rule 144 under the Securities Act (as such rule may
be amended from time to time).
7.8 BROKER'S FEE. The Investors acknowledge that the Company
intends to pay to Deutsche Banc Alex. Brown, the placement agent, a fee in
respect of the sale of the Shares to the Investors. Each of the parties to this
Agreement hereby represents that, on the basis of any actions and agreements by
it, there are no other brokers or finders entitled to compensation in connection
with the sale of the Shares to the Investors.
8. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight
21
<PAGE> 23
carrier, one (1) business day after so mailed, (iii) if delivered by
International Federal Express, two (2) business days after so mailed, (iv) if
delivered by facsimile, upon electric confirmation of receipt and shall be
delivered as addressed as follows:
(A) if to the Company, to:
CIMA Labs Inc.
10000 Valley View Road
Eden Prairie, Minnesota 55344
Attn: Chief Executive Officer
Phone: 612-947-8700
Telecopy: 612-947-8770
(B) with a copy mailed to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Gale R. Mellum
Phone: 612-336-3139
Telecopy: 612-336-3026
(C) if to the Investor, at its address on the Signature Page
hereto, or at such other address or addresses as may have been
furnished to the Company in writing.
9. CHANGES. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.
10. TERMINATION. This Agreement may be terminated as to any Investor,
at the option of such Investor, if the Closing has not occurred on or before
March 17, 2000.
11. HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
12. SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
13. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of California, without giving
effect to the principles of conflicts of law.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute
22
<PAGE> 24
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other parties.
15. CONFIDENTIAL DISCLOSURE AGREEMENT. Notwithstanding any provision
of this Agreement to the contrary, any confidential disclosure agreement
previously executed by the Company and the Investor in connection with the
transactions contemplated by this Agreement shall remain in full force and
effect in accordance with its terms following the execution of this Agreement
and the consummation of the transactions contemplated hereby.
23
<PAGE> 25
EXHIBIT 4.3
EXHIBIT A
CIMA LABS INC.
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 5 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be
registered in (this is the name that will --------------------------
appear on your stock certificate(s)).
You may use a nominee name if appropriate:
2. The relationship between the Investor and the
registered holder listed in response to item 1 --------------------------
above:
3. The mailing address of the registered holder
listed in response to item 1 above: --------------------------
4. The Social Security Number or Tax
Identification Number of the registered holder --------------------------
listed in the response to item 1 above:
A-1
<PAGE> 26
EXHIBIT B
CIMA LABS INC.
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: CIMA Labs Inc.
This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.01 per share, of CIMA Labs Inc. (the "Securities").
The Securities are being offered and sold by [Name of Company] (the
"Corporation") without registration under the Securities Act of 1933, as amended
(the "Act"), and the securities laws of certain states, in reliance on the
exemptions contained in Section 4(2) of the Act and on Regulation D promulgated
thereunder and in reliance on similar exemptions under applicable state laws.
The Corporation must determine that a potential investor meets certain
suitability requirements before offering or selling Securities to such investor.
The purpose of this Questionnaire is to assure the Corporation that each
investor will meet the applicable suitability requirements. The information
supplied by you will be used in determining whether you meet such criteria, and
reliance upon the private offering exemption from registration is based in part
on the information herein supplied.
This Questionnaire does not constitute an offer to sell or a
solicitation of an offer to buy any security. Your answers will be kept strictly
confidential. However, by signing this Questionnaire you will be authorizing the
Corporation to provide a completed copy of this Questionnaire to such parties as
the Corporation deems appropriate in order to ensure that the offer and sale of
the Securities will not result in a violation of the Act or the securities laws
of any state and that you otherwise satisfy the suitability standards applicable
to purchasers of the Securities. All potential investors must answer all
applicable questions and complete, date and sign this Questionnaire. Please
print or type your responses and attach additional sheets of paper if necessary
to complete your answers to any item.
A. BACKGROUND INFORMATION
<TABLE>
<S><C>
Name:
-----------------------------------------------------------------------------------------------------------
Business Address:
----------------------------------------------------------------------------------------------
(Number and Street)
- ----------------------------------------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number: ( )
----------------------------------------------------------------------------------
Residence Address:
----------------------------------------------------------------------------------------------
(Number and Street)
- ----------------------------------------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number: ( )
----------------------------------------------------------------------------------
If an individual:
Age: Citizenship: Where registered to vote:
------ ---------- --------------------
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity:
-------------------------------------------------------------------------------------------------
State of formation: Date of formation:
-------------- ----------------------------
Social Security or Taxpayer Identification No.
------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 27
<TABLE>
<S><C>
Send all correspondence to (check one): Residence Address Business Address
---- ----
</TABLE>
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable):(1)
(1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an investment company
registered under the Investment Corporation Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act; a Small Business
Investment Corporation licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with the investment decisions made solely by persons that
are accredited investors;1
(2) a private business development company as defined in Section 202(a)(22)
of the Investment Adviser Act of 1940;
(3) an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
(4) a natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;
(5) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(6) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
(7) an entity in which all of the equity owners are accredited investors
(as defined above).
C. REPRESENTATIONS
The undersigned hereby represents and warrants to the Corporation as follows:
- --------
(1) As used in this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor's adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depiction,
contributions to an IRA or KEOGH retirement plan, alimony payments, and any
amount by which income from long-term capital gains has been reduced in arriving
at adjusted gross income.
B-2
<PAGE> 28
1. Any purchase of the Securities would be solely for the account of
the undersigned and not for the account of any other person or with a view to
any resale, fractionalization, division, or distribution thereof.
2. The information contained herein is complete and accurate and may be
relied upon by the Corporation, and the undersigned will notify the Corporation
immediately of any material change in any of such information occurring prior to
the closing, if any, with respect to the purchase of Securities by the
undersigned or any co-purchaser.
3. There are no suits, pending litigation, or claims against the
undersigned that could materially affect the net worth of the undersigned as
reported in this Questionnaire.
4. The undersigned acknowledges that there may occasionally be times
when the Corporation, based on the advice of its counsel, determines that it
must suspend the use of the Prospectus forming a part of the Registration
Statement (as such terms are defined in the Stock Purchase Agreement to which
this Questionnaire is attached) until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the Securities and Exchange Commission or until the Corporation has amended or
supplemented such Prospectus. The undersigned is aware that, in such event, the
Securities will not be subject to ready liquidation, and that any Securities
purchased by the undersigned would have to be held during such suspension. The
overall commitment of the undersigned to investments which are not readily
marketable is not excessive in view of the undersigned's net worth and financial
circumstances, and any purchase of the Securities will not cause such commitment
to become excessive. The undersigned is able to bear the economic risk of an
investment in the Securities.
5. In addition to reviewing the Corporation's SEC Documents, the
undersigned has carefully considered the potential risks relating to the
Corporation and a purchase of the Securities, and fully understands that the
Securities are speculative investments which involve a high degree of risk of
loss of the undersigned's entire investment. Among others, the undersigned has
carefully considered each of the risks described under the heading "Risk
Factors" in the Corporation's most recent annual report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this
day of , 2000, and declares under oath that it is truthful and
correct.
Print Name
By:
-----------------------------------------
Signature
Title:
--------------------------------------
(required for any purchaser that is a
corporation, partnership, trust or
other entity)
B-3
<PAGE> 29
EXHIBIT C
CIMA LABS INC.
CERTIFICATE OF SUBSEQUENT SALE
ChaseMellon Shareholder Services
RE: Sale of Shares of Common Stock of CIMA Labs Inc. (the "Company")
pursuant to the Company's Prospectus dated , 2000
(the "Prospectus")
Dear Sir/Madam:
The undersigned hereby certifies, in connection with the sale of shares
of Common Stock of the Company included in the table of Selling Shareholders in
the Prospectus, that the undersigned has sold the Shares pursuant to the
Prospectus and in a manner described under the caption "Plan of Distribution" in
the Prospectus and that such sale complies with all applicable securities laws,
including, without limitation, the Prospectus delivery requirements of the
Securities Act of 1933, as amended.
Selling Shareholder (the beneficial owner):
---------------------------
Record Holder (e.g., if held in name of nominee):
---------------------
Restricted Stock Certificate No.(s):
----------------------------------
Number of Shares Sold:
------------------------------------------------
Date of Sale:
---------------------------------------------------------
In the event that you receive a stock certificate(s) representing more
shares of Common Stock than have been sold by the undersigned, then you should
return to the undersigned a newly issued certificate for such excess shares in
the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you
should place a stop transfer on your records with regard to such certificate.
Very truly yours,
By:
----------------------------
Print Name:
--------------------
Title:
-------------------------
Dated:
----------------------------
cc: Investor Relations
CIMA Labs Inc.
10000 Valley View Road
Eden Prairie, Minnesota 55344
C-1
<PAGE> 1
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
DATE 15 December 1999
ASTRA AB
- and -
CIMA LABORATORIES, INC.
-------------------------------------------
LOAN AGREEMENT
-------------------------------------------
<PAGE> 2
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
THIS AGREEMENT is dated December 15, 1999 and made
BETWEEN:
1. ASTRA AB, a company established and existing in accordance with the
laws of Sweden under no. 556011-7482 whose headquarters is at S-151 85
Sodertalje, Sweden ("Astra"); and
2. CIMA LABORATORIES, INC., a corporation incorporated in the State of
Delaware, United States of America under no. 2110839 whose principal
place of business is at 10000 Valley View Road, Eden Prairie,
Minnesota, USA 55344 ("CIMA").
WHEREAS
(A) CIMA owns or has rights to certain oral drug-delivery technology
marketed under the trademark OraSolv(R) and related know-how.
(B) IPR has an exclusive license to make, have made, use and sell products
containing the pharmaceutical drug [...***...] on a worldwide basis.
(C) CIMA and IPR entered into a Development and License Option Agreement,
dated as of September 10, 1997 (the "Development Agreement"),
[...***...]
(D) CIMA entered into a License Agreement with IPR dated 28 May 1999
("the License Agreement") [...***...]
(E) CIMA has requested that Astra lend, or procure the loan to CIMA of,
the sum of US $3.5 million in order to assist CIMA in improving its
operations and to help to assure availability and flow of the product
from CIMA to Zeneca Limited (an affiliate of Astra).
(F) The first launch of `Zomig' (R)rapimelt took place in Portugal in
early September 1999 [...***...]
<PAGE> 3
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
IT IS AGREED AS FOLLOWS:
1 Definitions and Interpretation
1.1 Definitions
In this Agreement, unless the context otherwise requires:
"Anniversary Date" means the date one year after the first
Payment Date and the date marking the end of each subsequent
one year period;
"Banking Day" means a day (other than Saturday or Sunday) on
which banks are open for business in London and Minnesota;
"Change of Control" means if any person or persons acting in
concert (other than the current officers and directors of
CIMA), together with Affiliates thereof, shall in the
aggregate, directly or indirectly, control or own
(beneficially or otherwise) more than 50% of the issued and
outstanding voting stock of CIMA.
"Date of this Agreement" means the date upon which this
Agreement is signed and delivered by the latter of the parties
to sign and deliver it;
"Default" means any Event of Default or any event or
circumstance which would, upon the giving of notice by Astra
and/or the expiry of the relevant period and/or the
fulfillment of any other condition (in each case as specified
in clause 10.1) constitute an Event of Default;
"Encumbrance" means any mortgage, charge (whether fixed or
floating), pledge, lien, hypothecation, assignment, trust
arrangement or security interest of any kind securing any
obligation of any person or any other type of preferential
arrangement (including without limitation title transfer
and/or retention arrangements having a similar effect) but
does not include liens arising in the ordinary course of
trading by operation of law and not by way of contract;
<PAGE> 4
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
"Event of Default" means any of the events or circumstances
described in clause 10.1;
"Indebtedness" means any obligation for the payment or
repayment of money borrowed, whether as principal or as surety
and whether present or future, actual or contingent;
"Interest Period" means in relation to the Loan the three
month period commencing on the Date of this Agreement and each
subsequent three month period commencing on the last day of
the previous Interest Period provided that, if any Interest
Period would otherwise overrun a Payment Date falling during
that Interest Period then, in the case of the final Payment
Date, such Interest Period shall end on such Payment Date and,
in the case of any other Payment Date such Interest Period
shall end on and the next Interest Period shall start on that
Payment Date;
"IPR" means IPR Pharmaceuticals, Inc., a corporation
incorporated in Puerto Rico under no. 61,324 whose registered
office is at P O Box 1967, Carolina, 00984 Puerto Rico (an
Affiliate of Astra);
[...***...]
"Loan" means the term loan in a principal amount of US Dollars
Three Million five hundred thousand (US $3,500,000) to be
advanced to CIMA by Astra pursuant to the terms of this
Agreement or, as the context requires, the principal amount
owing to Astra under this Agreement at any relevant time
together with all interest accrued thereon and unpaid for the
time being.
"Maturity Date" means the date which is the third Anniversary
Date; provided, however, that if total royalties payable to
CIMA under the License Agreement prior to the third
Anniversary Date prior to any withholding thereof by IPR under
clause 4.1 or 4.2., are less than an aggregate of $3,500,000,
then the Maturity Date shall be extended for
<PAGE> 5
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
a period of one year, and the Maturity Date shall thereafter
be extended for successive one-year periods until such
royalties payable have exceeded $3,500,000 in aggregate;
"month" means a period beginning in one calendar month and
ending in the next calendar month on the day numerically
corresponding to the day of the calendar month on which it
started, provided that (i) if the period started on the last
Banking Day in a calendar month or if there is no such
numerically corresponding day, it shall end on the last
Banking Day in such next calendar month and (ii) if such
numerically corresponding day is not a Banking Day, the period
shall end on the next following Banking Day in the same
calendar month but if there is no such Banking Day it shall
end on the preceding Banking Day and the expressions "months"
and "monthly" shall be construed accordingly; and
"OraSolv(R) Technology" means CIMA's effervescent,
fast-dissolving, oral drug delivery tablet technology as
defined in the License Agreement;
"Payment Dates" means each of the dates on which repayment
installments are due in respect of the Loan under clause 4.1;
"Product" or " `Zomig' rapimelt" shall mean the pharmaceutical
dosage form [...***...]
"Sale" means the disposal (whether by virtue of one
transaction or a series of related transactions) of all or not
less than 30% (by book value) of the assets of CIMA;
"Taxes" includes all present and future taxes, levies,
imposts, duties, fees or charges of whatever nature together
with interest thereon and penalties in respect thereof and the
expression "Taxation" shall be construed accordingly.
<PAGE> 6
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
1.2 Headings
Clause headings are inserted for convenience of reference only and
shall be ignored in the interpretation of this Agreement.
1.3 Construction of certain terms
In this Agreement, unless the context otherwise requires:
1.3.1 references to clazuses, parties, schedules and recitals are to
be construed as references to the clauses of, and the parties,
schedules and recitals to, this Agreement and references to
this Agreement include its schedules;
1.3.2 references to (or to any specified provision of) this Agreement
or any other document shall be construed as references to this
Agreement, that provision or that document as in force for the
time being and as from time to time amended in accordance with
the terms thereof, or, as the case may be, with the agreement
of the relevant parties;
1.3.3 words importing the plural shall include the singular and vice
versa;
1.3.4 references to a time of day are to London time;
1.3.5 references to a person shall be construed as including
references to an individual, firm, company, corporation,
unincorporated body of persons or any State or any agency
thereof; and
1.3.6 references to any enactment shall be deemed to include
references to such enactment as re-enacted, amended or
extended.
<PAGE> 7
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
1.4 Terms defined in the Supply Agreement or the License Agreement shall
have the same meaning when used in this Agreement.
2 The Loan
2.1 Astra relying upon each of the representations and warranties in
clause 7, shall advance the Loan to CIMA within ten (10) days
after the date of this Agreement, upon and subject to the terms
of this Agreement.
2.2 Astra shall advance the Loan by crediting CIMA's bank account no.
with the sum of US$3,500,000 within (10) days after the Date of
this Agreement. Details of such bank account are as follows:
[...***...]
3 Interest
3.1 Normal interest rate
Interest shall accrue on the Loan in respect of each Interest
Period at the rate per annum which is the aggregate of (a) one
half of one percent cent, and (b) LIBOR (or, if clause 3.3.1
applies, an alternative rate calculated in accordance with clause
3.3.2). Such interest shall be compounded on the last day of each
Interest Period and added to the principal amount of the Loan
outstanding at such time.
3.2 Default interest
If CIMA fails to pay any sum (including, without limitation, any
sum payable pursuant to this clause 3.2) on its due date for
payment under this Agreement CIMA shall pay interest on such sum
from the due date up to the date of actual payment (as well after
as before judgment) at a rate of the aggregate of (a) two percent
per annum, and (b) the interest rate in effect from time to time
for the Loan pursuant to clause 3.1.
<PAGE> 8
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
3.3 Market disruption; non-availability
3.3.1 If and whenever, at any time prior to the commencement
of any Interest Period Astra shall have determined,
[...***...]
3.3.2 [...***...]
3.4 [...***...]
4 Repayment
4.1 On each date when any royalties fall due from IPR to CIMA under
the License Agreement in respect of sales of Zomig Rapimelt,
there shall become due and payable from CIMA to Astra such part
of the Loan outstanding at that time (including accrued and
unpaid interest thereon) as is equal to 50% of the royalty
payment then due from IPR to CIMA (or, if less, the total amount
of the Loan (including accrued unpaid interest thereon)
outstanding at that time). Payment shall be made by CIMA to Astra
in accordance with clause 6 and all other relevant provisions of
this Agreement. On each Payment Date IPR shall be entitled to
withhold up to 50% (except as provided in clause 4.2) of the
amount of royalty then due to CIMA (or, if less, the total amount
of the Loan (including accrued unpaid interest thereon)
outstanding at that time), but only if CIMA has failed to make
payment to Astra in whole or in part of the amount due on such
Payment Date and only until such amount of principal and interest
has been paid by CIMA to Astra. If IPR so agrees with Astra, IPR
may apply to such withheld amount by way of set-off in repayment
of an equivalent amount of the Loan (including accrued unpaid
interest thereon). The License Agreement shall be deemed amended
accordingly.
4.2 If and when the Loan becomes repayable in full for any reason,
then without prejudice to any other remedies Astra might have,
IPR shall be entitled to withhold up to 100% of the amount of
royalties due to CIMA from time to time (or, if less, the total
principal amount of the Loan
<PAGE> 9
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
(including accrued unpaid interest thereon outstanding at that
time)), but only if CIMA has failed to make payment to Astra in
whole or in part of the amount then due to Astra, and only until
such amount has been paid by CIMA to Astra. If IPR so agrees with
Astra, IPR may apply such amount(s) by way of set-off in
repayment of an equivalent amount of the Loan (including all
accrued unpaid interest thereon), until such time as the Loan
(including all accrued unpaid interest thereon) have been repaid
in full. The License Agreement shall be deemed amended
accordingly.
4.3 CIMA may at any time on a Banking Day prepay in whole or in part
the outstanding amount of the Loan (including interest accrued
thereon) without premium or penalty provided that any such
pre-payment of part only of the Loan must be of not less than
US$100,000 and subject to Astra being given not less than 5
Banking Days' prior written notice of CIMA's intention so to
repay the Loan or such part thereof.
4.4 [...***...]
4.5 [...***...]
5. [...***...]
<PAGE> 10
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
6. Payments; accounts and calculations
6.1 No set-off or counterclaim
All payments to be made by CIMA under this Agreement (whether of
principal or interest) shall be made in full, without any set-off
or counterclaim whatsoever and, except as provided in clause 3.4,
free and clear of any deductions or withholdings, on the due date
to such account of Astra as Astra may from time to time specify
for this purpose.
6.2 Non-Banking Days
When any payment under this Agreement would otherwise be due on a
day which is not a Banking Day, the due date for payment shall be
extended to the next following Banking Day.
6.3 Calculations
All interest and other payments of an annual nature under this
Agreement shall accrue from day to day and be calculated on the
basis of actual days elapsed and a 365 day year.
7 Representations and Warranties
7.1 CIMA represents and warrants to Astra that:
7.1.1 Corporate power to borrow
it has power to execute, deliver and perform its
obligations under this Agreement and to borrow the Loan;
all necessary corporate, shareholder and other action
has been taken to authorize the execution, delivery and
performance of the same and no limitation on the powers
of CIMA to borrow will be exceeded as a result of
entering into this Agreement;
<PAGE> 11
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
7.1.2 Binding obligations
this Agreement constitutes valid and legally binding
obligations enforceable in accordance with its terms;
7.1.3 No conflict with other obligations
the execution and delivery of, the performance of its
obligations under, and compliance with the provisions of
this Agreement will not:
7.1.3.1 contravene any existing applicable law,
statute, rule or regulation or any judgment,
decree or permit to which it is subject;
7.1.3.2 conflict with, or result in any breach of
any of the terms of, or constitute a default
under, any agreement or other instrument to
which the it is a party or is subject or by
which it or any of its property is bound;
7.1.3.3 contravene or conflict with any provision of
it's By-Laws or equivalent documents; and
7.1.4 Default
No Default has occurred and is continuing which has not
been waived in writing by Astra;
7.2 Repetition
The representations and warranties in clause 7.1 shall be deemed
to be repeated by CIMA on and as of each Payment Date as if made
with reference to the facts and circumstances existing on each
such day.
<PAGE> 12
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
8 Undertakings
8.1 CIMA undertakes with Astra that from the date of this Agreement
and so long as any monies are owing under this Agreement, it
will:
[...***...]
8.2 CIMA undertakes with Astra that, from the Date of this Agreement
and so long as any monies are owing under this Agreement, without
the prior written consent of Astra, it will not :
[...***...]
9 Indemnities
9.1 Miscellaneous indemnities
CIMA shall on demand indemnify Astra, without prejudice to any of
its rights under this Agreement, against any loss or expense
which Astra shall certify as sustained or incurred by it as a
consequence of the occurrence of any Event of Default.
10 Events of Default
10.1 There shall be an Event of Default if:
10.2 any sum due and payable by CIMA to Astra hereunder is not paid in
full within 14 days after the due date; or
10.3 CIMA shall be in breach of or fail to perform or observe any of
the undertakings, conditions, covenants, agreements or
stipulations on its part contained in this Agreement and which
could have a material adverse effect on the ability of CIMA to
comply with its payment obligations under this Agreement and, in
the case of a breach capable of being remedied, fails to remedy
that breach within thirty (30) days
<PAGE> 13
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
after receiving written notice from Astra specifying that breach
and requiring the same to be remedied; or
10.4 if CIMA commits a breach of any the provisions of the License
Agreement or of the Supply Agreement and, in the case of a breach
capable of being remedied, fails to remedy that breach within
thirty (30) days after receiving written notice from Astra
specifying that breach and requiring the same to be remedied; or
10.5 CIMA becomes insolvent or bankrupt, or admits in writing its
inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors, or ceases doing business as a going
concern, or CIMA applies for or consents to the appointment of a
trustee or receiver for itself or for the major part of its
property; or
10.6 a trustee or receiver is appointed for CIMA or for the major
part of its property and the order of such appointment is not
discharged, vacated or stayed within thirty (30) days after such
appointment; or
10.7 any judgment, writ or warrant of attachment or of any similar
process in an amount in excess of $250,000 shall be entered or
filed against CIMA or against any of its property or assets and
remains unpaid, unvacated, unbonded or unstayed for a period of
thirty (30) days; or
10.8 an order for relief shall be entered in any Federal bankruptcy
proceeding in which CIMA is the debtor; or if bankruptcy,
reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings for relief under any bankruptcy
or similar law or laws for the relief of debtors, are instituted
by or against CIMA and, if instituted against CIMA, are consented
to or, if contested by CIMA, are not dismissed by the adverse
parties or by an order, decree, or judgment within sixty (60)
days after such institution; or
10.9 CIMA shall default in any material respect in the due and
punctual performance of any covenant or agreement in any note,
bond, indenture, loan agreement, note agreement, mortgage,
security
<PAGE> 14
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
agreement or other instrument evidencing or related to
Indebtedness in excess of $500,000, and such default shall
continue for more than the period of notice and/or grace, if
any, therein specified and shall not have been waived;
10.10 CIMA suspends or ceases to carry on its business or any
material part thereof in the ordinary course of business as
now conducted; or
10.11 any representation or warranty made by CIMA contained in this
Agreement becomes materially incorrect; or
10.12 it becomes unlawful for CIMA to perform any of its obligations
under this Agreement.
10.13 At any time after any Event of Default has occurred, Astra
shall without prejudice to its other rights hereunder be
entitled to demand immediate repayment of the Loan (including
accrued unpaid interest thereon) and all other sums due under
this Agreement.
11 General
11.1 Benefit and burden
This Agreement shall be binding upon, and enure for the
benefit of, Astra, IPR and CIMA and their respective
successors.
11.2 [...***...]
11.3 [...***...]
11.4 Without prejudice to clauses 4.1 and 4.2 CIMA hereby agrees
that Astra and IPR may at any time after an Event of Default
has occurred without notice set-off any sum owing by Astra or
IPR to CIMA against any sums due to Astra hereunder.
<PAGE> 15
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
11.5 [...***...]
12 Notices and other matters
12.1 Notices
Every notice, request, demand or other communication under
this Agreement shall:
12.2 be in writing delivered personally, by facsimile transmission
or by first-class prepaid letter;
12.3 be deemed to have been received, subject as otherwise provided
in this Agreement, in the case of a letter when delivered or
(if sent by airmail) 5 days after it has been put into the
post and in the case of facsimile transmission, on the date
the facsimile is received; and
12.4 be sent:
to CIMA at: 10000 Valley View Road
Eden Prairie, MN USA 55344
Fax No: 612/947-8770
marked for the attention of: President and Chief Executive
Officer; and
to Astra at: Vastra Malarehamnen 9
S-151 36 Sodertalje
Sweden
Fax No: 08-553 290 00
marked for the attention of: Legal Affairs Department.
12.5 or to such other address or for the attention of such other
person as is notified by CIMA or Astra to the other party to
this Agreement.
12.6 No implied waivers, remedies cumulative
No failure or delay on the part of Astra to exercise any
power, right or
<PAGE> 16
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
remedy under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise by Astra of any
power, right or remedy preclude any other or further exercise
thereof or the exercise of any other power, right or remedy.
The remedies provided in this Agreement are cumulative and are
not exclusive of any remedies provided by law.
13 First Right of Refusal
As further consideration for Astra agreeing to advance the Loan, CIMA
hereby grants to Astra a first right of refusal to exploit any new
technology to which CIMA may have the right from time to time and which
may have application in conjunction with any technology or products of
Astra or any of its Affiliates. Accordingly, CIMA may not grant to any
third party the right to exploit any such technology if within one year
from the date upon which CIMA notifies Astra of its intention to grant
such a right to any third party, Astra (or one of its Affiliates) has
entered into a license and development option agreement with CIMA in
respect of such new technology for at least one application. For these
purposes, CIMA agrees to negotiate any such agreement in good faith and
that the terms of any such agreement shall be at least equivalent to
those offered by CIMA to any third party.
14 Entire Agreement
14.1 This Agreement contains the entire agreement and understanding
of the parties with respect to the Loan and supersedes all
prior agreements, written or oral with respect to the Loan.
Each party acknowledges that it has not been induced to enter
into this Agreement by reason of any representation made by or
on behalf of the other party.
14.2 No variation to this Agreement shall be effective unless in
writing and signed by or on behalf of both parties.
<PAGE> 17
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 240.24B-2
15 Governing law and jurisdiction
15.1 Law
This Agreement is governed by and shall be construed in
accordance with the laws of the State of Delaware without
regard to its choice of law provisions and each party submits
to the non-exclusive jurisdiction of the Federal courts of the
United States sitting in the State of Delaware and the courts
of the State of Delaware.
15.2 The submission by the parties to such jurisdiction shall not
limit the right of Astra or CIMA to commence any proceedings
arising out of this Agreement in any other jurisdiction it
considers appropriate. Any notice of proceedings or other
notices in connection with or which would give effect to any
such proceedings may without prejudice to any other method of
service be served in accordance with Clause 12.
IN WITNESS whereof the parties to this Agreement have caused this Agreement to
be duly executed on the date first above written.
ASTRA AB (in the process of changing its name to AstraZeneca AB)
Signed /s/ Johannes Linda
Johannes Linda
Assistant General Counsel
December 13, 1999
CIMA LABORATORIES, INC.
Signed /s/ John M. Siebert
Title President and CEO
Date 15 December 99
<PAGE> 1
EXHIBIT 10.20
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
LICENSE AGREEMENT
This Agreement made this 29 day of December, 1999 by and between
1. ORGANON INTERNATIONAL AG., a corporation duly organized and existing under
the laws of Switzerland and having its registered offices at 160 B,
Churerstrasse, P.O. Box 129, 8808 Pfaffikon, Switzerland,
and
N.V. ORGANON, a corporation duly organized and existing under the laws of
The Netherlands and having its registered offices at Kloosterstraat 6, 5348
AB, Oss, The Netherlands, on the one hand, jointly hereinafter referred to
as "Organon",
and
2. CIMA LABS INC. a corporation duly organized and existing under the laws of
Delaware and having its registered offices at 10000 Valley View Road, Eden
Prairie , Minnesota 55344, USA, on the other hand, hereinafter referred to
as "CIMA".
CIMA and Organon may hereinafter be referred to as "Party", or collectively as
"Parties".
WITNESSETH THAT:
CIMA has developed and owns or has rights to certain patented oral drug-delivery
technology referred to as Orasolv(R) which has applications in the field of
pharmaceutical product formulation;
[...***...]
On December 2, 1998, CIMA and N.V. Organon, the latter acting on behalf of
Organon International A.G., entered into a Development and License Option
Agreement under which prototypes of certain pharmaceutical product formulations
were developed by CIMA for N.V. Organon's evaluation subject to the granting of
an option to enter into a license agreement with CIMA;
<PAGE> 2
2
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
The conclusion of a Toll Manufacturing Agreement within six (6) months after the
Effective Date regarding the manufacturing of the Product as defined in this
License Agreement is a condition for this License Agreement.
CIMA desires to enter into such a license agreement with Organon.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreement as
set forth herein, the Parties agree as follows:
ARTICLE 1 DEFINITIONS
Whenever used in this Agreement, unless otherwise clearly required by the
context, the following terms shall have the meaning as defined hereinafter (in
alphabetical order) and shall include both the single and the plural.
1.1 The term "Affiliated Company" shall mean any company which by means of a
majority of shares or otherwise, either directly or indirectly, controls,
is controlled by or is under common control with either Party hereto.
1.2 The term "Effective Date" shall mean the date first written above.
1.3 [...***...]
1.4 The term "Know-How" shall mean and include any and all data, information
and any experience or other data, in possession of CIMA, relating to the
Product, including Manufacturing Know How.
1.5 The term "Manufacturing Know-How" shall mean and include any and all data,
information and any experience or other data, in the possession of CIMA
which is necessary for Organon to effectively and efficiently manufacture
the Product.
1.6 The term "Net Sales" shall mean the total revenue from commercial sales
received by Organon, its Affiliated Companies and/or (sub)licensee(s) from
the sale to independent third parties of the Product subject to royalties
hereunder less the following amounts:
(i) discounts, including cash and quantity discounts, trade allowances or
rebates actually allowed or granted,
(ii) credits or allowances actually granted upon claims or returns,
regardless of the party requesting the return,
(iii) separately itemized freight charges paid for delivery
<PAGE> 3
3
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
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(freight, postage, shipping)
(iv) insurance costs,
(v) taxes or other governmental charges levied on or measured by the
invoiced amount and included in the invoice, whether absorbed by Organon or
the third party (other than franchise or income taxes on the income of the
selling party)
(vi) amounts prepaid or credited on account of rejections, expired dating
on return of Products.
1.7 The term "Patents" shall mean the patents, and patent applications (and any
patents issuing on such applications) listed in Exhibit I hereto and any
divisional, continuation and continuation-in-part applications thereof,
reissues, reexaminations, substitutions, additions and any extensions to
such patents as well as foreign counterparts thereof.
1.8 The term "Cima-Patents" shall mean the Patents excluding US patent nr.
5,225, 197 d.d. July 6, 1993, and corresponding patents in other countries.
1.9 The term "Registration Dossiers" shall mean and include dossiers filed by
Organon in the Territory with the relevant government institutions for the
purpose of obtaining marketing approval for the Product in the name of
Organon or its Affiliated Companies.
1.10 [...***...]
1.11 [...***...]
1.12 The term "Territory" shall mean the whole world.
1.13 The term "Toll Manufacturing Agreement" shall mean the Toll Manufacturing
Agreement referred to in the preamble hereof.
1.14 [...***...]
1.15 The term "Patent Country" means a country in which one or more Patents
covering the Product and/or its method of manufacture are in force and have
not expired, been nullified or revoked.
1.16 The term "Non-Patent Country" means a country other than a Patent Country.
1.17 The term "Patent Country Sale" means a sale of Product in which the Product
is transferred within a Patent Country;
<PAGE> 4
4
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
from a Patent Country to a Non-Patent Country; or from a Non-Patent Country
to a Patent Country.
1.18 The term "Non-Patent Country Sale" means a sale of product other than a
Patent Country Sale.
ARTICLE 2 GRANT OF LICENSES
2.1 [...***...]
2.2 [...***...]
2.3 Organon covenants that any third party to which it may sub-license certain
rights hereunder as well as any third party distributor entrusted by
Organon with the physical distribution of the Product, will be bound by the
terms and conditions of this Agreement.
ARTICLE 3 TRANSFER OF MANUFACTURING KNOW-HOW
[...***...]
ARTICLE 4 CONFIDENTIALITY
4.1 It is understood and agreed by Organon, that all Know-How and other
information and data disclosed by CIMA to Organon under this Agreement
and/or under the Toll Manufacturing Agreement is and shall remain the
exclusive property of CIMA. It is acknowledged by Organon that the Know-How
and other information and data are only disclosed to Organon for the
purposes and use described in this Agreement and that they are to be
regarded as trade secrets containing unpublished results of private
research and experience which are used in CIMA's business and which are of
a nature customarily held in strict confidence and regarded as privileged
knowledge; consequently any disclosure by Organon of Know-How information
and data in violation of the obligation of this paragraph will harm and
damage CIMA's legitimate business interests. Organon hereby undertakes to
keep secret and confidential the know-How and above mentioned information
and data during the term of this Agreement as well as thereafter and not to
disclose the Know-How, information and data to any third party, person,
government institution other than those referred to in Article 5, or
Affiliated Company of Organon, or third party designated by Organon in
compliance with Article 3, having a need to know such information and
agreeing to comply with
<PAGE> 5
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
the terms of this Article 4, without CIMA's prior written approval and not
to use it for any other use or purpose than those described in this
Agreement.
4.2 The obligations described in paragraph 4.1 above shall not be applicable to
any part of the Know-How or other information and data disclosed by CIMA
under this Agreement which:
- at the moment of disclosure, is general (public) knowledge;
- after disclosure, through no fault of Organon or the government
institution referred to in article 5, becomes general (public) knowledge;
- properly and lawfully becomes available to Organon, from sources not
bound to CIMA by a secrecy obligation, provided this can be adequately
substantiated.
4.3 Organon will use the Product and the Know-How and other information and
data of CIMA solely for the purposes specified in this Agreement and for no
other purpose. Upon termination or expiration of this Agreement Organon
hereby undertakes, upon such request from CIMA, to promptly return all
documentation received from CIMA on which the Know-How is displayed and/or
described and not to retain any copy or photocopy of such documentation and
to stop any further use or disclosure of CIMA's Know-How and/or other
information and data as referred to in paragraph 4.1 above, except one copy
of all documents or other written material containing confidential
information -to be kept in the files of its law department provided that
reasonable measures are taken to limit access to such files- for the sole
purpose of resolving future disputes concerning this Agreement.
ARTICLE 5 REGISTRATION AND MARKETING APPROVAL
Organon shall use its reasonable best efforts to have the registrations and
marketing approval for the Product in the Territory granted as soon as possible.
All expenses and fees in connection with the application and maintaining of the
registrations and marketing approval by Organon in the Territory shall be for
account of Organon. Organon shall own all registrations and marketing approvals
of the Product.
ARTICLE 6 PRICE APPROVAL
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
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At the same time as the application for marketing approval, Organon shall file
with the relevant government institution
an application for price approval for the Product.
ARTICLE 7 PROMOTION
Organon shall use its reasonable best efforts to successfully commercialize the
Product within the Territory and agrees to use such reasonable best efforts in
particular to successfully promote the Product in the Territory. The amount of
effort to be applied to each region of the Territory is to Organon's discretion.
ARTICLE 8 PURCHASE AND SUPPLY OF PRODUCTS
The terms of the manufacture and supply of the Product will be contained in the
Toll Manufacturing Agreement.
ARTICLE 9 CONSIDERATION
9.1 [...***...]
9.2 [...***...]
9.3 [...***...]
9.4 [...***...]
9.5 [...***...]
9.6 Payments due shall be made within 30 days after receipt of the relevant
invoices.
ARTICLE 10. MAINTENANCE OF PATENT, INFRINGEMENT
[...***...]
ARTICLE 11 WARRANTIES
11.1 CIMA warrants that:
a) CIMA is a corporation duly organized, duly existing and in good
standing under the laws of the State of Delaware in the United States
of America, with full right, power and authority to enter into and
perform this Agreement and to grant all of the rights, powers and
authorities herein granted;
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
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b) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which CIMA is a
party, or CIMA's articles of incorporation or bylaws;
c) CIMA has sufficient rights in the Know-How and the Patents to grant to
Organon the rights set forth in Section 2.1. To the knowledge of CIMA
the execution of the provisions of this Agreement does not infringe in
any third parties proprietary rights.
d) CIMA agrees to indemnify Organon against any claim from any third
party regarding any infringement by the Product or the process used to
make the Product of third parties' US patents rights valid on the
Effective Date. CIMA shall have the right to control the defense of
any such claim provided that CIMA will not settle any such claim on
terms requiring discontinuance of the Product without consent of
Organon, which shall not be unreasonably withheld. Nevertheless,
Organon shall perform research regarding the Product for possible
conflicts with third parties proprietary rights valid in Europe. Such
research shall be terminated within three (3) months after Effective
Date. Organon shall assess the results of such research, and shall
decide whether the results are satisfactory. An unsatisfactory result
from such research shall be a condition to this Agreement. Any and all
actions performed under this Agreement shall than be reversed.
11.2 Organon warrants that:
a) The companies herein defined as Organon are corporations duly
organized, existing and in good standing under the laws of Switzerland
and/or the Netherlands, with full right, power and authority to enter
into and perform this Agreement and to grant all of the rights, powers
and authorities herein granted;
b) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which Organon is a
party, or the articles of incorporation or by laws of any of the
companies defined herein as Organon;
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
c) This Agreement has been duly executed and delivered by Organon and is a
legal, valid and binding obligation enforceable against Organon in
accordance with its terms.
ARTICLE 12 DURATION
12.1 This Agreement shall become effective as of the Effective Date and shall
expire upon the expiration of the last Patent covering the Product.
12.2 Notwithstanding the preceding paragraphs, this Agreement may be terminated
forthwith by registered mail or overnight courier:
a) by either Party in the event the other Party shall materially breach
any of its obligations under this Agreement and shall fail to remedy
such breach within ninety (90) days from receipt of written notice of
such breach by the Party not in default; or
b) by either Party in the event of the other Party's liquidation,
bankruptcy or state of insolvency; or
c) By either Party in case the other Party assigns this Agreement in
whole or in part to any third party or sells a substantial part of its
business to any third party or in the event there is a substantial
change in the identity of that other Parties present management or
shareholders without the prior written consent of the other Party.
d) By CIMA if the Toll Manufacturing Agreement has not been signed within
(12) twelve months after the signing of this Agreement.
12.3 Articles Confidentiality, Indemnification, Miscellaneous and 15.1 shall
survive termination of this Agreement.
ARTICLE 13 INDEMNIFICATION
13.1.CIMA will indemnify and hold Organon and Organon's Affiliated Companies
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 Organon or Organon's
Affiliated Companies may incur, arising out of any
<PAGE> 9
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
third party's claim of property damage or personal injury or death arising
from the use of the Product 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, including the Substance, supplied by
Organon to CIMA, or from Organon's or Organon's Affiliated Companies'
negligence or willful misconduct.
13.2.Organon will indemnify and hold CIMA and CIMA's Affiliated Companies
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 CIMA's
Affiliated Companies 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 Organon's or Organon's
Affiliated Companies' negligent or willful misconduct in its performance of
this Agreement or any breach of a representation or warranty given herein
by Organon. However, Organon 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 Organon, or from CIMA's or
CIMA's Affiliated Companies' negligence or willful misconduct.
13.3.In the event any third party asserts a claim covered by Sections 13.1 or
13.2, 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 thirty
(30) 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, Affiliated Companies, and third parties
<PAGE> 10
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
performing services for the indemnified party.
ARTICLE 14 APPLICABLE LAW AND DISPUTE RESOLUTION
14.1 The validity, construction and performance of this Agreement shall be
governed by and construed in accordance with the laws of the State of
Delaware.
14.2 The Parties shall attempt in good faith to resolve promptly any dispute
arising out of or relating to this Agreement by negotiation. If the matter
can not be resolved in the normal course of business any interested Party
shall give the other Party written notice of any such dispute not resolved,
after which the dispute shall be referred to more senior executives of both
Parties, who shall likewise attempt to resolve the dispute.
14.4 If the dispute has not been resolved by non-binding means as provided in
paragraph 14.3 above within forty-five (45) days of the initiation of such
procedure, the dispute shall be finally and exclusively settled by
arbitration by three independent arbitrators in Minneapolis, Minnesota
under the Uncitral Arbitration Rules. Each party shall select one
arbitrator, and those two arbitrators shall appoint the third by mutual
agreement and in accordance with the Uncitral Arbitration Rules. The
appointing authority shall be The London Court of International Arbitration
in London, England. The language of the arbitration shall be English. The
arbitration shall be in lieu of any other remedy and the award shall be
final, binding and enforceable by any court having jurisdiction for that
purpose. The Parties further agree that the arbitrators are not authorized
to award punitive damages in connection with any controversy or claim
settled by arbitration.
14.5 This Article shall, however, not be construed to limit or to preclude
either Party from bringing any action in any court of competent
jurisdiction for injunctive or other provisional relief as necessary or
appropriate.
ARTICLE 15 NON CONCURRENCE AND NEW DEVELOPMENTS
[...***...]
ARTICLE 16 MISCELLANEOUS
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
16.1 Publicity. Except as may be required by law or regulatory authorities,
neither party shall release or generate any publicity concerning the
transactions contemplated hereunder without the express consent of the
other party, which consent shall not be unreasonably withheld or delayed. A
press release announcing this Agreement is attached as Exhibit III. The
term "publicity" shall not include responses to press or trade inquiries or
internal communications by either party directly or solely to its
employees, provided, that such responses or communications do not describe
the specific terms of the transactions contemplated hereunder in
substantially greater detail than contained in a description of the
transactions agreed to by both parties, and provided further, that each
party will be free to provide employees with information required in the
performance of their duties. Any party that determines applicable
securities laws require it to file this Agreement shall first provide the
other party a copy of the redacted version it intends to file and shall
provide the other party the opportunity to comment thereon. Nonetheless the
filing party will make the final decision regarding the version to file,
based on the advice of its counsel.
16.2 Headings. All headings of the Articles and Paragraphs of this Agreement are
added to those Articles and Paragraphs for the purpose of convenience only
and the contents and meaning of such headings shall in no way limit the
meaning and applicability of the relevant Articles and Paragraphs.
16.3 Entire Agreement. This Agreement, the Development and License Option
Agreement and the Toll Manufacturing Agreement constitute the entire
agreement between the Parties and annuls and replaces any other agreement
or understanding whether written or oral which may have existed between the
parties with respect to the subject matter hereof. All schedules and
Exhibits referred to form an integral part of this Agreement. this
Agreement can be modified or amended and rights under this Agreement waived
only in writing signed by the Party to be charged.
16.4 No Assignment. Organon shall not assign or otherwise transfer this
Agreement or any part thereof to any third party, without the written
consent of CIMA.
16.5 Binding upon Successors. This Agreement shall bind and benefit the Parties
and their respective successors and assigns.
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
16.6 Notices. All notices in connection with this Agreement shall be in writing
and be in the English language (as shall all other written communications
and correspondence) and may be given by personal delivery, prepaid
registered airmail letter, telegram or telefax, addressed to the Party
required or entitled to receive same at its address set forth below, or to
such other address as it shall later designate by like notice to the other
Party. Notice of termination of this Agreement if given by telegram or
telefax, shall be confirmed by prepaid registered airmail letter dated and
posted the same day. The effective date of any notice if served by
telegram, telex or telefax shall be deemed the first business day in the
city of destination following the dispatch thereof and if given by prepaid
registered airmail letter only, it shall unless earlier received, be deemed
served not later than seven (7) days after date of posting.
Notice to Organon shall be to:
Organon International AG
Switzerland
Telefax: + 41 55 4151998
Attention: General Manager
with a copy to:
N.V. Organon
PO Box 20
5340 BH OSS
The Netherlands
Telefax: 31 412 646923
Attention: President
Notice to CIMA shall be to:
CIMA Labs Inc.
+ 1 612 947 8770
Attention: President
16.7 Severability. All stipulations contained in this Agreement shall be so
construed as not to infringe any provision of any law prevailing to this
Agreement. To the extent that, and only to the extent that, any stipulation
does infringe any such provisions, said stipulation shall be deemed void
and shall be replaced by a stipulation in such a way as in accordance with
the prevailing law is possible and in such a way as will be the least
prejudicable to the interest of either Party. The infringement of any
provision by a stipulation shall not affect the validity of any other
stipulation of this Agreement.
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
16.8 Independent Contractors. The Parties are independent contractors and
nothing in this Agreement shall imply any principal or agent relationship
or other joint relationship and neither Party shall have the power or
authority, either express or implied, to obligate the other Party.
16.9 Language. This Agreement is written in the English language and executed in
two (2) counterparts, each of which shall be deemed an original. The
English language text of this Agreement shall prevail over any translation
thereof.
16.10 No Waiver. Failure of either party to insist upon the strict and punctual
performance of any provision of this Agreement shall not constitute a
waiver of, or estoppel against asserting the right to require such
performance, nor should a waiver or estoppel in one case constitute a
waiver or estoppel with respect to a later breach whether of similar nature
or otherwise.
16.11 [...***...]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representatives to be effective as of the
date first written above.
ORGANON INTERNATIONAL AG. CIMA Labs Inc.
By : /s/ T. Boerma By : John M. Siebert
Name : Mr. T. Boerm Name : John M. Siebert, Ph.D.
Title: General Manager Title: President and CEO
By : /s/ R. Hugli By : ___________________
Name : Mr. R. Hugli Name : ___________________
Title: General Manager Title: ___________________
N.V. ORGANON
By : /s/ J. Lakeman
Name : Dr. J. Lakeman
Title: Managing Director International
Production and Quality Affairs
By : /s/ T.J. Kalff
Name : Drs. T.J. Kalff
Title: President
<PAGE> 1
Exhibit 10.21
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
DEVELOPMENT AND LICENSE
AGREEMENT
BETWEEN
CIMA LABS INC.
AND
AMERICAN HOME PRODUCTS CORPORATION
ACTING THROUGH ITS DIVISION
ESI LEDERLE
FOR
[...***...]
<PAGE> 2
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
DEVELOPMENT AND LICENSE AGREEMENT
THIS AGREEMENT is signed this 14th day of January 2000 between CIMA
LABS INC., a corporation organized and existing under the laws of the State of
Delaware with offices located at 1000 Valley View Road, Eden Prairie, Minnesota
55344 (hereafter, together with its Affiliates, referred to as ("CIMA"), and
American Home Products Corporation (acting through its division, ESI Lederle), a
corporation organized and existing under the laws of the State of Delaware with
offices located at 130 N. Radnor-Chester Road, St. Davids, Pennsylvania 19087
("ESI").
ARTICLE I
DEFINITIONS
1.1 [...***...]
1.2 ADVERSE EXPERIENCE means the definition in the current 21 CFR "
Sections 312.32 and 314.80, as in effect from time to time.
1.3 AFFILIATE means (i) any Person which at the time of determination
is directly or indirectly controlled by any party hereto; (ii) any Person which
at the time of determination directly or indirectly controls any party hereto;
or (iii) any Person which is under the direct or
1
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
indirect control of any such Person as described in subparagraphs (i) or (ii).
Control in this Section means ownership of greater than fifty percent (50%) of
the voting stock or other voting interests in the Person in question.
[...***...]
1.4 AGENCY means any governmental regulatory authority responsible for
granting approvals, including Pricing Approvals, for the sale of the Product in
a country in the Territory.
1.5 [...***...]
1.6 CIMA PATENTS shall mean those Patents and Patent applications owned
or Controlled by CIMA during the Term of this Agreement that claim the Product,
its manufacture or method of use, including the Patents and Patent applications
which are set forth on Exhibit A hereto.
1.7 COMMERCIALLY REASONABLE EFFORTS means efforts and resources
normally used by a party for a compound or product owned by it or to which it
has rights, which is of similar market potential at a similar stage in its
product life, taking into account the competitiveness of the marketplace, the
proprietary position of the compound or product, the regulatory structure
involved, the profitability of the applicable products, and other relevant
factors. It is anticipated that the level of efforts and resources may change at
different times during the product life cycle of a compound or product.
1.8 CONTROL OR CONTROLLED in the context of intellectual property
rights means rights to intellectual property sufficient to allow a grant of
rights to a party.
2
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
1.9 DIRECT COST means the costs for those items specified in Exhibit B,
which costs are calculated in accordance with U.S. generally accepted accounting
principles consistently applied.
1.10 EFFECTIVE DATE means the date determined in Section 14.10.
1.11 FDA means the United States Food and Drug Administration, or any
successor thereto.
1.12 GOOD CLINICAL PRACTICE OR GCP means the then current standards for
clinical trials for pharmaceuticals, as set forth in the United States Federal
Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder,
as amended from time to time, and such standards of good clinical practice as
are required by the European Union and other organizations and governmental
agencies in countries in which Product is intended to be sold, to the extent
such standards are not inconsistent with United States GCP.
1.13 GOOD LABORATORY PRACTICE OR GLP means the then current standards
for laboratory activities for pharmaceuticals, as set forth in the United States
Federal, Food, Drug and Cosmetics Act and applicable regulations promulgated
thereunder, as amended from time to time, and such standards of good laboratory
practice as are required by the European Union and other organizations and
governmental agencies in countries in which Product is intended to be sold, to
the extent such standards are not inconsistent with United States GLP.
3
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
1.14 GOOD MANUFACTURING PRACTICE OR GMP means the current standards for
the manufacture of pharmaceuticals, as set forth in the United States Federal,
Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder,
as amended from time to time, and such standards of good manufacturing practices
as are required by the European Union and other organizations and governmental
agencies in countries in which Product is intended to be sold, to the extent
such standards are not inconsistent with United States GMP.
1.15 [...***...]
1.16 HSR ACT means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
1.17 LAUNCH DATE means the date of first commercial shipment of the
Product by ESI or its Affiliates or their respective subdistributors to Third
Parties in a country in the Territory.
1.18 MAJOR COUNTRY means any of the United States, Germany, or the
United Kingdom. The foregoing countries may also collectively be referred to as
Major Countries.
1.19 [...***...]
Such amounts shall be determined from the books and records of ESI, its
Affiliates and their respective sublicensees and subdistributors maintained in
accordance with U.S. generally accepted accounting principles consistently
applied, and such amounts shall be calculated using the same accounting
principles used for other ESI products.
4
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
[...***...] Where (i) Product is sold by ESI, its Affiliates or its
sublicensees and subdistributors other than in an arms-length sale or as one of
a number of items without a separate invoiced price; or (ii) consideration for
Product shall include any non-cash element, the Net Sales applicable to any such
transaction shall be deemed to be ESI's average Net Sales for the applicable
quantity of to the Product at that time.
1.20 PATENTS means all patents and patent applications, and all
additions, divisions, continuations, continuations in-part, pipeline protection,
substitutions, reissues, extensions, registrations, patent term extensions,
supplementary protection certificates and renewals of any of the above.
1. 21 PERSON means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency thereof.
1.22 PRICING APPROVAL means any approval for price or reimbursement as
may be necessary or appropriate as a prerequisite for marketing the Product in a
particular country of the Territory.
1.23 [...***...]
1.24 REGULATORY APPROVAL means the product license or marketing
approval necessary as a prerequisite for marketing the Product in a particular
country in the Territory.
1. 25 REGULATORY DOCUMENTS means all regulatory submissions, Regulatory
Approvals, and Pricing Approvals.
5
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
1.26 SPECIFICATIONS means the specifications for the Product as set
forth in Exhibit C hereto, as may be amended from time to time by the parties in
the course of Product development and in accordance with the regulatory
submissions and/or Regulatory Approvals, or as otherwise required by regulatory
authorities.
1.27 SUPPLY AGREEMENT means the agreement for the exclusive supply of
Product by CIMA to ESI between the parties and effective on the Effective Date.
1.28 TECHNICAL INFORMATION means (a) techniques and data, including
ideas, inventions (including patentable inventions), practices, methods,
knowledge, know-how, trade secrets, skill, experience, documents, apparatus,
clinical and regulatory strategies, test data, including pharmacological,
toxicological and clinical test data, analytical and quality control data,
manufacturing, patent data or descriptions relating to Product, and (b) chemical
formulations, compositions of matter, product samples and assays relating to
Product.
1.29 TERM shall have the meaning set forth in Section 10.1.
1.30 TERRITORY means the world.
1.31 THIRD PARTY means any Person other than a party to this Agreement
or an Affiliate of a party to this Agreement
1.32 $ means United States dollars.
ARTICLE II
GRANT OF RIGHTS; EXCLUSIVITY
6
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
2.1 GRANT OF RIGHTS During the Term of this Agreement, CIMA hereby
grants to ESI, an exclusive license under the CIMA Patents and Technical
Information, and CIMA's interest in Joint Patent Rights, to market, promote,
use, distribute, sell, have sold and to import and export Product within the
Territory, provided that CIMA grants only a non-exclusive license under
[...***...] and corresponding patents throughout the world. In addition to the
foregoing, ESI shall have an exclusive license under the CIMA Patents ad
Technical Information, and CIMA's interest in the Joint Patent Rights, to make
(and to have made) Product in the Territory subject to, and in accordance with,
the provisions of Sections 2.4,11.3(b) and the applicable provisions of the
Supply Agreement.
2.2 SUBLICENSE RIGHTS The rights granted to ESI hereunder includes the
right to sublicense all or part of such rights [...***...]; provided that (a)
the terms and conditions of such grant of sublicense rights (i) are consistent
with and do not violate the terms and conditions of this Agreement, and (ii)
provide ESI with the right and obligation to enforce such terms and conditions;
(b) ESI remains primarily liable and responsible for the performance of any such
Affiliates and Third Parties according to the terms of this Agreement; and (c)
if ESI grants a sublicense to a Third Party, then ESI shall promptly notify CIMA
of the identify of the Third Party; provided, however that any sublicense of the
rights contained in Section 2.4 hereof or Section 2.9 of the Supply Agreement
shall be subject to the prior written consent of CIMA, such consent not to be
unreasonably withheld or delayed.
2.3 [...***...]
7
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
2.4 [...***...]
ARTICLE III
DEVELOPMENT ACTIVITIES
3.1 DEVELOPMENT AND REGISTRATION RESPONSIBILITIES FOR THE PRODUCT Each
party agrees to use its Commercially Reasonable Efforts to perform its
obligations to develop, [...***...], and register the Product to meet the
timetable set forth in Exhibit D. Each party shall comply with all applicable
GLP, GCP and GMP in the conduct of the development of the Product. CIMA shall
(a) be responsible for conducting the ongoing development work for Product; (b)
design and conduct all dosage form, formulation, process, and chemistry
manufacturing and control (CMC) and related technical studies on Product,
including preparation of dosage form CMC regulatory documents, and conduct
scale-up activities for the manufacture of Product. ESI shall be responsible for
and shall (a) conduct all pivotal biostudies, and (b) file, own and maintain all
submissions for Regulatory Approval and Regulatory Approvals of Product in the
Territory. CIMA shall be responsible for providing the CMC and related technical
components of such submissions, as jointly determined by the parties, and ESI
shall be responsible for formatting such documentation for, and submitting such
documentation to, the appropriate Agencies in the Territory. The ANDA shall be
filed with CIMA as approved manufacturer. The parties shall cooperate with, and
assist, each other in connection with their activities hereunder including
addressing regulatory questions, and preparing updates and supplements to
regulatory
8
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
filings for Product in the Territory. ESI, however, shall be responsible for all
communications with the FDA and post-Regulatory Approval regulatory requirements
in the Territory, including pharmacovigilance and Adverse Drug Experience
reporting, unless otherwise agreed in advance in writing by the parties.
3.2 [...***...]
ARTICLE IV
DILIGENCE OBLIGATIONS
4.1 PERFORMANCE OBLIGATIONS
(a) ESI shall, subject to supply by CIMA of launch quantities of
Product, use Commercially Reasonable Efforts to launch Product as soon as
commercially reasonable in each Major Country, within three (3) months following
the later of Regulatory Approval or if applicable, Pricing Approval, provided
the pricing is approved within ESI's global pricing limits. The Product must
also be free of all other legal and regulatory encumbrances.
4.2 RECORD KEEPING Each party shall record, to the extent practical and
customary in the industry, all Technical Information relating to the Product
development in written form, which writing shall be signed, dated and witnessed,
consistent with standard practices of each party. All such written records of
the parties shall be maintained in a form sufficient to satisfy Regulatory
Agencies.
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
4.3 ADVERSE DRUG EXPERIENCES To the extent either party receives any
information regarding Adverse Drug Experiences related to the use of the
Product, such party shall promptly provide the other party with such information
in accordance with the Adverse Event Reporting Procedures set forth in Exhibit E
hereto (as may be amended from time to time upon written agreement of the
parties).
ARTICLE V
ROYALTY PAYMENTS TO CIMA
5.1 [...***...]
5.2 [...***...]
5.3 INSPECTION OF RECORDS The parties shall maintain at their offices,
accurate and complete books and records consistent with sound business and
accounting this Agreement by the respective party to be determined. ESI and CIMA
shall permit an independent certified accountant (subject to obligations of
confidentiality) appointed by the other party and reasonably acceptable to ESI
or CIMA (as applicable), at the other party's expense, to examine such books and
records at all reasonable times for the sole purpose of (i) verifying ESI's or
CIMA's (as applicable) reports and accounting submitted to the other party
hereunder and (ii) determining the correctness of payments. In the event of any
underpayment of any payment by at least five percent (5%), the costs of such
inspection shall be borne by the party who made such underpayment and such
underpayment shall be
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
forthwith paid by such party to the other party with interest at the rate
specified in Section 5.5.
5.4 PAYMENTS Each party shall make all payments due to the other party
hereunder in $ by wire transfer in immediately available funds to an account
designated by the payee party.
5.5 INTEREST The parties shall pay interest on any amounts overdue
under this Agreement at a rate equal to the $ prime or equivalent rate quoted by
Citibank N.A. or another mutually acceptable bank, as in effect during the
period from the date due until payment.
5.6 EXCHANGE RATES All royalty payments to be made pursuant to this
Agreement shall be made in $. Amounts based on Net Sales in currencies other
than $ shall be converted to $ at the ESI financial statement exchange rates
applied by ESI on a consistent basis in ESI's own financial accounting on the
date such payment is due.
5.7 CURRENCY BLOCKAGE Where payments are due hereunder for sales of
Product in a country where, by reason of currency regulations or taxes of any
kind, it is impossible or illegal for ESI to transfer payments to CIMA in that
country, such payments shall be deposited by ESI in whatever currency is
allowable for the benefit or credit of CIMA in an accredited bank in that
country that is reasonably acceptable to CIMA.
5.8 WITHHOLDINGS Any and all income or similar taxes imposed or levied
on account of the receipt of payments under this Agreement which are required to
be withheld shall be paid by ESI on behalf of CIMA and shall be paid to the
proper taxing authority.
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
Proof of payment shall be secured, if available, and sent to CIMA by ESI as
evidence of such payment in such form as required by the tax authorities having
jurisdiction over ESI. Such taxes shall be deducted from the payments that would
otherwise be remittable by ESI. ESI shall take reasonable measures to assist
CIMA in obtaining credit for such taxes against CIMA's United States tax
liabilities.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES OF EACH PARTY Each of CIMA and ESI
hereby represents, warrants and covenants to the other party hereto as follows:
(a) it is a corporation or entity duly organized and validly existing
under
(b) the laws of the state or other jurisdiction of incorporation or
formation;
(c) the execution, delivery and performance of this Agreement by such
(d) party has been duly authorized by all requisite corporate action
and does not
(e) require any shareholder action or approval;
(f) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder; and
(g) the execution, delivery and performance by such party of this
Agreement and its compliance with the terms and provisions hereof does not and
will not conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (i) a loan agreement, guaranty, financing
agreement, agreement affecting a product or other
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
agreement or instrument binding or affecting it or its property (ii) the
provisions of its charter or operative documents or bylaws; or (iii) any order,
writ, injunction or decree of any court or governmental authority entered
against it or by which any of its property is bound.
6.2 REPRESENTATIONS AND WARRANTIES OF CIMA In addition to the
representations and warranties made by CIMA under Section 6.1 above, CIMA hereby
further represents and warrants to ESI that:
(a) As of the Effective Date, the CIMA Patents are existing and, to the
best of its knowledge, are not invalid or unenforceable, in whole or in part;
(b) It has the full right, power and authority to grant all of the
right, title and interest in the licenses granted under Article II hereof;
(c) It has not, prior to the Effective Date, previously assigned,
transferred, conveyed or otherwise encumbered its right, title and interest in
Product, or the CIMA Patents, or CIMA Technical Information, with respect to
which ESI has been granted a license or other rights hereunder in the Territory,
provided that CIMA has granted, and may in the future grant, licenses to Third
Parties under such CIMA Patents and CIMA Technical Information which licenses do
not conflict with the rights granted to ESI under this Agreement;
(d) It is the sole and exclusive owner of the CIMA Patents and
Technical Information existing as of the Effective Date, all of which are free
and clear of any liens, charges and encumbrances, except as provided in Section
6.2(c), and no other person,
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
corporate or other private entity, or governmental entity or subdivision
thereof, has or shall have any claim of ownership with respect to the CIMA
Patents or Technical Information in the Territory, [...***...]
(e) To the best of its knowledge the CIMA Patents and Technical
Information do not, as of the Effective Date, interfere or infringe on anyvalid
intellectual property rights owned or possessed by any Third Party in the
Territory, [...***...]
(f) As of the Effective Date, there are no claims, judgments or
settlements against or owed by CIMA or, to the best of its knowledge, pending or
threatened claims or litigation relating to the CIMA Patents or Technical
Information;
(g) During the Term of this Agreement it will use Commercially
Reasonable Efforts not to diminish the rights under the CIMA Patents and
Technical Information licensed to ESI hereunder, by not committing or permitting
any actions or omissions which would cause the breach of any agreements between
itself and Third Parties which provide for intellectual property rights
applicable to the development, manufacture, use or sale of Product, that it will
provide ESI promptly with notice of any such alleged breach, and that as of the
Effective Date, it is in compliance in all material respects with any agreements
with Third Parties relating to the CIMA Patents and Technical Information.
6.3 REPRESENTATION BY LEGAL COUNSEL Each party hereto represents that
it has been represented by legal counsel in connection with this Agreement and
acknowledges that it has participated in the drafting hereof. In interpreting
and applying the terms and provisions of this Agreement, the parties agree that
no presumption shall exist or be implied
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
against the party which drafted such terms and provisions.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY ESI Except as provided in Section 9.3, ESI shall
indemnify, defend and hold harmless CIMA and its Affiliates, and each of its and
their respective employees, officers, directors and agents (each a "CIMA
Indemnified Party") from and against any all liability, loss, damage, cost and
expense (including reasonable attorney's fees) (collectively, a "Liability")
which the CIMA Indemnified Party may incur, suffer or be required to pay
resulting from or arising in connection with (i) the breach by ESI of any
representation or warranty contained in this Agreement, or (ii) the manufacture,
promotion, distribution, use, testing, marketing, sale or other disposition of
Product by ESI, its Affiliates or sublicensees. Notwithstanding the foregoing,
ESI shall have no obligation under this Agreement to indemnify, defend or hold
harmless any CIMA Indemnified Party with respect to claims, demands, costs or
judgments which result from either (x) the failure of Product supplied by CIMA
or its Affiliates to comply with the Specifications or the applicable Regulatory
Approvals or (y) the willful misconduct or negligent acts or omissions of CIMA,
its Affiliates, or any of their respective employees, officers, directors or
agents.
7.2 INDEMNIFICATION BY CIMA Except as provided in Section 9.3, CIMA
shall indemnify, defend and hold harmless ESI and its Affiliates, and each of
its and their respective employees, officers, directors and agents (each, a "ESI
Indemnified Party") from
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
and against any Liability which the ESI Indemnified Party may incur, suffer or
be required to pay resulting from or arising in connection with the breach by
CIMA of any representation or warranty contained in this Agreement.
Notwithstanding the foregoing, CIMA shall have no obligation under this
Agreement to indemnify, defend, or hold harmless any ESI Indemnified Party with
respect to claims, demands, costs or judgments which result from the failure of
Active Ingredient supplied by ESI or its Affiliates to comply with the
Specifications or the applicable Regulatory Approvals, or from the willful
misconduct or negligent acts or omissions of ESI, its Affiliates, or any of
their respective employees, officers, directors or agents.
7.3 CONDITIONS TO INDEMNIFICATION The obligations of the indemnifying
party under Sections 7.1 and 7.2 are conditioned upon delivery of written notice
to the indemnifying party of any potential Liability promptly after the
indemnified party becomes aware of such potential Liability, provided, however,
that the failure to give such notice promptly shall not impair a party's rights
to indemnification under this Article VII unless the delay in providing such
notice has a material adverse effect on the ability of the indemnifying party to
defend against such Liability. The indemnifying party shall have the right to
assume the defense of any suit or claim related to the Liability if it has
assumed responsibility for the suit or claim in writing; however, if in the
reasonable judgment of the indemnified party, such suit or claim involves an
issue or matter which could have a material adverse effect on the business
operations or assets of the indemnified party, the indemnified party may waive
its rights to indemnity under this Agreement and control the
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
defense or settlement thereof, but in no event shall any such waiver be
construed as a waiver of any rights such party may have as against any Third
Party at law or in equity. If the indemnifying party defends the suit or claim,
the indemnified party may participate in (but not control) the defense thereof
at its sole cost and expense.
7.4 SETTLEMENTS Neither party may settle a claim of action related to a
Liability without the consent of the other party, if such settlement would
impose any monetary obligation on the other party or require the other party to
submit to an injunction or otherwise limit the other party's rights under this
Agreement. Any payment made by a party to settle any such claim or action shall
be at its own cost and expense except in the event that such payment was made
with the prior written consent of the indemnifying party, in which case such
payment will be subject to the indemnification obligations of the parties as set
forth in this Article VII.
7.5 INSURANCE Each party further agrees to obtain and maintain, during
the term of this Agreement, Comprehensive General Liability Insurance, including
Products Liability Insurance, with reputable and financially secure insurance
carriers to cover its indemnification obligations under Section 7.1 or 7.2, as
applicable, [...***...]
ARTICLE VIII
CONFIDENTIALITY
8.1 NONDISCLOSURE During the Term of this Agreement and for a period of
five (5) years thereafter, all proprietary and confidential business, technical,
scientific and/or
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
regulatory information, including Technical Information, disclosed to the
receiving party or its Affiliates (herein collectively, the (Receiving Party) by
the other party or its Affiliates (herein collectively, the (Disclosing Party)
hereunder or under the existing Confidentiality Agreement between the parties
which is marked as confidential at the time of disclosure, or if disclosed or
obtained orally or visually (or otherwise in a non-written form), was described
or summarized in a writing or other tangible form and identified as confidential
and forwarded to the Receiving Party within thirty (30) days of such disclosure
(collectively, Confidential Information), shall be deemed to be confidential and
shall be treated as such by the Receiving Party and shall not be disclosed, in
whole or in part, by the Receiving Party to any other Person except as expressly
set forth herein, and shall be used only for the purposes of this Agreement.
Notwithstanding the foregoing these mutual obligations of confidentiality shall
not apply to any information to the extent that such information is:
(i) independently developed by such party as documented by prior
written records outside the scope and not in violation of this Agreement;
(ii) legally in the public domain at the time of its receipt or
thereafter legally becomes part of the public domain through no fault of the
recipient;
(iii) received without an obligation of confidentiality from a Third
Party having the right to disclose such information;
(iv) released from the restrictions of this Article VIII by the express
written consent of the Disclosing Party;
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
(v) as may be required for securing Regulatory Approval, or as may be
required to be disclosed to an Agency or as otherwise required by a court order
or any law or regulation (including, as may be required in connection with any
filings made with the Securities and Exchange Commission or by the disclosure
policies of a major stock exchange in the Territory); provided, however, that at
the other party's request, the disclosing party shall request that the relevant
legal or regulatory authority, or major stock exchange, treat as confidential
any Confidential Information of either party included in any such disclosure and
generally use diligent efforts to seek confidential treatment where available.
8.2 SCOPE OF CONFIDENTIALITY CIMA and ESI agree to limit the disclosure
of any Technical Information and other Confidential Information received
hereunder to such Affiliates, officers and employees as are necessary to carry
out the provisions of this Agreement and who are likewise bound by provisions
equivalent to this Article VIII, except that, with CIMA's written consent, which
shall not be unreasonably withheld or delayed, ESI may disclose Confidential
Information of CIMA to consultants, to distributors, and to actual or potential
sublicencees and subdistributors, provided that they are likewise bound by
confidentiality provisions similar to, or more stringent than, those set forth
in this Article VIII. The parties shall take reasonable measures to assure that
no unauthorized use or disclosure is made by Persons to whom access to such
Confidential Information is granted. Unauthorized use or disclosure by any
person who has been given access to Confidential Information by a Receiving
Party hereunder shall be deemed to be unauthorized use or
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
disclosure by such Receiving Party, and the Receiving Party shall be responsible
to the Disclosing Party hereunder.
ARTICLE IX
TECHNOLOGY AND DATA OWNERSHIP RIGHTS; INFRINGEMENT
9.1 OWNERSHIP OF DATA AND TECHNICAL INFORMATION
[...***...]
(B) Inventorship of any inventions acquired or developed in
connection with the development program shall be determined by reference to
United States patent laws pertaining to inventorship. Accordingly, (i) if an
invention is made in connection with the development program by one (1) or more
employees or consultants of each party, it shall be deemed to be a "Joint
Invention". If one or more claims included in an issued Patent or pending patent
application which is filed in a patent office in the Territory claim such Joint
Invention following rules shall govern ownership of such Patent or patent
application: [...***...] (c) any other Joint Inventions shall be jointly owned
by CIMA and ESI as Joint Patent Rights hereunder. If an invention is made in
connection with the development program solely by an employee or consultant of a
party, it shall be solely owned by such party, and any Patent filed claiming
such solely owned invention shall also be solely owned by such party. Each party
shall require its employees and consultants to disclose to it any inventions
relating to the Product in writing promptly after conception, and each party
shall, subsequent to any such disclosures to it by its employees or consultants,
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
promptly disclose such inventions to the other party. Each party shall ensure
that its employees and consultants shall assign his/her interest in such
invention(s) to his/her respective party employer, as the case may be, and such
rights shall therefore vest in the respective party employer to whom the
inventor assigns his/her rights. [...***...] The parties shall mutually agree
upon how and where to file and prosecute any Joint Patent Rights, the
maintenance of any ensuing Joint Patent Rights covering such Joint Inventions,
and how to license, enforce, defend and protect any such Joint Patent Rights and
how to share the costs relating thereto.
9.2 INFRINGEMENT
(a) Each party shall promptly report in writing to the other party during
the term of this Agreement any known infringement or suspected infringement of
any of the CIMA Patents in the Territory by manufacture, use or sale of a
Product on a commercial scale in derogation of the rights granted to ESI
hereunder (hereinafter, a "Related Infringement") of which it becomes aware, and
shall provide the other party with all available evidence supporting said
infringement or suspected infringement.
(b) Except as provided in paragraph (d) below, CIMA shall have the right to
initiate an infringement or other appropriate suit anywhere in the Territory
against any Third Party who at any time has infringed, or is suspected of
infringing, any of the CIMA Patents. CIMA shall give ESI sufficient advance
notice of its intent to file any suit on account of a Related Infringement and
the reasons therefor, and shall provide ESI with an opportunity to make
suggestions and comments regarding such suit. CIMA shall keep ESI promptly
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
informed, and shall from time to time consult with ESI regarding the status of
any such suit on account of a Related Infringement and shall provide ESI with
copies of all documents filed in, and all written communications relating to,
such suit.
(c) CIMA shall have the sole and exclusive right to select counsel for any
suit referred to in subsection (b) above and shall, except as provided below,
pay all expenses of the suit, including without limitation attorneys' fees and
court costs. ESI, in its sole discretion, may elect, within 60 days after the
commencement of such litigation on account of a Related Infringement, to
contribute to the costs incurred by CIMA in connection with such litigation and,
if it so elects, any damages, royalties, settlement fees or other consideration
received by CIMA as a result of such litigation shall be shared by CIMA and ESI
pro rata based on their respective sharing of the costs of such litigation
provided that such pro rata share shall not exceed fifty percent (50%) unless
CIMA has consented to a higher share in writing. In the event that ESI elects
not to contribute to the costs of such litigation, CIMA shall be entitled to
retain any damages, royalties, settlement fees or other consideration for
infringement resulting therefrom. If necessary, ESI shall join as a party to the
suit but shall be under no obligation to participate except to the extent that
such participation is required as the result of being a named party to the suit.
ESI shall offer reasonable assistance to CIMA therewith at no charge to CIMA
except for reimbursement of reasonable out-of-pocket expenses incurred in
rendering such assistance. ESI shall have the right to participate and be
represented in any such suit by its own counsel at its own expense. CIMA shall
not settle any such suit on terms which grant any license to any other
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
party in derogation of the rights granted to ESI hereunder without obtaining the
prior written consent of ESI, which consent shall not be unreasonably withheld.
(d) In the event that CIMA elects not to initiate an infringement or other
appropriate suit pursuant to subsection (b) above on account of a Related
Infringement after reasonable efforts to abate such Related Infringement without
litigation have failed, but in no event later than ninety (90) days after ESI's
notice to CIMA under Section 9.3(a), CIMA shall promptly advise ESI of its
intent not to initiate such a suit, ESI shall have the right, at the expense of
ESI, of initiating an infringement or other appropriate suit against the party
or parties committing such Related Infringement. In exercising its rights
pursuant to this subsection (d), ESI have the sole and exclusive right to select
counsel and shall, except as provided below, pay all expenses of the suit
including without limitation attorneys' fees and court costs. CIMA, in its sole
discretion, may elect, within 60 days after the commencement of such litigation,
to contribute to the costs incurred by ESI in connection with such litigation,
and, if it so elects, any damages royalties, settlement fees or other
consideration received by ESI as a result of such litigation shall be shared by
ESI and CIMA pro rata based on their respective sharing of the costs of such
litigation provided that such pro rata share shall not exceed fifty percent
(50%) unless ESI has consented to a higher share in writing.
In the event that CIMA elects not to contribute to the costs of such
litigation, ESI shall be entitled to retain any damages, royalties, settlement
fees or other consideration for infringement resulting therefrom. If necessary,
CIMA shall join as a party to the suit but shall
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
be under no obligation to participate except to the extent that such
participation is required as a result of being named a party to the suit. At
ESI's request, CIMA shall offer reasonable assistance to ESI in connection
therewith at no charge to ESI except for reimbursement of reasonable
out-of-pocket expenses incurred in rendering such assistance. CIMA shall have
the right to participate and be represented in any such suit by its own counsel
at its own expense.
9.3 CLAIMED INFRINGEMENT
(a) In the event that a Third Party at any time provides written notice of
a claim to, or brings an action, suit or proceeding against, either party or any
of their respective Affiliates, claiming infringement of its patent rights,
[...***...]
(b) If a Third Party at any time brings an action, suit or proceeding
against ESI and/or CIMA and/or their Affiliates, claiming infringement of its
patent rights, [...***...] ESI shall have the right to use counsel of its own
choice and shall control the defense of any such action, suit or proceeding. If
CIMA desires to have additional counsel of its own choice participate in the
defense, CIMA shall be solely responsible for the costs and expenses of its
counsel. ESI shall have the authority to settle any such action, suit or
proceeding with the prior written consent of CIMA, such consent not to be
unreasonably withheld or delayed. If ESI receives any payment(s) as part of the
settlement of any such threatened or actual action, suit or proceeding,
[...***...]
(c) If a Third Party at any time brings an action, suit or proceeding
against ESI and/or its Affiliates, claiming infringement of its patent rights,
based upon an assertion or
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
claim arising out of the use, importation, distribution, [...***...], the
parties shall share equally responsibility for and any and all costs and
expenses associated with such legal actions including, without limitation,
damages, settlement payments, attorneys' fees and court costs. Each party shall
offer reasonable assistance to the other party in connection therewith at no
charge to the other party except for reimbursement of reasonable out-of-pocket
expenses incurred in rendering such assistance.
(d) This Section 9.3 states the entire responsibility of CIMA in the case
of any claimed infringement or violation of any Third Party's patent rights.
ARTICLE X
TERM AND TERMINATION
10.1 TERM This Agreement shall be effective as of the Effective Date, and,
unless sooner terminated by mutual agreement or pursuant to any other provision
of this Agreement, shall continue in full force and effect, on a
country-by-country basis, until the later to occur of (a) ten (10) years from
the Launch Date of Product in such country, or (b) expiration of the last to
expire of the CIMA Patents in each such country (the "Term").
10.2 TERMINATION FOR DEFAULT Each party may terminate this Agreement if the
other party commits a material breach of any material obligation under this
Agreement and fails to remedy such breach within sixty (60) days (or, in the
case of a late payment, ten (10) business days of notice of such breach), or
other longer period of time if mutually agreed; provided that if the defaulting
party initiates steps within the sixty (60) day notice period to
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
remedy or cure the breach, unless the parties mutually agree otherwise, such
termination shall become effective only if the breach is not remedied within one
hundred and twenty (120) days after the initial notice from the non-defaulting
party. For purposes of clarification, unless otherwise mutually agreed by the
parties in writing, (a) in no event shall a defaulting party have longer than
one hundred twenty (120) days to remedy a material breach (other than a material
breach of a payment obligation) under this Section, and (b) in no event shall a
defaulting party have longer than ten (10) business days to remedy a material
breach of a payment obligation under this Section.
10.3 [...***...]
ARTICLE XI
EFFECT OF EXPIRATION AND TERMINATION
11.1 [...***...]
11.2 DEVELOPMENT COMMITMENTS In the event that CIMA terminates this
Agreement pursuant to Section 10.2 or ESI terminates this Agreement pursuant to
Section 10.3, all development commitments (internal and external) of CIMA
incurred or committed up through the effective date of such termination shall
become due and payable to CIMA by ESI on the effective date of such termination.
11.3 [...***...] In the event that no such assignment may legally be made
in any country in the Territory, [...***...]
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CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
11.4 NO DAMAGES UPON EXPIRATION OR TERMINATION Except as otherwise set
forth in this Agreement, neither party shall be entitled to any compensation
whatsoever as a result of expiration or termination of this Agreement, but
without limiting either party's damages for any breach of this Agreement.
11.5 CONTINUING OBLIGATIONS Termination or expiration of this Agreement for
any reason shall be without prejudice to any obligations which shall have
accrued to the benefit of either party prior to such termination or expiration.
Upon termination or expiration of this Agreement, any payments owed to the other
party on or before the effective date of termination would be due within thirty
(30) days of the effective date of such termination or expiration. The following
provisions of this Agreement shall survive expiration or termination hereof
Article VIII, Section 9.1, Articles XI and XIV.
ARTICLE XII
TRADEMARKS
12.1 [...***...]
12.2 TRADEMARK OWNERSHIP AND USE
a.ESI recognizes CIMA's exclusive ownership of and title in and to the
MARKS, and shall not at any time do or permit to be done any act or thing which
would in any way impair the rights of CIMA in and to the MARKS or in any
trademark registration application therefor, and shall not at any time claim any
right of interest in or to the MARKS or the aforesaid trademark application
therefor.
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b. ESI agrees that during the term of the Agreement and after its
termination, however occurring, that ESI shall not:
(i) use the MARKS or any other mark confusingly similar thereto
in connection with any goods not covered by this Agreement which would
be likely to cause confusion between the parties; or
(ii) apply for or seek registration anywhere in the world, at any
time, for the MARKS or any other mark confusingly similar thereto; or
(iii) commit or do any act which might prejudice or adversely
affect the validity of the MARKS or CIMA's ownership thereof or dilute
or diminish the value of the MARKS to CIMA.
c. ESI shall use the MARKS only in a proper trademark sense and shall
identify the MARKS as a registered trademark of CIMA by including use of the
registered trademark symbol (R) or the symbol (TM) in association with the MARKS
as specified by CIMA.
d. ESI agrees that all goodwill resulting from its use of the MARKS
shall inure to the exclusive benefit of CIMA.
e. ESI shall assist CIMA in obtaining or maintaining registrations for
the MARKS by supplying specimens, other proofs of use and other information or
documents reasonably necessary to obtain or maintain registration of the MARKS
in all jurisdictions within the Territory.
12.3 [...***...]
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ARTICLE XIII
PRESS RELEASES AND PUBLICATIONS
13.1 PRESS RELEASES The parties agree to issue a joint press release,
in the form attached hereto as Exhibit F, upon the Effective Date. All other
press releases and public announcements related to this Agreement shall be
approved in advance in writing by the other party.
13.2 PUBLICATIONS The parties shall mutually agree upon publications
and the publication strategy with respect to work undertaken by the parties
relating to Product, and neither party shall publish any result or study
generated or developed under this Agreement except upon review by the other
party at least sixty (60) days prior to submission of an abstract or manuscript
for publication.
ARTICLE XIV
MISCELLANEOUS
14.1 FORCE MAJEURE Neither party shall be liable for delay or failure
to perform its obligations hereunder for so long as that failure or delay is the
result of an event beyond its control which it could not have avoided by the
exercise of reasonable diligence, (a force majeure event), provided that such
party uses commercially Reasonable Efforts to comply with the terms of this
Agreement as soon as practicable. A party asserting a force majeure event shall
notify the other party promptly, giving an indication of the likely extent and
duration thereof.
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14.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS Neither party shall at any
time, without obtaining the prior written consent of the other party, assign or
transfer this Agreement to any Person. Notwithstanding the foregoing, each party
shall be permitted to assign this Agreement to its Affiliates or to perform this
Agreement, in whole or in part, through its Affiliates, provided that such party
shall be primarily liable and responsible for performance by such Affiliate
hereunder; and each party may also assign this Agreement to any successor by
merger or upon a sale of all or substantially all of the assets to which this
Agreement relates. This Agreement shall be binding upon and shall inure to the
benefit of the parties and their successors and permitted assigns.
14.3 NOTICES Any notices required or permitted to be given hereunder
shall be in writing and shall be delivered by air courier service (requiring
signature upon receipt) or sent by first class air mail, postage prepaid, or
telefax (confirmed by phone conversation with the recipient) to the addresses
set forth below. The parties may change the address at which notice is to be
given by giving notice to the other party as herein provided. All notices shall
be deemed effective upon receipt by the party to whom it is addressed.
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
If to CIMA: CIMA LABS, Inc.
10000 Valley View Road
Eden Prairie, Minnesota 55344
Attention: Dr. John Siebert
President and CEO
Telephone: (612) 947-8762
Telefax: (612) 947-8770
If to ESI: ESI Lederle With a copy to:
130 North Radnor-Chester Road American Home Products Corporation
St. Davids, Pennsylvania 19087 5 Giralda Farms
Madison, New Jersey 07940
Attention: President Attention:
Telephone: (610) 971-4550 Senior Vice President & General Counsel
Telefax: (610) 995-3394 Telephone: (973) 660-6040
Telefax: (973) 660-7050
14.4 GOVERNING LAW AND JURISDICTION This Agreement and its execution,
validity and interpretation shall be governed in all respects in accordance with
the laws of the State of Delaware, excluding conflicts of law rules.
14.5 SEVERABILITY In the event that any provision of this Agreement
shall be held to be unenforceable, invalid or in contravention of applicable
law, such provision shall be of no effect, and the parties shall negotiate in
good faith to replace such provision with a provision which effects to the
extent possible the original intent of such provision.
14.6 COMPLETE AGREEMENT; MODIFICATIONS This Agreement, together with
all Exhibits attached hereto, constitutes the entire Agreement between the
parties with respect to the present subject matter, all prior negotiations,
agreements and understandings being
31
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expressly canceled hereby. This Agreement may be amended only by a written
agreement embodying the full terms of the amendment signed by authorized
representatives of both parties.
14.7 NO AGENCY Neither party shall by virtue of this Agreement have any
power to bind the other to any obligation nor shall this Agreement create any
relationship of agency, partnership or joint venture.
14.8 NO WAIVER No term or condition of this Agreement shall be
considered waived unless reduced to writing and duly executed by an officer of
the waiving party. Any waiver by any party of a breach of any term or condition
of this Agreement will not be considered as a waiver of any subsequent breach of
this Agreement, of that term or condition or any other term or condition hereof.
14.9 COUNTERPARTS This Agreement may be executed in counterparts, each
of which together shall constitute one and the same Agreement.
14.10 [...***...]
14.11 COMPLIANCE ISSUES The parties acknowledge that the export of
technical data, materials or products is subject to the exporting party
receiving the necessary export licenses and that the parties cannot be
responsible for any delays attributable to export controls which are beyond the
reasonable control of either party. The parties agree that regardless of any
disclosure made by the party receiving an export of any ultimate destination of
any technical data, materials or products, the receiving party will not
re-export either directly or indirectly, any technical data, material or
products without first obtaining the
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applicable validated or general license from the United States Department of
Commerce, FDA and/or any other agency or department of the United States
Government as required.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CIMA LABS INC. ESI LEDERLE
By: /s/ John M. Siebert By: /s/ Mike Dey
Name: John M Siebert Name: Mike Dey
Title: President and CEO Title: President
33
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EXHIBIT 10.22
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200.83 AND 204.24B-2
SUPPLY AGREEMENT
BETWEEN
CIMA LABS INC.
AND
AMERICAN HOME PRODUCTS CORPORATION
ESI LEDERLE DIVISION
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SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT is signed this 14th day of January 2000
between CIMA LABS., a corporation organized and existing under the laws of the
State of with offices located at 10000 Valley View Road, Eden Prairie, Minnesota
55344-9361 (hereafter, together with its Affiliates, referred to "CIMA"), and
American Home Products Corporation (acting through its division, ESI Lederle), a
corporation organized and existing under the laws of the State of Delaware with
offices located at 130 North Radnor-Chester Road, St. Davids, Pennsylvania 19087
("ESI").
ARTICLE I
DEFINITIONS
1.1 [...***...]
1.2 ADVERSE DRUG EXPERIENCE means the definition in the current 21 CFR
" Sections 312.32 and 314.80, as in effect from time to time.
1.3 AFFILIATE means (i) any Person which at the time of determination
is directly or indirectly controlled by any party hereto; (ii) any Person which
at the time of determination directly or indirectly controls any party hereto;
or (iii) any Person which is under the direct or indirect control of any such
Person as described in subparagraphs
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(i) or (ii). "Control" shall in this Section mean ownership of greater than
fifty percent (50%) of the voting stock or other voting interests in the Person
in question. For purposes of this Agreement, Immunex Corporation shall not be
considered to be an affiliate of ESI.
1.4 AGENCY means any governmental regulatory authority responsible for
granting approvals, including Pricing Approvals, for the sale of a Product in a
country in the Territory.
1.5 COMMERCIALLY REASONABLE EFFORTS means efforts and resources
normally used by a party for a compound or product owned by it or to which it
has rights, which is of similar market potential at a similar stage in its
product life, taking into account the competitiveness of the marketplace, the
proprietary position of the compound or product, the regulatory structure
involved, the profitability of the applicable products, and other relevant
factors. It is anticipated that the level of efforts and resources may change at
different times during the product life cycle of a compound or product.
1.6 CONTROL OR CONTROLLED in the context of intellectual property
rights means rights to intellectual property sufficient to allow a grant of
rights without any obligation to any Third Party.
1.7 [...***...]
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1.8 DEVELOPMENT AND LICENSE AGREEMENT means the Development and
License Agreement between the parties signed contemporaneously with this
Agreement
1.9 EFFECTIVE DATE means the effective date of the Development and
License Agreement.
1.10 EXTENDED TERM shall have the meaning set forth in Section 9.1.
1.11 FDA means the United States Food and Drug Administration, or any
successor thereto.
1.12 GOOD MANUFACTURING PRACTICE OR GMP means the current standards for
the manufacture of pharmaceuticals, as set forth in the United States Federal,
Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder,
as amended from time to time, and such standards of good manufacturing practices
as are required by the European Union and other organizations and governmental
agencies in countries in which Product is intended to be sold, to the extent
such standards are not inconsistent with United States GMP.
1.13 INITIAL TERM shall have the meaning set forth in Section 9.1
1.14 LAUNCH DATE means the date of first commercial shipment of a
Product by ESI or its Affiliates or their respective subdistributors of Product
to Third Parties in a country of the Territory.
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1.15 MAJOR COUNTRY means any of the United States, Germany, or the
United Kingdom. The foregoing countries may also collectively be referred to as
Major Countries.
1.16 NDA means a New Drug Application, as defined in the United States
Food, Drug and Cosmetic Act, as amended, and applicable FDA rules and
regulations.
1.17 PERSON shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency thereof.
1.18 PRICING APPROVAL means any approval for price or reimbursement as
may be necessary or appropriate as a prerequisite for marketing Product in a
particular country of the Territory.
1.19 PRODUCT means rapid dissolving tablets containing 10 milligrams
Active Ingredient meeting the Specifications.
1.20 REGULATORY APPROVAL means the product license or marketing
approval necessary as a prerequisite for marketing Product in a particular
country in the Territory.
1.21 REGULATORY DOCUMENTS means all regulatory submissions, Regulatory
Approvals, and Pricing Approvals.
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200.83 AND 204.24B-2
1.22 SPECIFICATIONS means the initial specifications for the Product as
set forth in Exhibit A hereto, as may be amended from time to time by the
parties in the course of Product development and in accordance with the
regulatory submissions and/or Regulatory Approvals, or as otherwise required by
regulatory authorities.
1.23 TECHNICAL INFORMATION means (a) techniques and data, including
ideas, inventions (including patentable inventions), practices, methods,
knowledge, know-how, trade secrets, skill, experience, documents, apparatus,
clinical and regulatory strategies, test data, including pharmacological,
toxicological and clinical test data, analytical and quality control data,
manufacturing, patent data or descriptions relating to Product, and (b) chemical
formulations, compositions of matter, product samples and assays relating to
Product.
1.24 TERM shall have the meaning set forth in Section 9.1
1.25 TERRITORY means the world.
1.26 THIRD PARTY means any Person other than a party to this Agreement
or an Affiliate of a party to this Agreement.
ARTICLE II
SUPPLY AND MANUFACTURING
2.1 MANUFACTURING During the Term of this Agreement, CIMA shall
manufacture and supply ESI with, and ESI shall purchase from CIMA Product in
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accordance with the terms specified in this Article II. Subject to Section 2.9,
ESI shall exclusively purchase all of ESI's requirements of Product from CIMA
and CIMA shall exclusively supply Product to ESI.
2.2 [...***...]
2.3 FORECASTS
(a) [...***...], ESI shall provide to CIMA a non-binding rolling three
(3) year Product forecast (based on calendar years and updated at least
semi-annually) for long-term manufacturing planning purposes.
(b) During the Term of this Agreement, ESI shall provide CIMA on a
calendar basis, with a non-binding one (1) year rolling forecast, providing CIMA
with a written estimate of the quantities of Product required during the next
four (4) calendar half years. Each such quarterly estimate shall contain an
update of the immediately preceding estimate with respect to the calendar
quarters referred to in such preceding estimate.
2.4 FIRM ORDERS
(a ) [...***...]
(b) Notwithstanding the foregoing, CIMA has the right to satisfy ESI's
firm order requirements pursuant to this Article II by supplying ESI with
Product in full batch
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quantities provided that CIMA may round up or down ESI's actual order for
Product to the nearest full batch.
2.5 LIMITS ON FIRM ORDERS
If a firm order made pursuant to Section 2.4 is greater than
one hundred fifty percent (150%) of the one (1) year rolling forecast received
by CIMA for such ninety (90) day period, then CIMA shall use Commercially
Reasonable Efforts, but shall not be obligated, to ship that portion of the
excess over one hundred fifty percent (150%).
2.6 CANCELLATIONS OF ORDERS If ESI cancels a firm order made pursuant
to Section 2.4, then ESI shall reimburse CIMA for all costs incurred by CIMA as
a result of such cancellation of such order, including materials, labor, work in
progress, obsolete inventory disposal and overhead; but this obligation shall
not cover capital costs.
2.7 PAYMENT TERMS
(a) [...***...]
(b) [...***...]
(c) In the event the Actual Amount for Product purchased by ESI in a
calendar half year is less than the Estimated Amount for that calendar half
year, then CIMA shall pay to ESI such difference amount with CIMA's report for
that calendar half
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year. In the event the Actual Amount for Product purchased by ESI in a calendar
half year is greater than the Estimated Amount for that calendar half year, then
ESI shall pay to CIMA such greater amount within fourteen (14) days of ESI's
receipt of CIMA's invoice for such amount with regard to ESI's purchases of
Product in that calendar half year.
2.8 QUALITY ASSURANCE
(a) Prior to the shipment of Product to ESI, CIMA shall test
representative samples of each of the batch(es) to be shipped in
accordance with validated, approved methods of analysis defined in the
Specifications. CIMA shall provide ESI with a Certificate of Analysis
for each batch of Product shipped to ESI stating that the Product so
shipped conforms to the Specifications. The Certificate of Analysis
shall be in a format agreed upon by the parties.
(b) CIMA shall retain production samples and batch records from
each batch of Product for the longer of (i) five (5) years after the
manufacture of each such batch of Product or (ii) the time period
required under GMP. Upon request, CIMA shall provide ESI's Quality
Control Department with production samples of Product and/or copies of
completed Batch records.
(c) Master batch process documentation will be prepared and
approved by CIMA as per its normal procedures. The parties agree that
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deviations from master batch process documentation may be necessary
from time to time. Such deviations shall be discussed with ESI before
any proposed shipment of Product. Individual batch process
documentation shall be photocopied from the approval master and issued
for each batch as per CIMA's routine system. Original batch records
will be filed securely by CIMA. CIMA will perform all in-process
control tests demanded by the approved batch process.
(d) ESI shall have the right to test Product to verify compliance
with Specifications and applicable Regulatory Approvals and CIMA shall
supply ESI with its testing procedures. ESI may, by written notice
provided to CIMA within sixty (60) days of ESI's receipt of a shipment
of Product, reject all or part of such shipment of Product if, based
upon the testing of such Product conducted under this Section 2.8, such
Product does not comply with the Specifications or applicable
Regulatory Approvals. If ESI fails to notify CIMA within such sixty
(60) day period, that it is rejecting such Product, ESI shall be deemed
to have accepted such Product.
(e) If CIMA, after good faith consultation with ESI, disputes any
finding by ESI that Product does not comply with the Specifications or
applicable Regulatory Approvals, samples of such Product shall be
forwarded to a Third Party jointly selected by ESI and CIMA for
analysis, which analysis shall be
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performed in compliance with applicable regulatory requirements. The
findings of such Third Party regarding whether Product complies with
the Specifications and the applicable Regulatory Approvals shall be
binding upon the parties for purposes of this Section 2.8. The cost of
such analysis by such Third Party shall be borne by the party whose
findings differed from those generated by such Third Party.
(f) If as determined in accordance with this Section 2.8, a
shipment of Product does not conform to the Specifications or
applicable Regulatory Approvals, CIMA shall replace such shipment free
of charge with a substitute shipment which meets such Specifications
and applicable Regulatory Approvals according to the following time
frame: If the Product is in inventory then conforming Product will be
shipped so as to arrive as soon as practicable. If the Product is not
in inventory, CIMA will take all reasonable steps to ensure expeditious
manufacture of conforming Product which will be shipped on the next
shipping day after completion of manufacture so as to arrive as soon as
possible thereafter. In the event that testing at ESI indicates that
Product does not conform with Specifications or applicable Regulatory
Approvals: (i) ESI shall immediately notify CIMA (ii) ESI and CIMA
shall mutually agree on an investigation program to determine the cause
of the discrepancy and the
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outcome of this investigation shall be used to determine disposition of
the batch; (iii) where appropriate, given the timetable for the agreed
upon investigation program, CIMA shall take all reasonable steps to
ensure expeditious manufacture and shipment of conforming Product; and
(iv) shipment of such replacement Product shall take place the next
shipping day following completion of analytical work to demonstrate
conformance with Specifications and applicable Regulatory Approvals.
Shipment shall be by the quickest agreed route. At CIMA's expense and
at ESI's sole option: the non-conforming shipment shall be (i) returned
to CIMA; or (ii) disposed of by ESI, upon final determination in
accordance with this Section 2.8 that it does not meet the
Specifications or applicable Regulatory Approvals. If the
non-conformity in the Product is due to a non-conformity of the Active
Ingredient with the Specifications at the time of its delivery to CIMA,
then the Replacement Product manufactured and shipped by CIMA under
this Section 2.8 and the disposal of the non-conforming shipment shall
be at the sole cost and expense of ESI.
2.9 [...***...]
2.10 NOTIFICATION OF INSPECTIONS Each party agrees to notify the other
within two (2) business days of its receipt of notification of any inquiries,
notifications, or inspection activity by any Agency, regulatory authority or
other authority in regard to
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or affecting Product. The recipient party shall provide a reasonable description
to the other party of any such governmental inquiries, notifications or
inspections promptly (but in no event later than five (5) calendar days) after
notification of completion of such visit or inquiry. The recipient party shall
furnish to the other party, (i) within two (2) business days after receipt any
report or correspondence issued by the Agency or regulatory authority in
connection with such visit or inquiry, including but not limited to, any FDA
Form 483, Establishment Inspection Reports or warning letters and (ii) at the
same time it provides to any Agency or regulatory authority, copies of any and
all documents, responses or explanations relating to items set forth above, in
each case purged only of trade secrets of the recipient that are unrelated to
the obligations under this Agreement or are unrelated to Product. In the event
such governmental agency or authority requests or requires any action to be
taken to address any citations, the recipient agrees, after consultation with
the other party, to take such action as necessary to address such citations ,
and agrees to cooperate with the other party with respect to any such citation
and/or action taken with respect thereto.
2.11 INSPECTION BY ESI CIMA shall permit ESI (at its own expense) to
visit, during normal business hours and with reasonable advance notice CIMA's
manufacturing facility(ies) and warehouse, subject to the confidentiality
provisions of this Agreement, for the purposes of (a) observing the manufacture,
packaging, testing
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and warehousing of Product and to inspect for compliance with GMP's, applicable
regulatory requirements, the requirements of any applicable Regulatory
Approvals, and environmental monitoring, (b) solving technical or quality
problems, (c) examining the premises, equipment, procedures and personnel used
when producing, testing or controlling Product and (d) all books and records
relating to (a), (b) or (c). CIMA representatives shall be entitled to accompany
ESI representatives on any such inspection.
2.12 ENVIRONMENTAL AND OTHER LAWS AND REGULATIONS
(a) In carrying out its obligations under this Agreement, CIMA shall
comply with all applicable environmental, health and safety laws (current or as
amended or added, collectively "Laws"), and shall be solely responsible for
determining how to comply with same. CIMA represents and warrants that it has
the appropriate skills, personnel, equipment, permits or approvals necessary to
perform its services under this Agreement in compliance with all applicable
Laws.
(b) CIMA shall notify ESI, in writing, no later than one (1) business
day after the event, of any circumstances, including the receipt of any notice,
warning, citation, finding, report or service of process, relating to compliance
with the Laws, or the occurrence of any release, spill, upset or discharge of
"Hazardous Active Ingredients" as defined by the Comprehensive Environmental
Response, Compensation and
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Liability Act of 1980, as amended, which relates to CIMA's ability to
manufacture or supply Product. ESI reserves the right to conduct an
environmental inspection of CIMA's facility(ies), during normal business hours
and with reasonable advance notice, for the purpose of determining compliance
with this Section 2.12(b), no more frequently than once per year during the term
hereof and under conditions of confidentiality as provided under Article VIII.
Upon CIMA's request, ESI shall share the results of any environmental inspection
with CIMA. Such inspection, if it occurs, does not relieve CIMA of its sole
obligation to comply with the Laws and does not constitute a waiver of any right
otherwise available to ESI.
2.13 SPECIFICATIONS AMENDMENTS The Specifications shall be amended or
supplemented to comply with GMPs and to comply with any applicable Agency
directive and may also be amended or supplemented (including, without
limitation, for the purpose of incorporating improvements) from time to time. In
the event CIMA intends to amend the Specifications, ESI shall receive prompt
advance notice of any such amendments. No such amendment shall be filed with any
applicable Agency or otherwise become effective without the prior written mutual
approval of ESI and CIMA. In the event that after the parties have initially
agreed upon the Specifications, ESI requests that the Specifications be amended,
CIMA shall receive prompt advance notice of any such amendment for the purpose
of determining what, if any, impact the
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proposed amendment would have on the manufacture of Product for ESI hereunder
and ESI shall reimburse CIMA for the actual costs incurred by CIMA (provided
that such costs are approved in writing by ESI prior to being incurred by CIMA)
because such amendment requires changes to be made in the processes, equipment,
testing procedures, or components used to manufacture Product for ESI hereunder.
Such costs may include, without limitation, validation of new processes,
equipment and facilities, development of testing methods and start-up costs. Any
costs incurred by CIMA in implementing an amendment of the Specifications under
this Section shall not be included in CIMA's Direct Manufacturing Cost.
2.14 APPROVAL FOR MANUFACTURING CHANGES; THIRD PARTY MANUFACTURING CIMA
agrees that no changes will be made to any materials, equipment or methods of
production or testing which are specified in the Specifications or any
Regulatory Approval by any Agency for Product without ESI's prior written
approval, which approval shall not be unreasonably withheld. Under no
circumstances will CIMA contract out all or any part of the manufacturing of
Product to a Third Party without prior written approval from ESI.
2.15 PERMITTED SUBCONTRACTORS CIMA shall ensure that the permitted
contract manufacturers for the manufacture of Product have sufficient knowledge
and expertise to carry out the manufacture of Product and other subcontracted
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responsibilities. In addition CIMA shall ensure that (i) each such contract
manufacturer shall be in compliance with GMPs and shall be under the inspection
of all relevant Agencies and audited to be in compliance therewith, and (ii) ESI
will have the right to inspect and audit each such subcontractor's facilities
and records as provided in Section 2.11 hereof.
ARTICLE III
ACTIVE INGREDIENT
3.1 SUPPLY OF ACTIVE INGREDIENT
(a) ESI agrees to supply CIMA, at no charge, all Active Ingredient
CIMA requires for the manufacture of Product under this
Agreement and CIMA agrees to use all and only, Active
Ingredient supplied by ESI exclusively in the manufacture of
Product.
(b) As of the time of delivery to CIMA, all Active Ingredient will
conform to the Specifications.
(c) CIMA shall procure all ingredients other than the Active
Ingredient used in the manufacture of Product, including
excipients, inactive ingredients, imprinting materials,
packaging and labeling materials unless otherwise mutually
agreed to by the parties.
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(d) CIMA agrees to notify ESI in writing of its requirements for
Active Ingredient in a timely manner so as to assure the timely
filling of ESI's purchase orders for Product. In the event that
ESI fails to have supplied CIMA with sufficient quantities of
conforming Active Ingredient at least sixty days prior to the
due date for delivery of a Product order, CIMA will be relieved
of its obligation to timely fill ESI's purchase orders for such
Product to the extent prevented by ESI's failure to have Active
Ingredient timely delivered.
(e) Upon receipt of Active Ingredient, CIMA shall promptly, and in
no event later than thirty (30) business days following
receipt, sample and analyze the same to assure that it complies
with the applicable Specifications. CIMA agrees to provide ESI
with the results of such analysis as soon as reasonably
possible, but in no event later than CIMA's manufacture of
Product containing such Active Ingredient, and to keep, true,
accurate and complete records of all such sampling and
analyses, which records shall at all reasonable times be
available for examination, audit and copying by ESI and its
representatives.
(f) In the event that any Active Ingredient is determined by CIMA
not
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to be in compliance with applicable Specifications, CIMA shall
immediately notify ESI and shall follow all instructions of ESI
regarding, and be responsible for, re-analysis, sampling,
processing, return, disposal or destruction, including
certification of destruction, of such non-conforming Active
Ingredient.
(g) If CIMA and ESI disagree as to whether any Active Ingredient
meets the applicable Specifications, the matter will be
submitted to an independent testing laboratory, acceptable to
both parties, for analysis, which analysis shall be performed
in compliance with applicable regulatory requirements. If the
Active Ingredient is determined to be non-conforming, ESI will
reimburse CIMA for CIMA's out-of-pocket expenses relating to
re-analysis, sampling, processing, returns, disposal and/or
destruction thereof.
3.2 USE OF ACTIVE INGREDIENT
(a) Title to all Active ingredient supplied to CIMA by ESI shall at
all times remain in ESI. CIMA shall clearly mark such Active
Ingredient as the property of ESI and keep such Active
Ingredient separate and apart from other raw materials.
(b) CIMA shall not at any time sell or offer for sale, assign,
mortgage,
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pledge, or allow any lien to be created upon the
Active Ingredient provided by ESI or any portion
thereof.
(c) At the termination of this Agreement, CIMA shall
surrender to ESI all Active Ingredient in CIMA's
possession.
(d) CIMA shall be responsible for all loss or damage,
howsoever occasioned, in Active Ingredient at all
times it is in the possession of CIMA excepting only
reasonable loss necessarily inherent in the
manufacturing process. The parties agree that the
amount of Active Ingredient loss reasonable to the
Product's manufacturing process shall in no event be
more than six percent (6%) per batch or more than
four percent (4%) per any twelve month production
period. CIMA shall permit ESI, during normal business
hours and upon reasonable advance written notice,
access to all records necessary to determine and
verify Active Ingredient loss or damages. CIMA shall
reimburse ESI for all costs and expenses (including
shipping costs incurred by ESI in replacing Active
Ingredient lost or damaged but not Active Ingredient
which is determined by on analysis pursuant to
Paragraph 5.1(g) not to be in compliance with the
Specifications.
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(e) ESI shall not be liable for any damage, loss or
injury directly or indirectly resulting from the
storage or handling by CIMA of any Active Ingredient.
ARTICLE IV
REGULATORY COMPLIANCE
4.1 ADVERSE DRUG EXPERIENCES In order for the parties to comply with
their respective responsibilities under this Article IV and otherwise relating
to the reporting of Adverse Drug Experiences, to the extent either party
receives any information regarding Adverse Drug Experiences related to use of
Product, such party shall promptly provide the other party with such information
in accordance with the Adverse Event Reporting Procedures set forth in Exhibit B
hereto (as may be amended from time to time upon written agreement of the
parties).
4.2 PRODUCT COMPLAINTS ESI shall be solely responsible for interacting
with the public with respect to customer complaints regarding Product quantity.
With respect to any such complaints, each party shall have the responsibility
for promptly conducting an investigation of any activities conducted by it under
this Agreement which may be relevant to the complaint. Each party shall inform
the other party of the nature, scope and details of any such complaint which
requires an investigation by the other party, and each party shall promptly
report the results of such investigation to the
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other party. Either party shall cooperate in any investigation by the other
party of each such complaint which involves the parties' duties under this
Agreement.
4.3 COMPLIANCE ISSUES The parties acknowledge that the export of
technical data, materials or products is subject to the exporting party
receiving the necessary export licenses and that the parties cannot be
responsible for any delays attributable to export controls which are beyond the
reasonable control of either party. The parties agree that regardless of any
disclosure made by the party receiving an export of any ultimate destination of
any technical data, materials or products, the receiving party will not
re-export either directly or indirectly, any technical data, material or
products without first obtaining the applicable validated or general license
form the United States Department of Commerce.
ARTICLE V
PAYMENT PROVISIONS
5.1 INSPECTION OF RECORDS The parties shall maintain at their offices,
accurate and complete books and records consistent with sound business and
accounting practices and in such form and in such detail as to enable the amount
of payments payable under this Agreement by the respective party to be
determined. ESI and CIMA shall permit an independent certified accountant
(subject to obligations of confidentiality) appointed by the other party and
reasonably acceptable to ESI or
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CIMA(as applicable), at the other party's expense, to examine such books and
records at all reasonable times for the sole purpose of (i) verifying ESI's or
CIMA's (as applicable) reports and accounting submitted to the other party
hereunder and (ii) determining the correctness of payments. In the event of any
underpayment of any payment by at least five percent (5%), the costs of such
inspection shall be borne by the party who made such underpayment and such
underpayment shall be forthwith paid by such party to the other party with
interest at the rate specified in Section 5.3.
5.2 PAYMENTS Each party shall make all payments due to the other party
hereunder by wire transfer in immediately available funds to an account
designated by the payee party.
5.3 INTEREST The parties shall pay interest on any amounts overdue
under this Agreement at a rate equal to the U.S. dollar prime or equivalent rate
quoted by Citibank N.A. or another mutually acceptable bank, as in effect during
the period from the date due until payment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6. REPRESENTATION AND WARRANTIES OF EACH PARTY Each of CIMA and ESI
hereby represents, warrants and covenants to the other party hereto as follows:
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(a) it is a corporation or entity duly organized and validly existing
under the laws of the state or other jurisdiction of incorporation or formation;
(b) the execution, delivery and performance of this Agreement by such
party has been duly authorized by all requisite corporate action and does not
require any shareholder action or approval;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder; and
(d) the execution, delivery and performance by such party of this
Agreement and its compliance with the terms and provisions hereof does not and
will not conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (ii) a loan agreement, guaranty, financing
agreement, agreement affecting a product or other agreement or instrument
binding or affecting it or its property (ii) the provisions of its charter or
operative documents or bylaws; or (iii) any order, writ, injunction or decree of
any court or governmental authority entered against it or by which any of its
property is bound.
6.2 REPRESENTATIONS AND WARRANTIES OF CIMA In addition to the
representations and warranties made by CIMA under Section 6.1 above, CIMA hereby
further represents and warrants to ESI that:
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(a) At the time of delivery of Product to the specified point of
delivery, Product shall (i) have been manufactured, stored and shipped in
accordance with GMPs, as applicable, and all other applicable laws, rules,
regulations or requirements in effect at the time of manufacture in the country
of manufacture (for example, in accordance with the procedures described in the
applicable Regulatory Approval); (ii) conform to the Specifications; (iii)) meet
the provisions of the Specifications; (iv) shall not be adulterated or
misbranded as provided for under any applicable law, order or regulation in
effect in the country of manufacture and the country in which Product is being
sold; (v) shall have been manufactured and have shelf-life in accordance with
[to be discussed]; and (vi) have been shipped in accordance with approved
procedures agreed between ESI and CIMA.
(b) It shall have good and marketable title to all Product delivered to
ESI.
6.3 NO INCONSISTENT AGREEMENTS Neither party has in effect and after
the Effective Date neither party shall enter into any oral or written agreement
or arrangement that would be inconsistent with its obligations under this
Agreement.
6.4 REPRESENTATION BY LEGAL COUNSEL Each party hereto represents that
it has been represented by legal counsel in connection with this Agreement and
acknowledges that it has participated in the drafting hereof. In interpreting
and applying the terms and provisions of this Agreement, the parties agree that
no
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presumption shall exist or be implied against the party which drafted such terms
and provisions.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY ESI ESI shall indemnify, defend and hold
harmless CIMA and its Affiliates, and each of its and their respective
employees, officers, directors and agents (each a "CIMA Indemnified Party") from
and against any all liability, loss, damage, cost and expense (including
reasonable attorney's fees) (collectively, a "Liability") which the CIMA
Indemnified Party may incur, suffer or be required to pay resulting form or
arising in connection with (i) the breach by ESI of any representation or
warranty contained in this Agreement, or (ii) the manufacture, promotion,
distribution, use, testing, marketing, sale or other disposition of Product by
ESI, its Affiliates or sublicenses. Notwithstanding the foregoing, ESI shall
have no obligation under this Agreement to indemnify, defend or hold harmless
any CIMA Indemnified Party with respect to claims, demands, costs or judgments
which result from either (x) the failure of Product supplied by CIMA or its
Affiliates to comply with the Specifications or the applicable Regulatory
Approvals or (y) the willful misconduct or negligent acts or omissions of CIMA,
its Affiliates, or any of their respective employees, officers, directors or
agents.
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7.2 INDEMNIFICATION BY CIMA CIMA shall indemnify, defend and hold
harmless ESI and its Affiliates, and each of its and their respective employees,
officers, directors and agents (each, an "ESI Indemnified Party") form and
against any Liability which the ESI Indemnified Party may incur, suffer or be
required to pay resulting from or arising in connection with the breach by CIMA
of any representation or warranty contained in this Agreement. Notwithstanding
the foregoing, CIMA shall have no obligation under this Agreement to indemnify,
defend, or hold harmless any ESI Indemnified Party with respect to claims,
demands, costs of judgments which result from the willful misconduct or
negligent acts or omissions of ESI, its Affiliates, or sublicensees or any of
their respective employees, officers, directors or agents.
7.3 CONDITIONS TO INDEMNIFICATION The obligations of the indemnifying
party under Sections 7.1 and 7.2 are conditioned upon delivery of written notice
to the indemnifying party of any potential Liability promptly after the
indemnified party becomes aware of such potential Liability, provided, however,
that the failure to give such notice promptly shall not impair a party's rights
to indemnification under this Article VII unless the delay in providing such
notice has a material adverse effect on the ability of the indemnifying party to
defend against such Liability. The indemnifying party shall have the right to
assume the defense of any suit or claim related to the Liability if it has
assumed responsibility for the suit or claim in writing; however, if in the
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reasonable judgment of the indemnified party, such suit or claim involves an
issue or matter which could have a materially adverse effect on the business
operations or assets of the indemnified party, the indemnified party may waive
its rights to indemnity under this Agreement and control the defense or
settlement thereof, but in no event shall any such waiver be construed as a
waiver of any indemnification rights such party may have at law or in equity. If
the indemnifying party defends the suit or claim, the indemnified party may
participate in (but not control) the defense thereof at its sole cost and
expense.
7.4 SETTLEMENTS Neither party may settle a claim of action related to a
Liability without the consent of the other party, if such settlement would
impose any monetary obligation on the other party or require the other party to
submit to an injunction or otherwise limit the other party's rights under this
Agreement. Any payment made by a party to settle any such claim or action shall
be at its own cost and expense except in the event that such payment was made
with the prior written consent of the indemnifying party, in which case such
payment will be subject to the indemnification obligations of the parties as set
forth in this Article VII.
7.5 INSURANCE Each party further agrees to obtain and maintain, during
the term of this Agreement, Comprehensive General Liability Insurance, including
Products Liability Insurance, with reputable and financially secure insurance
carriers to cover its
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indemnification obligations under Section 7.1or 7.2, as applicable, or, in the
case of ESI, self-insurance, in each case with limits of not less than five
million dollars ($5,000,000.00) per occurrence and ten million dollars
($10,000,000.00) in the aggregate.
ARTICLE VIII
CONFIDENTIALITY
8.1 NONDISCLOSURE During the Term of this Agreement and for a period of
five (5) years thereafter, all proprietary and confidential business, technical,
scientific and/or regulatory information, including Technical Information,
disclosed to the receiving party or its Affiliates (herein collectively, the
(Receiving Party) by the other party or its Affiliates (herein collectively, the
(Disclosing Party) hereunder or under the existing Confidentiality Agreement
between the parties, which is marked as confidential at the time of disclosure,
or if disclosed or obtained orally or visually (or otherwise in a non-written
form), was described or summarized in a writing or other tangible form and
identified as confidential and forwarded to the Receiving Party within thirty
(30) days of such disclosure (collectively, Confidential Information), shall be
deemed to be confidential and shall be treated as such by the Receiving Party
and shall not be disclosed, in whole or in part, by the Receiving Party to any
other Person except as expressly set forth herein, and shall be used only for
the purposes of this
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Agreement. Notwithstanding the foregoing these mutual obligations of
confidentiality shall not apply to any information to the extent that such
information is:
(i) independently developed by such party as documented by prior
written records outside the scope and not in violation of this Agreement;
(ii) legally in the public domain at the time of its receipt or
thereafter legally becomes part of the public domain through no fault of the
recipient;
(iii) received without an obligation of confidentiality from a Third
Party having the right to disclose such information;
(iv) released from the restrictions of this Article VIII by the express
written consent of the Disclosing Party;
(v) as may be required for securing Regulatory Approval, or as may be
required to be disclosed to an Agency or as otherwise required by a court order
or any law or regulation (including, as may be required in connection with any
filings made with the Securities and Exchange Commission or by the disclosure
policies of a major stock exchange in the Territory); provided, however, that at
the other party's request, the disclosing party shall request that the relevant
legal or regulatory authority, or major stock exchange, treat as confidential
any Confidential Information of either party included in any such disclosure and
generally use diligent efforts to seek confidential treatment where available.
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8.2 SCOPE OF CONFIDENTIALITY
CIMA and ESI agree to limit the disclosure of any Technical Information
and other Confidential Information received hereunder to such Affiliates,
employees, consultants and distributors as are necessary to carry out the
provisions of this Agreement and who are likewise bound by provisions equivalent
to this Article VIII, except that, ESI may disclose Confidential Information to
actual or potential sublicenses and subdistributors, provided that they are
likewise bound by confidentiality provisions similar to, or more stringent than,
those set forth in this Article VIII. The parties shall take reasonable measures
to assure that no unauthorized use or disclosure is made by Persons to whom
access to such Confidential Information is granted.
ARTICLE IX
TERM AND TERMINATION
9.1 TERM This Agreement shall be effective as of the Effective Date,
and, unless sooner terminated by mutual agreement or pursuant to any other
provision of this Agreement, shall continue in full force and effect in each
country of the Territory for a period of ten (10) years after the Launch Date of
Product in the first Major Country of the Territory which shall be deemed to
occur no later than six (6) months after obtaining
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Regulatory Approval or where applicable, Pricing Approval, in the first Major
Country of the Territory (the Initial Term). After the Initial Term, this
Agreement shall be automatically renewed for successive two (2) year periods
(each, an Extended Term), unless ESI notifies CIMA of ESI's intent not to renew
this Agreement at least nine (9) months prior to the expiration of the Initial
Term or the then current Extended Term. The Term shall include the Initial Tem
and any Extended Term. If the Development and License Agreement is terminated
for any reason other than expiration, then this Agreement shall automatically
terminate.
9.2 TERMINATION FOR DEFAULT Each party may terminate this Agreement as
a whole if the other party commits a material breach of any material obligation
under this Agreement and fails to remedy such breach within sixty (60) days (or,
in the case of a late payment, ten (10) business days of notice of such breach,
or other longer period of time if mutually agreed.
9.3 TERMINATION BY ESI ESI shall have the right, in its sole
discretion, to terminate this Agreement at any time during the Term of this
Agreement upon six (6) months' prior written notice to CIMA.
9.4 NO DAMAGES UPON EXPIRATION OR TERMINATION Except as otherwise set
forth in this Agreement, neither party shall be entitled to any compensation
whatsoever
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
200.83 AND 204.24B-2
as a result of expiration or termination of this Agreement, but without limiting
either party's damages for any breach of this Agreement.
9.5 CONTINUING OBLIGATIONS Termination or expiration of this Agreement
for any reason shall be without prejudice to any obligations which shall have
accrued to the benefit of either party prior to such termination or expiration.
Upon termination or expiration of this Agreement, any payments owed to the other
party on or before the effective date of termination would be due within thirty
(30) days of the effective date of such termination or expiration. The following
provisions of this Agreement shall survive expiration or termination hereof:
Articles VIII, IX, and XI.
ARTICLE X
PUBLICATIONS
10.1 PUBLICATIONS The parties shall mutually agree upon publications
and the publication strategy with respect to work undertaken by the parties
relating to Product, and neither party shall publish any result or study
generated or developed under this Agreement except upon review by the other
party at least sixty (60) days prior to submission of an abstract or manuscript
for publication.
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
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ARTICLE XI
MISCELLANEOUS
11.1 FORCE MAJEURE Neither party shall be liable for delay or failure
to perform its obligations hereunder for so long as that failure or delay is the
result of an event beyond its control which it could not have avoided by the
exercise of reasonable diligence, (a force majeure event), provided that such
party uses Commercially Reasonable Efforts to comply with the terms of this
Agreement as soon as practicable. A party asserting a force majeure event shall
notify the other party promptly, giving an indication of the likely extent and
duration thereof.
11.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS Neither party shall at any
time, without obtaining the prior written consent of the other party, assign or
transfer this Agreement to any Person. Notwithstanding the foregoing, each party
shall be permitted to assign this Agreement to its Affiliates or to perform this
Agreement, in whole or in part, through its Affiliates, provided that such party
shall be primarily liable and responsible for performance by such Affiliate
hereunder; and each party may also assign this Agreement to any successor by
merger or upon a sale of all or substantially all of its assets. This Agreement
shall be binding upon and shall inure to the benefit of the parties and their
successors and permitted assigns.
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11.3 NOTICES Any notices required or permitted to be given hereunder
shall be in writing in the English language and shall be delivered by
international courier service (requiring signature upon receipt) or sent by
first class air mail, postage prepaid, or telefax (confirmed by phone
conversation with the recipient) to the addresses set forth below. The parties
may change the address at which notice is to be given by giving notice to the
other party as herein provided. All notices shall be deemed effective upon
receipt by the party to whom it is addressed.
If to CIMA: CIMA, Labs. Inc.
10000 Valley View Road
Eden Prairie, MN 55344
Attention: Dr. John Siebert
President and CEO
Telephone: (612) 947-8762
Telefax: (612) 947-8770
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UNDER 17 C.F.R. SECTIONS 200.80(B)(4)
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If to ESI: With a copy to:
ESI Lederle American Home Products Corporation
130 North Radnor-Chester Road 5 Giralda Farms
St. Davids, Pennsylvania 19087 Madison, New Jersey 07940
Attention: President Attention:
Telephone: (610) 971-4550 Senior Vice President & General Counsel
Telefax: (610) 995-3394 Telephone: (973) 660-6040
Telefax: (973) 660-7050
11.4 GOVERNING LAW AND JURISDICTION This Agreement and its execution,
validity and interpretation shall be governed in all respects in accordance with
the laws of the State of New York, excluding conflicts of law rules.
11.5 SEVERABILITY In the event that any provision of this Agreement
shall be held to be unenforceable, invalid or in contravention of applicable
law, such provision shall be of no effect, and the parties shall negotiate in
good faith to replace such provision with a provision which effects to the
extent possible the original intent of such provision.
11.6 COMPLETE AGREEMENT; MODIFICATIONS This Agreement, together with
the Development and License Agreement and all Exhibits attached to each,
constitutes the entire Agreement between the parties with respect to the present
subject matter, all prior negotiations, agreements and understandings being
expressly canceled hereby. This Agreement may be amended only by a written
agreement embodying the full terms of the amendment signed by authorized
representatives of both parties.
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11.7 NO AGENCY Neither party shall by virtue of this Agreement have any
power to bind the other to any obligation nor shall this Agreement create any
relationship of agency, partnership or joint venture.
11.8 NO WAIVER No term or condition of this Agreement shall be
considered waived unless reduced to writing and duly executed by an officer of
the waiving party. Any waiver by any party of a breach of any term or condition
of this Agreement will not be considered as a waiver of any subsequent breach of
this Agreement, of that term or condition or any other term or condition hereof.
11.9 COUNTERPARTS This Agreement may be executed in counterparts, each
of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CIMA LABS INC. ESI LEDERLE
By: /s/ John M. Siebert By: /s/ Mike Dey
Name: John M Siebert Name: Mike Dey
Title: President and CEO Title: President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-32233, Form S-8 No. 333-05741, Form S-8 No.
333-05741, Form S-8 No. 33-82794 and Form S-8 No. 33-82790) pertaining to
certain stock option plans of the Company, of our report dated February 11,
2000, with respect to the financial statements and schedule of CIMA LABS, INC.
included in the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 28, 2000
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below hereby constitutes and appoints John M. Siebert and David A. Feste
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Annual Report on Form 10-K of CIMA
Labs Inc. for the twelve months ended December 31, 1999, and all amendments to
such Annual Report on Form 10-K and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes he might or could do in person, hereby ratifying and
confirming all said attorneys-in-fact and agents or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Date
--------- ----
/s/ John M. Siebert March 24, 2000
- -------------------
John M. Siebert
President & Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Terrence W. Glarner March 23, 2000
- -----------------------
Terrence W. Glarner
Director
/s/ Steven B. Ratoff March 22, 2000
- --------------------
Steven B. Ratoff
Director
/s/ Joseph R. Robinson March 22, 2000
- ----------------------
Joseph R. Robinson
Director
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RELATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PAGE> 1
Exhibit 99.1
RISK FACTORS
Certain statements made in this Annual Report on Form 10-K are
forward-looking statements based on our current expectations, assumptions,
estimates and projections about our business and our industry. These
forward-looking statements involve risks and uncertainties. Our business,
financial condition and results of operations could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described below and elsewhere in this Form 10-K. You should
consider carefully the risks and uncertainties described below, which are not
the only ones facing our company. Additional risks and uncertainties also may
impair our business operations. We undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
RISK RELATED TO OUR COMPANY
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS.
We recorded the first commercial sales of products using our
fast-dissolve technologies in early 1997. Since 1997, we have generated revenues
from product development fees, licensing arrangements, sales of products using
our fast-dissolve technologies and from royalties. We are currently making the
transition from research and product development operations with limited
production to commercializing our technologies and expanding our production
capabilities, in addition to research and product development activities.
Accordingly, we have only a limited operating history and our business and
prospects must be evaluated in light of the risks and uncertainties of a company
with a limited operating history and, in particular, one in the pharmaceutical
industry. Many of these risks are discussed in the subheadings below.
WE MAY NOT BE PROFITABLE IN THE FUTURE.
We have accumulated aggregate net losses from inception through
December 31, 1999 of approximately $46 million. Our losses have resulted
principally from the research and product development costs for our drug
delivery technologies and from general and administrative costs. If we are not
profitable, the market price of our stock may fall. Profitable operations depend
on a number of factors, many of which are beyond our direct control. These
factors include:
o the demand for our products;
o our ability to manufacture our products efficiently and with the required
quality;
o our ability to increase our manufacturing capacity;
o the level of product and price competition;
o our ability to develop additional commercial applications for our products;
o our ability to control our costs; and o general economic conditions.
THE LOSS OF ONE OF OUR MAJOR CUSTOMERS COULD HARM OUR BUSINESS.
Revenues from our three largest customers represented over 85% of our
total revenues for the year ended December 31, 1999. The loss of any one of
those customers could have a material adverse effect on our business and results
of operations. If we cannot broaden our customer base, we will continue to
depend on a few customers for the majority of our revenues. We may be unable to
negotiate favorable business terms with customers that represent a significant
portion of our revenues and our business and results of operations may be
adversely affected.
IF WE DO NOT ENTER INTO ADDITIONAL COLLABORATIVE AGREEMENTS WITH PHARMACEUTICAL
COMPANIES, WE MAY NOT BE ABLE TO BECOME PROFITABLE.
Our revenues depend on entering into collaborative agreements with
pharmaceutical companies to develop, test, obtain governmental approval for, and
commercialize oral dosage forms of active pharmaceutical ingredients using our
drug delivery technologies. We currently have collaborative
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agreements with six pharmaceutical companies. If we do not enter into additional
agreements in the future, or if our current or future agreements do not result
in successful marketing of our products, our financial condition and results of
operations could be materially adversely affected.
In addition, we cannot be sure that:
o we will be able to enter into collaborative agreements to develop
additional products using our drug delivery technologies;
o any existing or future collaborative agreements will result in
additional commercial products, or that any of these products will
be successful;
o we will meet the milestones established in our current or future
collaborative agreements; or
o we will successfully develop new drug delivery technologies that
will be attractive to potential pharmaceutical company partners.
WE RELY ON THIRD PARTIES TO MARKET, DISTRIBUTE AND SELL THE PRODUCTS
INCORPORATING OUR DRUG DELIVERY TECHNOLOGIES AND THOSE THIRD PARTIES MAY NOT
PERFORM.
We develop, manufacture and sell our products through relationships
with our pharmaceutical company partners. The timing and other aspects of the
development of products are sometimes out of our control, as the other party to
the relationship may have priorities that differ form ours. Therefore, the
timing of the commercialization of our products under development may be subject
to unanticipated delays. Further, our drug delivery technologies are
incorporated into the oral dosage forms of products marketed and sold by our
pharmaceutical company partner and we do not have a direct marketing channel to
consumers for our drug delivery technologies. Therefore, the success of the
products incorporating our technologies will depend on the success of the
marketing organizations of our pharmaceutical company partners, as well as the
level of priority assigned to the marketing of our products by these entities,
which may differ from our priorities. If one or more of our pharmaceutical
company partners fail to pursue the development of, or the marketing of, our
products as planned, our business may be adversely affected.
IF WE CANNOT INCREASE OUR PRODUCTION CAPACITY, OUR BUSINESS WILL SUFFER.
We must increase our production capacity to meet expected demand for
our products. We currently have one production line and a second line is being
developed. We expect our second production line to be operational in the second
half of 2001, although we may experience difficulties, which could delay our
ability to increase manufacturing capability. Production lines in the
pharmaceutical industry generally take 16 to 24 months to complete because of
the long lead times required for precision production equipment and the lengthy
testing and approval process. We cannot be sure that our production capacity can
be increased quickly enough to meet the requirements of our pharmaceutical
company partners with whom we are developing our drug delivery technologies. If
we are unable to increase our production capacity as scheduled, our revenues may
be reduced and our relationship with our pharmaceutical company partners may be
harmed.
WE HAVE A SINGLE MANUFACTURING FACILITY AND OUR BUSINESS WOULD SUFFER IF WE WERE
TO LOOSE ITS PRODUCTION CAPACITY.
All of the products that we produce are manufactured on our existing
production line in our Eden Prairie facility. If our existing production line or
facility becomes incapable of manufacturing products for any reason, we would
have no other means of producing products incorporating our drug delivery
technologies until we are able to restore the manufacturing capability at our
facility or develop an alternative manufacturing facility. Although we carry
business interruption insurance to cover lost revenues and profits in an amount
we consider adequate, this insurance does not cover all possible situations. In
addition, our business interruption insurance would not compensate us for the
loss of opportunity and potential adverse impact on relations with our existing
pharmaceutical company partners resulting from our inability to produce products
for them.
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<PAGE> 3
WE RELY ON A SINGLE SOURCE FOR SOME OF OUR RAW MATERIALS AND OUR BUSINESS COULD
SUFFER IF THE MATERIALS WERE NOT AVAILABLE FROM THEIR CURRENT SOURCE.
We rely on a single supplier for some of our raw materials and
packaging supplies. If these raw materials or packaging supplies were no longer
available, our manufacturing operations may be interrupted until another
supplier could be identified, its products validated and trading terms with it
negotiated. We cannot be sure that an alternative supplier could be identified
in a timely manner, or at all, or that favorable terms could be negotiated with
an alternative supplier. Any disruptions in our manufacturing operations from
the loss of a supplier could have a material adverse effect on our results of
operations, and potentially damage our relations with our pharmaceutical company
partners.
OUR ABILITY TO DEVELOP ADDITIONAL PRODUCTS IS UNCERTAIN.
We intend to continue to enhance our current technologies and pursue
additional proprietary drug delivery technologies. Even if these technologies
appear promising during various stages of development, we may not be able to
develop commercial applications for them because:
o the potential technologies may fail clinical studies;
o we may not find a pharmaceutical company to adopt the technologies;
o it may be difficult to apply the technologies on a commercial
scale; or
o the technologies may be uneconomical to market.
IF PATIENTS AND PHYSICIANS DO NOT ACCEPT OUR DRUG DELIVERY TECHNOLOGIES, WE MAY
BE UNABLE TO GENERATE SIGNIFICANT REVENUES, IF ANY.
Our revenues depend on ultimate patient and physician acceptance of our
drug delivery technologies as an alternative to conventional drug delivery
systems. If our drug delivery technologies are not accepted in the marketplace,
our pharmaceutical company partners may be unable to successfully market and
sell our products, which would limit our ability to generate revenues and harm
our results of operations. The degree of acceptance of any drug delivery system
depends on a number of factors. These factors include, but are not limited to:
o demonstrated clinical efficacy and safety;
o cost-effectiveness;
o convenience and ease of administration;
o advantages over alternative drug delivery systems; and
o marketing and distribution support.
Because only a limited number of products incorporating our drug
delivery technologies are commercially available, we cannot be sure of the level
of market acceptance of our drug delivery technologies. We expect that products
incorporating our drug delivery technologies will be priced slightly higher than
conventional swallowable or chewable tablets.
DEMAND FOR SOME OF OUR PRODUCTS IS SEASONAL, AND OUR OPERATING RESULTS MAY
SUFFER DURING PERIODS WHEN DEMAND IS LIGHT.
Certain non-prescription products we manufacture are used to treat
seasonal ailments such as colds and the flu. In 1999, revenue from Novartis,
which included sales of our Triaminic products, royalties on sales of Triaminic
by Novartis and product development fees, represented 42% of our total revenues.
Our partners may not market our products in off-seasons and our operating
results consequently may suffer. We are focused on developing a mix of
non-prescription and prescription products to reduce these seasonal variations
but we may not be successful.
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<PAGE> 4
IF WE CANNOT ADEQUATELY PROTECT OUR PATENT AND PROPRIETARY RIGHTS, OUR BUSINESS
WILL SUFFER.
Our success depends, in part, on our ability to obtain and enforce
patents for our products, processes and technologies and to preserve our trade
secrets and other proprietary information. We have been granted seven patents on
our drug delivery systems in the U.S., which will expire beginning in 2010.
We cannot be sure that any patent applications relating to our
potential products or processes will result in patents being issued. Our current
patents may not be valid or enforceable, or protect us against competitors who
challenge our patents, or obtain patents that may have an adverse effect on our
ability to conduct business, or who are able to circumvent our patents. Further,
we cannot be sure that we will have the necessary financial resources to enforce
our patents.
To protect our trade secrets and proprietary technologies and
processes, we rely, in part, on confidentiality agreements with our employees,
consultants and advisors. We cannot be sure that these agreements will prove
adequate protection for our trade secrets and other proprietary information in
the event of any unauthorized use or disclosure, or if others lawfully develop
the information.
WE MAY BE SUBJECT TO CLAIMS THAT OUR TECHNOLOGIES, OR THE PRODUCTS IN WHICH THEY
ARE USED, INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS.
The manufacture, use or sale of our drug delivery technologies may
infringe the patent rights of others. We may be unable to avoid infringement of
those patents and we may have to seek licenses, defend infringement actions or
challenge the validity of those patents in court. We cannot be sure that, if
required, licenses from third parties will be available to us on terms and
conditions acceptable to us, if at all, or that we would prevail in any patent
litigation. If we could not obtain required licenses, are found liable for
infringement, or are not able to have these patents declared invalid, we may be
liable for significant monetary damages, encounter significant delays in
bringing products to market, or be precluded from participating in the
manufacture, use or sale of products or methods of drug delivery covered by the
patents of others. We cannot be sure that we have identified, or will identify
in the future, U.S. and foreign patents that pose a risk of potential
infringement claims.
We enter into collaborative agreements with pharmaceutical companies to
apply our drug delivery technologies to drugs developed by others and,
ultimately, receive license revenues and product development fees, as well as
revenues from the sale of products incorporating our technology and royalties.
The drugs are generally the property of the pharmaceutical companies and may be
the subject of patents or patent applications and other forms of protection
owned by the pharmaceutical companies. To the extent those patents or other
forms of protection expire, become invalid or otherwise ineffective, or to the
extent the drugs are covered by patents or other forms of protection owned by
third parties, sales of the drugs by the collaborating pharmaceutical company
may be restricted, limited or may cease. Our revenues, in that event, may be
adversely affected.
WE MAY NOT BE ABLE TO OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY
BASIS, OR AT ALL.
All new pharmaceutical products, including our products and those under
development, are subject to extensive and rigorous regulation by the federal
government, principally the U.S. Food and Drug Administration, or FDA, and by
state and local government agencies. These regulations govern the research,
development, testing, manufacture, safety, storage, record keeping, labeling,
advertising and promotion and marketing and distribution of pharmaceutical
products. If marketed abroad, these products also are subject to regulation by
foreign governments.
The process for obtaining FDA approvals for drug products is generally
lengthy, expensive and uncertain. Securing FDA approvals often requires
applicants to submit extensive clinical data and supporting information to the
FDA. We depend on external laboratories and medical institutions to conduct
pre-clinical and clinical testing of our products in compliance with clinical
and laboratory practices established by the FDA. The data obtained from
pre-clinical and clinical testing is subject to varying
4
<PAGE> 5
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejection also may occur due to changes in FDA approval policy during the
development period, or changes in regulatory review for each submitted New Drug
Application. Even if the FDA approves a product, the approval may limit the uses
or "indications" for which a product may be marketed, or may require further
studies. The FDA also can withdraw product clearances and approvals for failure
to comply with regulatory requirements or if unforeseen problems follow initial
marketing.
Once a drug product is approved, the Division of Drug Marketing,
Advertising and Communication, or DDMAC, the FDA's marketing surveillance
department within the Center for Drugs, must approve marketing claims asserted
by our pharmaceutical company partners, which are the basis for a product's
labeling, advertising and promotion. We cannot be sure that the claims our
pharmaceutical company partners are asserting about our drug delivery
technology, or the drug product itself, will be approved by DDMAC. If our
pharmaceutical company partners fail to obtain from DDMAC acceptable marketing
claims for a product, our business and results of operations could be materially
adversely effected.
If we, or pharmaceutical companies with whom we are developing our
technologies, fail to comply with applicable FDA and other regulatory
requirements, we, and they, are subject to sanctions, including:
o warning letters;
o fines;
o product seizures or recalls;
o injunctions;
o refusals to permit products to be imported into or exported out of the
U.S.;
o total or partial suspension of production;
o withdrawals of previously approved marketing applications; and
o criminal prosecutions.
Manufacturers of drugs also must comply with applicable Good
Manufacturing Practices, or GMP, requirements, which relate to product testing,
quality assurance and maintaining records and documentation. We cannot be sure
that we will be able to comply with the applicable GMP and other FDA regulatory
requirements for manufacturing as we expand our manufacturing operations, which
would impair our business.
If our products are marketed in foreign jurisdictions, we, and the
pharmaceutical companies with whom we are developing our technologies, must
obtain required regulatory approvals from foreign regulatory agencies and comply
with extensive regulations regarding safety and quality. We cannot be sure that
we will obtain all necessary regulatory approvals or that we will not be
required to incur significant costs in obtaining or maintaining any foreign
regulatory approvals. If approvals to market our products are delayed, if we
fail to receive these approvals, or if we lose previously received approvals,
our business would be impaired.
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<PAGE> 6
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Any failure to properly manage our growth may have a material adverse
effect on our business, operating results and financial condition. The rapid
growth that we have experienced places significant challenges on our management,
administrative and operational resources. To properly manage this growth, we
must, among other things, implement additional and improve existing
administrative, financial and operational systems, procedures and controls on a
timely basis. We will also need to expand our finance, administrative and
operations staff. We may not be able to complete the improvements to our
systems, procedures and controls necessary to support our future operations in a
timely manner. Management may not be able to hire, train, integrate, retain,
motivate and manage required personnel and may not be able to successfully
identify, manage and exploit existing and potential market opportunities.
Improving our systems and increasing our staff will increase our operating
expenses. Our failure to generate additional revenue in excess of increased
operating expenses in any fiscal period could have a material adverse effect on
our financial results for that period.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY
PERSONNEL.
Our success depends upon the continued contributions of our executive
officers and scientific and technical personnel. During our operating history,
many key responsibilities within our company have been assigned to a relatively
small number of individuals. The competition for qualified personnel is intense,
and the loss of services of key personnel could adversely affect our business.
In particular, the loss of the services of John Siebert, our Chief Executive
Officer, and John Hontz, our Chief Operating Officer, could have a material
adverse effect on our operations. We have an employment agreement through
December 31, 2000 with Dr. Seibert.
We rely on and our consultants to assist us in formulating our research
and development strategy. All of our consultants are otherwise employed and each
of these consultants may have commitments to other entities that may limit their
availability to us or other interests that may conflict with our interests.
WE MAY FACE PRODUCT LIABILITY CLAIMS RELATED TO PARTICIPATION IN CLINICAL TRIALS
OR THE USE OR MISUSE OF OUR PRODUCTS.
The testing, manufacturing and marketing of products utilizing our drug
delivery technologies may expose us to potential product liability and other
claims resulting from their use. We cannot be sure that any indemnification we
have obtained, or may obtain, from contract research organizations or
pharmaceutical companies conducting human clinical trials on our behalf protect
us from product liability claims or from the costs of related litigation.
Similarly, we cannot be sure that any indemnification we have obtained, or may
obtain, from pharmaceutical companies with whom we are developing our drug
delivery technologies will protect us from product liability claims from the
consumers of those products or from the costs of related litigation. If we are
subject to a product liability claim, we cannot be sure that our product
liability insurance, which has an aggregate policy limit of $5 million, will
reimburse us, or will be sufficient to reimburse us, for any expenses or losses
we may suffer. A successful product liability claim against us, if not covered
by, or if in excess of, our product liability insurance, may have a material
adverse effect on our business and results of operations.
RISKS RELATED TO OUR INDUSTRY
WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION.
Our success depends, in part, upon maintaining a competitive position
in the development of products and technologies in a rapidly evolving field. We
compete with other drug delivery, biotechnology and pharmaceutical companies,
engaged in the development of alternative drug delivery technologies or new drug
research and testing, as well as with entities developing new drugs that may
be taken orally. Many of these competitors have substantially greater financial,
technological, manufacturing, marketing, managerial and research and development
resources and experience than we do, and, therefore, represent significant
competition for us.
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<PAGE> 7
Our competitors may succeed in developing competing technologies or
obtaining governmental approval for products before we do. The products of our
competitors may gain market acceptance more rapidly than our products.
Developments by competitors may render our products, or potential products,
noncompetitive or obsolete.
OUR COMMERCIAL PRODUCTS ARE SUBJECT TO CONTINUING REGULATION.
Even if our products receive regulatory approval, either in the U.S. or
internationally, we will continue to be subject to extensive regulatory
requirements. These regulations are wide-ranging and govern, among other things:
o adverse drug experience reporting regulations;
o product promotion;
o product manufacturing, including good manufacturing practice, or
GMP, requirements; and
o product changes or modifications.
If we fail to comply or maintain compliance with these laws and
regulations, we may be fined or barred from selling our products. If the FDA
believes that we are not complying with the law, it can:
o seize our products;
o mandate a recall;
o stop future sales through injunctive procedures; and/or
o assess civil and criminal penalties against us.
RISKS RELATED TO OUR COMMON STOCK
ANTI-TAKEOVER PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS, DELAWARE LAW AND
OUR STOCKHOLDERS' RIGHTS PLAN MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. The rights of holders of our common stock may be adversely
affected by the rights of the holders of any preferred stock that may be issued
in the future. Additional provisions of our certificate of incorporation and
bylaws could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting common stock. These include
provisions that limit the ability of stockholders to take action by written
consent, call special meetings or remove a director for cause.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, either alone or together with affiliates and associates, owns (or
within the past three years, did own) 15% or more of the corporation's voting
stock.
We also have a stockholders' rights plan, commonly referred to as a
poison pill, that makes it difficult, if not impossible, for a person to acquire
control of us without the consent of our board of directors. The anti-takeover
provisions or our corporate charter documents, Delaware law and our
stockholders' rights plan may have the effect of depriving our stockholders of
the opportunity to sell their stock at a price in excess of prevailing market
prices in an acquisition of us by another company.
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<PAGE> 8
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of our common stock has been, and is likely to
continue to be highly volatile. The market prices for securities of drug
delivery, biotechnology and pharmaceutical companies historically have been
highly volatile. Factors that could adversely affect our stock price include:
o fluctuations in our operating results;
o announcements of technological collaborations, innovations or new products
by us or our competitors;
o governmental regulations;
o developments in patent or other proprietary rights;
o public concern as to the safety of drugs developed by us or others;
o the results of preclinical testing and clinical studies or trials by us or
our competitors;
o litigation; and
o general market conditions.
OUR OPERATING RESULTS MAY FLUCTUATE, CAUSING OUR STOCK PRICE TO FALL.
Our operating results may fluctuate from quarter to quarter and from
year to year depending on:
o demand by patients for the products we produce;
o new product introductions;
o the seasonal nature of the products produced to treat seasonal ailments;
o pharmaceutical company ordering patterns;
o the number of new collaborative agreements that we enter into;
o our achievement of product development milestones under collaborative
agreements; and
o our level of activity conducted on behalf and at the direction of
pharmaceutical companies.
Fluctuations in our operating results may lead to fluctuations,
including declines, in our stock price.
FUTURE SALES OF COMMON STOCK, OR THE PROSPECT OF FUTURE SALES, MAY DEPRESS OUR
STOCK PRICE.
Sales of a substantial number of shares of common stock, or the
perception that sales could occur, could adversely affect the market price of
our common stock. On March 17, 2000, we issued and sold 1,100,000 shares of our
common stock to a limited number of investors in a private placement, exempt
from registration under the Securities Act of 1933. Under the stock purchase
agreement with the investors, we are required to file a registration statement
with the Securities and Exchange Commission within thirty days after March 17,
2000 for the resale by the investors of the shares of common stock issued in the
private placement. We also are required to use our reasonable efforts to have
the registration statement declared effective by the Securities and Exchange
Commission and maintain its effectiveness until the earlier of March 17, 2002,
the time at which all shares acquired in the private placement have been sold
under the registration statement, or the date on which each investor may sell
all of the shares of common stock acquired by the investor in the private
placement without registration or without regard to any volume limitations.
Significant resales of the common stock issued in the private placement could
adversely affect the market price of our common stock.
WE MAY REQUIRE ADDITIONAL FINANCING.
We expect operating expenses and capital expenditures to increase as we
commercialize additional applications of our drug delivery technologies and
increase our production capacity. We believe our cash and cash equivalents,
together with the net proceeds from the private placement of common stock and
expected revenues from operations, will be sufficient to meet our anticipated
capital requirements for the foreseeable future. However, we may elect to pursue
additional financing at any time to more aggressively pursue development of new
drug delivery technologies and expand manufacturing capacity beyond that
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currently planned. In addition, other factors that will affect future capital
requirements and may require us to seek additional financing, include the level
of expenditures necessary to develop new products or technologies, the progress
of our research and product development programs, the need to construct a larger
than currently anticipated manufacturing facility to meet demand for our
products, results of our collaborative efforts with current and potential
pharmaceutical company partners, and the timing of and amounts received from
future product sales, product development fees and licensing revenue and
royalties. We cannot be sure that additional financing will be available to us
or, if available, on acceptable terms. Further, if we issue equity securities,
our stockholders may experience dilution.
9
