-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KTs7zSzg3WCmrkQ3AqQ2QsT7S3OdqlP9qPDBheirNJ5vifl2m9P9lO5g/mn29fcU atuqNVoBVZOUjnCoipNXeQ== 0000912057-97-026329.txt : 19970808 0000912057-97-026329.hdr.sgml : 19970808 ACCESSION NUMBER: 0000912057-97-026329 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIMA LABS INC CENTRAL INDEX KEY: 0000833298 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 411569769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24424 FILM NUMBER: 97652817 BUSINESS ADDRESS: STREET 1: 10000 VALLEY VIEW ROAD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-9361 BUSINESS PHONE: 6129478700 MAIL ADDRESS: STREET 1: 10000 VALLEY VIEW ROAD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-9361 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-24424 CIMA LABS INC. (Exact name of registrant as specified in its charter) Delaware 41-1569769 - ------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 10000 Valley View Road, Eden Prairie, Minnesota 55344-9361 (Address of principal executive offices including zip code) (612) 947-8700 (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.01 par value 9,546,128 Shares ----------------------------- --------------------------------- (Class) (Outstanding at August 1, 1997) 1 CIMA LABS INC. TABLE OF CONTENTS PAGE NUMBER ----------- COVER PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 3 Condensed Statements of Operations for the three- month and six-month periods ended June 30, 1997 and 1996 and the period from December 12, 1986 (inception) to June 30, 1997. . . . . . . . . . . . . . . . . . 4 Condensed Statements of Cash Flows for the six-month periods ended June 30, 1997 and 1996 and the period from December 12, 1986 (inception) to June 30, 1997 . . . . . . 5 Notes to Condensed Financial Statements . . . . . . . . . . . . 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 7 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 12 ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . 12 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . 13 ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . 14 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIMA LABS INC. (A Development Stage Company) Condensed Balance Sheets (Unaudited) June 30, December 31, 1997 1996 ---------- ------------ (Note) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . $4,245,858 $2,666,032 Short-term investments. . . . . . . . . . . 2,246,278 7,597,162 Accounts receivable . . . . . . . . . . . . 767,106 247,578 Inventories--Note B . . . . . . . . . . . . 915,234 534,587 Prepaid expenses. . . . . . . . . . . . . . 131,213 71,880 ----------- ----------- Total current assets. . . . . . . . . . . . . 8,305,689 11,117,239 Property, plant and equipment . . . . . . . . 13,738,625 13,377,085 Less accumulated depreciation . . . . . . . . (3,334,415) (2,972,474) ----------- ----------- 10,404,210 10,404,611 Other assets: Lease deposits. . . . . . . . . . . . . . . 40,651 290,650 Patents and trademarks, net of amortization. . . . . . . . . . . . . . . 249,443 252,404 ----------- ----------- 290,094 543,054 ----------- ----------- Total assets. . . . . . . . . . . . . . . . . $18,999,993 $22,064,904 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable. . . . . . . . . . . . . . $560,311 $264,370 Accrued expenses. . . . . . . . . . . . . . 571,900 529,402 Advance royalties . . . . . . . . . . . . . 250,000 250,000 ----------- ----------- Total current liabilities . . . . . . . . . . 1,382,211 1,043,772 Commitments and contingencies Stockholders' equity Preferred Stock, $.01 par value: Authorized shares--5,000,000; issued and outstanding shares-- none . . . . . . . . - - Common Stock, $.01 par value: Authorized shares--20,000,000; issued and outstanding shares--9,546,128--June 30, 1997; 9,411,589-- December 31, 1996 . . . . . . 95,461 94,116 Additional paid-in capital. . . . . . . . . 57,043,803 56,586,958 Deficit accumulated during the development stage. . . . . . . . . . . . . . . . . . . (39,521,482) (35,659,942) ----------- ----------- Total stockholders' equity. . . . . . . . . . 17,617,782 21,021,132 ----------- ----------- Total liabilities and stockholders' equity. . $18,999,993 $22,064,904 ----------- ----------- ----------- ----------- Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 3 CIMA LABS INC. (A Development Stage Company) Condensed Statements of Income (Unaudited)
Period from December 12, 1986 Three Months Ended Six Months Ended (Inception) to June 30, June 30, June 30, ----------------------- ----------------------- --------------- 1997 1996 1997 1996 1997 ----------------------- ----------------------- --------------- Revenues: Net sales $640,864 $0 $832,572 $0 $14,583,456 Research and development fees & 381,564 275,277 458,112 667,135 5,804,702 Licensing revenues ----------------------- ----------------------- --------------- 1,022,428 275,277 1,290,684 667,135 20,388,158 Costs and expenses: Cost of goods sold 987,233 0 1,568,106 0 19,399,521 Research and product development 754,161 1,298,850 1,984,661 2,674,796 22,507,509 Selling, general and administrative 998,680 797,057 1,888,359 1,580,759 19,532,434 ----------------------- ----------------------- --------------- 2,740,074 2,095,907 5,441,126 4,255,555 61,439,464 Other income (expense): Interest income, net 65,413 128,093 193,704 167,478 1,313,104 Other income (expense) 123,029 2,555 124,222 (2,824) 394,252 ----------------------- ----------------------- --------------- 188,442 130,648 317,926 164,654 1,707,356 ----------------------- ----------------------- --------------- Net loss and deficit accumulated during the development stage ($1,529,204) ($1,689,982)($3,832,516) ($3,423,766)($39,343,950) ----------------------- ----------------------- --------------- ----------------------- ----------------------- --------------- Net loss per share: Primary $(0.16) $(0.20) $(0.40) $(0.42) $(12.23) Fully diluted $(0.16) $(0.20) $(0.40) $(0.42) $(8.86) Weighted average shares outstanding: Primary 9,490,541 8,654,230 9,468,893 8,239,311 3,216,080 Fully diluted 9,490,541 8,654,230 9,468,893 8,239,311 4,442,029 See notes to condensed financial statements.
4 CIMA LABS INC. (A Development Stage Company) Condensed Statements of Cash Flows (Unaudited)
Period from December 12, 1986 Six Months Ended (Inception) to June 30, June 30, -------------------------------- -------------- 1997 1996 1997 -------------------------------- -------------- OPERATING ACTIVITIES Net loss . . . . . . . . . . . . . . . . . . . . . . . . ($3,832,516) ($3,423,765) ($39,343,950) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization. . . . . . . . . . . . . 422,382 294,116 4,442,945 Preferred stock issued for accrued interest. . . . . . 0 0 141,448 Gain on sale of property, plant and equipment. . . . . 0 0 (53,270) Changes in operating assets and liabilities: Accounts receivable. . . . . . . . . . . . . . . . . . (519,528) (143,248) (767,106) Inventories. . . . . . . . . . . . . . . . . . . . . . (380,647) 19,613 (915,234) Other current assets . . . . . . . . . . . . . . . . . (59,333) (302,313) (131,213) Accounts payable . . . . . . . . . . . . . . . . . . . 295,941 512,014 560,307 Accrued expenses . . . . . . . . . . . . . . . . . . . 42,498 195,157 571,900 Advance royalties. . . . . . . . . . . . . . . . . . . 0 0 250,000 -------------------------------- -------------- Net cash used in operating activities. . . . . . . . . . (4,031,203) (2,848,426) (35,244,173) INVESTING ACTIVITIES Purchase of and deposits on property, plant and equipment . . . . . . . . . . . . . (360,943) (270,884) (14,822,279) Purchase of short-term investments . . . . . . . . . . . 0 0 (26,144,302) Proceeds from sale of property, plant & equipment. . . . 0 0 471,883 Proceeds of maturities of short-term investments . . . . 5,350,885 0 23,898,025 Patents and trademarks . . . . . . . . . . . . . . . . . (58,081) (38,147) (673,509) -------------------------------- -------------- Net cash used in investing activities. . . . . . . . . . 4,931,861 (309,031) (17,270,182) FINANCING ACTIVITIES Proceeds from issuance of stock: Common Stock . . . . . . . . . . . . . . . . . . . . . 429,168 13,551,189 31,261,343 Preferred Stock. . . . . . . . . . . . . . . . . . . . 0 0 25,458,690 Lease financing of equipment . . . . . . . . . . . . . . 0 0 2,441,650 Security deposits on leases. . . . . . . . . . . . . . . 250,000 0 (40,651) Proceeds from issuance of notes payable and warrants . . 0 0 1,923,951 Payments on notes payable. . . . . . . . . . . . . . . . 0 0 (1,823,700) Payments on capital leases . . . . . . . . . . . . . . . 0 0 (2,441,650) Organization costs . . . . . . . . . . . . . . . . . . . 0 0 (19,420) -------------------------------- -------------- Net cash (used in) provided by financing activities. . . 679,168 13,551,189 56,760,213 -------------------------------- -------------- Increase (decrease) in cash and cash equivalents . . . . 1,579,826 10,393,732 4,245,858 Cash and cash equivalents at beginning of period . . . . 2,666,032 3,558,743 - -------------------------------- -------------- Cash and cash equivalents at end of period . . . . . . . $4,245,858 $13,952,475 $4,245,858 -------------------------------- -------------- -------------------------------- -------------- Supplemental schedule of noncash investing and financing activities: Note payable exchanged for issuance of common stock $1,517,500 Common stock issued for note receivable 50,000 See notes to condensed financial statements.
5 CIMA LABS INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. NOTE B - INVENTORIES Inventories are stated at the lower of cost (first in, first out) or fair market value. June 30, December 31, 1997 1996 -------- ------------ Raw materials . . . . . . . . . . . . $437,933 $534,587 Work in process . . . . . . . . . . . 75,434 -- Finished products . . . . . . . . . . 401,867 -- -------- ------------ $915,234 $534,587 NOTE C - INITIAL PUBLIC OFFERING The Company completed its initial public offering ("IPO") of its Common Stock in August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were automatically converted on a one-for-one basis to shares of Common Stock on the closing date of August 4, 1994. NOTE D - NET LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding during the period. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is antidilutive. In February 1997, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the presentation of primary earnings per share (EPS) with basic EPS and also requires dual presentation of basic and diluted EPS for entities with complex capital structures. This Statement is effective for the fiscal year ended December 31, 1997. For the quarter ended June 30, 1997, there is no difference between basic earnings per share under Statement No. 128 and primary net loss per share as reported. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE SUCCESS OF THE COMPANY IN MANUFACTURING PRODUCTS USING THE COMPANY'S TECHNOLOGY, THE AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF THE COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE DISCUSSED IN "BUSINESS RISKS" BELOW. GENERAL CIMA, founded in 1986, is a drug delivery company focused primarily on the development and manufacture of pharmaceutical products based upon its patented OraSolv-Registered Trademark- technology for marketing by multinational pharmaceutical companies. OraSolv is an oral dosage formulation incorporating microencapsulated active drug ingredients into a tablet which dissolves quickly in the mouth without chewing or water and which effectively masks the taste of the medication being delivered. OraSolv's fast-dissolving capability may enable patients in certain age groups or those with a variety of conditions that limit their ability to swallow conventional tablets to receive medication in a more convenient oral dosage form. The Company believes that OraSolv is more convenient than traditional tablet-based oral dosages as it does not require water to be ingested, thereby enabling immediate medication at the onset of symptoms. In addition, OraSolv can provide more accurate administration of doses than liquid or suspension formulations as no measuring is required. The Company believes OraSolv's ease of use and effective taste-masking may foster greater patient compliance with recommended dosage regimens, both for over-the-counter ("OTC") and prescription products, thereby improving therapeutic outcomes and reducing costs in the healthcare system. CIMA's business strategy is to commercialize its OraSolv technology through collaborations with multi-national pharmaceutical companies with emphasis on products which command a large market share and/or are in large market segments. The Company is currently focused on the development and manufacture of OraSolv products for the OTC market. Product differentiation and brand name identity are critical to the successful marketing of OTC products. The Company believes that OraSolv affords pharmaceutical companies a means to significantly differentiate their products in the competitive OTC marketplace. Because it is a patented technology, OraSolv affords more enduring product differentiation than the more traditional approaches of changing product flavor or packaging innovations, which can be easily replicated. The Company has entered into agreements with a number of pharmaceutical companies for development, manufacture and commercialization of OTC and Rx to OTC switch products. The Company also intends to develop OraSolv products for selected prescription drug applications. The Company believes that such prescription OraSolv products might result in improved taste acceptance and ease of administration, and so enhance patient compliance with the recommended dosage regimen for such prescription pharmaceuticals. The Company has also initiated the development of new drug technologies. These technologies include new oral solid delivery systems, unique sustained-released delivery systems and improved efficacy delivery systems. The goal is to focus on technologies that improve efficacy. 7 At June 30, 1997, the Company had accumulated losses of approximately $ 39,344,000. The Company recorded its first commercial sales using the Company's OraSolv technology in the three month period ending March 31, 1997. Prior to this the Company's revenues have been from sales using the Company's AutoLution-Registered Trademark- (a liquid effervescent) technology, license fees paid by corporate partners in consideration of the transfer of rights under collaboration agreements, and research and development fees paid by corporate partners to fund the Company's research and development efforts for products developed under such agreements. To date, such revenues have been derived primarily from manufacturing agreements with third parties for liquid effervescent, other products, and products using OraSolv technology, the latter generated in the last four months. To a lesser extent revenue has been generated from research and development fees and licensing arrangements, primarily in the last five years. The Company is not currently manufacturing liquid effervescent products, and has not recognized any revenues from such products since 1995. As noted above, the Company began manufacturing OraSolv products in the first quarter of 1997, and the Company expects to continue generating revenue from manufacturing OraSolv products. In addition to revenues from manufacturing, research and development and licensing, the Company has funded operations from private and public sales of equity securities, realizing net proceeds of approximately $25,963,000 from private sales of equity securities and $16,379,000 and $12,038,000 from the Company's July 1994 initial public offering and May 1996 public offering of its Common Stock, respectively. The total shares outstanding at June 30, 1997 were 9,546,128. The Company's ability to generate revenues is dependent upon its ability to develop new, innovative drug delivery technologies and to enter into and be successful in collaborative arrangements with pharmaceutical and other healthcare companies for the development and manufacture of OraSolv products to be marketed by these corporate partners. The Company is highly dependent upon the efforts of the corporate partners to successfully market OraSolv products. Although the Company believes these partners will have an economic motivation to market these products vigorously, the amount and timing of resources to be devoted to marketing are not within the control of the Company. These partners independently could make material marketing and other commercialization decisions which could adversely affect the Company's future revenues. Moreover, certain of the Company's products are seasonal in nature and the Company's revenues could vary materially from quarter to quarter depending on which of such products, if any, are then being marketed. The Company expects that losses will continue through at least 1998, even though CIMA expects to continue generating sales revenue from manufacturing OraSolv products in 1997 and 1998. Research and development expenses will increase as CIMA investigates new drug delivery technologies, including the possibility of utilizing microencapsulation for the development of controlled release systems, as well as sublingual systems which could deliver faster absorption of drug ingredients. Personnel costs for research and development are expected to remain relatively stable as the majority of the necessary personnel for this function has already been hired. Personnel costs for administration may decrease slightly in an effort to reduce corporate overhead. As CIMA continues production for its first commercial launch of a product incorporating its OraSolv technology, additional operations personnel may need to be added to meet a corporate partner's order. Manufacturing infrastructure costs should not need to increase materially as there is capacity to meet short-term production needs. In the fourth quarter of 1996, the Company signed a Supply Agreement with Bristol-Myers Squibb, a major pharmaceutical company. The Agreement covers full-scale production of an over-the-counter product in CIMA's OraSolv dosage form. CIMA began commercial production for this product during the first quarter of 1997. The product was launched in May 1997. In the second quarter of 1997, the Company expanded its relationship with Bristol-Myers Squibb and signed a global non-exclusive license agreement which covers multiple products. 8 In recent years the Company has actively marketed its OraSolv technology to the pharmaceutical industry. The Company is presently engaged in product development and manufacturing scale-up efforts and negotiations with several different pharmaceutical companies regarding a variety of potential products. There can be no assurance, however, that these activities or discussions will result in license agreements or the marketing of products using the OraSolv technology. The Company believes that mergers and acquisitions in the pharmaceutical industry in recent years, together with changes in product plans by potential partners, may have had an adverse effect on the progress of certain projects, and the eventual marketing of products incorporating the Company's technology. RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997 The Company's results of operations for the three- and six-month periods ended June 30, 1997 reflect the increased emphasis on the manufacturing of an OraSolv product for a commercial launch by one of our corporate partners in 1997. Net product sales increased to $641,000 and $833,000 in the three- and six-month periods ended June 30, 1997 from zero in the first six months in 1996. All sales in 1997 relate to the first commercial sales of a product using the OraSolv technology, which began in March 1997. Research and development fees and licensing revenues were $382,000 and $458,000 for the three- and six-month periods ended June 30, 1997, respectively, compared to $275,000 and $667,000, respectively, in the comparable periods of 1996. These fees and revenues reflect the signing of license option and development agreements with multinational pharmaceutical companies that provide for licensing fees, milestone payments, royalties and manufacturing fees. So long as the Company has relatively few agreements with corporate partners, research and development fees will tend to fluctuate on a quarter to quarter basis. Cost of goods sold increased to $987,000 and $1,568,000 in the three- and six-month periods ended June 30, 1997, respectively, from zero in the first six months of 1996. Costs in cost of goods sold include the manufacturing infrastructure costs necessary to meet future anticipated sales levels. These costs caused the cost of goods sold to exceed the net sales price for the product in the first six months of 1997. The Company anticipates this situation will not improve until production increases, and it approaches full manufacturing capacity. In 1996, these costs were classified as product development expenses. Research and development expenses decreased to $754,000 and $1,985,000 in the three- and six-month periods ended June 30, 1997, respectively, from $1,299,000 and $2,675,000 in the three- and six-month periods ended June 30, 1996, respectively. After accounting for the reclassification of manufacturing infrastructure costs, as noted above, research and development expenses actually increased on a like-to-like comparison by approximately $30,000, and $370,000 for the three- and six-month periods ended June 30, 1997, respectively. The increase, which was mostly in the first three-months of 1997, was due to expenses related to the hiring of the new Vice President of Research and Development, additional efforts on the development of future OraSolv products, and product development expenses related to the transition to commercial production. Selling, general and administrative expenses increased to $999,000 and $1,888,000 in the three- and six-month periods ended June 30, 1997, respectively, from $797,000 and $1,581,000 for the same periods in 1996, respectively. The increase represents spending on consumer marketing studies to support OraSolv, and general operating costs. Net interest and other income increased to $188,000, and $318,000, respectively, in the three- and six-month periods ended June 30, 1997 from $131,000 and $165,000, respectively, for the same periods in 1996. Other income in the three-month period ended June 30, 1997 includes a $120,000 state sales and use tax refund for previously purchased fixed assets. The balance is net interest income which is dependent on the cash position of the Company. 9 LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations to date primarily through private and public sales of its equity securities and revenues from manufacturing agreements. Through June 30, 1997, CIMA had received net offering proceeds from such private and public sales of approximately $57,044,000 and had net sales from manufacturing agreements of approximately $14,584,000. Cash, cash equivalents and short-term investments were approximately $6,492,000 at June 30, 1997. The Company's long-term capital requirements will depend upon numerous factors, including the status of the Company's collaborative arrangements, the progress of the Company's research and development programs and receipt of revenues from the collaborative agreements, and sales of the Company's products. The Company believes that its currently available funds, including any license fees and sales revenue anticipated to be received in the future, will meet its needs through 1997. Thereafter, or sooner if conditions make it necessary, the Company will need to raise additional funds through public or private financings, including equity financing which may be dilutive to stockholders. There can be no assurance that the Company will be able to raise additional funds if its capital resources are exhausted, or that funds will be available on terms attractive to the Company. The Company has not generated taxable income through June 1997. At December 31, 1996, the net operating losses available to offset taxable income were approximately $35,247,000. Because the Company has experienced ownership changes, pursuant to Internal Revenue Code regulations, future utilization of the operating loss carryforwards will be limited in any one fiscal year. The carryforwards expire beginning in 2001. As a result of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce potential federal income tax liabilities. BUSINESS RISKS The Company has recently initiated commercial production of its first product in CIMA's OraSolv dosage form, and must be evaluated in light of the uncertainties and complications present for any such company and, in particular, a company in the pharmaceutical industry. The Company has accumulated aggregate net losses from inception through June 30, 1997 of $39,344,000. Losses have resulted principally from costs incurred in research and development of the Company's technologies and from general and administrative costs. These costs have exceeded Company's revenues, which until recently have been derived primarily from the manufacturing of AutoLution (a liquid effervescent) and other non-OraSolv products for which the Company no longer manufactures. In more recent years, the Company has also received revenue from its commercial partners for product development and licensing of OraSolv, and to a lesser extent, OraSolv for which commercial production commenced in the first quarter of 1997 for a commercial partner. The Company expects to continue to incur losses at least through 1998. There can be no assurance that the Company will ever generate substantial revenues or achieve profitability. The Company is dependent upon its ability to enter into and perform under collaborative arrangements with pharmaceutical companies for the development and commercialization of its products. Failure of these partners to market the Company's products successfully could have a material adverse effect on the Company's financial condition and results of operations. The Company's revenues are also dependent upon ultimate consumer acceptance of the OraSolv drug delivery system as an alternative to conventional oral dosage forms. The Company expects that OraSolv products will be priced slightly higher than conventional swallow tablets. Although the Company believes that initial consumer research has been encouraging, there can be no assurance that market acceptance for the Company's OraSolv products will ever develop or be sustained. The Company began manufacturing OraSolv products in commercial quantities in February 1997. Commercial sales have been made and revenue has been recognized from sales of an OraSolv product. To achieve future desired levels of production, the Company will be required to increase its manufacturing capabilities. There can be no 10 assurance that manufacturing can be scaled-up in a timely manner to allow production in sufficient quantities to meet the needs of the Company's corporate partners. The Company intends to increase its research and development expenditures to enhance its current technologies, and to pursue internal proprietary drug delivery technologies. Even if these technologies appear promising during various stages of development, they may not reach the commercialization stage for a number of reasons. Such reasons include the possibilities of not finding a partner to market the product, the product being difficult to manufacture on a large scale or of being uneconomical to market. The foregoing risks reflect the Company's stage of development and the nature of the Company's industry and products. Also inherent in the Company's stage of development and the nature of the Company's industry is a range of additional risks, including competition, uncertainties regarding the effects of healthcare reform on the pharmaceutical industry, including pressures exerted on the prices charged for pharmaceutical products, and uncertainties regarding protection of patents and proprietary rights. 11 CIMA LABS INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None ITEM 2. CHANGES IN SECURITIES. On March 13, 1997, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of the Company's Common Stock (the "Common Shares"). The dividend was effective as of April 10, 1997 (the "Record Date") and the Rights also attached to new Common Shares issued after the Record Date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Shares"), subject to adjustment. Each Preferred Share is designed to be the economic equivalent of 100 Common Shares. The description and terms of the Rights are set forth in a Rights Agreement dated as of March 14, 1997 between the Company and Norwest Bank Minnesota, N.A., which is filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997. Initially, the Rights are evidenced by the stock certificates representing Common Shares then outstanding. Upon the occurrence of certain events resulting in, or which are intended to result in, a person or group of persons (an "Acquiring Person") acquiring beneficial ownership of 15% or more of the outstanding Common Shares, (i) the Rights will be evidenced by Rights Certificates and (ii) the Rights will become exercisable. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right. In the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. The Rights are subject to certain redemption provisions (at $.01 per Right) and exchange provisions (at a rate of one Common Share or one-hundredth of a Preferred Share per Right), in each case subject to adjustment, which are exercisable at the sole discretion of the Board of Directors. In addition, the terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, except that from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 14, 1997, the Company held its annual meeting of stockholders, at which meeting the stockholders took the following actions: (i) elected John M. Siebert, Ph.D., Terrence W. Glarner, David B. Musket, Steven B. Ratoff, Joseph R. Robinson, Ph.D., and Jerry A. Weisbach, Ph.D., to serve as directors of the Company for the ensuing year and until their successors are elected; (ii) rejected the amendment and restatement of the Company's Equity Incentive Plan to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 250,000 shares to 2,250,000 shares; (iii) approved the Company's Directors' Fee Option Grant Program; and (iv) ratified the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 1997. Such actions were taken by the following votes: VOTES FOR VOTES --------- WITHHELD -------- Election of Directors: John M. Siebert, Ph.D. 7,469,119 4,781 Terrence W. Glarner 7,469,119 4,781 David B. Musket 7,469,119 4,781 Steven B. Ratoff 7,469,119 4,781 Joseph R. Robinson, Ph.D. 5,542,446 1,931,454 Jerry A. Weisbach, Ph.D. 7,469,119 4,781 BROKERS VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES ---------- ------------- ----------- --------- Amendment of Stock Plan 3,675,344 3,733,850 10,461 54,245 Directors' Fee Option Grant Program 6,812,943 652,003 8,954 0 Ratification of Auditors 7,460,700 7,786 5,414 0 ITEM 5. OTHER INFORMATION. None 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS Item Description 10.11 Equity Incentive Plan, as amended and restated and currently in effect. 10.26 Amendment to Supply Agreement between Bristol-Myers Squibb Company and the Company, dated June 26, 1997. (1) 10.27 License Agreement between Bristol-Myers Squibb Company and the Company, dated June 26, 1997. (1) 27 Financial Data Schedule. ____________ (1) Confidential treatment has been requested for this exhibit. (b) The Company filed no reports on Form 8-K during the quarter ended June 30, 1997. 14 CIMA LABS INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. CIMA LABS INC. Date: August 7, 1997 By: /s/ John M. Siebert - ----------------------- -------------------------------- John M. Siebert President and Chief Executive Officer Date: August 7, 1997 By: /s/ Keith P. Salenger - ----------------------- -------------------------------- Keith P. Salenger Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 15 EXHIBIT INDEX NO. OF EXHIBIT DESCRIPTION - -------------- ----------- 10.11 Equity Incentive Plan, as amended and restated and currently in effect. 10.26 Amendment to Supply Agreement between Bristol-Myers Squibb Company and the Company, dated June 26, 1997. (1) 10.27 License Agreement between Bristol-Myers Squibb Company and the Company, dated June 26, 1997. (1) 27 Financial Data Schedule. ____________ (1) Confidential treatment has been requested for this exhibit. 16 EX-10.11 2 EXH 10.11 EQUITY INCENTIVE PLAN CIMA LABS INC. EQUITY INCENTIVE PLAN AMENDED AND RESTATED MARCH 25, 1996 FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996 INTRODUCTION. In 1987, the Board of Directors adopted the CIMA LABS, INC. Stock Option and Stock Award Plan, which was later amended and restated. On March 25, 1996, the Board of Directors adopted a subsequent amendment and restatement and retitled this the Equity Incentive Plan. 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v) stock appreciation rights, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock appreciation rights granted pursuant to Section 8 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "COMPANY" means CIMA LABS INC., a Delaware corporation. 17 (f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a right granted pursuant to subsection 8(b)(2) of the Plan. (g) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (i) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (j) "DIRECTOR" means a member of the Board. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of the common stock of the Company determined as follows: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on the Nasdaq Stock Market (but not on the National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. 18 (o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a right granted pursuant to subsection 8(b)(3) of the Plan. (p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933 ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (r) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (s) "OPTION" means a stock option granted pursuant to the Plan. (t) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. (v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (w) "PLAN" means this CIMA LABS INC. Equity Incentive Plan. (x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company when discretion is being exercised with respect to the Plan. (y) "STOCK APPRECIATION RIGHT" means any of the various types of rights which may be granted under Section 8 of the Plan. (z) "STOCK AWARD" means any right granted under the Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right. (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 19 (bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right granted pursuant to subsection 8(b)(1) of the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, a Stock Appreciation Right, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which a Stock Award shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 13. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, at any time the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to avoid the application of Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Two Million (2,000,000) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again 20 become available for issuance under the Plan. Shares subject to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan shall not be available for subsequent issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Stock Awards other than Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees, Directors or Consultants. (b) No person shall be eligible for the grant of an Incentive Stock Option or an award to purchase restricted stock if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options and Stock Appreciation Rights covering more than five hundred thousand (500,000) shares of the Company's common stock in any three (3) calendar year period. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of each Nonstatutory Stock Option shall be determined by the Board. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence or determined by the Board if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. 21 In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable, except by the Optionee upon such terms and conditions as are set forth in the Option Agreement for such Nonstatutory Stock Option, as the Board or the Committee shall determine in its discretion. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. 22 (g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re- Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock Option and which is granted to a 10% stockholder (as described in subsection 5(b)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; PROVIDED, HOWEVER, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 12(d) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the limits on the grant of options under subsection 5(c) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 23 7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) PURCHASE PRICE. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such agreement. Notwithstanding the foregoing, the Board or the Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (b) TRANSFERABILITY. No rights under a stock bonus or restricted stock purchase agreement shall be transferable except by will or the laws of descent and distribution so long as stock awarded under such agreement remains subject to the terms of the agreement, except as specifically provided in the applicable stock bonus or restricted stock purchase agreement. (c) CONSIDERATION. The purchase price of stock acquired pursuant to a restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (d) VESTING. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. (e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire, subject to the limitations described in subsection 7(d), any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 8. STOCK APPRECIATION RIGHTS. (a) The Board or Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights under the Plan to Employees or Directors of or Consultants to, the Company or its Affiliates. To exercise any outstanding Stock Appreciation Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such right. Except as provided in subsection 5(c), no limitation shall exist on the aggregate amount of cash payments the Company may make under the Plan in connection with the exercise of a Stock Appreciation Rights. (b) Three types of Stock Appreciation Rights shall be authorized for issuance under the Plan: 24 (1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. Tandem Stock Appreciation Rights will require the holder to elect between the exercise of the underlying Option for shares of stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the number of shares of stock covered by that portion of the surrendered Option in which the Optionee is vested over (B) the aggregate exercise price payable for such vested shares. (2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of stock subject to the underlying Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of stock to which the Concurrent Right pertains. The appreciation distribution payable on an exercised Concurrent Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Concurrent Right) in an amount equal to such portion as shall be determined by the Board or the Committee at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares. (3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will be granted independently of any Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to Nonstatutory Stock Options as set forth in Section 6. They shall be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (B) the aggregate Fair Market Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Independent Right. 9. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 25 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 11. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Employee, Director or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause the right of the Company's Board of Directors and/or the Company's shareholders to remove any Director pursuant to the terms of the Company's By-Laws and the provisions of the Delaware General Corporation Law, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. 26 (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person during any three (3) calendar year period pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then to the extent permitted by applicable law: (i) any surviving or acquiring corporation or an Affiliate of such surviving or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards (including a stock award resulting in the acquisition of the same consideration paid to the stockholders in the transaction described in this subsection 12(b)) for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving or acquiring corporation or its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar Stock Awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised after such acceleration and at or prior to such event. 13. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for Stock Awards under the Plan; 27 (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Directors or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on May 31, 2004, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 28 EX-10.26 3 EXH 10.26 AMENDMENT TO SUPPLY AGREEMENT *** TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.80 (B)(4), 200.83 AND 240.24B-2 Bristol-Myers Squibb Company 345 Park Avenue New York, New York 10154 June 26, 1997 Mr. Jack Khattar Vice President Business Development CIMA LABS, INC. 10,000 Valley View Road Eden Prairie, MN 55344-9361 RE: AMENDMENT TO THE SUPPLY AGREEMENT, DATED OCTOBER 10, 1996, BY AND AMONG CIMA LABS, INC. AND BRISTOL-MYERS SQUIBB COMPANY (THE "SUPPLY AGREEMENT") Dear Jack: This letter, when signed by both parties, will amend the Base Purchase Prices in Exhibit A to the above Supply Agreement as follows: ACTIVE MG. PER BASE PURCHASE PRICE PRODUCT FLAVOR INGREDIENT TABLET PER CARTON [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] This Amendment will be effective as to product shipped and invoiced on or after the date of final execution hereof. * CONFIDENTIAL TREATMENT REQUESTED 29 Each of CIMA and BMS agree that the original Base Purchase Price reflected in the Supply Agreement included a royalty component and the purpose of this Amendment is to acknowledge that such royalty is being paid pursuant to the License Agreement dated the date hereof, between BMS and CIMA (the "License Agreement"). Accordingly, in the event that the aggregate amount paid by BMS to CIMA (i) for product purchased pursuant to the Supply Agreement as amended hereby plus (ii) royalties paid pursuant to the License Agreement on products purchased from CIMA pursuant to the Supply Agreement as amended hereby is less than the aggregate BMS would have paid for product purchased pursuant to the Supply Agreement without this Amendment, BMS shall make a supplemental quarterly payment to CIMA in the amount of such difference. Notwithstanding the generality of the foregoing, in computing the amount CIMA would have received under the Supply Agreement without giving effect to this Amendment, the U.S. Producer Price Index adjustment mechanism specified in paragraph 3(d) of the Supply Agreement shall be applied only to the Base Purchase Price as specified in this Amendment. To indicate your acceptance of this amendment to the Supply Agreement, please sign and date your acceptance below. This should be done on both copies of this Amendment. Please execute both copies of the letter and return one fully executed copy to Bristol-Myers Products. BRISTOL-MYERS PRODUCTS a division of Bristol-Myers Squibb Company By: /s/ Louis M. De Amicis ------------------------------ Name: Louis M. De Amicis ------------------------------ Title: Vice President ------------------------------ Date: June 26, 1997 ------------------------------ ACCEPTED AND AGREED: CIMA LABS, INC. By: /s/ Jack Khattar ------------------------------ Name: Jack Khattar ------------------------------ Title: VP Business Development ------------------------------ Date: June 26, 1997 ------------------------------ 30 EX-10.27 4 EXH 10.27 LICENSE AGREEMENT *** 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 BETWEEN BRISTOL-MYERS SQUIBB COMPANY AND CIMA LABS, INC. ______________ JUNE 26, 1997 31 TABLE OF CONTENTS PAGE ARTICLE I - DEFINED TERMS ............................................... 1 1.1 Defined Terms ........................................... 1 ARTICLE II - GRANT OF LICENSES ......................................... 4 2.1 BMS Licenses ............................................ 4 2.2 License Term ............................................ 4 ARTICLE III - INTELLECTUAL PROPERTY RIGHTS ............................. 4 3.1 Improvements ............................................ 4 3.2 Patent Prosecution and Maintenance ...................... 5 3.3 Third Party Infringers .................................. 5 ARTICLE IV - PAYMENTS ................................................... 6 4.1 Royalty Payments ........................................ 6 4.2 Permissible Royalty Rate ................................ 7 4.3 Payment ................................................. 7 4.4 Reduction in Royalty Due to Payments to Third-Party ..... 7 4.5 Books and Records ....................................... 7 4.6 Exchange Conversion ..................................... 7 4.7 Exchange Control ........................................ 7 4.8 Commencement of Royalty Payments ........................ 8 4.9 Reduction in Royalty Rate ............................... 8 ARTICLE V - ADDITIONAL COVENANTS ........................................ 8 5.1 General ................................................. 8 5.2 Obligations of BMS ...................................... 8 ARTICLE VI - REPRESENTATIONS AND WARRANTIES ............................. 9 6.1 CIMA Representations .................................... 9 6.2 BMS Representations ..................................... 11 6.3 Limitation .............................................. 11 ARTICLE VII - INDEMNIFICATION ........................................... 11 7.1 Losses .................................................. 11 7.2 Indemnification by CIMA ................................. 11 7.3 Indemnification by BMS .................................. 12 7.4 Procedure ............................................... 12 7.5 Survival ................................................ 12 7.6 Limitation .............................................. 13 32 Table of Contents (continued) PAGE ARTICLE VIII - EVENTS IF FORCE MAJEURE ................................. 13 8.1 Meaning ................................................. 13 8.2 Excused Performance ..................................... 13 8.3 Limitations ............................................. 13 ARTICLE IX - TERM AND TERMINATION .................................... 13 9.1 Termination by BMS ...................................... 13 9.2 Termination Due to a Material Breach .................... 14 9.3 Insolvency .............................................. 14 ARTICLE X - CONFIDENTIALITY ............................................. 14 10.1 Confidential Information ................................ 14 10.2 Non-Disclosure .......................................... 15 10.3 Non-Confidential Information ............................ 15 10.4 Additional Measures ..................................... 15 ARTICLE XI - GENERAL .................................................... 15 11.1 Remedies ................................................ 15 11.2 Assignment .............................................. 15 11.3 Governing Law ........................................... 16 11.4 Notice .................................................. 16 11.5 Waiver .................................................. 17 11.6 Entire Agreement ........................................ 17 11.7 Severability ............................................ 17 11.8 Titles to Sections for Convenience Only ................. 17 11.9 Counterparts ............................................ 17 11.10 Publicity ............................................... 17 11.11 Further Assurances ...................................... 18 11.12 No Third Party Beneficiaries ............................ 18 33 LICENSE AGREEMENT (this "Agreement"), dated as of June 26, 1997, by and between CIMA LABS, INC., a corporation organized under the laws of the State of Delaware and having its principal place of business at 10000 Valley View Road, Eden Prairie MN 55344-9361 ("CIMA"), and the WORLDWIDE CONSUMER MEDICINES DIVISION OF BRISTOL-MYERS SQUIBB COMPANY, a corporation organized under the laws of the State of Delaware having its principal place of business at 345 Park Avenue, New York, New York 10154 ("BMS") . RECITALS WHEREAS, CIMA is the owner or licensee of certain patent rights pertaining to an effervescent, fast-dissolving, oral drug-delivery tablet technology; and WHEREAS, BMS is interested in obtaining and licensing the rights to make, have made, use and sell products including such technology. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows, for themselves and their respective successors and assigns: ARTICLE I DEFINED TERMS 1.1 DEFINED TERMS. For purposes of this Agreement, the following terms shall have the meanings indicated: 1.1.1 "[...*...] MARKET" means indicated, labelled, packaged and/or marketed other than specifically for the [...*...] Market. 1.1.2 "AFFILIATE" means a company or corporation, more than 50% of the voting stock of which is owned or controlled, directly, by any party hereto; any company or corporation directly or indirectly owning or controlling more than 50% of the voting stock of either party hereto; or any majority-owned subsidiary of such company or corporation, other than a party hereto. 1.1.3 "AGREEMENT" is defined in the opening paragraph. 1.1.4 "BMS" is defined in the opening paragraph. 1.1.5 "CIMA" is defined in the opening paragraph. 1.1.6 "CONFIDENTIAL INFORMATION" is defined in Section 10. 1.1.6 "DISCLOSER" Is defined in Section 10.1. 1.1.7 "EFFECTIVE DATE" shall be the date specified in the opening paragraph. 1.1.8 "FORCE MAJEURE" is defined in Section 8.1. 34 1.1.9 "IMPROVEMENTS" means any change, modification or enhancement to any Licensed Product disclosed in the Licensed Patents as they existed as of the Effective Date; provided such change, modification or enhancement is based to a material extent upon the Licensed Patents as they exist as of the Effective Date. 1.1.10 "IMPROVEMENT CUTOFF DATE" means the earlier to occur of (i) the date which is [...*...] after the Effective Date or (ii) the end of the Licensed Term, with respect to each country in the Territory. 1.1.11 "INDEMNITEE" is defined in Section 7.1. 1.1.12 "INDEMNITOR" is defined in Section 7.4. 1.1.13 "INTELLECTUAL PROPERTY" refers collectively to all proprietary information including, patents, copyrights, trade secrets, trade or service marks, know-how, test methods, data, studies, reports, process and manufacturing information, including improvements thereon, marketing strategies and tactics and all other proprietary rights. 1.1.14 "LICENSED FIELD" means the [...*...] market for sale of any Licensed Product in the [...*...] Market or the [...*...] Market, as the case may be, as set forth in Schedule 1.1.17 in each applicable country or region set forth in Schedule 1.1.17. 1.1.15 "LICENSED PATENTS" means those patents and patent applications (and any and all patents issued in connection therewith) listed on Schedule 1.1.16 hereto, and all divisions, continuations, continuations-in- part, reexaminations, reissues, additions, substitutions. registrations, confirmations, renewals and patent term extensions thereof, and any foreign counterparts thereof in the Territory. Licensed Patents shall also include any additional patent applications and patents which: (i) are owned or controlled by CIMA so that CIMA has the right to grant licenses without payment or accounting to others, (ii) have an effective filing date or priority date before the Improvement Cutoff Date and (iii) claim any Improvement. 1.1.16 "LICENSED PRODUCTS" means a product comprised of an effervescent agent together with microparticles of either: (i) where a Licensed Product is listed on Schedule 1.1.17 by active ingredient, any active ingredient listed for the relevant country or region in the Territory which, as of the Effective Date, is approved by the appropriate regulatory agency for sale in the [...*...] market in such country or region of the Territory; and (ii) where a Licensed Product is listed on Schedule 1.1.17 by product category (e.g. "[...*...]"), one or more active ingredients used or useful in such product category (e.g. [...*...]), provided that, as of the Effective Date, all such active ingredients are approved by the appropriate regulatory agency for sale in the [...*...] market in the relevant country or region of the Territory, coated by a rupturable or non-rupturable coating material, such product being adapted to dissolve in the mouth of a human being and to provide a distinct sensation of effervescence on dissolution, the manufacture, use or sale of which would, but for this Agreement, constitute infringement of Licensed Patents. 1.1.17 "LICENSE TERM" is defined in Section 2.2. 1.1.18 "LITIGATION" is defined in Section 7.4. 1.1.19 "LOSS" is defined in Section 7.1. 35 1.1.20 "MINIMUM ROYALTY PAYMENT AMOUNT" is defined in Section 4.1.3. 1.1.21 "NET SALES" means the gross proceeds on sales of Licensed Products to independent customers of BMS who are not its Affiliates or sublicensees, expressed in U.S. dollars and recorded in accordance with U.S. generally accepted accounting principles, less (i) [...*...] actually paid or credited by BMS, (ii) [...*...] paid by BMS, (iii) [...*...] paid or credited by BMS, (iv) [...*...] paid or credited by BMS, (v) [...*...] paid by BMS on shipments to customers and (vi) [...*...] days or more during the applicable reporting period, less such [...*...] days or more which are received or recovered during such reporting period. 1.1.22 "NOTICE" is defined in Section 7.4. 1.1.23 "[...*...]" means [...*...] use [...*...] for the same from a physician or other professional (including products offered through [...*...] distribution channels). 1.1.24 "[...*...] MARKET" means suitable for, and specifically indicated, labelled, packaged and/or marketed, for use [...*...]. 1.1.25 "RECIPIENT" is defined in Section 10.1. 1.1.26 "TERRITORY" shall mean, with respect to each Licensed Product, all countries (including territories and possessions, unless otherwise specified) and/or, as the case may be, all countries in any continent or region specified on Schedule 1.1.17 for such Licensed Product. ARTICLE II GRANT OF LICENSES 2.1 BMS LICENSES. CIMA hereby grants to BMS under the Licensed Patents, the non-exclusive (except as provided below), license and right to make, have made, use and sell each Licensed Product in the Licensed Field and in the Territory set forth for such Licensed Product in Schedule 1.1.17. Such license to BMS shall also include the right to: (i) subject to the confidentiality provisions of Article X, allow access to any information or technology relating to the Licensed Products known to BMS by third party consultants who have been engaged by BMS in connection with the rights granted to BMS hereunder, (ii) subcontract the manufacture, marketing, distribution and/or sale of Licensed Products through BMS's normal distribution channels and (iii) sublicense the right to make, have made, use and sell Licensed Products in the Licensed Field in the Territory to any Affiliate of BMS for so long as such entity remains an Affiliate of BMS. 2.1.1 [...*...] EXCLUSIVITY. Notwithstanding anything contained herein to the contrary, until [...*...], the license granted by Section 2.1 hereof shall be an exclusive license with respect to Licensed Products in the [...*...] Market in the [...*...] and [...*...] (including any territories or possessions thereof other than [...*...]). 2.2 LICENSE TERM. The term of the licenses granted hereunder (the "License Term") with respect to Licensed Patents shall begin upon the date hereof and shall extend in each country in the Territory until the earlier of (i) expiration of the last-to-expire of the Licensed Patents in each such country (ii) an acknowledgement by CIMA of the invalidity of the last Licensed Patent in effect in such country or (iii) a determination of invalidity (which cannot be further appealed or reviewed) with respect to the last Licensed Patent in effect in such country. 36 ARTICLE III INTELLECTUAL PROPERTY RIGHTS 3.1 IMPROVEMENTS. 3.1.1 CIMA IMPROVEMENTS. CIMA shall own all Improvements, as well as any Intellectual Property rights in and to any Improvements invented solely by CIMA. 3.1.2 BMS IMPROVEMENTS. BMS shall own all Improvements, as well as all Intellectual Property rights in and to any Improvements, invented solely by BMS. 3.2 PATENT PROSECUTION AND MAINTENANCE. 3.2.1 APPLICATION INITIATED BY BMS. If requested by BMS, BMS and CIMA shall consult from time-to-time with regard to utility of CIMA filing a patent application with respect to an invention disclosed in the Licensed Patents or any CIMA Improvements in any country in the Territory in which patent protection has not previously been obtained or for additional patent protection in any country in the Territory with any effective Licensed Patents. Any patents allowed pursuant to an application filed pursuant to this Section 3.2.1 shall be Licensed Patents for purposes of this Agreement. 3.2.2 APPLICATIONS INITIATED BY CIMA. CIMA shall promptly deliver to BMS a copy of any filings it has made to obtain patent protection with respect to the invention disclosed in the Licensed Patents or any Improvements in any country in the Territory or to obtain additional patent protection in any country in the Territory in which any Licensed Patents have been filed. 3.2.3 COMMENT BY BMS. CIMA shall supply BMS with copies of patent office actions in the [...*...] and [...*...] with respect to filings made pursuant to this Section 3.2 in sufficient time to enable BMS to comment on and advise CIMA with respect thereto prior to any response by CIMA. In the event BMS elects to so comment and advise, BMS shall reimburse CIMA for any incremental additional out of pocket expenses incurred by CIMA solely as the result of such commentary or advice. 2.3 THIRD PARTY INFRINGERS. 3.3.1 PROSECUTION BY CIMA. In the event that, in the judgment of BMS, a third party appears to be infringing one or more Licensed Patents, BMS shall notify CIMA of the same, and CIMA shall, at its own expense, take whatever steps in its sole discretion it deems advisable, including, but not limited to, settlement or the filing of a suit for damages or to enjoin such sales or offers for sale by such third party. BMS agrees, upon reasonable notice, to cooperate with and, to the extent deemed necessary or desirable by CIMA and at CIMA's expense, participate in any suit to enjoin such infringement. 3.3.2 REDUCTION IN ROYALTY. If (i) a third party is making, having made, using or selling, in any country in the Territory, any product that is competitive with a Licensed Product and which infringes any rights embodied in the Licensed Patents and (ii) the dollar value of sales of such infringing product in such country constitutes more than [...*...] of sales of Licensed Products in such country, then subsequent royalties payable to CIMA with respect to sales of Licensed Products in such country shall be reduced by [...*...] for as long as such third party continues to make, have made, use or sell such infringing product in such country and CIMA does not 37 diligently seek to enforce its rights by prosecuting an infringement suit in such country against such third party. Notwithstanding the provisions of this Section 3.3.2, while CIMA is pursuing the enforcement of the Licensed Patents by prosecuting an infringement suit, BMS agrees to pay full royalties to CIMA in accordance with Section 4.1. ARTICLE IV PAYMENTS 4.1 ROYALTY PAYMENTS. 4.1.1 ROYALTIES. BMS shall pay CIMA a royalty in the amount set forth in this Section 4.1 with respect to the aggregate of all "Net Sales" of Licensed Products sold by BMS or a BMS Affiliate (or any other sublicensee) in each country in the Territory set forth for such Licensed Product in Schedule 1.1.17 (including Licensed Products purchased from CIMA pursuant to the Supply Agreement, made and entered into as of the 10th day of October, 1996 by and between BMS and CIMA). For purposes of this Agreement, Licensed Products shall be considered "sold" upon the issuance by BMS or its Affiliate (or any sublicensee), as the case may be of an invoice to a non-Affiliated third party with respect to such Licensed Products including, without limitation, sales to any third party distributor in any portion of the Territory in which BMS uses a distributor to market a Licensed Product. Notwithstanding anything contained herein to the contrary, samples of Licensed Products distributed without charge for promotional purposes shall not be considered "sold" for purposes of this Agreement and no royalty shall be payable in respect thereof. 4.1.2 ROYALTY RATES. The applicable marginal royalty rate shall be: [...*...] of annual Net Sales of Licensed Products not in excess of [...*...]; [...*...] of annual Net Sales of Licensed Products in excess of [...*...], but not in excess of [...*...]; and [...*...] of annual Net Sales of Licensed Products in excess of [...*...]. 4.1.3 MINIMUM ROYALTY AMOUNTS. In each of the years specified below, the Minimum Royalty Payment Amount payable pursuant to this Section 4.1 shall be the amount specified below with respect to each such year: Year Minimum Royalty Payment Amount [...*...] $ [...*...] [...*...] $ [...*...] [...*...] $ [...*...] [...*...] $ [...*...] 38 4.1.4 ADVANCE ROYALTY PAYMENT. Simultaneously with the execution of this Agreement, BMS shall pay CIMA an advance Royalty Payment in the amount of [...*...]. Any payment amounts due and owing pursuant to Sections 4.1.1, 4.1.2 and 4.1.3 hereof shall be reduced by [...*...] until such time as the advance Royalty Payment made pursuant to this Section 4.1.4 shall have been fully recovered. 4.2 PERMISSIBLE ROYALTY RATE. Notwithstanding anything contained herein to the contrary, if the Royalty Rate specified in this Agreement should exceed the permissible rate established in any country in the Territory, the Royalty Rate for Net Sales in such country shall be adjusted to the highest legally permissible or government-approved rate. 4.3 PAYMENT. BMS shall make the applicable royalty payments required pursuant to Section 4.1 hereof not later than sixty (60) business days after the end of each calendar quarter during the License Term. 4.4 REDUCTION IN ROYALTY DUE TO PAYMENTS TO THIRD-PARTY. If, the manufacture, use or sale of any Licensed Product results in the infringement of any patent owned or controlled by any third party that dominates any Licensed Patent (other than U.S. Patent No. 5,225,197) and, solely as a result thereof, BMS shall be required to pay to such third party any royalties or other fees, the amount of royalties payable to CIMA pursuant to Section 4.1 hereof shall be reduced by (i) the amount of BMS's [...*...] and (ii) [...*...] of the amount of such third party payments. Without limiting the generality of the foregoing, the reduction specified in the immediately preceding sentence shall not reduce any quarterly royalty payment by more than [...*...]; any reduction not given effect due to this limitation shall be carried forward to succeeding quarters. As used in this Section 4.4 a third party patent shall be deemed to "dominate" a Licensed Patent only if BMS cannot practice the rights granted to it by CIMA pursuant to this Agreement without infringement of such patent. 4.5 BOOKS AND RECORDS. BMS shall maintain accurate books and records with respect to its Net Sales of Licensed Products and all amounts to be shared between the parties or reimbursable to BMS by CIMA pursuant to this Agreement. Upon request, BMS shall permit CIMA or its independent certified public accountants (at CIMA's sole cost and expense) access, not more than once each year during the License Term, during regular business hours and upon reasonable advance prior notice to inspect and copy such records, to the extent necessary to verify the information contained in royalty reports provided by BMS to CIMA. 4.6 EXCHANGE CONVERSION. All payments of royalties shall be made in U.S. dollars. Royalties shall based on Net Sales converted to U.S. dollars in accordance with internal BMS reporting policies applied on a company-wide basis. 4.7 EXCHANGE CONTROL. Notwithstanding the foregoing, if applicable governmental regulations in any country in the Territory prevent prompt remittances from such country with respect to sales made in that country (including, without limitation, remittance of royalty payment amounts or purchase price of Licensed Product), BMS shall have the right, in its sole discretion to make payment in such country by depositing the amount thereof in the local currency in an account established by CIMA in a bank or other depository institution in such country. Any amounts required under the laws of any governmental authority to be withheld by BMS will be paid by BMS to such authorities, as appropriate, (for and on behalf of CIMA, if applicable) and BMS will furnish CIMA with copies of appropriate evidence of payment thereof. 4.8 COMMENCEMENT OF ROYALTY PAYMENTS. Notwithstanding anything contained herein to the contrary, no payment shall be required under this Article IV in respect of Net Sales of any product in any country in the Territory unless and until a Licensed Patent shall have issued in such country; and, no amount shall be payable 39 pursuant to this Article IV in respect of Net Sales of any product in any country in the Territory after the last of any Licensed Patents covering such product shall have expired in such country. 4.9 REDUCTION IN ROYALTY RATE. Notwithstanding anything contained herein to the contrary, in the event that CIMA shall license to any third party (not an Affiliate of CIMA) the right to make, have made, use, market or sell any product substantially identical to any Licensed Product in the same region or country in the Territory as is Licensed to BMS, but at a royalty rate that is less than the royalty rates specified in Section 4.1.2 hereof, the royalty rates specified in Section 4.1.2 shall [...*...]. The provisions of this Section 4.9(a) shall not be applicable to any transaction or series of related transactions in which CIMA derives substantial revenue other than (or in addition to) the receipt of royalties or similar payments (e.g. profit by CIMA on the manufacture and sale of products to any such third party). ARTICLE V ADDITIONAL COVENANTS 5.1 GENERAL. In addition to the agreements, covenants and obligations contained elsewhere in this Agreement, the parties shall have the additional obligations contained in this Article V. 5.2 OBLIGATIONS OF BMS. BMS shall have the following obligations: 5.2.1 COMMERCIALIZATION. BMS will use its reasonable efforts to commercialize or cause to be commercialized the Licensed Products in the Territory, in a manner consistent with standard industry practices. BMS will advertise and promote the Licensed Products in a commercially reasonable manner consistent with industry practices. Notwithstanding anything contained herein to the contrary, BMS shall have [...*...] of Licensed Products in any country in the Territory. BMS will provide CIMA written notice of any new launch of any Licensed Product in any country or region of the Territory within thirty (30) days following such launch. 5.2.2 MANUFACTURING. (a) In the event that BMS elects not to manufacture (either directly or through any Affiliate) any Licensed Product utilizing a formulation owned or controlled by BMS or any Affiliate of BMS, CIMA shall have the right to manufacture BMS's requirements of such Licensed Product for sale to BMS; provided that BMS shall determine that (i) CIMA has the capability to manufacture the requirements of BMS for such Licensed Product in accordance with such timing, quantity, quality control and other requirements as BMS, in its sole discretion, shall deem appropriate and (ii) the proposed terms of sale (including, without limitation, pricing, packaging and delivery dates), are acceptable to BMS in its sole discretion. (b) In the event BMS elects not to manufacture a Licensed Product as described above, BMS shall notify CIMA thereof. CIMA shall thereafter have [...*...] to provide BMS with a written proposal containing all of the material terms pursuant to which CIMA proposes to manufacture such Licensed Product for sale to BMS. Nothing contained herein shall be construed to require either BMS or CIMA to negotiate with respect to any such agreement for a period greater than [...*...]. If CIMA fails to submit a manufacturing proposal within the [...*...] period specified above, or BMS and CIMA are unable for any reason to reach an agreement with respect to such manufacture within the [...*...] period specified above on terms acceptable to BMS in its sole discretion, BMS may contract with any other party for such manufacture. 5.2.3 PATENT MARKING. BMS shall mark the Licensed Products sold in the United States with the United States patent numbers of all applicable Licensed Patents in a manner provided by 35 U.S.C. Section 287, as CIMA shall specify from time-to-time in written notice provided to BMS. BMS shall mark all Licensed Products sold in countries outside of the United States in such manner as to conform with applicable patent laws of such 40 country of sale as CIMA shall specify from time-to-time in written notice provided to BMS. BMS shall provide CIMA with sufficient formulation information with respect to Licensed Products, sufficiently in advance of BMS's finalization of applicable packaging and labeling, to enable CIMA to provide BMS with notice required by this Section 5.2.3. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 CIMA REPRESENTATIONS. For the purposes of this Section 6.1, "to the best of CIMA's knowledge" means current or prior actual knowledge of any of CIMA's officers and/or senior scientists. CIMA hereby represents, warrants and covenants to BMS as of the Effective Date that: 6.1.1 CIMA is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted and has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 6.1.2 Neither CIMA nor any of its Affiliates is a party to, subject to, or bound by any agreement or judgment, award, order writ, injunction or decree of any court, governmental body or arbitrator which would prevent the carrying out of this Agreement, and that there is (i) no action, suit, dispute or governmental, administrative, arbitration or regulatory proceeding pending or, to CIMA's best knowledge, threatened nor (ii) to CIMA's best knowledge, any investigation pending or threatened against or relating to CIMA which, in each case, could prevent CIMA from carrying out its obligations under this Agreement. 6.1.3 Neither CIMA nor any of its Affiliates is a party to any material agreement or understanding which would conflict with or be breached by the execution, delivery or performance of this Agreement by CIMA. 6.1.4 CIMA is the sole and exclusive owner of the Licensed Patents other than U.S. Patent No. 5,225,197. To the best of CIMA's knowledge, having undertaken no investigation, SmithKline Beecham is the sole and exclusive owner of U.S. Patent No. 5,225,197. CIMA has all the necessary rights and authority to grant the licenses granted pursuant to this Agreement and extend to BMS immunity from any Losses predicated upon any infringement of any Licensed Patent and U.S. Patent No. 5,225,197 and its foreign counterparts. 6.1.5 To the best of CIMA's knowledge, the Licensed Patents (other than U.S. Patent No. 5,225,197) are valid and enforceable and CIMA or, to the best of CIMA's knowledge, having undertaken no investigation, SmithKline Beecham, as the case may be, has taken all necessary actions to maintain the registration thereof. 6.1.6 CIMA has no knowledge of any "prior art" which CIMA believes would render any of the Licensed Patents invalid in whole or in part. 6.1.7 No consent, approval or authorization of, or filing, registration or qualification with, any governmental authority or any other person is required on the part of CIMA in connection with the execution, delivery and performance of this Agreement. 6.1.8 The patents and patent applications listed on Schedule 1.1.16 hereto are all of the patents or patent applications relating to the technology described in the Licensed Patents. 41 6.1.9 The practice of the inventions and know-how embodied in the Licensed Patents do not presently (to the best of CIMA's knowledge) infringe any valid patents or other proprietary rights owned by any third party. 6.1.10 CIMA has no knowledge of any infringement by any third party of any Licensed Patents, and CIMA is not subject to any outstanding order, judgment or decree of any court or administrative agency, and each has not entered into any stipulation or agreement restricting its use of the technology embodied in the Licensed Patents. 6.1.11 None of the know-how embodied in the Licensed Patents was, and none of the know-how embodied in any Improvements developed by CIMA, will be, obtained by CIMA in violation of any contractual or fiduciary obligation to which CIMA or any of its Affiliates, employees, contractors or agents is or was a party, or by misappropriation of the trade secrets of any third party. 6.2 BMS REPRESENTATIONS. BMS hereby represents, warrants and covenants to CIMA that: 6.2.1 BMS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 6.2.2 Neither BMS nor any of its Affiliates is a party to, subject to, or bound by any agreement or any judgment, award, order, writ, injunction or decree of any court, governmental body or arbitrator which could prevent the carrying out of this Agreement, and that there is (i) no action, suit, dispute or governmental, administrative, arbitration or regulatory proceeding pending or, to BMS's best knowledge, threatened nor (ii) to BMS's best knowledge, any investigation pending or threatened against or relating to BMS which, in either case, could prevent BMS from carrying out obligations under this Agreement. 6.2.3 No consent, approval or authorization of, or filing, registration or qualification with, any governmental authority or any other person is required on the part of BMS in connection with the execution, delivery and performance of this Agreement. 6.3 LIMITATION. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, CIMA MAKES NO WARRANTIES TO BMS OF ANY KIND CONCERNING THE LICENSED PATENTS OR LICENSED PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE VII INDEMNIFICATION 7.1 LOSSES. For purposes of this Agreement, the terms "Loss" or "Losses" shall mean each and all of the following items, namely, claims, losses, liabilities, damages, fines, penalties, costs and expenses (including, without limitation, interest which may be imposed in connection therewith), reasonable fees and disbursements of counsel and other experts, and the cost to the person seeking indemnification (the "Indemnitee") or any funds expended by reason of the occurrence of any of the events enumerated in Section 7.2 hereof or Section 7.3 hereof, as the case may be, or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof or in enforcing the provisions of this Agreement, without giving effect to any insurance reimbursement which may inure to the Indemnitee. 42 7.2 INDEMNIFICATION BY CIMA. CIMA shall indemnify and hold harmless BMS, its affiliates, their respective officers, directors, employees, agents and representatives from and against any and all Losses arising out of or resulting from: (i) any breach of any of the representations or warranties made by CIMA in this Agreement; (ii) any failure by CIMA to perform any of its covenants or agreements contained in this Agreement; and (iii) misappropriation or infringement of the trade secrets of any third party as the result of information conveyed by CIMA to BMS or employed by CIMA in development of the invention described in any of the Licensed Patents. 7.3 INDEMNIFICATION BY BMS. BMS shall indemnify and hold harmless CIMA, its affiliates, their respective officers, directors, employees, agents and representatives from and against any and all Losses arising out of or resulting from: (i) any breach of any of the representations or warranties made by BMS in this Agreement; (ii) any failure by BMS to perform any of its covenants or agreements contained in this Agreement and (iii) the making, manufacture or sale of Licensed Products by BMS or its Affiliates, excluding, however, Losses arising from any claim of infringement for which BMS is entitled to indemnification by CIMA pursuant to this Agreement or otherwise. 7.4 PROCEDURE. (a) In the event that an Indemnitee shall suffer a Loss which is not the subject of a claim, demand, action, suit, proceeding, arbitration, investigation or inquiry (each and all of the foregoing items being herein referred to as "Litigation"), the Indemnitee shall give written notice thereof to the party from whom such indemnification is being sought (the "Indemnitor"). (b) (i) Promptly after receipt by an Indemnitee of written notice of the assertion or the commencement of any Litigation with respect to any matter referred to in Section 7.2 or 7.3 hereof, the Indemnitee shall give written notice thereof (the "Notice") to the Indemnitor and shall thereafter keep the Indemnitor reasonably informed with respect thereto, provided that failure of the Indemnitee to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of any of its obligations hereunder unless such failure to give prompt notice results in material prejudice to Indemnitor. In case any such Litigation is brought against any Indemnitee, the Indemnitor shall be entitled to assume and control the defense thereof, by written notice to the Indemnitee within 30 calendar days after receipt of the Notice of its intention to do so, with counsel reasonably satisfactory to the Indemnitee at the Indemnitor's own expense. If the Indemnitor shall assume the defense of such Litigation, it shall not settle such Litigation unless such settlement includes as an unconditional term thereof the giving by the claimant or the plaintiff of a release of the Indemnitee, to the reasonable satisfaction of the Indemnitee, from all liability with respect to such Litigation. (ii) If the Indemnitor shall fail to notify the Indemnitee of its desire to assume the defense of any such Litigation within the prescribed period of time, or shall notify the Indemnitee that it will not assume the defense of any such Litigation, then the Indemnitee shall be entitled to assume and control the defense of any such Litigation, in which event it may do so in such manner as it may deem appropriate, and the Indemnitor shall be bound by any determinations made in such Litigation or any settlement thereof effected by the Indemnitee. 7.5 SURVIVAL. The provisions of this Article VII shall survive the termination of this Agreement, without limitation as to time. 43 7.6 LIMITATION. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME STATES AND JURISDICTIONS OUTSIDE THE UNITED STATES DO NOT ALLOW THE LIMITATION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION MAY NOT APPLY. BMS ACKNOWLEDGES THAT THE ALLOCATION OF RISKS AND BENEFITS UNDER THIS AGREEMENT IS BASED ON AND THE AMOUNTS PAID UNDER THIS AGREEMENT WOULD BE GREATER IN THE ABSENCE OF, THE LIMITATIONS DESCRIBED ABOVE. ARTICLE VIII EVENTS IF FORCE MAJEURE 8.1 MEANING. "Force Majeure" shall mean any cause which is beyond the reasonable control of the party invoking Force Majeure and which, by the exercise of reasonable diligence, such party is unable to prevent, including but not limited to, and whether or not of the same class or kind as, the following: any law, decree, regulation, order, or request of any governmental authority (national, state, or regional), nationalization, expropriation, confiscation, requisition, riot, war, hostilities, public disturbance, act of the public enemy, act of terrorism, strike, lockout or other labor dispute, fire, flood, earthquake, storm, tidal wave, explosion, Act of God, accident of navigation, breakdown or failure of transportation or transportation facilities. 8.2 EXCUSED PERFORMANCE. If either party is prevented from or delayed in carrying out any provision of this Agreement by reason of Force Majeure, the party whose performance is so prevented, delayed, interfered with or restricted, upon prompt written notice thereof to the other party, shall be excused from such performance to the extent and during the period of such prevention, delay, interference or restriction. 8.3 LIMITATIONS. The provisions of this Article VIII shall not be available to a party if such party fails to use reasonable diligence to remedy the applicable situation described in Section 8.1 above in an adequate manner and with all reasonable dispatch or if such applicable situation is caused by such party, except that this Section 8.3 shall not require the settlement of strikes or labor controversies by acceding to the demand of the opposing party or parties. ARTICLE IX TERM AND TERMINATION 9.1 TERMINATION BY BMS. BMS, at its sole discretion, may terminate this Agreement with respect to one or more Licensed Products and/or with respect to any or all applicable countries in the Territory at any time, with or without cause, upon [...*...] written notice. 9.1.1 In the event of the termination of this Agreement by BMS with respect to all, but not less than all, of the Licensed Products and Territory pursuant to the terms of this Section 9.1 during any year in which a Minimum Royalty Payment Amount shall be payable, BMS shall pay CIMA a termination fee in an amount equal to [...*...] hereof during such year. Notwithstanding anything contained herein to the contrary, no termination fee shall be payable pursuant to this Section 9.1.1, in the event of any termination of this Agreement (i) by BMS pursuant to Section 9.2 or (ii) pursuant to Section 9.3. 44 9.2 TERMINATION DUE TO A MATERIAL BREACH. Either CIMA or BMS may terminate this Agreement upon a material breach of the terms of this Agreement by the other, provided that (i) the non-breaching party provides written notice to the breaching party detailing the nature of the breach; and (ii) the breaching party fails to remedy the breach within [...*...] calendar days of receipt of notice from the non-breaching party and, further provided, that in the event a breach by BMS relates to less than the entire Territory, CIMA shall have the right to terminate this Agreement only with respect to such country of the Territory to which such breach relates. Upon the termination of this Agreement neither party shall have continuing obligations to the other, except for payment obligations accrued prior to the date of such termination and as otherwise expressly provided for herein. 9.3 INSOLVENCY. This Agreement may be terminated by either BMS or CIMA (a) in the event that a case or proceeding shall be commenced and continue undismissed or unstayed for a period of [...*...] calendar days against the other (the "Insolvent Party") or such Insolvent Party shall commence a voluntary case, in either case seeking relief under the bankruptcy laws or any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, in each case as now or hereafter in effect, or (b) the Insolvent Party shall apply for, consent to, or fail to contest, the appointment of a receiver, liquidator, custodian, trustee or the like for such party or for all or any part of its property, or (c) the Insolvent Party shall make a general assignment for the benefit of its creditors, or (d) either party shall fail to, or admit in writing its inability to, pay, or generally not be paying, its debts as they become due. 9.3.1 In the event of the termination of this Agreement pursuant to the terms of this Section 9.3, the non-Insolvent Party may, in its sole discretion, decide whether to terminate this Agreement. If the non-Insolvent Party terminates this Agreement, the license granted herein shall terminate and neither party shall have any obligations to the other, except for payment obligations which had accrued prior to the termination or as otherwise expressly set forth in this Agreement. ARTICLE X CONFIDENTIALITY 10.1 CONFIDENTIAL INFORMATION. Except as provided below, each party to this Agreement shall keep secret and confidential the information, data and materials of the others disclosed to it prior to and during the term of this Agreement (collectively, the "Confidential Information"). In addition, the Confidential Information shall include the terms and conditions of this Agreement. For purposes of this Article X, a party or parties receiving Confidential Information shall be termed the "Recipient" and the party providing the Confidential Information to the Recipient shall be termed the "Discloser." The obligations of the parties hereunder shall survive for a period of [...*...] years following termination or expiration of this Agreement. 10.2 NON-DISCLOSURE. Recipient shall safeguard and hold confidential the Confidential Information with the same degree of care (but not less than a reasonable standard of care) it customarily employs with its own proprietary information, and shall not cause or permit the disclosure to, or use by, any person of such information, except as expressly permitted in writing by the Discloser or as specifically permitted in this Section 10.2. Recipient shall limit disclosure of the Discloser's Confidential Information to those of its officers, employees, agents and representatives who shall have a need to know such information and have, directly or indirectly, agreed to safeguard and maintain such Confidential Information of the other and not to disclose or use such Confidential Information of the other. 45 10.3 NON-CONFIDENTIAL INFORMATION. The obligations of this Article X shall not apply to information that: (a) is publicly known prior to or after disclosure hereunder other than through acts or omissions attributable to the Recipient or its employees or representatives; (b) as demonstrated by prior written records, is already known to Recipient or any of its Affiliates at the time of disclosure hereunder; (c) is disclosed in good faith to Recipient or any of its Affiliates (without obligation as to confidentiality) by a third party having a lawful right to do so; (d) is independently developed by Recipient or any of its Affiliates which independent development can be documented by Recipient; (e) is required to be disclosed pursuant to a court order, or order of other governmental authority; or (f) is disclosed verbally, unless such information is reduced to writing and identified as Confidential Information within 30 days of its initial disclosure. 10.4 ADDITIONAL MEASURES. Recipient shall take such actions as Discloser may reasonably request from time to time to safeguard the confidentiality of any information subject to the terms of this Article X. ARTICLE X GENERAL 11.1 REMEDIES. Each of the parties hereto acknowledges and agrees that in the event of a breach or threatened breach of Sections 2.1 and 10 of this Agreement, the other party has no adequate remedy at law and, accordingly shall be entitled to injunctive and other equitable remedies against such breach or threatened breach in addition to any remedy it might have at law or in equity. 11.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective assigns and successors in interest; provided, however, that no party shall assign or otherwise transfer its interest or any part thereof under this Agreement to any other person or entity without the written consent of the other parties, which consent shall not be unreasonably withheld, except (a) in connection with the transfer of all or substantially all of the assets of the transferring party or the transfer of the line of business of the transferring party through which Licensed Products are sold, to any other person or entity, whether by means of a merger, asset or stock sale or otherwise, or (b) to a wholly-owned subsidiary or Affiliate, provided that the transferring party shall guarantee its transferee-subsidiary's or transferee-Affiliate's performance and compliance hereunder and shall notify the other party in writing of such transfer. 11.3 GOVERNING LAW. The validity, interpretation and construction of this Agreement shall be governed by the laws of the State of New York. THE PARTIES ALSO HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES, INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. Each of the parties agrees that, prior to initiating litigation in connection with any dispute arising under this agreement or the subject matter hereof, such parties shall meet to attempt to negotiate resolution of any such dispute. 46 11.4 NOTICE. All notices required or permitted hereunder shall be in writing and shall be sufficiently given if: (a) hand delivered (in which case the notice shall be effective upon delivery); (b) telecopied, provided that in such case a copy of such notice shall be concurrently sent by registered or certified mail, return receipt requested, postage prepaid (in which case the notice shall be effective two calendar days following dispatch); (c) delivered by Express Mail, FedEx or other nationally recognized overnight courier service (in which case the notice shall be effective one business day following dispatch); or (d) delivered or mailed by registered or certified mail, return receipt requested, postage prepaid (in which case the notice shall be effective three calendar days following dispatch), to the parties at the following addresses and/or telecopier numbers, or to such other address or number as a party shall specify by written notice to the others in accordance with this Section. If to CIMA: CIMA Labs, Inc. 10000 Valley View Road Eden Prairie, MN 55344-9361 Jack Khattar Vice President Business Development Telecopier No.: (612) 947-8770 with a copy to: Barbara A. Kosacz, Esq. Cooley Godward LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 Telecopier No.: (415) 857-0663 If to BMS: Bristol-Myers Squibb Company 345 Park Avenue New York, NY 10154 Attention: Louis M. DeAmicis Telecopier No.: (212) 605-9490 with a copy to: Peter N. Stevens, Esq. Bristol-Myers Squibb Company 345 Park Avenue New York, NY 10154 Telecopier No.: (212) 605-9494 11.5 WAIVER. No failure or delay of any party hereto to exercise any power or right granted hereunder, and no custom or practice of the parties with regard to the terms of performance hereof, shall constitute a waiver of the rights of such party to demand full and exact compliance with the terms of this Agreement. 11.6 ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits hereto, sets forth the entire understanding of the parties with respect to the transactions contemplated thereby, and supersedes any prior oral or written agreements or understandings relating to the subject matter hereof. This Agreement shall not be 47 amended, modified or changed except by the written agreement of each party whose rights or responsibilities are being affected thereby. 11.7 SEVERABILITY. In the event that any provision of this Agreement shall be found in violation of public policy or illegal or unenforceable in law or equity, the balance of such provision and this Agreement shall continue in full force and effect, as if such provision or portion thereof had been deleted or rendered inapplicable to the situations to which such provision cannot be legally applied. 11.8 TITLES TO SECTIONS FOR CONVENIENCE ONLY. The titles to Sections of this Agreement are used solely for the convenience of the parties and do not constitute part of the agreement of the parties hereunder. 11.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same agreement. 11.10 PUBLICITY. CIMA and BMS agree that upon execution of this Agreement, CIMA shall issue a press release in the form attached hereto as Annex A. Except as provided in the immediately preceding sentence or as may be otherwise required by applicable law, each party agrees that it will not disclose to the press or any third party or otherwise advertise to the communications media the terms of this Agreement including the existence hereof, or the consummation of the transactions contemplated hereby. In the event CIMA is the party required by law to disclose, it shall give BMS no less than five (5) days' advance written notice of its intent to disclose and the contents of such proposed disclosure which contents shall be subject to the prior written approval of BMS (which approval shall not be unreasonably withheld or delayed). 11.11 FURTHER ASSURANCES. At any time and from time-to-time, upon reasonable request, each party hereto shall promptly execute and deliver, or cause to be executed and delivered, all such documents as either party may reasonably request in order to carry out or evidence the terms of this Agreement. 11.12 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement shall be construed to create any third party beneficiaries hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BRISTOL-MYERS SQUIBB COMPANY CIMA LABS, INC. By: /s/ STEPHEN E. BEAR By: /s/ JACK KHATTAR ----------------------------- ---------------------------- Stephen E. Bear Jack Khattar President-Worldwide Vice President- Consumer Medicines Business Development 48 SCHEDULE 1.1.16 LICENSED PATENTS [...*...] 49 SCHEDULE 1.1.17 TERRITORY/PRODUCT CATEGORIES COUNTRY/REGION MARKET PRODUCT INGREDIENT AND/OR CATEGORY - -------------- --------- ---------------------------------- [...*...]* [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...]*** [...*...] [...*...] [...*...]** [...*...] [...*...] [...*...] [...*...]*** [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] [...*...] * For purposes of this Agreement, [...*...] shall consist of the area bordered in black on Annex 1.1.17A attached to this Schedule 1.1.17. ** The Territory shall not include [...*...] with respect to [...*...] in the [...*...]. *** [...*...], and any combination of the foregoing. 50 ANNEX 1.1.17A [...*...]PRESS RELEASE ANNEX A 11201/00050 CIMA LABS INC. (NASDAQ: CIMA) today announced the signing of a global, non-exclusive license agreement with Bristol-Myers Squibb (NYSE: BMY). The agreement covers multiple products to be developed by Bristol-Myers Squibb, applying or utilizing 0raSolv-Registered Trademark-, CIMA's patented oral dosage technology which incorporates microencapsulated drug ingredients into tablets that dissolve quickly in the mouth. In exchange for the license, CIMA will receive royalties on the sale of licensed products. In May of this year, CIMA announced the U.S. introduction of an OraSolv-Registered Trademark- dosage form of Tempra, Bristol-Myers Squibb's pediatric analgesic. OraSolv is designed to improve taste acceptance, while offering a convenient oral dosage form that can be taken without water, thereby increasing patient compliance. "We believe this alliance offer" both CIMA LABS and Bristol-Myers Squibb an excellent opportunity to pursue the development of innovative new drug delivery technologies," commented John M. Siebert, Ph.D., President and Chief Executive Officer of CIMA LABS, INC. CIMA LABS INC. is a drug delivery company that develops and manufactures products based upon its OraSolv-Registered Trademark- technology for marketing by multinational pharmaceutical companies. CIMA was founded in 1986 and has been publicly held since July 1994. The Company's corporate headquarters and manufacturing facility is located in Eden Prairie, MN and its Research and Development facility is located in Brooklyn Park, MN. 51 EX-27 5 EXH 27 FDS
5 6-MOS DEC-31-1997 JUN-30-1997 4,245,858 2,246,278 767,106 0 915,234 8,305,689 13,738,625 3,334,415 18,999,993 1,382,211 0 0 0 95,461 57,043,803 18,999,993 832,572 1,290,684 1,568,106 5,441,126 0 0 0 (3,832,516) 0 0 0 0 0 (3,832,516) (.40) (.40)
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