-----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, M8BbFgi5CFr4+t6AS+puSbxdDV9YMsoP750xtmPWPiPCxJTnb9bSkzKsQHDWclIt dVKK6vuuoCYome4x457isg== 0000950124-00-001842.txt : 20000331 0000950124-00-001842.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950124-00-001842 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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-K SEC ACT: SEC FILE NUMBER: 000-24424 FILM NUMBER: 587745 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-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-24424 ------------------------------ CIMA LABS INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1569769 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization) 10000 VALLEY VIEW ROAD, EDEN PRAIRIE, MN 55344-9361 (952) 947-8700 (Address of principal executive offices (Registrant's telephone number, and zip code) including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of common stock held by non-affiliates of Registrant, based upon the last sale price of the Common Stock reported on the Nasdaq National Market tier of The Nasdaq Stock Market on March 24, 2000 was $160,545,880. Common stock outstanding at March 24, 2000 was 10,825,894 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant's Annual Meeting of Stockholders to be held on June 2, 2000 are incorporated by reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K. 2 PART I. This Annual Report on Form 10-K (the "Form 10-K") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or our future performance. We caution readers not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date this report was filed. Forward-looking statements are not descriptions of historical facts. The words or phrases "will likely result," "look for," "may result," "will continue," "is anticipated," "expect," "project," or similar expressions are intended to identify forward-looking statements, and are subject to numerous known and unknown risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those identified in the "Risk Factors" filed as Exhibit 99 to this Form 10-K, and in our other filings with the Securities and Exchange Commission (the "SEC"). We undertake no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments. We were incorporated in Delaware in 1986. Unless the context otherwise indicates, all references to the "Registrant," the "Company," or "CIMA" in this Form 10-K relate to CIMA LABS INC., a Delaware corporation. We have registered "CIMA(R)," "CIMA LABS INC.(R)," "OraSolv(R)," and "OraSolv(R)SR" as trademarks with the U.S. Patent and Trademark Office. These registered trademarks are used in this Form 10-K. We also use the trademarks "DuraSolv(TM)," "PakSolv(TM)," "OraVescent(TM)SL/BL" and "OraVescent(TM)SS" in this Form 10-K. Triaminic(R)and Softchews(R)are registered trademarks of Novartis. Zomig(R)and rapimelt(R)are registered trademarks of AstraZeneca. Pepcid(R)is a registered trademark of Merck. Tempra(R)is a registered trademark of Bristol-Myers Squibb. Quicklets(TM)and FirsTabs(TM)are trademarks of Bristol-Myers Squibb. Zydis(R)is a registered trademark of R.P. Scherer Corporation. Claritin(R)and Reditabs(R)are registered trademarks of Schering-Plough. WOWTab(R)is a registered trademark of Yamanouchi Shaklee Pharmaceuticals. Flashtab(R)is a registered trademark of Laboratories Prographarm. FlashDose(R)is a registered trademark of Fuisz Technologies Ltd. ITEM 1. BUSINESS COMPANY OVERVIEW We develop and manufacture fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and DuraSolv, our leading proprietary fast-dissolve technologies, are oral dosage forms incorporating taste-masked active drug ingredients into tablets which dissolve quickly in the mouth without chewing or water. We currently manufacture and package five commercial products incorporating our proprietary fast-dissolve technologies. We develop applications for our technologies that we license to pharmaceutical company partners. We generate revenue from licensing fees, product development fees, selling products we have manufactured that use our fast-dissolve technologies and royalties. We currently have agreements with American Home Products, AstraZeneca, Bristol-Myers Squibb, N.V. Organon, Novartis and Schering-Plough. We believe that the attributes of our OraSolv and DuraSolv fast-dissolve technologies may enable patients in certain age groups or with limited ability to swallow conventional tablets to receive medication in an oral dosage form that is more convenient than traditional tablet-based oral dosages. Both OraSolv and DuraSolv technologies incorporate taste-masked active drug ingredients into tablets that have the following potential benefits: o ease of administration; o improved dosing compliance; and o increased dosage accuracy compared to liquid formulations. 2 3 Our proprietary technologies enable our pharmaceutical company partners to differentiate their products from competing products. In addition to providing a competitive advantage in the marketplace, our proprietary technologies also may enable our pharmaceutical company partners to extend the product life cycles of their patented drug compounds beyond existing patent expiration dates. Improving compliance also can provide benefits to the healthcare system by enhancing therapeutic outcomes and potentially reducing overall costs. In addition to OraSolv and DuraSolv, we are developing several new technologies. Our OraSolv SR (sustained release) product adds sustained or controlled release properties to the coatings that surround the active drug ingredient. We also are developing new OraVescent drug delivery technologies, OraVescent SL/BL (sublingual/buccal transmucosal) and OraVescent SS (site-specific transmucosal). Using the fast-dissolve technology of our OraSolv products, we designed the OraVescent technology to improve the transport of poorly absorbed and large molecule active drugs across mucosal membranes in the oral cavity or the gastrointestinal tract. INDUSTRY OVERVIEW CURRENT DRUG DELIVERY METHODS Medications are available in a variety of delivery forms, including solid dosage forms, liquids, transdermal delivery methods, inhalation devices and products and injections. Due to ease of administration, patients generally prefer to receive medications in an oral tablet form over other delivery methods. Children and the elderly, however, as well as those with certain physiological or medical conditions, frequently experience difficulty in swallowing tablets. These patients often receive medications in liquid form or through injections as an alternative to tablets. TRENDS AFFECTING THE DRUG DELIVERY INDUSTRY Several significant trends in the healthcare industry have important implications for drug delivery companies. After a drug loses patent protection, the branded version of the drug often faces competition from generic alternatives. Over the next four years, branded drugs with 1999 U.S. sales of over $20 billion will lose patent protection. We expect producers of these branded drugs to seek differentiating characteristics for their products to defend against generic competition. We believe pharmaceutical companies will adopt innovative drug delivery technologies, such as fast-dissolve and taste-masking, as an increasingly significant means to differentiate their branded products. The significant trend towards direct-to-consumer marketing and recent focus on patient rights may encourage the use of innovative drug delivery technologies. In 1999, pharmaceutical companies spent an estimated $2 billion in the U.S. on direct-to-consumer marketing and promotion of prescription medications. Spending in the U.S. on direct-to-consumer marketing and promotion is estimated to increase to approximately $7 billion a year by 2005. In addition, there is also a growing trend in the U.S. to provide patients with greater choice and more patient-friendly forms of treatment. We believe the trend toward patient empowerment and patient rights, combined with direct-to-consumer marketing, may give consumers greater influence on the type or dosage form of medication a physician will prescribe. Patient-friendly attributes, such as fast-dissolve and taste-masking, will become a more significant influence in pharmaceutical marketing. The growth of managed care organizations has focused providers and payors on using healthcare resources efficiently, including increasing the cost-effectiveness of medical treatments. We believe that patient non-compliance with medicinal dosing regimens is widespread, and that such non-compliance results in unnecessary costs to the healthcare system. Many managed care plans and other insurers actively manage the costs of prescription drugs for their clients by monitoring efficacy, quality, cost and compliance of medications. Payors often encourage using therapies that improve patient compliance, including those that use innovative drug delivery technologies, and we believe these therapies will become more widespread. 3 4 MARKET OPPORTUNITY In March 2000, Specialty Pharmaceuticals estimated that sales of drugs using drug delivery technologies would grow from approximately $11 billion in 1998 to approximately $24 billion in 2003. Net revenue to the drug delivery industry, comprised of product sales, royalties and manufacturing fees, similarly was estimated to grow in that time period from $1.1 billion to $2.9 billion. Drug delivery companies are expected to mature from research companies to product development and product marketing companies, as innovative drug delivery systems are commercialized and companies integrate manufacturing and marketing functions to increase sales revenues. BUSINESS STRATEGY We intend to establish ourselves as the leader in fast-dissolve and other innovative drug delivery technologies. We intend to implement the following business strategies in pursuit of this objective: o we will develop and protect innovative drug delivery technologies; o we will collaborate with pharmaceutical companies for the marketing of our technologies; o we will identify attractive opportunities for pharmaceutical product development; and o we will control our technology through product manufacturing. OUR TECHNOLOGY AND PRODUCTS We currently manufacture five commercial products incorporating our proprietary fast-dissolve technologies. Revenue from sales of our products were approximately 36%, 14% and 54% of our total revenue in 1999, 1998 and 1997, respectively. Our revenue also includes product development fees and licensing revenue for development activities, which were approximately 58%, 81% and 46% of our total revenue in 1999, 1998 and 1997, respectively. We also receive revenue from royalties from product sales, which were approximately 6% and 5% of our total revenue in 1999 and 1998 respectively. We had no revenue from royalties from product sales in 1997. Less than 10% of our total revenues in 1999, 1998 and 1997 was from product sales and product development and licensing activities outside the U.S. ORASOLV Our OraSolv technology is an oral dosage form, which combines taste-masked drug ingredients with a fast-dissolving system that contains a low level of effervescence. The OraSolv tablet dissolves quickly without chewing or the need for water. Taste-masking coats the active compound, permitting the active ingredients to be swallowed before they contact the taste buds. The taste-masking process is effective with a wide variety of active ingredients, both prescription and non-prescription. FAST-DISSOLVE. To create our fast-dissolving tablets, we combine the taste-masked active drug ingredients with fast-dissolving tablet materials, which can include a variety of flavoring, coloring and sweetening agents, all of which are generally recognized as safe materials, and commonly used tablet ingredients, such as binding agents and lubricants. We add an effervescent system, composed of a dry acid and a dry base, to the tablet formulation to cause a mild effervescent reaction when the tablet contacts saliva. This reaction accelerates the disintegration of the tablet through the release of carbon dioxide. As our OraSolv tablet dissolves, it releases the coated particles of drug into the saliva, forming a suspension of the drug in the saliva, which is then swallowed. TASTE-MASKING. To prevent or minimize patients from tasting drug ingredients with unpleasant tastes, we taste mask the drug active ingredients in our OraSolv products. The active drugs are taste-masked using a variety of coating techniques. The coating materials prevent the active drug substance in the OraSolv tablet from contacting the patient's taste buds, and provide for the immediate or controlled release of the active ingredient in the stomach. We currently purchase taste-masked drugs from outside vendors for use in our over-the-counter products. We are developing taste-masked active ingredients for use in prescription pharmaceutical products, the first of which we expect to commercialize in 2000. 4 5 SUSTAINED RELEASE. Our OraSolv technology also can be combined with a sustained release formulation and used in FDA-approved products. We incorporate time-release beads in our tablet, to provide the benefits of a sustained or controlled release of drug ingredients with the improved convenience of a fast-dissolve formulation that allows easy swallowing of the sustained release active ingredient. To date, we have not commercialized a product incorporating the sustained release properties of our OraSolv technology. DURASOLV Our DuraSolv technology is a fast-dissolve oral dosage system that we designed to improve manufacturing efficiency and reduce production costs. A significant component of the manufacturing cost for our OraSolv products currently lies in the sophisticated packaging system necessary to protect the softer, more brittle OraSolv tablets. DuraSolv is a higher compaction, more durable, solid oral dosage system formulated to achieve the primary benefits of the OraSolv fast-dissolve dosage form, but capable of being packaged in conventional packaging such as foil pouches or bottles at much higher production rates and with lower packaging costs. DuraSolv is an appropriate technology for drug products requiring lower levels of active ingredient. Consumer testing has demonstrated high acceptability of this technology, comparable to that of OraSolv. We recently completed development of the DuraSolv dosage system, and in February 2000 we were granted a U.S. patent for this technology. Currently, we are developing products for two pharmaceutical company partners using this technology. ORAVESCENT Our OraVescent technology is an enhanced-absorption oral drug delivery system intended to improve the transport of active drug ingredients across mucosal membranes. This technology may improve the bioavailability, and accelerate the onset of action, of some molecules. We have conducted the first human testing and have initiated two prototype projects with pharmaceutical company partners using this technology. We expect to perform additional human clinical testing in the first half of 2000. AGREEMENTS WITH PHARMACEUTICAL COMPANY PARTNERS Our business development efforts focus on entering into development, licensing and manufacturing supply agreements with pharmaceutical companies. Our agreements provide that the collaborating pharmaceutical company is responsible for marketing and distributing the developed products either worldwide, or in specified markets or territories. Our collaborative agreements typically begin with a product development phase. If successful, this phase may be followed by a development and license option agreement for the development of product prototypes. We will subsequently enter into license and manufacturing supply agreements to address commercialization of products. Alternatively, we may develop product prototypes internally and enter directly into a development, manufacturing or license agreement for commercialization of those products. We have manufacturing supply agreements with two pharmaceutical company partners for all of our products that are currently being sold in the United States and Canada. We are currently negotiating manufacturing supply agreements with other pharmaceutical company partners for several prescription products. Generally, these agreements define the terms by which we will manufacture and release for shipment a product for a pharmaceutical company partner and the obligations both parties have relating to payment for product and services, as well as defining the process of communicating and agreeing to expected production requirements and other economic terms for product supply. These agreements have varying terms of duration ranging from 3 to 10 years and are generally cancelable by either party with appropriate notice. However, in the pharmaceutical industry, parties to manufacturing supply agreements generally consider these arrangements long-term due to the complexity and lead-time required to qualify a new manufacturer with the FDA, which could take up to a year for the new manufacturer to scale-up and produce validation lots. Our pharmaceutical company partners direct us on the timing and quantities of our product shipment to them. We do not consider the backlog for our products to any of our customers to be significant. 5 6 The table below sets forth the partner, product brand name, market segment and technology for each of our major collaborative agreements.
PHARMACEUTICAL PRODUCT MARKET COMPANY PARTNER BRAND NAME SEGMENT TECHNOLOGY - ---------------------- ----------- ------------- ---------- American Home Products Undisclosed Undisclosed DuraSolv AstraZeneca Zomig Anti-migraine DuraSolv Bristol-Myers Squibb Tempra Pediatric OraSolv Analgesics N.V. Organon Undisclosed Undisclosed OraSolv Novartis Triaminic Pediatric OraSolv Cough/Cold Schering-Plough Undisclosed Undisclosed OraSolv SR
AMERICAN HOME PRODUCTS. In January 2000, we entered into a Development and License Agreement, and a Supply Agreement with American Home Products for a DuraSolv formulation of an undisclosed prescription product. We receive development and milestone payments upon achieving specific milestones under the agreements, and will receive royalties on any sales of the prescription product. ASTRAZENECA. In September 1997, we entered into a Development and License Option Agreement with an affiliate of AstraZeneca to develop an OraSolv and DuraSolv formulation of AstraZeneca's prescription anti-migraine drug, Zomig. We received product development and option fees under the agreement. In October 1998, we completed a major milestone, a clinical study on the OraSolv formulation of Zomig. In May 1999, we entered into a definitive License Agreement with an affiliate of AstraZeneca, which provides that we will receive license and product development fees, and milestone payments upon achieving specific milestones under the agreement, and will receive royalties on any sales of the prescription product. In August 1999, European regulatory approval of the DuraSolv formulation of AstraZeneca's Zomig rapimelt was received. In September 1999, AstraZeneca launched Zomig rapimelt internationally. We expect the U.S. regulatory submission for the Dura Solv formulation of Zomig rapimelt to be made in the second quarter of 2000. Revenues from AstraZeneca represented 18% of total revenues in 1999. In connection with a $3.5 million loan from AstraZeneca that we received in December 1999, we granted AstraZeneca a first right of refusal to exploit any new technology to which we may have the right from time to time and which may have application in conjunction with any technology or products of AstraZeneca or its affiliates. BRISTOL-MYERS SQUIBB. In June 1997, we signed a global non-exclusive license agreement with Bristol-Myers Squibb, covering multiple products to be developed using the OraSolv technology. We started manufacturing commercial quantities in 1997 of the OraSolv dosage form of Tempra, Bristol-Myers Squibb's pediatric analgesic. Mead Johnson, an affiliate of Bristol-Myers Squibb, introduced Tempra in Canada during 1997. We received product development fees and will receive royalties on Tempra. During 1998, Bristol-Meyers Squibb decided to discontinue marketing Tempra in the U.S., but expects to continue marketing Tempra in Canada through its affiliate, Mead Johnson. In the fourth quarter of 1998, the agreement was amended to return to us the rights to pediatric analgesics in the U.S. We will continue to receive at least minimum royalty payments in connection with sales in Canada through 2002. N.V. ORGANON. In December 1998, we entered into a Development and License Option Agreement with N.V. Organon, the pharmaceuticals business unit of Akzo Nobel. In December 1999, Organon exercised its option and we signed an exclusive license for an OraSolv formulation of an undisclosed prescription product. We receive license and product development fees, and milestone payments upon achieving specific 6 7 milestones under the agreement, and will receive royalties on any sales of the prescription product. Revenues from N.V. Organon represented 26% of total revenues in 1999. NOVARTIS. In November 1997, we entered into a Development and License Option Agreement with Novartis that covers the use of OraSolv technology with the Novartis Triaminic non-prescription product line. We received option and product development fees in exchange for the license option and development work. In July 1998, we signed an exclusive license and a supply agreement with Novartis, which include an option to a second exclusive license covering additional products. We received product development and milestone payments upon achieving specific milestones under the agreement, and will receive royalties on any sales of Triaminic. In July 1999, Novartis launched nationally three Triaminic products using our OraSolv technology. Revenues from Novartis, which were principally product sales, represented 42% of total revenues in 1999. SCHERING-PLOUGH. In August 1997, we entered into a Development and Option Agreement with Schering-Plough. In exchange for development work and a license option, we received an option fee and product development fees. The agreement calls for the development of an OraSolv SR version of an undisclosed, currently marketed prescription product. Our development of this product currently is on hold. INTELLECTUAL PROPERTY We actively seek, when appropriate, to protect our products and proprietary information by means of U.S. and foreign patents, trademarks and contractual arrangements. In addition, we rely upon maintaining trade secrets and further contractual arrangements to protect certain of our proprietary information and products. We hold seven issued U.S. patents and five issued foreign patents covering our technologies. The core U.S. and European patents relate to our fast-dissolve and taste-masking technologies. We also have 28 U.S. and foreign patent applications pending, including two European Patent Office filings. A description of our issued U.S. patents and their dates of expiration are set forth in the table below. The majority of these patents are composition-of-matter patents. The actual scope of coverage for a patent is governed by the specific claims applicable to the patent. The descriptions set forth below are intended solely to identify patents relevant to various technologies, and are not intended to represent the scope of these patents.
EXPIRATION PATENTED TECHNOLOGIES DATE --------------------- ---------- Core OraSolv fast-dissolve and taste-masking 2010 technology. The production of compressed effervescent and 2010 and 2012 non-effervescent tablets using a tableting aid developed by us. Effervescent pediatric vitamin and mineral supplement. 2010 The formulation of a base coated, acid effervescent 2013 mixture manufactured by controlled acid base reaction. The obtained mixture can be used in the formulation of acid sensitive compounds with OraSolv technology or other effervescent based products. Taste-masking of micro-particles for oral dosage 2015 forms. Core DuraSolv fast-dissolve and taste-masking 2018 technology.
7 8 Our success will depend in part on our ability to obtain and enforce patents for our products, processes and technology, to preserve our trade secrets and other proprietary information and to avoid infringing the patents or proprietary rights of others. We cannot be sure that our patent applications will be granted, that the coverage of any patents issued will provide adequate protection or competitive advantages for our technology or that our competitors will not challenge, infringe or circumvent our issued patents. We rely on trade secrets and proprietary know-how to protect our products, processes and technologies. To protect our rights to trade secrets and proprietary know-how, we require all employees, consultants and advisors to sign confidentiality agreements that prohibit the disclosure or use of confidential information to or by any third party. These agreements also require disclosure and assignment to us of discoveries and inventions made by these individuals while devoted to our activities. These confidentiality agreements may not prevent employees, consultants or advisors from disclosing our confidential information, and may not adequately protect our confidential information if unauthorized use or disclosure occurs, and we may not have adequate remedies for a breach of these agreements. Furthermore, our trade secrets may otherwise become known or be independently developed by competitors. Our patents or proprietary information may become the subject of litigation. We cannot be sure that any litigation concerning our patents or proprietary information will be resolved in our favor. The costs of litigation, and the diversion of our resources during litigation could have a material adverse effect on our business and financial condition. See "Item 3. Legal Proceedings." We may desire, or be required to obtain, licenses from others with respect to materials used in our products or manufacturing processes. We cannot be sure that the required licenses will be available to us on commercially reasonable terms, if at all, or that any licensed patents or proprietary rights will be valid and enforceable. RESEARCH AND PRODUCT DEVELOPMENT Our research and product development efforts are focused on developing new product applications for our drug delivery technologies and expanding our technology platform to new areas of drug delivery. At December 31, 1999, we had 31 scientists and other technicians working on research and product development, including 13 individuals with post-graduate degrees. Our research and product development personnel, support systems and facilities are organized to develop drug delivery formulations from bench-scale through full-scale commercial production under current good manufacturing practice conditions. The key goals for our research and product development efforts are: o develop innovative drug delivery products and systems that fulfill pharmaceutical companies' needs and meet our strategic goals; o develop, expand and support systems to fulfill good manufacturing practice production at commercial levels required by pharmaceutical company partners; o recruit and train high-quality technical and scientific personnel; and o support our intellectual property portfolio development. For the years ended December 31, 1999, 1998 and 1997, we spent approximately $4.4 million, $3.3 million and $3.4 million, respectively, on research and product development. We estimate that most of these expenditures were directly related to product development activities for which we received fees and licensing revenues from our pharmaceutical company partners. MANUFACTURING Our manufacturing facility is located at our headquarters in Eden Prairie, Minnesota. We completed our first production line in 1996, which has an estimated production capacity of 200 to 220 million tablets a year. We anticipate using substantially all of our existing capacity to satisfy our anticipated production requirements in 2000. We are developing a second production line using state-of-the-art material transfer and blending systems and integrated high-speed tableting and packaging operations, which we expect will at least 8 9 double our existing capacity. We expect to begin construction of the second production line in the first half of 2000, with operations to begin in the second half of 2001. We currently anticipate spending approximately $10 to $12 million to construct the second production line. In November 1999, we started construction of a coating unit to provide taste-masked active ingredients for our pharmaceutical company partners. We anticipate spending approximately $4.0 million for its construction, and expect to begin operations in the first half of 2000. We expect to commercialize our first coated active ingredient in 2000 for a prescription pharmaceutical company partner. The coating unit will give us capacity to taste mask the active drug ingredients we will use in the products to be manufactured on our two production lines. We believe an in-house coating capability will be a key factor in signing new agreements related to prescription pharmaceutical drugs. We developed and implemented PakSolv, a proprietary packaging process that allows high-speed packing of soft, brittle tablets without breakage, into specially designed protective, child resistant packages and normal blister packages. We believe that this technology, which is the subject of two patent applications, gives us a competitive advantage. We currently purchase taste-masked active ingredients for each of our non-prescription products from a single source of supply. We expect to continue to purchase taste-masked active ingredients for our non-prescription products. We expect to be capable of manufacturing taste-masked active ingredients for new prescription products in the first half of 2000. We believe that all other ingredients used in the manufacture of our products are readily available from multiple suppliers or from our pharmaceutical company partners. We plan our manufacturing cycles in advance of actual production in order to address lead times our suppliers may require to satisfy our requirements. We generally do not stock significant quantities of raw materials for a product in excess of a partner's orders nor do we manufacture finished product in excess of a partner's orders. Although to date we have been able to satisfy our pharmaceutical company partners' requirements for product, any extended disruption in our supply of taste-masked active ingredients for non-prescription products or in our supply of certain packaging material could have an adverse effect on our business, and potentially damage relations with our pharmaceutical company partners. COMPETITION Competition among pharmaceutical products and drug delivery systems is intense. Our primary competitors for developing drug delivery systems, and manufacturing the products we develop, include other drug delivery, biotechnology and pharmaceutical companies. Many of these competitors have substantially greater financial, technological, manufacturing, marketing, managerial and research and development resources and experience than we do. Our products compete not only with products employing advanced drug delivery systems, but also with products employing conventional dosage forms. These competing products may obtain governmental approval or gain market acceptance more rapidly than our products. New drugs or future developments in alternative drug delivery technologies also may provide therapeutic or cost advantages over our current or future products. Fast-dissolve tablet technologies that compete with our OraSolv and DuraSolv technologies include the Zydis technology developed by R.P. Scherer Corporation, the WOWTab technology developed by Yamanouchi Shaklee Pharmaceuticals, and the Flashtab developed by Laboratories Prographarm. The Zydis technology is a fast-dissolving oral drug delivery system based on a freeze-dried gelatin tablet. The WOWTab and Flashtab technologies are fast-dissolving technologies used in an oral fast-dissolving tablet, which are similar to our DuraSolv tablet. Fuisz Technologies Ltd., a wholly-owned subsidiary of Biovail Corporation, also has a fast-dissolving oral drug delivery technology called FlashDose. All of these companies have licensed their technologies to a number of pharmaceutical companies, but only R.P. Scherer has successfully produced commercial prescription products using fast-dissolve tablet technology. Only products using our fast-dissolve tablet technology and the technology of Scherer have been commercialized in the U.S. Scherer has commercialized its Zydis technology in a major prescription product in the U.S., Claritin Reditabs. We believe that certain pharmaceutical companies may be developing other fast-dissolve tablet technologies, which may compete with our technology in the future. 9 10 The principal competitive factors in the market for fast-dissolving tablet technologies are compatibility with taste-masking techniques, dosage capacity, drug compatibility, cost, ease of manufacture, patient acceptance and required capital investment for manufacturing. We believe that our fast-dissolving tablet technologies compete favorably with respect to each of these factors. In a 1997 quantitative consumer study we conducted, significantly more consumers preferred the OraSolv formulation to the Zydis formulation of the same drug. We believe we also offer potential pharmaceutical company partners the largest selection of oral fast-dissolve drug delivery technologies. GOVERNMENT REGULATION Numerous governmental authorities in the U.S. and other countries extensively regulate the activities of pharmaceutical manufacturers. In the U.S., pharmaceutical products are subject to rigorous regulation by the Food and Drug Administration. The federal Food, Drug, and Cosmetic Act and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, safety, storage, record keeping, labeling, advertising, promotion, marketing and distribution of pharmaceutical products. If we fail to comply with the applicable requirements, we may be subject to administrative or judicially imposed sanctions such as warning letters, fines, injunctions, product seizures or recalls, total or partial suspension of production, or FDA refusal to approve pending premarket approval applications or supplements to approved applications, as well as criminal prosecution. FDA approval generally is required before a new drug product may be marketed in the U.S. Many over-the-counter, or OTC, drug products are exempt, however, from the FDA's premarketing approval requirements. Prescription drug products with proven safety and efficacy profiles may be "switched" to OTC status through the submission to and approval by the FDA of an addendum to an existing new drug application. In addition, certain drug products may require premarket approval, but may be approved through a shortened procedure under Section 505(b)(2) of the Food, Drug, and Cosmetic Act, an approach generally used when a new delivery system is added to an existing drug product. Our initial product was an OTC drug product that did not require FDA premarket approval. However, OTC drug products remain subject to various ongoing FDA regulations, good manufacturing practice requirements, general and specific OTC labeling requirements (including warning statements), advertising restrictions related to product labeling, and OTC drug ingredient specifications. OTC products and their manufacturing facilities are subject to FDA inspection, and failure to comply with applicable regulatory requirements may lead to administrative or judicially imposed penalties. We expect that our pharmaceutical company partners will seek any required FDA approvals in connection with the introduction of new products we develop for them under a collaborative agreement. The FDA submission and approval process may however, require significant commitments of our time and resources. The FDA approval process may delay, or prevent, marketing of our products. We cannot be sure that approvals will be obtained, or that any such approvals will be on the terms or have the scope necessary for successful commercialization of these products. Even after an application or a supplement or addendum is approved, existing FDA procedures may delay initial product shipment and materially reduce the period during which there is an exclusive right to exploit patented products or technologies. Prior to marketing a product internationally, we may need foreign regulatory approval. Foreign approval procedures vary from country to country and the time required for approval may result in delays in, or ultimately prevent, marketing. We expect our pharmaceutical company partners to obtain any necessary government approvals in foreign countries. However, we may have to spend considerable amounts of company time and resources to support the submission and approval of these foreign filings. In addition, our manufacturing facility may be subject to inspections by foreign agencies, similar to the FDA, to allow for the marketing of our products in a foreign country. Our manufacturing facility is registered with the FDA. We must inform the FDA of every drug product we have in commercial distribution and keep an updated list of those drugs. Our manufacturing facility also is inspected by the FDA and must comply with good manufacturing practices regulations at all 10 11 times during the manufacture and processing of drug products. The FDA inspected our Eden Prairie facility in November 1996, while the Brooklyn Park facility was last inspected in January 1997. We were not cited during either inspection. We cannot guarantee that FDA inspections will proceed without any compliance issues requiring time and resources to resolve. Our facilities also must be inspected by, and we have received a license from the Minnesota Board of Pharmacy for the manufacture of drug products. We are subject to regulation under various federal, state and local laws, rules, regulations and policies regarding, among other things, occupational safety, environmental protection, the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain regulated materials and wastes, and product advertising and promotion. We believe that we have complied with these laws and regulations in all material respects, and we have not been required to take any action to correct any material noncompliance. We do not currently anticipate that any material capital expenditures will be required in order to comply with these laws or that compliance with these laws will have a material effect on our business or financial condition. We are unable to predict, however, the impact on our business of any changes that may be made in these laws or of any new laws or regulations that may be imposed in the future. We cannot be sure that we will not be required to incur significant compliance costs or be held liable for damages resulting from any violation of these laws and regulations. EMPLOYEES As of March 1, 2000, we had 99 full-time employees, with 68 employees in Eden Prairie and 31 in Brooklyn Park. Of these employees, 55 are engaged in manufacturing, 32 in research and development and 12 in executive management and office support. None of our employees are subject to a collective bargaining agreement nor have we ever experienced a work stoppage. We believe our employee relations are good. We believe our success depends in part on attracting additional senior management personnel, as well as attracting and retaining highly skilled scientific, business development and manufacturing employees. We face much competition for these individuals from other companies and from research and academic institutions. We cannot be sure that we will be able to attract and retain high-quality employees. LIABILITY INSURANCE Providing health care products is inherently risky. We may from time to time get sued as a result of our business. We carry product liability insurance coverage, subject to annual renewal, determined on a "claims made" basis in amounts we deem adequate, including coverage through a general liability umbrella policy. We also carry a general business insurance policy in amounts we deem adequate, in addition to the coverage of our general liability umbrella policy. We do not carry any insurance to cover the financial risks associated with a potential FDA mandated recall of a product. Although we have not been subject to any product liability claims to date, any such claim could have a material adverse impact on us. ITEM 2. PROPERTIES We lease a 75,000 square foot facility in Eden Prairie, Minnesota, a suburb of Minneapolis, which houses our corporate headquarters, manufacturing facility with adequate space for two production lines and the coating unit now under construction, and warehouse space. The lease has an initial term expiring on June 1, 2009. We have the option to extend the lease term for one period of ten years with a minimum annual base rent (exclusive of real estate taxes and maintenance fees) of $500,000 for the first five years, and $550,000 for the second five years of the ten-year option term. We also lease 32,000 square feet of office, research and development, manufacturing space and warehouse space in Brooklyn Park, Minnesota. The lease expires in September 2001 and is renewable at our option for two additional five-year periods. We believe our existing facilities are adequate to meet our anticipated needs. 11 12 ITEM 3. LEGAL PROCEEDINGS On October 29, 1997, we instituted an opposition proceeding in the European Patent Office seeking cancellation of a patent owned by Laboratories Prographarm of Chateauneuf, France. We alleged that publications exist which are prior art against the European patent, including an international patent application owned by us, which was published prior to the priority date of the European patent. Subsequently, Prographarm changed the claims in its patent and refiled, but the European Patent Office has not yet responded. On February 27, 1997, the U.S. Patent and Trademark Office suspended prosecution of a U.S. patent application owned by us to consider our request that an interference proceeding be declared between a pending U.S. patent application owned by us and a U.S. patent owned by Prographarm. We are seeking a determination by the U.S. Patent Office that either (i) our personnel are the prior inventors of the invention encompassed by the Prographarm U.S. patent and accordingly that we are entitled to claims directed to the same invention in a new patent to be owned by us, or (ii) a determination that the claims are unpatentable to us or Prographarm. Either ruling would result in the cancellation of the Prographarm U.S. patent. We are making the same factual allegations in the European opposition with the addition of, our pending U.S. patent application and the priority date of such pending application. Subsequently, Prographarm changed the claims in its patent, refiled and submitted to re-examination in the U.S. Patent Office, and has offered to amend its claims. The U.S. Patent Office granted a re-examination, but to our knowledge, a final decision has not been reached. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Our executive officers and their ages as of March 1, 2000 are as follows:
Name Age Title ---- --- ----- John M. Siebert, Ph.D. 60 Chief Executive Officer and President John H. Hontz, Ph.D. 43 Chief Operating Officer David A. Feste 48 Vice President, Chief Financial Officer and Secretary
Our executive officers serve at the discretion of the board of directors with no fixed term. There are no family relationships between or among any of our executive officers or directors. Dr. Siebert has been our President since July 1995, Chief Executive Officer and President since September 1995, and a director since May 1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs, at Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert was with Miles, Inc. Prior to 1988, Dr. Siebert held a variety of management positions with E.R. Squibb & Sons, Inc., G.D. Searle & Co. and The Proctor & Gamble Company. He received a B.S. in Chemistry from Illinois Benedictine College, an M.S. in Chemistry from Wichita State University and a Ph.D. in Organic Chemistry from the University of Missouri - Columbia. Dr. Hontz has been our Chief Operating Officer since January 2000. From 1997 to January 2000, Dr. Hontz was our Vice President of Research and Development. From 1995 to 1997, Dr. Hontz was senior Group Leader of Product Development at Glaxo-Wellcome, a research-based pharmaceutical company. From 1987 to 1995, Dr. Hontz was Section Head of Product Development for Burroughs-Wellcome, which was acquired by Glaxo in 1995. Dr. Hontz received his B.Sc. in Pharmacy from the 12 13 Philadelphia College of Pharmacy & Science, his M.S. and Ph.D. in Pharmaceutics from the University of Maryland and his M.B.A. from Duke University. Mr. Feste has been our Vice President, Chief Financial Officer and Secretary since March 2000. From 1995 to 1999, Mr. Feste was Vice President and Chief Financial Officer for Orphan Medical, Inc., a pharmaceutical company. From 1992 to 1995, Mr. Feste was self-employed as a financial consultant. From 1985 to 1991, Mr. Feste worked for Tonka Corporation, most recently as its Corporate Vice President of Financial Services and Audit. Mr. Feste received his B.S. in Accounting from the University of Minnesota and is a Certified Public Accountant. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our Common Stock trades on The Nasdaq Stock Market under the symbol "CIMA." The following table presents for the periods indicated, the range of high and low closing sales prices for our Common Stock for the years ended December 31, 1998 and December 31, 1999.
HIGH LOW ---- --- 1998 First Quarter ......................................................... $ 4.97 $ 2.59 Second Quarter ........................................................ 4.88 3.25 Third Quarter ......................................................... 3.91 2.75 Fourth Quarter ........................................................ 3.53 2.09 1999 First Quarter ......................................................... $ 3.44 $ 2.53 Second Quarter ........................................................ 4.63 2.63 Third Quarter ......................................................... 8.38 4.63 Fourth Quarter ........................................................ 13.50 6.00
HOLDERS As of March 24, 2000, our Common Stock was held by 75 stockholders of record and we estimate that there were approximately 1,700 beneficial owners of its Common Stock on that date. DIVIDENDS We have never declared or paid any dividends and do not anticipate paying dividends on our Common Stock in the foreseeable future. We currently intend to retain future earnings, if any, for use in our business. The board of directors determines whether or not to make any dividends on our Common Stock and bases it decision on the conditions then existing, including our earnings, financial condition and requirements, restrictions in financing agreements, business conditions and other factors. 13 14 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (In thousands, except per share amounts) STATEMENTS OF OPERATIONS DATA: Revenues: Net sales .......................................... $ 4,839 $ 1,097 $ 2,628 $ -- $ 151 Product development fees and licensing revenues .... 7,818 6,141 2,282 1,472 684 Royalties .......................................... 735 374 -- -- -- -------- -------- -------- -------- -------- Total revenues ........................................ 13,392 7,612 4,910 1,472 835 Operating expenses: Costs of sales ..................................... 7,546 4,476 4,376 -- 240 Research and product development ................... 4,388 3,307 3,364 5,403 6,505 Selling, general and administrative ................ 2,836 3,138 3,487 2,909 3,658 -------- -------- -------- -------- -------- Total operating expenses .............................. 14,770 10,921 11,227 8,312 10,403 Other income (expense): Interest income, net ............................... 10 152 337 498 448 Other income (expense), net ........................ 106 (30) 142 (4) 13 -------- -------- -------- -------- -------- Total other income .................................... 116 122 479 494 461 -------- -------- -------- -------- -------- Net loss: ............................................. $ (1,262) $ (3,187) $ (5,838) $ (6,346) $ (9,107) ======== ======== ======== ======== ======== Net loss per share: Basic and diluted loss per common share ............ $ (.13) $ (.33) $ (.61) $ (.72) $ (1.16) ======== ======== ======== ======== ======== Weighted average number of shares outstanding: Basic and diluted .................................. 9,615 9,610 9,519 8,827 7,822
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (In thousands) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments .... $ 2,481 $ 2,723 $ 4,423 $ 10,263 $ 3,559 Total assets ......................................... 19,270 14,916 17,328 22,065 15,519 Long-term liabilities ................................ 3,510 231 -- -- -- Accumulated deficit .................................. (45,977) (44,715) (41,527) (35,660) (29,259) Total stockholders' equity ........................... 11,574 12,656 15,837 21,021 14,282
14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We develop and manufacture pharmaceutical products based on our proprietary OraSolv and DuraSolv technologies. We have agreements with several pharmaceutical companies regarding a variety of potential products, with an emphasis on prescription products. We currently manufacture five commercial products using our fast-dissolve technologies. These products include Triaminic for Novartis, Tempra for Bristol- Meyers Squibb and Zomig for AstraZeneca. We operate within a single segment: pharmaceutical product development. Our revenues are comprised of three components: net sales of products utilizing our proprietary fast-dissolve technologies; product development fees and licensing revenues for development activities we conduct through collaborative agreements with pharmaceutical companies; and royalties on the sales of products we manufacture, which are sold by pharmaceutical companies under licenses from us. In addition, we are currently developing other drug delivery technologies. Revenues from product sales and from royalties will fluctuate from quarter to quarter and from year to year depending on, among other factors, demand for our products by patients, new product introductions, the seasonal nature of some of our products and pharmaceutical company ordering patterns. Our ability to generate product sales and royalty revenues in excess of our current forecast for 2000 and 2001 may be constrained by our manufacturing capacity. We expect our second production line, now being developed, to be operational in the second half of 2001. Revenues from product development fees and licensing revenue will fluctuate from quarter to quarter and from year to year depending on, among other factors, the number of new collaborative agreements that we enter into; the number of product development milestones we achieve under collaborative agreements, including making submissions to, and obtaining approvals from, the FDA for products in development; and the level of our development activity conducted for pharmaceutical companies under collaborative agreements. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 REVENUES. Our total revenues were $13.4 million in 1999, as compared to $7.6 million in 1998 and $4.9 million in 1997. The increases in revenues in each year are due principally to increased development activity for new products that resulted in significantly higher product development fees and licensing revenue. In 1999, total revenues also increased due to higher sales volume of commercial products. Revenues from net sales of products using our drug delivery technologies totaled $4.8 million in 1999, as compared to $1.1 million in 1998 and $2.6 million in 1997. The increase from 1998 to 1999 was due to increased shipments to Novartis that began in the second quarter of 1999. The decrease from 1997 to 1998 was due to the decision by a pharmaceutical company to discontinue U.S. distribution of a product line. We expect revenues from net sales of products using our drug delivery technologies to increase in 2000 due to anticipated shipments and pricing increases. Product development fees and licensing revenues totaled $7.8 million in 1999, as compared to $6.1 million in 1998 and $2.3 million in 1997. The increase from 1998 to 1999 was due to our increased development activity for proposed new products and the achievement of development milestones for N.V. Organon and AstraZeneca. The increase from 1997 to 1998 was due to our increased development activity for proposed new products and the achievement of development milestones for Novartis, AstraZeneca and Schering-Plough. Royalties totaled $0.7 million in 1999, as compared to $0.4 million in 1998, and we received no royalty revenue in 1997. The increase from 1998 to 1999 was due to increased sales by Novartis of Triaminic. Royalties paid by Bristol-Myers Squibb in 1998 and 1999 on sales of Tempra were based on annual minimum contractual payments, which will expire in 2002. We expect royalties to increase in 2000. 15 16 OPERATING EXPENSES AND GROSS MARGIN. Cost of sales totaled $7.5 million in 1999, as compared to $4.5 million in 1998 and $4.4 million in 1997. The increase from 1998 to 1999 was principally due to an increase in sales of Triaminic products to Novartis. Cost of sales from 1997 to 1998 were approximately the same even though production unit volumes decreased, principally due to an increase in manufacturing overhead in 1998. Gross margins on product sales from 1997 through 1999 were negative because we had significant excess production capacity and product sales for each of these years did not cover fixed manufacturing overhead costs. We expect to be operating at or near full production capacity until our second production line is operational, which is expected in the second half of 2001. We expect our gross margins to improve in 2000 due to anticipated price increases on an existing product line and expected unit volume increases. Future gross margins will depend principally on the pricing of our products, our ability to effectively use our manufacturing and plant capacity, and changes in our product lines and mix of products. Research and product development expenses were $4.4 million in 1999, as compared to $3.3 million in 1998 and $3.4 million in 1997. The increase from 1998 to 1999 was principally a result of our increased development activity on fast-dissolve prescription products for N.V. Organon and American Home Products. From 1997 to 1998, these expenses were consistent, as the level of product development activities between years was comparable. We expect these expenses to increase in 2000. Selling, general and administrative expenses were $2.8 million in 1999, as compared to $3.1 million in 1998 and $3.5 million in 1997. The decline in these expenses year over year was due primarily to a restructuring of management responsibilities, which began in 1996 and ended in 1999, resulting in a general reduction in management headcount and related expenses. We expect these expenses to increase in 2000. OTHER INCOME. Other income was $0.1 million in 1999 and 1998, and $0.5 million in 1997. Other income consists primarily of interest income on invested funds, net of interest expense on bank lines, loan agreements and capitalized leases. Other income has declined since 1997 as we used cash to fund business operations and our level of invested funds decreased. We expect other income to increase beginning in the second quarter of 2000, as a result of our sale in March 2000 of common stock in a private placement, described below. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations to date primarily through private and public sales of equity securities and revenues from product sales, product development fees and licensing revenue and royalties. Net working capital increased from $2.9 million at December 31, 1998 to $4.2 million at December 31, 1999. The increase from 1998 to 1999 was principally due to the positive effect of a $3.5 million loan we received from a pharmaceutical company partner, which was partially offset by approximately $2.8 million in expenditures for capital improvements to our manufacturing facility. We invest excess cash in interest-bearing money market accounts. We signed a one-year secured revolving line of credit agreement with Wells Fargo Business Credit, Inc. in July 1999. The agreement provided a credit facility of $2.0 million, primarily for working capital purposes, secured principally by inventories and accounts receivable. At the end of 1999, we owed the lender approximately $0.2 million. We repaid the lender all amounts borrowed in January 2000 and notified the lender in March 2000 that we would not renew the agreement in July 2000, thus terminating the facility's availability. In December 1999, we received a $3.5 million unsecured loan from one of our pharmaceutical company partners. We may repay this loan at any time, but if the loan is not repaid by the time we are due royalties under a license agreement with an affiliate of the lender, the affiliate may offset up to half of the royalties otherwise due to us and the lender will treat the amount offset by its affiliate as a payment by us 16 17 on this loan. Interest is payable on the outstanding balance of the loan at LIBOR plus one half of one percent. Interest accrues quarterly and is added to the then outstanding principal balance of the loan. In March 2000, we issued 1.1 million shares of common stock through a private placement. We received approximately $19.4 million in net cash proceeds and expect to use the funds for capital additions to our manufacturing facility and for working capital. We have invested the net proceeds in interest-bearing money market accounts, pending such uses. We currently expect to spend approximately $10.0 to $12.0 million during 2000 and 2001 to complete various manufacturing facility improvements, including construction of a coating unit and a second production line. We expect to finance the costs of construction with the proceeds of the private placement of common stock described above. We believe our cash and cash equivalents, together with the net proceeds from the private placement of common stock and expected revenues from operations, will be sufficient to meet our anticipated capital requirements for the foreseeable future. However, we may elect to pursue additional financing at any time to more aggressively pursue development of new drug delivery technologies and expand manufacturing capacity beyond that currently planned. In addition, other factors that will affect future capital requirements and may require us to seek additional financing, include the level of expenditures necessary to develop new products or technologies, the progress of our research and product development programs, the need to construct a larger than currently anticipated manufacturing facility to meet demand for our products, results of our collaborative efforts with current and potential pharmaceutical company partners, and the timing of and amounts received from future product sales, product development fees and licensing revenue and royalties. We cannot be sure that additional financing will be available to us or, if available, on acceptable terms. RECENT PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 will be effective for fiscal years beginning in 2000. We do not currently hold derivative instruments or engage in hedging activities. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements." SAB 101 requires that license and other up-front fees received from research collaborators be recognized over the term of the agreement unless the fee is in exchange for products delivered or services performed that represent the culmination of a separate earnings process. We have not completed our analysis of the impact of implementing SAB 101 on the reporting of our product development fees and licensing revenue, but expect to complete this analysis by the end of the first quarter of 2000. We currently expect to implement SAB 101 in the first quarter of 2000, if applicable, and estimate that the cumulative effect of any resulting accounting change will be in the range of $1 to $2 million. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our investments consist of debt securities with contractual maturities of less than one year. Therefore, we do not believe our operations are exposed to significant market risk relating to interest rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Our financial statements as of December 31, 1999 and 1998 and for each of the years ended December 31, 1999, 1998 and 1997 begin on page F-1 of this Form 10-K. 17 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors of the Registrant. The information required by this item is incorporated by reference herein from the information under the caption "Election of Directors" contained in our Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our Annual Meeting of Stockholders to be held on June 2, 2000 (the "Proxy Statement"). (b) Executive Officers of the Registrant. Information concerning our Executive Officers is included in this Form 10-K at Part I, Item 4A, under the caption "Executive Officers of the Registrant." (c) Compliance with 16(a) of the Securities Exchange Act of 1934. The information required by this item is incorporated by reference herein from the information under the caption "Section 16(a) Reporting" contained in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference herein from the information under the caption "Executive Compensation" contained in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference herein from the information under the caption "Stock Ownership" contained in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference herein from the information contained under the caption "Certain Transactions" contained in the Proxy Statement. 18 19 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1). Financial Statements
PAGE NUMBER IN THIS DESCRIPTION ANNUAL REPORT ----------- ------------- Audited Financial Statements: Report of Independent Auditors F-1 Balance Sheets F-2 and F-3 Statements of Operations F-4 Statements of Cash Flows F-5 Statement of Changes in Stockholders' Equity F-6 Notes to Financial Statements F-7 to F-13
(a)(2). Financial Statement Schedules The following financial statement schedule should be read in conjunction with the Audited Financial Statements referred to under Item 14 (a)(1) above. Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the Audited Financial Statement or Notes thereto.
PAGE NUMBER IN THIS DESCRIPTION ANNUAL REPORT ----------- ------------- Schedule II - Valuation and Qualifying Accounts: Years Ended December 31, 1999, 1998 and 1997 F-14
(a)(3). Listing of Exhibits
Exhibit Method of Number Description Filing ------ ----------- ------ 3.1 Fifth Restated Certificate of Incorporation of CIMA. (1) 3.2 Third Restated Bylaws of CIMA. (12) 4.1 Form of Certificate for Common Stock. (2) 4.2 Rights Agreement, dated March 14, 1997, between CIMA and Norwest Bank Minnesota, N.A. (3) (3) 4.3 Form of Stock Purchase Agreement dated March 13, 2000 between CIMA and certain Filed institutional investors. herewith 10.1 Letter Agreement, dated January 28, 1998, between CIMA and Joseph R. Robinson, Ph.D. *# (4) 10.2 Development and License Option Agreement, dated November 18, 1997, between Novartis (4) Consumer Health, Inc. and CIMA. * 10.3 Employment Agreement, dated October 29, 1997, between CIMA and John M. Siebert, Ph.D.# (5) 10.4 Development and License Option Agreement, dated December 2, 1998, between N.V. Organon (10) and CIMA. * 10.5 Real Property Lease, dated March 6, 1998, between Braun-Kaiser & Company and CIMA. (4) 10.6 Equity Incentive Plan, as amended and restated. # (12) 10.7 1994 Directors' Stock Option Plan, as amended. # (7) 10.8 Form of Director and Officer Indemnification Agreement. (2) 10.9 License Agreement, dated July 1, 1998, between Novartis Consumer Health Inc. and CIMA.* (8) 10.10 Supply Agreement, dated July 1, 1998, between Novartis Consumer Health Inc. and CIMA. * (8) 10.11 License Agreement, dated January 28, 1994, between SRI International and CIMA. * (2) 10.12 Non-Employee Directors' Fee Option Grant Program. # (9) 10.13 License Agreement, dated June 26, 1997, between Bristol-Myers Squibb Company and CIMA. * (9)
19 20
Exhibit Method of Number Description Filing ------ ----------- ------ 10.14 Development and Option Agreement, dated August 11, 1997, between Schering Corporation and (5) CIMA. * 10.15 Development and License Option Agreement, September 10, 1997, between IPR (5) Pharmaceuticals, Inc. and CIMA. * 10.16 Real Property Lease, Amendment No. 8, dated September 23, 1998, between Principal Life (11) Insurance Company and CIMA. 10.17 License Agreement dated May 28, 1999, between IPR Pharmaceuticals, Inc. and CIMA. * (12) 10.18 Credit and Security Agreement dated July 14, 1999, between Wells Fargo Business Credit, (13) Inc. and CIMA. 10.19 Loan Agreement dated December 15, 1999 between Astra AB and CIMA. * Filed herewith 10.20 License Agreement dated December 29, 1999 between Organon International AG and N.V. Filed Organon, and CIMA. * herewith 10.21 Development and License Agreement dated January 14, 2000 between CIMA and American Home Filed Products Corporation. * herewith 10.22 Supply Agreement dated January 14, 2000 between CIMA and American Home Products Filed Corporation. * herewith 23.1 Consent of Ernst & Young LLP. Filed herewith 24.1 Power of Attorney. Filed herewith 27.1 Financial Data Schedule. Filed herewith 99.1 Risk Factors. Filed herewith
* Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. # Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. . (1) Incorporated herein by reference to the correspondingly numbered exhibit to CIMA's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (2) Filed as an exhibit to CIMA's Registration Statement on Form S-1, File No. 33-80194, and incorporated herein by reference. (3) Incorporated by reference herein to Exhibit 2 to CIMA's Current Report on Form 8-K, filed March 25, 1997. (4) Incorporated by reference to the correspondingly numbered exhibit to CIMA's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 0-24424. (5) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 0-24424, and incorporated herein by reference. 20 21 (6) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-24424, and incorporated herein by reference. (7) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 0-24424, and incorporated herein by reference. (8) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-24424, and incorporated herein by reference. (9) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 0-24424, and incorporated herein by reference. (10) Incorporated herein by reference to the correspondingly numbered exhibit to CIMA's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 0-24424. (11) Incorporated herein by reference to the correspondingly numbered exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (12) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-24424, and incorporated herein by reference. (13) Filed as an exhibit to CIMA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 0-24424, and incorporated herein by reference. (b). Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. (c). Exhibits See Item 14(a)(3) above. (d). Financial Statement Schedules See Item 14(a)(2) above. 21 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Eden Prairie, Minnesota, on the 29th day of March, 2000. CIMA LABS INC. By: /s/ John M. Siebert -------------------------------------- John M. Siebert Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934 this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated as of March 29, 2000.
SIGNATURE TITLE --------- ----- /s/ John M. Siebert Chief Executive Officer (Principal Executive Officer) and Director - -------------------------------------------------- John M. Siebert /s/ David A. Feste Vice President and Chief Financial Officer (Principal Financial - -------------------------------------------------- and Accounting Officer) David A. Feste * Director - -------------------------------------------------- Terrence W. Glarner * Director - -------------------------------------------------- Steven B. Ratoff * Director - -------------------------------------------------- Joseph R. Robinson, Ph.D. By: /s/ John M. Siebert ---------------------------------------------- John M. Siebert, Attorney-In-Fact
* John M. Siebert, pursuant to the Powers of Attorney executed by each of the officers and directors above whose name is marked by a "*", by signing his name hereto, does hereby sign and execute this Annual Report on Form 10-K on behalf of each of the officers and directors in the capacities in which the name of each appears above. 22 23 REPORT OF INDEPENDENT AUDITORS Board of Directors CIMA LABS INC. We have audited the accompanying balance sheets of CIMA LABS INC. as of December 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the index at item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CIMA LABS INC. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Ernst & Young LLP Minneapolis, Minnesota February 11, 2000, except for Note 9 as to which the date is March 17, 2000 F-1 24 CIMA LABS INC. BALANCE SHEETS
DECEMBER 31 ----------------------------- 1999 1998 ------------ ------------ ASSETS Cash and cash equivalents $ 2,480,698 $ 2,722,590 Accounts receivable: Net of allowance for doubtful accounts $36,000-1999; $0-1998 3,058,258 1,654,796 Inventories, net 2,772,429 479,045 Prepaid expenses 73,042 79,866 ------------ ------------ Total current assets 8,384,427 4,936,297 Other assets: Lease deposits 318,699 345,146 Patents and trademarks, net 207,243 204,648 ------------ ------------ Total other assets 525,942 549,794 Property, plant and equipment: Construction in progress 2,150,508 72,204 Equipment 8,817,331 9,314,867 Leasehold improvements 4,783,420 4,757,169 Furniture and fixtures 604,204 604,204 ------------ ------------ 16,355,463 14,748,444 Less accumulated depreciation (5,996,024) (5,318,107) ------------ ------------ 10,359,439 9,430,337 ------------ ------------ Total assets $ 19,269,808 $ 14,916,428 ============ ============
F-2 25
DECEMBER 31 ---------------------------- 1999 1998 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,402,726 $ 670,597 Accrued expenses 1,229,179 835,043 Notes payable 195,748 -- Advance royalties 137,084 459,105 Current portion of long term debt 150,000 -- Current portion of lease obligations 71,485 64,998 ------------ ------------ Total current liabilities 4,186,222 2,029,743 Long term debt 3,350,000 -- Lease obligations 159,660 231,145 ------------ ------------ Total liabilities 7,695,882 2,260,888 Stockholders' equity: Convertible preferred stock, $0.01 par value Authorized shares -- 5,000,000 Issued and outstanding shares -- -0- Common stock, $0.01 par value: Authorized shares -- 20,000,000 Issued and outstanding shares -- 9,646,241--1999 9,610,394--1998 96,462 96,104 Additional paid-in capital 57,454,661 57,274,274 Retained earnings (deficit) (45,977,197) (44,714,838) ------------ ------------ Total stockholders' equity 11,573,926 12,655,540 ------------ ------------ Total liabilities and stockholders' equity $ 19,269,808 $ 14,916,428 ============ ============
See accompanying notes. F-3 26 CIMA LABS INC. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ REVENUES: Net sales $ 4,839,511 $ 1,097,465 $ 2,628,069 Product development fees and licensing 7,817,846 6,140,894 2,282,166 Royalties 735,107 373,764 -- ------------ ------------ ------------ 13,392,464 7,612,123 4,910,235 OPERATING EXPENSES: Cost of sales 7,545,341 4,475,867 4,376,412 Research and product development 4,388,902 3,307,582 3,363,544 Selling, general and administrative 2,836,573 3,137,952 3,487,239 ------------ ------------ ------------ 14,770,816 10,921,401 11,227,195 OTHER INCOME (EXPENSE) Interest income, net 10,327 152,366 336,310 Other income (expense) 105,666 (30,567) 142,255 ------------ ------------ ------------ 115,993 121,799 478,565 ------------ ------------ ------------ NET INCOME (LOSS): $ (1,262,359) $ (3,187,479) $ (5,838,395) ============ ============ ============ Net income (loss) per share: Basic and diluted $ (.13) $ (.33) $ (.61) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted 9,615,280 9,610,104 9,518,679
See accompanying notes F-4 27 CIMA LABS INC. STATEMENTS OF CASH FLOWS
-------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ OPERATING ACTIVITIES Net loss $ (1,262,359) $ (3,187,479) $ (5,838,395) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,635,017 1,653,319 1,051,679 Loss on impairment of assets 358,291 -- -- Gain on sale of property, plant and equipment -- 4,734 -- Changes in operating assets and liabilities: Accounts receivable (1,403,462) (56,982) (1,350,236) Inventories (2,293,384) 151,574 (96,032) Prepaid expenses 6,824 66,939 (74,925) Accounts payable 1,732,129 541,885 (135,658) Accrued expenses 394,136 214,462 (91,178) Advance royalties (322,021) (282,300) 491,405 ------------ ------------ ------------ Net cash used in operating activities (1,154,829) (893,848) (5,860,984) ------------ ------------ ------------ INVESTING ACTIVITIES Purchases of property, plant and equipment (2,819,700) (406,686) (772,262) Purchases of short-term investments -- -- (29,469,496) Proceeds from maturities of short-term investments -- 3,277,300 33,789,358 Proceeds from sale of property, plant and equipment -- 33,000 -- Patents and trademarks (105,305) (88,841) (111,470) ------------ ------------ ------------ Net cash (used in) provided by investing activities (2,925,005) 2,814,773 3,436,130 ------------ ------------ ------------ FINANCING ACTIVITIES Proceeds from issuance of common stock 180,745 5,700 654,582 Proceeds from long term debt 3,500,000 -- -- Proceeds from notes payable 195,748 -- -- Security deposits on leases 26,447 (304,495) 250,000 Payments on capital lease obligations (64,998) (45,300) -- ------------ ------------ ------------ Net cash provided by (used in) financing activities 3,837,942 (344,095) 904,582 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents (241,892) 1,576,830 (1,520,272) Cash and cash equivalents at beginning of period 2,722,590 1,145,760 2,666,032 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 2,480,698 $ 2,722,590 $ 1,145,760 ============ ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of equipment pursuant to capital lease -- $ 341,443 --
See accompanying notes. F-5 28 CIMA LABS INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED --------------------------- ADDITIONAL PAID- EARNINGS SHARES AMOUNT IN CAPITAL (DEFICIT) TOTAL ------------ ------------ ---------------- ------------ ------------ Balance at Dec. 31, 1996 9,411,589 $ 94,116 $ 56,586,958 $(35,659,942) $ 21,021,132 Stock options exercised 191,968 1,920 652,662 -- 654,582 Exercise of stock warrants 4,837 48 28,974 (29,022) -- Net loss -- -- -- (5,838,395) (5,838,395) ------------ ------------ ------------ ------------ ------------ Balance at Dec. 31, 1997 9,608,394 96,084 57,268,594 (41,527,359) 15,837,319 Stock options exercised 2,000 20 5,680 -- 5,700 Net loss -- -- -- (3,187,479) (3,187,479) ------------ ------------ ------------ ------------ ------------ Balance at Dec. 31, 1998 9,610,394 96,104 57,274,274 (44,714,838) 12,655,540 Stock options exercised 35,847 358 180,387 -- 180,745 Net loss -- -- -- (1,262,359) (1,262,359) ------------ ------------ ------------ ------------ ------------ Balance at Dec 31, 1999 9,646,241 $ 96,462 $ 57,454,661 $(45,977,197) $ 11,573,926 ============ ============ ============ ============ ============
F-6 29 CIMA LABS INC Notes to Financial Statements December 31, 1999 1. BUSINESS ACTIVITY CIMA LABS INC., a Delaware corporation, develops and manufactures fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and DuraSolv, CIMA's leading proprietary fast-dissolve technologies, are oral dosage forms incorporating taste-masked active drug ingredients into tablets which dissolve quickly in the mouth without chewing or water. CIMA develops applications for technologies that are licensed to pharmaceutical company partners. The Company currently manufactures and packages five commercial products incorporating its proprietary fast-dissolve technologies. Revenues are generated from license agreements, product development fees, products manufactured using fast-dissolve technologies and royalties. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS The Company considers highly liquid investments with maturities of ninety days or less when purchased to be cash equivalents. Cash equivalents are carried at cost which approximates fair market value. PATENTS AND TRADEMARKS Costs incurred in obtaining patents and trademarks are amortized on a straight-line basis over sixty months. Accumulated amortization was approximately $ 728,000 at December 31,1999 and $625,000 at December 31, 1998. The Company periodically reviews its patents and trademarks for impairment in value. Any adjustment from the analysis is charged to operations. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives ranging from three to twelve years. Depreciation expense was approximately $1,533,000 in 1999; $1,538,000 in 1998; and $919,000 in 1997. INVENTORIES Inventories, consisting of materials and packaging, are valued at a standard cost method using the first-in first-out (FIFO) for inventory turn over and control. Inventories are shown net of reserves for obsolescence of approximately $537,000 at December 31, 1999 and $157,000 at December 31, 1998. IMPAIRMENT OF LONG - LIVED ASSETS The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flow estimated to be generated by those assets are less than the assets' carrying amount. During the year ended December 31, 1999, the Company recognized approximately $358,000 of impairment losses on equipment no longer used in operations with an original cost of $1,200,000. The cost and associated accumulated depreciation have been removed from the equipment balances on the accompanying December 31, 1999 balance sheet. F-7 30 USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STOCK-BASED COMPENSATION The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock issued to Employees ("APB25"), and related interpretations in accounting for its stock options. Under APB 25, when the exercise price of stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. INCOME TAXES Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between financial reporting and tax bases of assets and liabilities. REVENUE RECOGNITION Sales of product are recorded upon shipment or per contract requirements and agreements. Product and development fees are recognized as the services are provided and milestones are completed. Revenues from license agreements are recorded when obligations under the agreement have been substantially completed. Royalties are recorded when earned. RESEARCH AND DEVELOPMENT COSTS For financial reporting purposes, all costs of research and development activities are expensed as incurred. EARNINGS (LOSS) PER SHARE Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Fully diluted and basic net loss per share are the same because the effects of common equivalent shares from stock options are excluded from the computation as their effect is antidilutive. RECLASSIFICATIONS Certain amounts presented in the 1998 and 1997 financial statements have been reclassified to conform to the 1999 presentation. ADOPTION OF RECENT STAFF ACCOUNTING BULLETIN In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements." SAB 101 requires that license and other up-front fees received from research collaborators be recognized over the term of the agreement unless the fee is in exchange for products delivered or services performed that represent the culmination of a separate earnings process. The Company expects to implement SAB 101 in the first quarter of 2000 and estimates that the cumulative effect of the resulting accounting change will range from $1 to 2 million. F-8 31 3. NOTES PAYABLE AND LONG-TERM DEBT NOTES PAYABLE The Company has a $2,000,000 bank line of credit payable on demand expiring July 14, 2000. Interest is paid at prime plus 2% (10.5% at December 31, 1999). The line is secured by accounts receivable and inventory. At December 31, 1999, $195,748 was outstanding on the line. The Company paid $60,000 in interest for the year ended December 31, 1999 and $24,000 for the year ended December 31, 1998. LONG-TERM DEBT In December 1999, the Company entered into an agreement with one of its pharmaceutical partners whereby the Company received a loan of $3,500,000. Timing of the loan repayments is based upon royalties due to the Company from an affiliate of the lender that signed a license agreement with the Company in May 1999. The Company shall pay the lender 50% of any royalty amount due per the license agreement with the affiliate. The term of the loan is three years, unless the loan repayments based on the royalty amounts due to the Company have not yet covered the loan principal plus any unpaid interest. In such a case, the loan will be extended in annual increments. Interest is payable on the outstanding amount at LIBOR plus one half of one percent, accrues quarterly and is added to the then outstanding balance. The loan becomes payable in full upon the sale of the Company or a change in control, as defined in the agreement. If the loan becomes payable in full, the affiliate shall withhold 100% of the royalties due until the outstanding balance and any accrued interest are paid in full. The Company does not expect to have any repayment obligations to the lender before the second half of 2000. 4. INCOME TAXES The Company's deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Significant components of deferred income taxes as of December 31, 1999 and 1998 are as follows:
1999 1998 -------- -------- (In Thousands) Deferred assets: Net operating loss $ 18,716 $ 18,475 Accrued vacation 86 75 Inventory reserve 217 63 -------- -------- 19,034 18,613 Deferred liability: 524 625 Depreciation and amortization -------- -------- Net deferred income tax asset 18,510 17,988 Valuation allowance (18,510) (17,988) -------- -------- Net deferred income taxes $ -- $ -- -------- --------
The Company may be subject to federal income taxes when operations become profitable. The Company's tax operating loss carryforwards of approximately $46 million may be carried forward to offset future taxable income, limited due to changes in ownership under the net operating loss limitation rules, and expire in the years 2001 to 2019. F-9 32 5. LEASES OPERATING LEASES The Company leases office, research and development and manufacturing facilities in Brooklyn Park and Eden Prairie, Minnesota. The 75,000 square foot Eden Prairie facility houses the general and administrative offices and the manufacturing operation. The lease has an initial term expiring on June 1, 2009. The rent payments will be recalculated on June 1, 2001 and 2006, based on a market index. The Company has an option to extend the lease for one ten-year period. The Company also has the option to renew this lease for two additional five-year terms. Future minimum lease commitments for all operating leases with initial or remaining terms of one year or more are as follows:
Year ending December 31: 2000 .................................................... $ 629,160 2001 .................................................... 640,460 2002 .................................................... 459,030 2003 .................................................... 380,460 2004 .................................................... 380,460 Thereafter .............................................. $ 1,902,300
Rent expense of operating leases, excluding operating expenses, for the years ended December 31, 1999, 1998, and 1997 was $525,000, $519,000, and $517,000 respectively. CAPITAL LEASES The Company has three leases between 48 and 60 months in length extending through 2003 with Norwest Equipment Finance, Inc. The deposit balance for the leases is $278,048 at December 31, 1999, and is reviewed on an annual basis in December and adjusted to the balance required to secure the assets being leased. Future minimum lease commitments for all capital leases with initial or remaining terms of one year or more are as follows:
Year ending December 31: 2000................................................ $ 90,499 2001................................................ 90,499 2002................................................ 75,644 2003................................................ 9,986 -------- 266,628 Less lease interest:.............................. (35,483) -------- Total $231,145 ========
6. STOCK OPTIONS The Company has an Equity Incentive Plan ("the Plan") under which options to purchase up to 2,650,000 shares of Common Stock may be granted to employees, consultants and others. The Compensation Committee, established by the Board of Directors, establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. The options expire ten years from the date of grant and are usually exercisable in annual increments ranging from 25% to 33% beginning one year from the date of grant. F-10 33 The Company also has a Directors' Stock Option Plan which provides for the granting of non-management directors of the Company options to purchase shares of Common Stock. The maximum number of shares with respect to the non-management directors plan which options may be granted is 410,000 shares. Shares available and options granted for the Equity Incentive Plan are as follows:
NON- SHARES INCENTIVE QUALIFIED WEIGHTED AVERAGE AVAILABLE STOCK STOCK TOTAL EXERCISE PRICE FOR GRANT OPTIONS OPTIONS OUTSTANDING PER SHARE ---------- ---------- ---------- ----------- ---------------- Balance at Dec.31, 1996 367,480 765,859 340,569 1,106,428 $ 6.27 Granted (390,700) 292,604 98,096 390,700 5.89 Forfeited 203,038 (166,575) (36,463) (203,038) 7.32 Exercised -- (149,217) (42,751) (191,968) 3.24 ---------- ---------- ---------- ---------- Balance at Dec.31, 1997 179,818 742,671 359,451 1,102,122 5.71 Granted (492,679) 101,428 391,251 492,679 4.47 Reserved 400,000 -- -- -- Forfeited 230,955 (156,259) (74,696) (230,955) 6.88 Exercised -- (2,000) -- (2,000) 2.85 ---------- ---------- ---------- ---------- Balance at Dec.31, 1998 318,094 658,840 676,006 1,361,846 5.08 Granted (395,273) 330,596 64,677 395,273 6.51 Reserved 250,000 -- -- -- Forfeited 279,024 (126,641) (152,383) (279,024) 5.01 Exercised -- (30,087) -- (30,087) 5.76 ---------- ---------- ---------- ---------- Balance at Dec. 31, 1999 451,845 859,708 588,300 1,448,008 $ 5.47 Exercisable: December 31, 1997 506,460 $ 5.27 December 31, 1998 556,626 $ 5.21 December 31, 1999 649,137 $ 5.51
The following table summarizes information about Equity Incentive Plan options outstanding at December 31, 1999:
WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE NUMBER WEIGHTED NUMBER CONTRACTUAL OUTSTANDING EXERCISABLE AVERAGE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE AT 12/31/99 EXERCISE PRICE - ------------------------------ ---------------- --------------- --------------- -------------- ----------------- $ 2.625 - $ 3.00 125,745 8.6 years $ 2.77 14,419 $ 2.94 $ 3.01 - $ 4.00 254,625 8.0 years $ 3.79 237,300 $ 3.88 $ 4.01 - $ 5.00 356,000 8.0 years $ 4.42 104,000 $ 4.52 $ 5.01 - $ 7.00 312,033 6.0 years $ 5.81 162,168 $ 5.83 $ 7.01 - $ 8.00 98,125 6.0 years $ 7.76 68,750 $ 7.82 $ 8.01 - $ 10.1875 247,470 8.0 years $ 9.79 62,500 $ 9.02 - ------------------- --------- --------- ------ -------- ------ $ 2.00 - $10.1875 1,448,008 7.4 years $5.47 649,137 $ 5.51 ========= ========
F-11 34 Shares available and options granted for Directors Stock Option Plan are as follows:
WEIGHTED NON- AVERAGE INCENTIVE QUALIFIED EXERCISE SHARES AVAILABLE STOCK STOCK TOTAL PRICE PER FOR GRANT OPTIONS OPTIONS OUTSTANDING SHARE ---------------- ------------ ------------ ------------ ------------ Balance at Dec.31, 1996 147,500 -- 202,500 202,500 7.93 Granted (56,070) -- 56,070 56,070 3.92 Reserved 60,000 -- -- -- -- Forfeited -- -- -- -- -- Exercised -- -- -- -- -- ------------ ------------ ----------- ------------ Balance at Dec.31, 1997 151,430 -- 258,570 258,570 7.06 Granted (37,860) -- 37,860 37,860 2.96 Forfeited -- -- -- -- -- Exercised -- -- -- -- -- ------------ ------------ ----------- ------------ Balance at Dec.31, 1998 113,570 -- 296,430 296,430 6.54 Granted (40,960) -- 40,960 40,960 2.27 Forfeited 4,320 -- (4,320) (4,320) 1.30 Exercised -- -- (5,760) (5,760) 1.30 ------------ ------------ ----------- ------------ Balance at Dec.31, 1999 76,930 -- 327,310 327,310 $ 6.17
Options outstanding under the plans expire at various dates during the period from March 2000 through December 2009. Exercise prices for options outstanding as of December 31, 1999, ranged from $2.6250 to $10.1875 per share. The weighted average fair values of options granted during the years ended December 31, 1999, 1998 and 1997 were $3.71, $4.36, and $5.64 respectively. The Company issued warrants to purchase 189,801 shares of its Common Stock at $6.00 per share. Of these warrants, 77,506 were exercised during 1996 and 4,837 during 1997. The remaining 107,458 warrants have expired. The Company has elected to follow Accounting Principles Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations in accounting for employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net loss and loss per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998, and 1997 respectively; risk-free interest rates of 5.50%, 5.00%, and 5.70%; volatility factor of the expected market price of the Company's common stock of .682, .630, and .649; and a weighted-average expected life of the option of 5 years. In management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options because the Company's employee stock options have F-12 35 characteristics significantly different from those of traded options and have vesting restrictions and because changes in the subjective input assumptions can materially affect the fair value estimates. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions. During the initial phase-in period, the effects of applying Statement 123 for recognizing compensation cost may not be representative of the effects on reported net loss or income for future years because the options in the Stock Option Plans vest over several years and additional awards will be made in the future. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:
1999 1998 1997 ------------ ------------ ------------ Pro forma net loss (in thousands) ...... $ (2,433) $ (4,240) $ (6,477) Pro forma net loss per common share, basic and diluted ................. $ (0.25) $ (0.44) $ (0.68)
7. DEFINED CONTRIBUTION PLAN The Company has a 401(k) plan (the "Plan") which covers substantially all employees of the Company. Contributions to the Plan are made through employee wage deferrals and employer matching contributions. The employer matching contribution percentage is discretionary and determined each year. In addition, the Company may contribute two discretionary amounts; one to non-highly compensated individuals and another to all employees. To qualify for the discretionary amounts, an employee must be employed by the Company on the last day of the Plan year or have been credited with a minimum of 500 hours of service during the Plan year. The 401(k) expense for the years ended December 31, 1999, 1998 and 1997 was $38,000, $36,000 and $29,000. 8. EMPLOYMENT AGREEMENT The Company entered into an employment agreement with the current President and Chief Executive Officer in 1997 to continue in said position. The agreement includes provisions for compensation, stock options and bonuses based upon the achievement of certain performance targets. The agreement expires on December 31, 2000. 9. SUBSEQUENT EVENT In March, 2000, the Company completed a private placement of 1.1 million shares of common stock at $19 per share, before commissions and expenses. The offering provided approximately $19.4 million in net cash proceeds to the Company. F-13 36 CIMA LABS INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BEGINNING OF CHARGED TO COSTS LESS BALANCE AT END DESCRIPTION YEAR AND EXPENSES DEDUCTIONS OF YEAR ------------ ---------------- ------------ ------------- Year ended December 31, 1999: Reserves and allowance deducted From asset accounts: Allowance for doubtful accounts ......... $ 0 $ 36,000 $ 0 $ 36,000 Obsolescence reserve .................... 156,770 379,966 0 536,736 ------------ ------------ ------------ ------------ TOTAL ....................................... $ 156,770 $ 415,966 $ 0 $ 692,736 Year ended December 31, 1998: Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts ........... $ 32,150 $ 32,150 $ (64,300) $ 0 Obsolescence reserve ...................... 46,388 110,382 0 156,770 ------------ ------------ ------------ ------------ TOTAL ....................................... $ 78,538 $ 142,532 $ (64,300) $ 156,770 Year ended December 31, 1997: Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts ........... $ 0 $ 32,150 $ 0 $ 32,150 Obsolescence reserve ...................... 140,795 0 (94,407) 46,388 ------------ ------------ ------------ ------------ TOTAL ....................................... $ 140,795 $ 32,150 $ (94,407) $ 78,538
F-14 EX-4.3 2 STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.3 STOCK PURCHASE AGREEMENT CIMA Labs Inc. 10000 Valley View Road Eden Prairie, Minnesota 55344 The undersigned (the "Investor"), hereby confirms its agreement with you as follows: 1. This Stock Purchase Agreement (the "Agreement") is made as of the date set forth below between CIMA Labs, Inc., a Delaware corporation (the "Company"), and the Investor. 2. The Company has authorized the sale and issuance of up to 1,200,000 shares (the "Shares") of common stock of the Company, $.01 par value per share (the "Common Stock"), subject to adjustment by the Company's Board of Directors, to certain investors in a private placement (the "Offering"). 3. The Company and the Investor agree that the Investor will purchase from the Company and the Company will issue and sell to the Investor shares, for a purchase price of $ per share, or an aggregate purchase price of $ , pursuant to the Terms and Conditions for Purchase of Shares attached hereto as Annex I and incorporated herein by this reference as if fully set forth herein. Unless otherwise requested by the Investor, certificates representing the Shares purchased by the Investor will be registered in the Investor's name and address as set forth below. 4. The Investor represents that, except as set forth below, (a) it has had no position, office or other material relationship within the past three years with the Company or its affiliates, (b) neither it, nor any group of which it is a member or to which it is related, beneficially owns (including the right to acquire or vote) any securities of the Company and (c) it has no direct or indirect affiliation or association with any NASD member. Exceptions: ------------------------------------------------------------------------- (If no exceptions, write "none." If left blank, response will be deemed to be "none.") Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose. DATED AS OF: March , 2000 -- ------------------------------------ INVESTOR By: --------------------------------- Print Name: ------------------------- Title: ------------------------------ Address: ---------------------------- AGREED AND ACCEPTED: CIMA LABS INC. By: ---------------------------- Title: ------------------------- 2 Exhibit 4.3 ANNEX I TERMS AND CONDITIONS FOR PURCHASE OF SHARES 1. AUTHORIZATION AND SALE OF THE SHARES. Subject to the terms and conditions of this Agreement, the Company has authorized the sale of the Shares. 2. AGREEMENT TO SELL AND PURCHASE THE SHARES; SUBSCRIPTION DATE. 2.1 At the Closing (as defined in Section 3), the Company will sell to the Investor, and the Investor will purchase from the Company, upon the terms and conditions hereinafter set forth, the number of Shares set forth on the signature page to which these Terms and Conditions for Purchase of Shares are attached as Annex I (the "Signature Page") at the purchase price set forth on such Signature Page. 2.2 The Company proposes to enter into this same form of Stock Purchase Agreement with certain other investors (the "Other Investors") and expects to complete sales of Shares to them. (The Investor and the Other Investors are hereinafter sometimes collectively referred to as the "Investors," and this Agreement and the Stock Purchase Agreements executed by the Other Investors are hereinafter sometimes collectively referred to as the "Agreements.") The Company will accept executed Agreements from Investors for the purchase of Shares commencing upon the date on which the Company provides the Investors with the proposed purchase price per Share and concluding upon the date (the "Subscription Date") on which the Company has (i) executed Agreements with Investors for the purchase of Shares in the aggregate amount of at least $10,000,000 and (ii) notified Deutsche Bank Securities, Inc. (in its capacity as Placement Agent for the Shares, the "Placement Agent") in writing that it is no longer accepting Agreements from Investors for the purchase of Shares. 2.3 Investor acknowledges that the Company intends to pay the Placement Agent a fee in respect of the sale of Shares to the Investor. 3. DELIVERY OF THE SHARES AT CLOSING. The completion of the purchase and sale of the Shares (the "Closing") shall occur not later than March 17, 2000 at a place and time (the "Closing Date") to be specified by the Company and the Placement Agent, and of which the Investors will be notified in not less than two business days in advance by the Placement Agent. At the Closing, after receipt of payment therefor, the Company shall arrange delivery to the Investor of one or more stock certificates representing the number of Shares set forth on the signature page hereto, each such certificate to be registered in the name of the Investor or, if so indicated on the Stock Certificate Questionnaire attached hereto as Exhibit A, in the name of a nominee designated by the Investor. The Company's obligation to issue the Shares to the Investor shall be subject to the following conditions, any one or more of which may be waived by the Company: (a) receipt by the Company of the purchase price for the Shares being purchased hereunder as set forth on the Signature Page hereto; (b) completion of purchases and sales under the Agreements with the Other Investors; and (c) the accuracy in all material respects of the representations and warranties 1 3 made by the Investors and the fulfillment in all material respects of those undertakings of the Investors to be fulfilled prior to the Closing. The Investor's obligation to purchase the Shares shall be subject to the following conditions, any one or more of which may be waived by the Investor: (a) Investors shall have executed Agreements for the purchase of Shares in the aggregate amount of at least $10,000,000; (b) the satisfaction of all of the conditions set forth in the Engagement Letter between the Company and the Placement Agent; (c) the Closing of the purchase and sale of the Shares shall occur on or before March 17, 2000; (d) the representations and warranties made by the Company in this Agreement shall be accurate in all material respects and the undertakings of the Company shall have been fulfilled in all material respects on or before the Closing; and (e) the Company shall have delivered to the Investor a certificate executed by the chairman of the board or president and the chief financial or accounting officer of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Investor, to the effect that the representations and warranties of the Company set forth in Section 4 hereof are true and correct in all material respects as of the date of this Agreement and as of the Closing Date, and that the Company has complied with all the agreements and satisfied all the conditions in this Agreement on its part to be performed or satisfied on or before the Closing Date Subject to clauses (a) through (e) above, the Investor's obligations are expressly not conditioned on the purchase by any or all of the other Investors of the Shares that they have agreed to purchase from the Company. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents and warrants to, and covenants with, the Investor, as follows (which representations and warranties shall be deemed to apply, where appropriate, to each subsidiary of the Company): 4.1 ORGANIZATION. The Company is duly incorporated and validly existing in good standing under the laws of the jurisdiction of its organization. The Company has full power and authority to own, lease, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a material adverse effect upon the business affairs and prospects, condition (financial or otherwise), properties, assets or operations of the Company ("Material Adverse Effect"), and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. 2 4 4.2 DUE AUTHORIZATION. The Company has all requisite power and authority to execute, deliver and perform its obligations under the Agreements, and the Agreements have been duly authorized and validly executed and delivered by the Company and constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 NON-CONTRAVENTION. The execution, delivery and performance of the Agreements, the issuance and sale of the Shares to be sold by the Company under the Agreements, the fulfillment of the terms of the Agreements and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action and will not (A) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, or any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company is a party or by which it or its property is bound, where such conflict, violation or default is likely to result in a Material Adverse Effect, (ii) the charter, by-laws or other organizational documents of the Company, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority binding upon the Company or its property, where such conflict, violation or default is likely to result in a Material Adverse Effect, or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which it is bound or to which any of the property or assets of the Company is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States is required for the execution and delivery of the Agreements and the valid issuance and sale of the Shares to be sold pursuant to the Agreements, other than such as have been made or obtained, and except for any securities filings required to be made under federal or state securities laws. 4.4 CAPITALIZATION. The Company has the authority to issue 20,000,000 shares of Common Stock, and 5,000,000 shares of preferred stock, $.01 par value (the "Preferred Stock"). As of March 9, 2000, 9,714,263 shares of Common Stock were issued and outstanding and no shares of Preferred Stock were issued and outstanding. The Company has not issued any capital stock since September 30, 1999 other than pursuant to employee benefit plans disclosed in the Company's SEC Documents (as defined herein). The Shares to be sold pursuant to the Agreements have been duly authorized, and when issued and paid for in accordance with the terms of the Agreements, will be duly and validly issued, fully paid and nonassessable and free and clear of all pledges, liens and encumbrances. The certificates evidencing the Shares are in due and proper form under applicable state law. The outstanding shares of capital stock of the Company 3 5 have been duly and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as described above , there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party and relating to the issuance or sale of any capital stock of the Company, any such convertible or exchangeable securities or any such rights, warrants or options. Without limiting the foregoing, no preemptive right, co-sale right, registration right, right of first refusal or other similar right exists with respect to the issuance and sale of the Shares. Except as described herein, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party. No further approval or authority of the shareholders or the Board of Directors of the Company will be required for the issuance and sale of the Shares to be sold by the Company as contemplated in this Agreement. No shareholder of the Company has any right (other than any right that has been waived or has expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement (as hereinafter defined)) to require the Company to register the sale of any securities owned by such holder in such Registration Statement. Subject to the accuracy of the Investor's representations and warranties in Section 5 of this Agreement, the offer, sale, and issuance of the Shares in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and from the registration or qualification requirements of the laws of any applicable state or United States jurisdiction. 4.5 LEGAL PROCEEDINGS. There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company which, singly or in the aggregate, might result in any Material Adverse Effect or which might materially and adversely affect the consummation of this Agreement, nor, to the best knowledge of the Company, is there any reasonable basis therefor. The Company is not in default with respect to any judgment, order or decree of any court or governmental agency or instrumentality which, singly or in the aggregate, would have a material adverse effect on the assets, properties or business of the Company. 4.6 NO VIOLATIONS. The Company is not in violation of its charter, bylaws or other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company, which violation, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, or in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any bond, debenture, note, loan agreement or any other evidence of indebtedness in any indenture, mortgage, deed of trust, lease, sublease, voting agreement, voting trust or any other material agreement or instrument to which the Company is a party or by which the Company is bound or by which the property or assets of the Company is bound, which would be reasonably likely to have a Material Adverse Effect. 4 6 4.7 GOVERNMENTAL PERMITS, ETC. With the exception of the matters which are dealt with separately in Sections 4.1, 4.12, and 4.13, the Company possesses and is operating in compliance with all necessary franchises, licenses, certificates, consents, authorities, approvals and permits and other authorizations from any foreign, federal, state or local government or governmental agency, department or body that are currently necessary for the operation of the business of the Company as currently conducted, except where the failure to currently possess could not reasonably be expected to have a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such permit or any circumstance which would lead it to believe that such proceedings are reasonably likely, which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would be expected to have a Materially Adverse Effect. 4.8 INTELLECTUAL PROPERTY. (A) The Company has ownership or license or legal right to use all patent, patent applications, inventions, know-how, copyright, trade secret, trademark, trade names, applications for registration of trademarks, service marks, service mark applications, licenses, customer lists, designs, manufacturing or other processes, formulae, computer software, systems, data compilation, research results or other proprietary rights used in the business of the Company as now conducted and as proposed to be conducted and material to the Company (collectively, "Intellectual Property") other than Intellectual Property generally available on commercially reasonable terms from other sources. All of such patents, trademarks and registered copyrights have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices of other jurisdictions and have been maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and all such jurisdictions. (B) All material licenses or other material agreements under which (i) the Company is granted rights in Intellectual Property, other than Intellectual Property generally available on commercially reasonable terms from other sources, and (ii) the Company has granted rights to others in Intellectual Property owned or licensed by the Company, are in full force and effect and, to the knowledge of the Company, there is no material default by the Company thereto. (C) The Company believes it has taken all steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of all material copyright, trade secret and other proprietary rights with respect to its products and technology. (D) The Company does not have any knowledge of, and the Company has not given or received any notice of, any pending conflicts with or infringement of the rights of others with respect to any Intellectual Property or with respect to any license of Intellectual Property which are material to the business of the Company. (E) To the knowledge of the Company, the present business, activities and products of the Company do not infringe any intellectual property of any other person, No 5 7 action, suit, arbitration, or legal, administrative or other proceeding, or investigation is pending, or, to the best knowledge of the Company, threatened, which involves any Intellectual Property, nor, to the best knowledge of the Company, is there any reasonable basis therefor. To the Company's knowledge, there exists no unexpired patent or patent application which includes claims that would be infringed by or otherwise have a Material Adverse Effect on the Company. To the knowledge of the Company, the Company is not making unauthorized use of any confidential information or trade secrets of any person. Neither the Company nor, to the knowledge of the Company, any of its employees have any agreements or arrangements with any persons other than the Company related to confidential information or trade secrets of such persons or restricting any such employee's engagement in business activities of any nature. To the Company's knowledge, the activities of the Company or any of its employees on behalf of the Company do not violate any such agreements or arrangements known to the Company which any such employees have with other persons, if any. (F) The Company is not subject to any judgment, order, writ, injunction or decree of any court or any Federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator, and has not entered into or is not a party to any contract which restricts or impairs the use of any such Intellectual Property in a manner which would have a material adverse effect on the use of any of the Intellectual Property. (G) To the best knowledge of the Company, no Intellectual Property used by the Company, and no services or products sold by the Company, conflict with or infringe upon any proprietary rights of any third party. The Company has not received written notice of any pending conflict with or infringement upon such third-party proprietary rights. (H) The Company has not entered into any consent, indemnification, forbearance to sue or settlement agreement with respect to Intellectual Property other than in the ordinary course of business. No claims have been asserted by any person with respect to the validity of the Company's ownership or right to use the Intellectual Property and, to the best knowledge of the Company, there is no reasonable basis for any such claim to be successful. (I) The Intellectual Property that are material to the business of the Company are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or cancelled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and are in good standing. (J) To the best of its knowledge, the Company has complied, in all material respects, with its obligations relating to the protection of the Intellectual Property which is material to the business of the Company. (K) To the best knowledge of the Company, no person is infringing on or violating the Intellectual Property. 4.9 SECURITY MEASURES. 6 8 The Company takes security measures designed to enable the Company to assert trade secret protection in its non-patented technology. 4.10 FINANCIAL STATEMENTS. The financial statements of the Company and the related notes contained in the Company's SEC Documents present fairly, in accordance with generally accepted accounting principles, the financial position of the Company as of the dates indicated, and the results of its operations and cash flows for the periods therein specified. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified. 4.11 NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, there has not been (i) any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, or in the earnings, assets, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business; (ii) any transactions entered into by the Company other than those in the ordinary course of business, which are material with respect to the Company; (iii) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company; or (iv) any loss or damage (whether or not insured) to the physical property or assets of the Company which has been sustained which has a Material Adverse Effect. 4.12 NASDAQ COMPLIANCE. The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market (the "Nasdaq Stock Market"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq Stock Market. The Company is not aware of and has not received any notice of, any efforts or actions to terminate the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq Stock Market. The Company shall comply with all requirements of the National Association of Securities Dealers, Inc. with respect to the issuance of the Shares and the listing thereof on the Nasdaq Stock Market at all times during the period beginning on the date hereof and ending two years from the date of effectiveness of the Registration Statement. 4.13 REPORTING STATUS. The Company has filed in a timely manner all documents that the Company was required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the 12 months preceding the date of this Agreement. The following documents (the "Company's SEC Documents") complied in all material respects with the SEC's requirements as of their respective filing dates, and the information contained therein as of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under where they were made not misleading: (A) The Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "10-K"); 7 9 (B) The Company's Quarterly Reports on Form 10-Q for each of the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999; (C) The Company's proxy statement for its 1999 Annual Meeting of Shareholders; and (D) All other documents, if any, filed by the Company with the Securities and Exchange Commission since December 31, 1998 pursuant to the reporting requirements of the Exchange Act. 4.14 NO ACTION. The Company shall take no action or authorize any action to be taken on its behalf, including in connection with the offering and sale of the Shares to other investors or the offer or sale of additional securities of the Company following the Closing, that would materially frustrate the consummation of the transactions contemplated herein. 4.15 FOREIGN CORRUPT PRACTICES. Neither the Company nor, to the knowledge of the Company, any agent or other person acting on behalf of the Company, have (i) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or made by any person acting on its behalf and of which the Company is aware in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. 4.16 NO MANIPULATION OF STOCK. The Company has not taken and will not, in violation of applicable law, take, any action outside the ordinary course of business designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. 4.17 ACCOUNTANTS. Ernst & Young LLP, who the Company expects will express their opinion with respect to the financial statements to be incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999 into the Registration Statement (as defined below) and the Prospectus which forms a part thereof, are independent accountants as required by the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). 4.18 CONTRACTS. The contracts described in the SEC Documents or incorporated by reference therein are in full force and effect on the date hereof, except for contracts the termination or expiration of which would not, singly or in the aggregate, have a Material Adverse Effect. Neither the Company nor, to the Company's knowledge, any other party to such contracts is in breach of or default under any of such contracts which would have a Material Adverse Effect. 4.19 ENVIRONMENTAL. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect, 8 10 (a) the Company is in compliance with all applicable Environmental Laws (as defined below); (b) the Company has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with the requirements of such permits authorizations and approvals; (c) there are no pending or, to the best knowledge of the Company, threatened Environmental Claims against the Company; and (d) under applicable law, to the best knowledge of the Company, there are no circumstances with respect to any property or operations of the Company that are reasonably likely to form the basis of an Environmental Claim against the Company. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any United States (or other applicable jurisdiction's) Federal, state, local or municipal statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or any chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. 4.20 LABOR MATTERS. No labor dispute with the employees of the Company exists or, to the best knowledge of the Company, is imminent. 4.21 COMPLIANCE. The Company has conducted and is conducting its business in compliance with all applicable Federal, state, local and foreign statutes, laws, rules, regulations, ordinances, codes, decisions, decrees, directives and orders, except where the failure to do so would not, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or on the earnings, assets, business affairs or business prospects of the Company. 4.22 PROPERTIES. The Company has good and marketable title to its properties, free and clear of all material security interests, mortgages, pledges, liens, charges, encumbrances and claims of record except as described in the SEC Documents. The properties of the Company are, in the aggregate, in good repair (reasonable wear and tear excepted), and suitable for their respective uses. Any real property held under lease by the Company is held under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the conduct of the business of the Company. The Company owns or leases all such properties as are necessary to its business or operations as now conducted. 4.23 TAXES. The Company has filed all material tax returns required to be filed, which returns are true and correct in all material respects, and the Company is not in default in the payment of any taxes, including penalties and interest, assessments, fees and other charges, shown thereon due or otherwise assessed, other than those being contested in good faith and for which 9 11 adequate reserves have been provided or those currently payable without interest which were payable pursuant to said returns or any assessments with respect thereto. 4.24 TRANSFER TAXES. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares to be sold to the Investor hereunder will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with. 4.25 CONTRIBUTIONS. To the best of the Company's knowledge, neither the Company nor any employee or agent of the Company has made any payment of funds of the Company or received or retained any funds in violation of any law, rule or regulation. 4.26 USE OF PROCEEDS; INVESTMENT COMPANY. The Company intends to use the proceeds from the sale of the Shares for working capital and other general corporate purposes. The Company is not now, and after the sale of the Shares under this Agreement and under all other agreements and the application of the net proceeds from the sale of the Shares described in the proceeding sentence will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.27 PRIOR OFFERINGS. All offers and sales of capital stock of the Company before the date of this Agreement were at all relevant times duly registered or exempt from the registration requirements of the Securities Act and were duly registered or subject to an available exemption from the registration requirements of the applicable state securities or Blue Sky laws. 4.28 INSURANCE. The Company maintains and will continue to maintain insurance of the types and in the amounts that the Company reasonably believes is adequate for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect. 4.29 OTHER GOVERNMENTAL PROCEEDINGS. To the Company's knowledge, there are no rulemaking or similar proceedings before The United States Food and Drug Administration or comparable Federal, state, local or foreign government bodies that involve or affect the Company, which, if the subject of an action unfavorable to the Company, could involve a prospective material adverse change in or effect on the condition, financial or otherwise, or in the earnings, assets, business affairs or business prospects of the Company. 4.30 NON-COMPETITION AGREEMENTS. To the knowledge of the Company, any full-time employee who has entered into any non-competition, non-disclosure, confidentiality or other similar agreement with any party other than the Company is neither in violation of nor is expected to be in violation of that agreement as a result of the business currently conducted or expected to be conducted by the Company or such person's performance of his or her obligations to the Company. The Company has not received written notice that any consultant or scientific advisor of the Company is in violation of any non-competition, non-disclosure, confidentiality or 10 12 similar agreement. 4.31 LEGAL OPINION. The Company shall cause to be delivered to the Investors and the Placement Agent by counsel to the Company a customary legal opinion pertaining to the availability of an exemption from the registration provisions of the Securities Act and to such counsel's knowledge as to any misstatements or omissions in the Company's SEC Documents. 4.32 OFFERING MATERIALS. Other than the SEC Documents (the "Offering Materials"), the Company has not distributed and will not distribute prior to the Closing Date any offering material in connection with the offering and sale of the Shares. The Company has not in the past nor will it hereafter take any action independent of the Placement Agent to sell, offer for sale or solicit offers to buy any securities of the Company which would bring the offer, issuance or sale of the Shares, as contemplated by this Agreement, within the provisions of Section 5 of the Securities Act, unless such offer, issuance or sale was or shall be within the exemptions of Section 4 of the Securities Act. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR. 5.1 The Investor represents and warrants to, and covenants with, the Company that: (i) the Investor is an "accredited investor" as defined in Regulation D under the Securities Act and the Investor is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Shares, including investments in securities issued by the Company and investments in comparable companies, and has requested, received, reviewed and considered all information it deemed relevant in making an informed decision to purchase the Shares; (ii) the Investor is acquiring the number of Shares set forth on the Signature Page hereto in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares other than as contemplated in Section 7 of this Agreement; (iii) the Investor will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; (iv) the Investor has answered all questions on the Signature Page hereto and the Investor Questionnaire attached hereto as Exhibit B for use in preparation of the Registration Statement and the answers thereto are true and correct as of the date hereof and will be true and correct as of the Closing Date; (v) the Investor will notify the Company immediately of any change in any of such information until such time as the Investor has sold all of its Shares or until the Company is no longer required to keep the Registration Statement effective; and (vi) the Investor has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, relied only upon the Company Information provided to the Investor by the Company in contemplation of this offering and the representations and warranties of the Company contained herein. Investor understands that its acquisition of the Shares has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Investor's investment intent as expressed herein. Investor has completed 11 13 or caused to be completed and delivered to the Company the Investor Questionnaire attached hereto Exhibit B, which questionnaire is true and correct in all material respects. 5.2 The Investor acknowledges, represents and agrees that no action has been or will be taken in any jurisdiction outside the United States by the Company or the Placement Agent that would permit an offering of the Shares, or possession or distribution of offering materials in connection with the issue of the Shares, in any jurisdiction outside the United States where action for that purpose is required. Each Investor outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense. The Placement Agent is not authorized to make any representation or use any information in connection with the issue, placement, purchase and sale of the Shares. 5.3 The Investor hereby covenants with the Company not to make any sale of the Shares without satisfying the requirements of the Securities Act and the Rules and Regulations thereunder, including in the event of resale under the Registration Statement, the prospectus delivery requirement under the Securities Act to be satisfied, and the Investor acknowledges that the certificates evidencing the Shares will be imprinted with a legend that prohibits their transfer except in accordance therewith. The Investor acknowledges that there may occasionally be times when the Company, based on the advice of its counsel, determines that it must suspend the use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the SEC or until the Company has amended or supplemented such Prospectus. 5.4 The Investor further represents and warrants to, and covenants with, the Company that (i) the Investor has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) this Agreement constitutes a valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Investors herein may be legally unenforceable. 5.5 The Investor understands that nothing in this Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Shares constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares. 6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all covenants, agreements, representations and warranties made by the Company and the Investor herein 12 14 shall survive the execution of this Agreement, the delivery to the Investor of the Shares being purchased and the payment therefor. 7. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT. 7.1 REGISTRATION PROCEDURES AND EXPENSES. The Company shall: (A) subject to receipt of necessary information from the Investors, prepare and file with the SEC, as soon as practicable, but in no event later than thirty (30) days after the Closing Date, a registration statement on Form S-3 (or, if the Company is ineligible to use Form S-3, then on Form S-1) (the "Registration Statement") to enable the resale of the Shares by the Investors from time to time through the automated quotation system of the Nasdaq Stock Market (or the facilities of any national securities exchange on which the Company's Common Stock is then traded) or in privately-negotiated transactions; (B) use its reasonable efforts, subject to receipt of necessary information from the Investors, to cause the Registration Statement to become effective as soon as practicable and within ninety (90) days after the Registration Statement is filed by the Company. (C) use its reasonable efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement current and effective for a period not exceeding, with respect to each Investor's Shares purchased hereunder, the earlier of (i) the second anniversary of the Closing Date, (ii) the date on which the Investor may sell all Shares then held by the Investor without registration or without regard to any volume limitations by reason of Rule 144(k) of the Securities Act or (iii) such time as all Shares purchased by such Investor in this Offering have been sold pursuant to a registration statement. (D) furnish to the Placement Agent and to the Investor with respect to the Shares registered under the Registration Statement such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the Investor, provided, however, that the obligation of the Company to deliver copies of Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses; (E) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investor, provided, however, that the 13 15 Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (F) during the period when copies of the Prospectus are required to be delivered under the Securities Act or the Exchange Act, will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time periods required by the Exchange Act and the rules and regulations promulgated thereunder; (G) bear all expenses in connection with the procedures in paragraph (a) through (f) of this Section 7.1 and the registration of the Shares pursuant to the Registration Statement; and (H) advise the Investors, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation of any proceeding for that purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 7.1 that the Investor shall furnish to the Company such information regarding itself, the Shares to be sold by Investor, and the intended method of disposition of such securities as shall be required to effect the registration of the Shares. The Company understands that the Investor disclaims being an underwriter, but the Investor being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder, provided, however, that if the Company receives notification from the SEC that the Investor is deemed an underwriter, then the period by which the Company is obligated to submit an acceleration request to the SEC shall be extended to the earlier of (i) the 90th day after such SEC notification, or (ii) 120 days after the initial filing of the Registration Statement with the SEC. 7.2 TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION. The Investor agrees that it will not effect any Disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 7.1 or as otherwise permitted by law, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution. (A) Except in the event that paragraph (c) below applies, the Company shall: (i) if deemed necessary by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required 14 16 to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to Investors of the Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the Company has complied with its obligations in Section 7.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Investor to that effect, will use its reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become effective). (B) Subject to paragraph (c) below, in the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall deliver a certificate in writing to the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor will refrain from selling any Shares pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Company will use its reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable within 20 business days after delivery of a Suspension Notice to the Investors. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 7.2(b). 15 17 (C) Notwithstanding the foregoing paragraphs of this Section 7.2, the Investor shall not be prohibited from selling Shares under the Registration Statement as a result of Suspensions on more than three occasions of not more than 30 days each in any twelve month period, unless, in the good faith judgment of the Company's Board of Directors, upon advice of counsel, the sale of Shares under the Registration Statement in reliance on this paragraph 7.2(d) would be reasonably likely to cause a violation of the Securities Act or the Exchange Act and result in potential liability to the Company. (D) Provided that a Suspension is not then in effect the Investor may sell Shares under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Shares. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current Prospectuses to the Investor and to supply copies to any other parties requiring such Prospectuses. (E) In the event of a sale of Shares by the Investor, the Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit C, so that the shares may be properly transferred. 7.3 DELAY IN EFFECTIVENESS OF REGISTRATION. In the event that the Registration Statement is not declared effective within ninety (90) days after the date of filing of the Registration Statement, the Company shall pay to each Investor liquidated damages in an amount equal to 0.25% of the number of Shares purchased by Investor pursuant to this Agreement for each week after the filing date of the Registration Statement that the Registration Statement is not declared effective. Such liquidated damages shall be paid through the issuance of additional Shares at such time as the Registration Statement is declared effective. Such additional Shares shall also be registered within thirty (30) days of issuance under the terms and conditions described in Sections 7.1.1(a) - (g) hereof. 7.4 INDEMNIFICATION. For the purpose of this Section 7.4: (A) the term "Selling Stockholder" shall include the Investor and each person, if any, who controls the Investor within the meaning of the Securities Act or any affiliate of such Investor; (B) the term "Registration Statement" shall include any final Prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1; and (C) the term "untrue statement" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (I) The Company agrees to indemnify and hold harmless each Selling Stockholder from and against any losses, claims, damages, liabilities or 16 18 expenses, joint or several, to which such Selling Stockholder may become subject (under the Securities Act the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required (the "Prospectus"), or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them, in light of the circumstances under which they were made, not misleading, or arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company contained in this Agreement, or any failure of the Company to perform its obligations under this Agreement or under law, and will reimburse each Investor and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by such Investor or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action and the Company will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder specifically for use in preparation of the Registration Statement or the failure of such Selling Stockholder to comply with its covenants and agreements contained in Sections 5.1, 5.2, 5.3 or 7.2 hereof or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor. (II) The Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or 17 19 otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any failure to comply with the covenants and agreements contained in Section 5.1, 5.2, 5.3 or 7.2 hereof, or (ii) any untrue statement of a material fact contained in the Registration Statement but only to the extent that such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Investor specifically for use in preparation of the Registration Statement, and the Investor will reimburse the Company (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Investor shall not be liable for any such untrue or alleged untrue statement or omission or alleged omission of which the Investor has delivered to the Company in writing a correction before the occurrence of the transaction from which such loss was incurred, and the Investor will reimburse the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. (III) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.4, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 7.4 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 7.4. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the reasonable opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be 18 20 responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. Notwithstanding the provisions of this Section 7.4, Investor shall not be liable for any indemnification obligation under this Agreement in excess of the amount of gross proceeds received by the Investor from the sale of the Shares. (IV) If the indemnification provided for in this Section 7.4 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to (a) reflect the relative benefits received by the Company and the Investor from the placement of Common Stock or if the allocation provided by clause (a) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (a) above but the relative fault of the Company and the Investor in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company on the one hand and each Investor on the other shall be deemed to be in the same proportion as the amount paid by such Investor to the Company pursuant to this Agreement for the Shares purchased by such Investor that were sold pursuant to the Registration Statement bears to the difference (the "Difference") between the amount such Investor paid for the Shares that were sold pursuant to the Registration Statement and the amount received by such Investor from such sale. The relative fault shall be determined by reference to, among other things, , whether the untrue statement or the omission or alleged omission to state a mutual fact or the inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company on the one hand or an Investor on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The provisions set forth in Section 7.4 with respect to the notice of the threat or commencement of any threat or action shall apply if a claim for contribution is to be made under this Section; provided, however, that no additional notice shall be required with respect to any threat or action for which 19 21 notice has been given under Section 7.4 for purposes of indemnification. The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Investors were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include, subject to the limitations set forth in this Section 7.4, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Investor shall be required to contribute any amount in excess of the amount by which the Difference exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investors' obligations in this subsection to contribute are several in proportion to their sales of Shares to which such loss relates and not joint. (V) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 7.4, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 7.4 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Act and the Exchange Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 7.4, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 7.4 and further agree not to attempt to assert any such defense. 7.5 TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares upon the passage of two years from the effective date of the Registration Statement or when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Shares or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. 7.6 INFORMATION AVAILABLE. So long as the Registration Statement is effective covering the resale of Shares owned by the Investor, the Company will furnish to the Investor: 20 22 (A) as soon as practicable after it is available (but in the case of the Company's Annual Report to Shareholders, within 120 days after the end of each fiscal year of the Company), one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with generally accepted accounting principles by a national firm of certified public accountants); (ii) if not included in substance in the Annual Report to Stockholders, its Annual Report on Form 10-K (the foregoing, in each case, excluding exhibits); (iii) if not included in substance in its Quarterly Reports to Shareholders, its quarterly reports on Form 10-Q; and (iv) a full copy of the particular Registration Statement covering the Shares (the foregoing, in each case, excluding exhibits); (B) upon the reasonable request of the Investor, all exhibits excluded by the parenthetical to subparagraphs (a)(ii), (iii) and (iv) of this Section 7.6 as filed with the SEC and all other information that is made available to shareholders; and (C) upon the reasonable request of the Investor, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Company, upon the reasonable request of the Investor, will meet with the Investor or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Shares and will otherwise cooperate with any Investor conducting an investigation for the purpose of reducing or eliminating such Investor's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with any Investor until and unless the Investor shall have entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company with the Company with respect thereto. 7.7 RULE 144 INFORMATION. For two years after the date of this Agreement, the Company shall file all reports required to be filed by it under the Securities Act, the Rules and Regulations and the Exchange Act and shall take such further action to the extent required to enable the Investors to sell the Shares pursuant to Rule 144 under the Securities Act (as such rule may be amended from time to time). 7.8 BROKER'S FEE. The Investors acknowledge that the Company intends to pay to Deutsche Banc Alex. Brown, the placement agent, a fee in respect of the sale of the Shares to the Investors. Each of the parties to this Agreement hereby represents that, on the basis of any actions and agreements by it, there are no other brokers or finders entitled to compensation in connection with the sale of the Shares to the Investors. 8. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight 21 23 carrier, one (1) business day after so mailed, (iii) if delivered by International Federal Express, two (2) business days after so mailed, (iv) if delivered by facsimile, upon electric confirmation of receipt and shall be delivered as addressed as follows: (A) if to the Company, to: CIMA Labs Inc. 10000 Valley View Road Eden Prairie, Minnesota 55344 Attn: Chief Executive Officer Phone: 612-947-8700 Telecopy: 612-947-8770 (B) with a copy mailed to: Faegre & Benson LLP 2200 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attn: Gale R. Mellum Phone: 612-336-3139 Telecopy: 612-336-3026 (C) if to the Investor, at its address on the Signature Page hereto, or at such other address or addresses as may have been furnished to the Company in writing. 9. CHANGES. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Investor. 10. TERMINATION. This Agreement may be terminated as to any Investor, at the option of such Investor, if the Closing has not occurred on or before March 17, 2000. 11. HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 12. SEVERABILITY. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 13. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without giving effect to the principles of conflicts of law. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute 22 24 but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 15. CONFIDENTIAL DISCLOSURE AGREEMENT. Notwithstanding any provision of this Agreement to the contrary, any confidential disclosure agreement previously executed by the Company and the Investor in connection with the transactions contemplated by this Agreement shall remain in full force and effect in accordance with its terms following the execution of this Agreement and the consummation of the transactions contemplated hereby. 23 25 EXHIBIT 4.3 EXHIBIT A CIMA LABS INC. STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 5 of the Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will -------------------------- appear on your stock certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the Investor and the registered holder listed in response to item 1 -------------------------- above: 3. The mailing address of the registered holder listed in response to item 1 above: -------------------------- 4. The Social Security Number or Tax Identification Number of the registered holder -------------------------- listed in the response to item 1 above: A-1 26 EXHIBIT B CIMA LABS INC. INVESTOR QUESTIONNAIRE (ALL INFORMATION WILL BE TREATED CONFIDENTIALLY) To: CIMA Labs Inc. This Investor Questionnaire ("Questionnaire") must be completed by each potential investor in connection with the offer and sale of the shares of the common stock, par value $0.01 per share, of CIMA Labs Inc. (the "Securities"). The Securities are being offered and sold by [Name of Company] (the "Corporation") without registration under the Securities Act of 1933, as amended (the "Act"), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Corporation must determine that a potential investor meets certain suitability requirements before offering or selling Securities to such investor. The purpose of this Questionnaire is to assure the Corporation that each investor will meet the applicable suitability requirements. The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemption from registration is based in part on the information herein supplied. This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. Your answers will be kept strictly confidential. However, by signing this Questionnaire you will be authorizing the Corporation to provide a completed copy of this Questionnaire to such parties as the Corporation deems appropriate in order to ensure that the offer and sale of the Securities will not result in a violation of the Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Securities. All potential investors must answer all applicable questions and complete, date and sign this Questionnaire. Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item. A. BACKGROUND INFORMATION Name: ----------------------------------------------------------------------------------------------------------- Business Address: ---------------------------------------------------------------------------------------------- (Number and Street) - ---------------------------------------------------------------------------------------------------------------- (City) (State) (Zip Code) Telephone Number: ( ) ---------------------------------------------------------------------------------- Residence Address: ---------------------------------------------------------------------------------------------- (Number and Street) - ---------------------------------------------------------------------------------------------------------------- (City) (State) (Zip Code) Telephone Number: ( ) ---------------------------------------------------------------------------------- If an individual: Age: Citizenship: Where registered to vote: ------ ---------- -------------------- If a corporation, partnership, limited liability company, trust or other entity: Type of entity: ------------------------------------------------------------------------------------------------- State of formation: Date of formation: -------------- ---------------------------- Social Security or Taxpayer Identification No. ------------------------------------------------------------------
B-1 27 Send all correspondence to (check one): Residence Address Business Address ---- ----
B. STATUS AS ACCREDITED INVESTOR The undersigned is an "accredited investor" as such term is defined in Regulation D under the Act, as at the time of the sale of the Securities the undersigned falls within one or more of the following categories (Please initial one or more, as applicable):(1) (1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Corporation Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a Small Business Investment Corporation licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with the investment decisions made solely by persons that are accredited investors;1 (2) a private business development company as defined in Section 202(a)(22) of the Investment Adviser Act of 1940; (3) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of $5,000,000; (4) a natural person whose individual net worth, or joint net worth with that person's spouse, at the time of such person's purchase of the Securities exceeds $1,000,000; (5) a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; (6) a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and (7) an entity in which all of the equity owners are accredited investors (as defined above). C. REPRESENTATIONS The undersigned hereby represents and warrants to the Corporation as follows: - -------- (1) As used in this Questionnaire, the term "net worth" means the excess of total assets over total liabilities. In computing net worth for the purpose of subsection (4), the principal residence of the investor must be valued at cost, including cost of improvements, or at recently appraised value by an institutional lender making a secured loan, net of encumbrances. In determining income, the investor should add to the investor's adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depiction, contributions to an IRA or KEOGH retirement plan, alimony payments, and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income. B-2 28 1. Any purchase of the Securities would be solely for the account of the undersigned and not for the account of any other person or with a view to any resale, fractionalization, division, or distribution thereof. 2. The information contained herein is complete and accurate and may be relied upon by the Corporation, and the undersigned will notify the Corporation immediately of any material change in any of such information occurring prior to the closing, if any, with respect to the purchase of Securities by the undersigned or any co-purchaser. 3. There are no suits, pending litigation, or claims against the undersigned that could materially affect the net worth of the undersigned as reported in this Questionnaire. 4. The undersigned acknowledges that there may occasionally be times when the Corporation, based on the advice of its counsel, determines that it must suspend the use of the Prospectus forming a part of the Registration Statement (as such terms are defined in the Stock Purchase Agreement to which this Questionnaire is attached) until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the Securities and Exchange Commission or until the Corporation has amended or supplemented such Prospectus. The undersigned is aware that, in such event, the Securities will not be subject to ready liquidation, and that any Securities purchased by the undersigned would have to be held during such suspension. The overall commitment of the undersigned to investments which are not readily marketable is not excessive in view of the undersigned's net worth and financial circumstances, and any purchase of the Securities will not cause such commitment to become excessive. The undersigned is able to bear the economic risk of an investment in the Securities. 5. In addition to reviewing the Corporation's SEC Documents, the undersigned has carefully considered the potential risks relating to the Corporation and a purchase of the Securities, and fully understands that the Securities are speculative investments which involve a high degree of risk of loss of the undersigned's entire investment. Among others, the undersigned has carefully considered each of the risks described under the heading "Risk Factors" in the Corporation's most recent annual report on Form 10-K. IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this day of , 2000, and declares under oath that it is truthful and correct. Print Name By: ----------------------------------------- Signature Title: -------------------------------------- (required for any purchaser that is a corporation, partnership, trust or other entity) B-3 29 EXHIBIT C CIMA LABS INC. CERTIFICATE OF SUBSEQUENT SALE ChaseMellon Shareholder Services RE: Sale of Shares of Common Stock of CIMA Labs Inc. (the "Company") pursuant to the Company's Prospectus dated , 2000 (the "Prospectus") Dear Sir/Madam: The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Shareholders in the Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all applicable securities laws, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Shareholder (the beneficial owner): --------------------------- Record Holder (e.g., if held in name of nominee): --------------------- Restricted Stock Certificate No.(s): ---------------------------------- Number of Shares Sold: ------------------------------------------------ Date of Sale: --------------------------------------------------------- In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate. Very truly yours, By: ---------------------------- Print Name: -------------------- Title: ------------------------- Dated: ---------------------------- cc: Investor Relations CIMA Labs Inc. 10000 Valley View Road Eden Prairie, Minnesota 55344 C-1 EX-10.19 3 LOAN AGREEMENT 1 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 DATE 15 December 1999 ASTRA AB - and - CIMA LABORATORIES, INC. ------------------------------------------- LOAN AGREEMENT ------------------------------------------- 2 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 THIS AGREEMENT is dated December 15, 1999 and made BETWEEN: 1. ASTRA AB, a company established and existing in accordance with the laws of Sweden under no. 556011-7482 whose headquarters is at S-151 85 Sodertalje, Sweden ("Astra"); and 2. CIMA LABORATORIES, INC., a corporation incorporated in the State of Delaware, United States of America under no. 2110839 whose principal place of business is at 10000 Valley View Road, Eden Prairie, Minnesota, USA 55344 ("CIMA"). WHEREAS (A) CIMA owns or has rights to certain oral drug-delivery technology marketed under the trademark OraSolv(R) and related know-how. (B) IPR has an exclusive license to make, have made, use and sell products containing the pharmaceutical drug [...***...] on a worldwide basis. (C) CIMA and IPR entered into a Development and License Option Agreement, dated as of September 10, 1997 (the "Development Agreement"), [...***...] (D) CIMA entered into a License Agreement with IPR dated 28 May 1999 ("the License Agreement") [...***...] (E) CIMA has requested that Astra lend, or procure the loan to CIMA of, the sum of US $3.5 million in order to assist CIMA in improving its operations and to help to assure availability and flow of the product from CIMA to Zeneca Limited (an affiliate of Astra). (F) The first launch of `Zomig' (R)rapimelt took place in Portugal in early September 1999 [...***...] 3 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 IT IS AGREED AS FOLLOWS: 1 Definitions and Interpretation 1.1 Definitions In this Agreement, unless the context otherwise requires: "Anniversary Date" means the date one year after the first Payment Date and the date marking the end of each subsequent one year period; "Banking Day" means a day (other than Saturday or Sunday) on which banks are open for business in London and Minnesota; "Change of Control" means if any person or persons acting in concert (other than the current officers and directors of CIMA), together with Affiliates thereof, shall in the aggregate, directly or indirectly, control or own (beneficially or otherwise) more than 50% of the issued and outstanding voting stock of CIMA. "Date of this Agreement" means the date upon which this Agreement is signed and delivered by the latter of the parties to sign and deliver it; "Default" means any Event of Default or any event or circumstance which would, upon the giving of notice by Astra and/or the expiry of the relevant period and/or the fulfillment of any other condition (in each case as specified in clause 10.1) constitute an Event of Default; "Encumbrance" means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, trust arrangement or security interest of any kind securing any obligation of any person or any other type of preferential arrangement (including without limitation title transfer and/or retention arrangements having a similar effect) but does not include liens arising in the ordinary course of trading by operation of law and not by way of contract; 4 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 "Event of Default" means any of the events or circumstances described in clause 10.1; "Indebtedness" means any obligation for the payment or repayment of money borrowed, whether as principal or as surety and whether present or future, actual or contingent; "Interest Period" means in relation to the Loan the three month period commencing on the Date of this Agreement and each subsequent three month period commencing on the last day of the previous Interest Period provided that, if any Interest Period would otherwise overrun a Payment Date falling during that Interest Period then, in the case of the final Payment Date, such Interest Period shall end on such Payment Date and, in the case of any other Payment Date such Interest Period shall end on and the next Interest Period shall start on that Payment Date; "IPR" means IPR Pharmaceuticals, Inc., a corporation incorporated in Puerto Rico under no. 61,324 whose registered office is at P O Box 1967, Carolina, 00984 Puerto Rico (an Affiliate of Astra); [...***...] "Loan" means the term loan in a principal amount of US Dollars Three Million five hundred thousand (US $3,500,000) to be advanced to CIMA by Astra pursuant to the terms of this Agreement or, as the context requires, the principal amount owing to Astra under this Agreement at any relevant time together with all interest accrued thereon and unpaid for the time being. "Maturity Date" means the date which is the third Anniversary Date; provided, however, that if total royalties payable to CIMA under the License Agreement prior to the third Anniversary Date prior to any withholding thereof by IPR under clause 4.1 or 4.2., are less than an aggregate of $3,500,000, then the Maturity Date shall be extended for 5 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 a period of one year, and the Maturity Date shall thereafter be extended for successive one-year periods until such royalties payable have exceeded $3,500,000 in aggregate; "month" means a period beginning in one calendar month and ending in the next calendar month on the day numerically corresponding to the day of the calendar month on which it started, provided that (i) if the period started on the last Banking Day in a calendar month or if there is no such numerically corresponding day, it shall end on the last Banking Day in such next calendar month and (ii) if such numerically corresponding day is not a Banking Day, the period shall end on the next following Banking Day in the same calendar month but if there is no such Banking Day it shall end on the preceding Banking Day and the expressions "months" and "monthly" shall be construed accordingly; and "OraSolv(R) Technology" means CIMA's effervescent, fast-dissolving, oral drug delivery tablet technology as defined in the License Agreement; "Payment Dates" means each of the dates on which repayment installments are due in respect of the Loan under clause 4.1; "Product" or " `Zomig' rapimelt" shall mean the pharmaceutical dosage form [...***...] "Sale" means the disposal (whether by virtue of one transaction or a series of related transactions) of all or not less than 30% (by book value) of the assets of CIMA; "Taxes" includes all present and future taxes, levies, imposts, duties, fees or charges of whatever nature together with interest thereon and penalties in respect thereof and the expression "Taxation" shall be construed accordingly. 6 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 1.2 Headings Clause headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement. 1.3 Construction of certain terms In this Agreement, unless the context otherwise requires: 1.3.1 references to clazuses, parties, schedules and recitals are to be construed as references to the clauses of, and the parties, schedules and recitals to, this Agreement and references to this Agreement include its schedules; 1.3.2 references to (or to any specified provision of) this Agreement or any other document shall be construed as references to this Agreement, that provision or that document as in force for the time being and as from time to time amended in accordance with the terms thereof, or, as the case may be, with the agreement of the relevant parties; 1.3.3 words importing the plural shall include the singular and vice versa; 1.3.4 references to a time of day are to London time; 1.3.5 references to a person shall be construed as including references to an individual, firm, company, corporation, unincorporated body of persons or any State or any agency thereof; and 1.3.6 references to any enactment shall be deemed to include references to such enactment as re-enacted, amended or extended. 7 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 1.4 Terms defined in the Supply Agreement or the License Agreement shall have the same meaning when used in this Agreement. 2 The Loan 2.1 Astra relying upon each of the representations and warranties in clause 7, shall advance the Loan to CIMA within ten (10) days after the date of this Agreement, upon and subject to the terms of this Agreement. 2.2 Astra shall advance the Loan by crediting CIMA's bank account no. with the sum of US$3,500,000 within (10) days after the Date of this Agreement. Details of such bank account are as follows: [...***...] 3 Interest 3.1 Normal interest rate Interest shall accrue on the Loan in respect of each Interest Period at the rate per annum which is the aggregate of (a) one half of one percent cent, and (b) LIBOR (or, if clause 3.3.1 applies, an alternative rate calculated in accordance with clause 3.3.2). Such interest shall be compounded on the last day of each Interest Period and added to the principal amount of the Loan outstanding at such time. 3.2 Default interest If CIMA fails to pay any sum (including, without limitation, any sum payable pursuant to this clause 3.2) on its due date for payment under this Agreement CIMA shall pay interest on such sum from the due date up to the date of actual payment (as well after as before judgment) at a rate of the aggregate of (a) two percent per annum, and (b) the interest rate in effect from time to time for the Loan pursuant to clause 3.1. 8 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 3.3 Market disruption; non-availability 3.3.1 If and whenever, at any time prior to the commencement of any Interest Period Astra shall have determined, [...***...] 3.3.2 [...***...] 3.4 [...***...] 4 Repayment 4.1 On each date when any royalties fall due from IPR to CIMA under the License Agreement in respect of sales of Zomig Rapimelt, there shall become due and payable from CIMA to Astra such part of the Loan outstanding at that time (including accrued and unpaid interest thereon) as is equal to 50% of the royalty payment then due from IPR to CIMA (or, if less, the total amount of the Loan (including accrued unpaid interest thereon) outstanding at that time). Payment shall be made by CIMA to Astra in accordance with clause 6 and all other relevant provisions of this Agreement. On each Payment Date IPR shall be entitled to withhold up to 50% (except as provided in clause 4.2) of the amount of royalty then due to CIMA (or, if less, the total amount of the Loan (including accrued unpaid interest thereon) outstanding at that time), but only if CIMA has failed to make payment to Astra in whole or in part of the amount due on such Payment Date and only until such amount of principal and interest has been paid by CIMA to Astra. If IPR so agrees with Astra, IPR may apply to such withheld amount by way of set-off in repayment of an equivalent amount of the Loan (including accrued unpaid interest thereon). The License Agreement shall be deemed amended accordingly. 4.2 If and when the Loan becomes repayable in full for any reason, then without prejudice to any other remedies Astra might have, IPR shall be entitled to withhold up to 100% of the amount of royalties due to CIMA from time to time (or, if less, the total principal amount of the Loan 9 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 (including accrued unpaid interest thereon outstanding at that time)), but only if CIMA has failed to make payment to Astra in whole or in part of the amount then due to Astra, and only until such amount has been paid by CIMA to Astra. If IPR so agrees with Astra, IPR may apply such amount(s) by way of set-off in repayment of an equivalent amount of the Loan (including all accrued unpaid interest thereon), until such time as the Loan (including all accrued unpaid interest thereon) have been repaid in full. The License Agreement shall be deemed amended accordingly. 4.3 CIMA may at any time on a Banking Day prepay in whole or in part the outstanding amount of the Loan (including interest accrued thereon) without premium or penalty provided that any such pre-payment of part only of the Loan must be of not less than US$100,000 and subject to Astra being given not less than 5 Banking Days' prior written notice of CIMA's intention so to repay the Loan or such part thereof. 4.4 [...***...] 4.5 [...***...] 5. [...***...] 10 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 6. Payments; accounts and calculations 6.1 No set-off or counterclaim All payments to be made by CIMA under this Agreement (whether of principal or interest) shall be made in full, without any set-off or counterclaim whatsoever and, except as provided in clause 3.4, free and clear of any deductions or withholdings, on the due date to such account of Astra as Astra may from time to time specify for this purpose. 6.2 Non-Banking Days When any payment under this Agreement would otherwise be due on a day which is not a Banking Day, the due date for payment shall be extended to the next following Banking Day. 6.3 Calculations All interest and other payments of an annual nature under this Agreement shall accrue from day to day and be calculated on the basis of actual days elapsed and a 365 day year. 7 Representations and Warranties 7.1 CIMA represents and warrants to Astra that: 7.1.1 Corporate power to borrow it has power to execute, deliver and perform its obligations under this Agreement and to borrow the Loan; all necessary corporate, shareholder and other action has been taken to authorize the execution, delivery and performance of the same and no limitation on the powers of CIMA to borrow will be exceeded as a result of entering into this Agreement; 11 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 7.1.2 Binding obligations this Agreement constitutes valid and legally binding obligations enforceable in accordance with its terms; 7.1.3 No conflict with other obligations the execution and delivery of, the performance of its obligations under, and compliance with the provisions of this Agreement will not: 7.1.3.1 contravene any existing applicable law, statute, rule or regulation or any judgment, decree or permit to which it is subject; 7.1.3.2 conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which the it is a party or is subject or by which it or any of its property is bound; 7.1.3.3 contravene or conflict with any provision of it's By-Laws or equivalent documents; and 7.1.4 Default No Default has occurred and is continuing which has not been waived in writing by Astra; 7.2 Repetition The representations and warranties in clause 7.1 shall be deemed to be repeated by CIMA on and as of each Payment Date as if made with reference to the facts and circumstances existing on each such day. 12 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 8 Undertakings 8.1 CIMA undertakes with Astra that from the date of this Agreement and so long as any monies are owing under this Agreement, it will: [...***...] 8.2 CIMA undertakes with Astra that, from the Date of this Agreement and so long as any monies are owing under this Agreement, without the prior written consent of Astra, it will not : [...***...] 9 Indemnities 9.1 Miscellaneous indemnities CIMA shall on demand indemnify Astra, without prejudice to any of its rights under this Agreement, against any loss or expense which Astra shall certify as sustained or incurred by it as a consequence of the occurrence of any Event of Default. 10 Events of Default 10.1 There shall be an Event of Default if: 10.2 any sum due and payable by CIMA to Astra hereunder is not paid in full within 14 days after the due date; or 10.3 CIMA shall be in breach of or fail to perform or observe any of the undertakings, conditions, covenants, agreements or stipulations on its part contained in this Agreement and which could have a material adverse effect on the ability of CIMA to comply with its payment obligations under this Agreement and, in the case of a breach capable of being remedied, fails to remedy that breach within thirty (30) days 13 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 after receiving written notice from Astra specifying that breach and requiring the same to be remedied; or 10.4 if CIMA commits a breach of any the provisions of the License Agreement or of the Supply Agreement and, in the case of a breach capable of being remedied, fails to remedy that breach within thirty (30) days after receiving written notice from Astra specifying that breach and requiring the same to be remedied; or 10.5 CIMA becomes insolvent or bankrupt, or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors, or ceases doing business as a going concern, or CIMA applies for or consents to the appointment of a trustee or receiver for itself or for the major part of its property; or 10.6 a trustee or receiver is appointed for CIMA or for the major part of its property and the order of such appointment is not discharged, vacated or stayed within thirty (30) days after such appointment; or 10.7 any judgment, writ or warrant of attachment or of any similar process in an amount in excess of $250,000 shall be entered or filed against CIMA or against any of its property or assets and remains unpaid, unvacated, unbonded or unstayed for a period of thirty (30) days; or 10.8 an order for relief shall be entered in any Federal bankruptcy proceeding in which CIMA is the debtor; or if bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against CIMA and, if instituted against CIMA, are consented to or, if contested by CIMA, are not dismissed by the adverse parties or by an order, decree, or judgment within sixty (60) days after such institution; or 10.9 CIMA shall default in any material respect in the due and punctual performance of any covenant or agreement in any note, bond, indenture, loan agreement, note agreement, mortgage, security 14 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 agreement or other instrument evidencing or related to Indebtedness in excess of $500,000, and such default shall continue for more than the period of notice and/or grace, if any, therein specified and shall not have been waived; 10.10 CIMA suspends or ceases to carry on its business or any material part thereof in the ordinary course of business as now conducted; or 10.11 any representation or warranty made by CIMA contained in this Agreement becomes materially incorrect; or 10.12 it becomes unlawful for CIMA to perform any of its obligations under this Agreement. 10.13 At any time after any Event of Default has occurred, Astra shall without prejudice to its other rights hereunder be entitled to demand immediate repayment of the Loan (including accrued unpaid interest thereon) and all other sums due under this Agreement. 11 General 11.1 Benefit and burden This Agreement shall be binding upon, and enure for the benefit of, Astra, IPR and CIMA and their respective successors. 11.2 [...***...] 11.3 [...***...] 11.4 Without prejudice to clauses 4.1 and 4.2 CIMA hereby agrees that Astra and IPR may at any time after an Event of Default has occurred without notice set-off any sum owing by Astra or IPR to CIMA against any sums due to Astra hereunder. 15 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 11.5 [...***...] 12 Notices and other matters 12.1 Notices Every notice, request, demand or other communication under this Agreement shall: 12.2 be in writing delivered personally, by facsimile transmission or by first-class prepaid letter; 12.3 be deemed to have been received, subject as otherwise provided in this Agreement, in the case of a letter when delivered or (if sent by airmail) 5 days after it has been put into the post and in the case of facsimile transmission, on the date the facsimile is received; and 12.4 be sent: to CIMA at: 10000 Valley View Road Eden Prairie, MN USA 55344 Fax No: 612/947-8770 marked for the attention of: President and Chief Executive Officer; and to Astra at: Vastra Malarehamnen 9 S-151 36 Sodertalje Sweden Fax No: 08-553 290 00 marked for the attention of: Legal Affairs Department. 12.5 or to such other address or for the attention of such other person as is notified by CIMA or Astra to the other party to this Agreement. 12.6 No implied waivers, remedies cumulative No failure or delay on the part of Astra to exercise any power, right or 16 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by Astra of any power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy. The remedies provided in this Agreement are cumulative and are not exclusive of any remedies provided by law. 13 First Right of Refusal As further consideration for Astra agreeing to advance the Loan, CIMA hereby grants to Astra a first right of refusal to exploit any new technology to which CIMA may have the right from time to time and which may have application in conjunction with any technology or products of Astra or any of its Affiliates. Accordingly, CIMA may not grant to any third party the right to exploit any such technology if within one year from the date upon which CIMA notifies Astra of its intention to grant such a right to any third party, Astra (or one of its Affiliates) has entered into a license and development option agreement with CIMA in respect of such new technology for at least one application. For these purposes, CIMA agrees to negotiate any such agreement in good faith and that the terms of any such agreement shall be at least equivalent to those offered by CIMA to any third party. 14 Entire Agreement 14.1 This Agreement contains the entire agreement and understanding of the parties with respect to the Loan and supersedes all prior agreements, written or oral with respect to the Loan. Each party acknowledges that it has not been induced to enter into this Agreement by reason of any representation made by or on behalf of the other party. 14.2 No variation to this Agreement shall be effective unless in writing and signed by or on behalf of both parties. 17 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 240.24B-2 15 Governing law and jurisdiction 15.1 Law This Agreement is governed by and shall be construed in accordance with the laws of the State of Delaware without regard to its choice of law provisions and each party submits to the non-exclusive jurisdiction of the Federal courts of the United States sitting in the State of Delaware and the courts of the State of Delaware. 15.2 The submission by the parties to such jurisdiction shall not limit the right of Astra or CIMA to commence any proceedings arising out of this Agreement in any other jurisdiction it considers appropriate. Any notice of proceedings or other notices in connection with or which would give effect to any such proceedings may without prejudice to any other method of service be served in accordance with Clause 12. IN WITNESS whereof the parties to this Agreement have caused this Agreement to be duly executed on the date first above written. ASTRA AB (in the process of changing its name to AstraZeneca AB) Signed /s/ Johannes Linda Johannes Linda Assistant General Counsel December 13, 1999 CIMA LABORATORIES, INC. Signed /s/ John M. Siebert Title President and CEO Date 15 December 99 EX-10.20 4 LICENSE AGREEMENT 1 EXHIBIT 10.20 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 LICENSE AGREEMENT This Agreement made this 29 day of December, 1999 by and between 1. ORGANON INTERNATIONAL AG., a corporation duly organized and existing under the laws of Switzerland and having its registered offices at 160 B, Churerstrasse, P.O. Box 129, 8808 Pfaffikon, Switzerland, and N.V. ORGANON, a corporation duly organized and existing under the laws of The Netherlands and having its registered offices at Kloosterstraat 6, 5348 AB, Oss, The Netherlands, on the one hand, jointly hereinafter referred to as "Organon", and 2. CIMA LABS INC. a corporation duly organized and existing under the laws of Delaware and having its registered offices at 10000 Valley View Road, Eden Prairie , Minnesota 55344, USA, on the other hand, hereinafter referred to as "CIMA". CIMA and Organon may hereinafter be referred to as "Party", or collectively as "Parties". WITNESSETH THAT: CIMA has developed and owns or has rights to certain patented oral drug-delivery technology referred to as Orasolv(R) which has applications in the field of pharmaceutical product formulation; [...***...] On December 2, 1998, CIMA and N.V. Organon, the latter acting on behalf of Organon International A.G., entered into a Development and License Option Agreement under which prototypes of certain pharmaceutical product formulations were developed by CIMA for N.V. Organon's evaluation subject to the granting of an option to enter into a license agreement with CIMA; 2 2 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 The conclusion of a Toll Manufacturing Agreement within six (6) months after the Effective Date regarding the manufacturing of the Product as defined in this License Agreement is a condition for this License Agreement. CIMA desires to enter into such a license agreement with Organon. NOW, THEREFORE, in consideration of the foregoing and the mutual agreement as set forth herein, the Parties agree as follows: ARTICLE 1 DEFINITIONS Whenever used in this Agreement, unless otherwise clearly required by the context, the following terms shall have the meaning as defined hereinafter (in alphabetical order) and shall include both the single and the plural. 1.1 The term "Affiliated Company" shall mean any company which by means of a majority of shares or otherwise, either directly or indirectly, controls, is controlled by or is under common control with either Party hereto. 1.2 The term "Effective Date" shall mean the date first written above. 1.3 [...***...] 1.4 The term "Know-How" shall mean and include any and all data, information and any experience or other data, in possession of CIMA, relating to the Product, including Manufacturing Know How. 1.5 The term "Manufacturing Know-How" shall mean and include any and all data, information and any experience or other data, in the possession of CIMA which is necessary for Organon to effectively and efficiently manufacture the Product. 1.6 The term "Net Sales" shall mean the total revenue from commercial sales received by Organon, its Affiliated Companies and/or (sub)licensee(s) from the sale to independent third parties of the Product subject to royalties hereunder less the following amounts: (i) discounts, including cash and quantity discounts, trade allowances or rebates actually allowed or granted, (ii) credits or allowances actually granted upon claims or returns, regardless of the party requesting the return, (iii) separately itemized freight charges paid for delivery 3 3 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 (freight, postage, shipping) (iv) insurance costs, (v) taxes or other governmental charges levied on or measured by the invoiced amount and included in the invoice, whether absorbed by Organon or the third party (other than franchise or income taxes on the income of the selling party) (vi) amounts prepaid or credited on account of rejections, expired dating on return of Products. 1.7 The term "Patents" shall mean the patents, and patent applications (and any patents issuing on such applications) listed in Exhibit I hereto and any divisional, continuation and continuation-in-part applications thereof, reissues, reexaminations, substitutions, additions and any extensions to such patents as well as foreign counterparts thereof. 1.8 The term "Cima-Patents" shall mean the Patents excluding US patent nr. 5,225, 197 d.d. July 6, 1993, and corresponding patents in other countries. 1.9 The term "Registration Dossiers" shall mean and include dossiers filed by Organon in the Territory with the relevant government institutions for the purpose of obtaining marketing approval for the Product in the name of Organon or its Affiliated Companies. 1.10 [...***...] 1.11 [...***...] 1.12 The term "Territory" shall mean the whole world. 1.13 The term "Toll Manufacturing Agreement" shall mean the Toll Manufacturing Agreement referred to in the preamble hereof. 1.14 [...***...] 1.15 The term "Patent Country" means a country in which one or more Patents covering the Product and/or its method of manufacture are in force and have not expired, been nullified or revoked. 1.16 The term "Non-Patent Country" means a country other than a Patent Country. 1.17 The term "Patent Country Sale" means a sale of Product in which the Product is transferred within a Patent Country; 4 4 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 from a Patent Country to a Non-Patent Country; or from a Non-Patent Country to a Patent Country. 1.18 The term "Non-Patent Country Sale" means a sale of product other than a Patent Country Sale. ARTICLE 2 GRANT OF LICENSES 2.1 [...***...] 2.2 [...***...] 2.3 Organon covenants that any third party to which it may sub-license certain rights hereunder as well as any third party distributor entrusted by Organon with the physical distribution of the Product, will be bound by the terms and conditions of this Agreement. ARTICLE 3 TRANSFER OF MANUFACTURING KNOW-HOW [...***...] ARTICLE 4 CONFIDENTIALITY 4.1 It is understood and agreed by Organon, that all Know-How and other information and data disclosed by CIMA to Organon under this Agreement and/or under the Toll Manufacturing Agreement is and shall remain the exclusive property of CIMA. It is acknowledged by Organon that the Know-How and other information and data are only disclosed to Organon for the purposes and use described in this Agreement and that they are to be regarded as trade secrets containing unpublished results of private research and experience which are used in CIMA's business and which are of a nature customarily held in strict confidence and regarded as privileged knowledge; consequently any disclosure by Organon of Know-How information and data in violation of the obligation of this paragraph will harm and damage CIMA's legitimate business interests. Organon hereby undertakes to keep secret and confidential the know-How and above mentioned information and data during the term of this Agreement as well as thereafter and not to disclose the Know-How, information and data to any third party, person, government institution other than those referred to in Article 5, or Affiliated Company of Organon, or third party designated by Organon in compliance with Article 3, having a need to know such information and agreeing to comply with 5 5 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 the terms of this Article 4, without CIMA's prior written approval and not to use it for any other use or purpose than those described in this Agreement. 4.2 The obligations described in paragraph 4.1 above shall not be applicable to any part of the Know-How or other information and data disclosed by CIMA under this Agreement which: - at the moment of disclosure, is general (public) knowledge; - after disclosure, through no fault of Organon or the government institution referred to in article 5, becomes general (public) knowledge; - properly and lawfully becomes available to Organon, from sources not bound to CIMA by a secrecy obligation, provided this can be adequately substantiated. 4.3 Organon will use the Product and the Know-How and other information and data of CIMA solely for the purposes specified in this Agreement and for no other purpose. Upon termination or expiration of this Agreement Organon hereby undertakes, upon such request from CIMA, to promptly return all documentation received from CIMA on which the Know-How is displayed and/or described and not to retain any copy or photocopy of such documentation and to stop any further use or disclosure of CIMA's Know-How and/or other information and data as referred to in paragraph 4.1 above, except one copy of all documents or other written material containing confidential information -to be kept in the files of its law department provided that reasonable measures are taken to limit access to such files- for the sole purpose of resolving future disputes concerning this Agreement. ARTICLE 5 REGISTRATION AND MARKETING APPROVAL Organon shall use its reasonable best efforts to have the registrations and marketing approval for the Product in the Territory granted as soon as possible. All expenses and fees in connection with the application and maintaining of the registrations and marketing approval by Organon in the Territory shall be for account of Organon. Organon shall own all registrations and marketing approvals of the Product. ARTICLE 6 PRICE APPROVAL 6 6 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 At the same time as the application for marketing approval, Organon shall file with the relevant government institution an application for price approval for the Product. ARTICLE 7 PROMOTION Organon shall use its reasonable best efforts to successfully commercialize the Product within the Territory and agrees to use such reasonable best efforts in particular to successfully promote the Product in the Territory. The amount of effort to be applied to each region of the Territory is to Organon's discretion. ARTICLE 8 PURCHASE AND SUPPLY OF PRODUCTS The terms of the manufacture and supply of the Product will be contained in the Toll Manufacturing Agreement. ARTICLE 9 CONSIDERATION 9.1 [...***...] 9.2 [...***...] 9.3 [...***...] 9.4 [...***...] 9.5 [...***...] 9.6 Payments due shall be made within 30 days after receipt of the relevant invoices. ARTICLE 10. MAINTENANCE OF PATENT, INFRINGEMENT [...***...] ARTICLE 11 WARRANTIES 11.1 CIMA warrants that: a) CIMA is a corporation duly organized, duly existing and in good standing under the laws of the State of Delaware in the United States of America, with full right, power and authority to enter into and perform this Agreement and to grant all of the rights, powers and authorities herein granted; 7 7 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 b) The execution, delivery and performance of this Agreement do not conflict with, violate or breach any agreement to which CIMA is a party, or CIMA's articles of incorporation or bylaws; c) CIMA has sufficient rights in the Know-How and the Patents to grant to Organon the rights set forth in Section 2.1. To the knowledge of CIMA the execution of the provisions of this Agreement does not infringe in any third parties proprietary rights. d) CIMA agrees to indemnify Organon against any claim from any third party regarding any infringement by the Product or the process used to make the Product of third parties' US patents rights valid on the Effective Date. CIMA shall have the right to control the defense of any such claim provided that CIMA will not settle any such claim on terms requiring discontinuance of the Product without consent of Organon, which shall not be unreasonably withheld. Nevertheless, Organon shall perform research regarding the Product for possible conflicts with third parties proprietary rights valid in Europe. Such research shall be terminated within three (3) months after Effective Date. Organon shall assess the results of such research, and shall decide whether the results are satisfactory. An unsatisfactory result from such research shall be a condition to this Agreement. Any and all actions performed under this Agreement shall than be reversed. 11.2 Organon warrants that: a) The companies herein defined as Organon are corporations duly organized, existing and in good standing under the laws of Switzerland and/or the Netherlands, with full right, power and authority to enter into and perform this Agreement and to grant all of the rights, powers and authorities herein granted; b) The execution, delivery and performance of this Agreement do not conflict with, violate or breach any agreement to which Organon is a party, or the articles of incorporation or by laws of any of the companies defined herein as Organon; 8 8 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 c) This Agreement has been duly executed and delivered by Organon and is a legal, valid and binding obligation enforceable against Organon in accordance with its terms. ARTICLE 12 DURATION 12.1 This Agreement shall become effective as of the Effective Date and shall expire upon the expiration of the last Patent covering the Product. 12.2 Notwithstanding the preceding paragraphs, this Agreement may be terminated forthwith by registered mail or overnight courier: a) by either Party in the event the other Party shall materially breach any of its obligations under this Agreement and shall fail to remedy such breach within ninety (90) days from receipt of written notice of such breach by the Party not in default; or b) by either Party in the event of the other Party's liquidation, bankruptcy or state of insolvency; or c) By either Party in case the other Party assigns this Agreement in whole or in part to any third party or sells a substantial part of its business to any third party or in the event there is a substantial change in the identity of that other Parties present management or shareholders without the prior written consent of the other Party. d) By CIMA if the Toll Manufacturing Agreement has not been signed within (12) twelve months after the signing of this Agreement. 12.3 Articles Confidentiality, Indemnification, Miscellaneous and 15.1 shall survive termination of this Agreement. ARTICLE 13 INDEMNIFICATION 13.1.CIMA will indemnify and hold Organon and Organon's Affiliated Companies harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) that Organon or Organon's Affiliated Companies may incur, arising out of any 9 9 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 third party's claim of property damage or personal injury or death arising from the use of the Product or CIMA's negligent or willful misconduct in its performance of this Agreement or any breach of a representation or warranty given herein by CIMA. However, CIMA will in no event be liable for any such claims, damages, losses, costs or expenses to the extent they arise out of or result from materials, including the Substance, supplied by Organon to CIMA, or from Organon's or Organon's Affiliated Companies' negligence or willful misconduct. 13.2.Organon will indemnify and hold CIMA and CIMA's Affiliated Companies harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) that CIMA or CIMA's Affiliated Companies may incur, arising out of any third party's claim of property damage or personal injury or death arising from use of the Product to the extent that such liability results from Organon's or Organon's Affiliated Companies' negligent or willful misconduct in its performance of this Agreement or any breach of a representation or warranty given herein by Organon. However, Organon will in no event be liable for any such claims, damages, losses, costs or expenses to the extent they arise out of or result from materials supplied by CIMA to Organon, or from CIMA's or CIMA's Affiliated Companies' negligence or willful misconduct. 13.3.In the event any third party asserts a claim covered by Sections 13.1 or 13.2, the indemnified party will give prompt notice to the indemnifying party, who may, at its election, handle and control the defense or settlement of the claim at its own expense by giving prompt notice to the indemnified party. However, the indemnifying party will not settle any such claim without the indemnified party's prior written consent, which will not be unreasonably withheld. If the indemnifying party does not give such notice and does not proceed diligently to defend the claim within thirty (30) days after receipt of notice, the indemnifying party will be bound by any defense or settlement that the indemnified party may make as to that claim and will reimburse the indemnified party for any expenses related to the defense or settlement of the claim. The parties will cooperate in defending against any asserted third-party claims. Indemnification of the indemnified party will also cover the indemnified party's directors, officers, employees, agents, Affiliated Companies, and third parties 10 10 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 performing services for the indemnified party. ARTICLE 14 APPLICABLE LAW AND DISPUTE RESOLUTION 14.1 The validity, construction and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 14.2 The Parties shall attempt in good faith to resolve promptly any dispute arising out of or relating to this Agreement by negotiation. If the matter can not be resolved in the normal course of business any interested Party shall give the other Party written notice of any such dispute not resolved, after which the dispute shall be referred to more senior executives of both Parties, who shall likewise attempt to resolve the dispute. 14.4 If the dispute has not been resolved by non-binding means as provided in paragraph 14.3 above within forty-five (45) days of the initiation of such procedure, the dispute shall be finally and exclusively settled by arbitration by three independent arbitrators in Minneapolis, Minnesota under the Uncitral Arbitration Rules. Each party shall select one arbitrator, and those two arbitrators shall appoint the third by mutual agreement and in accordance with the Uncitral Arbitration Rules. The appointing authority shall be The London Court of International Arbitration in London, England. The language of the arbitration shall be English. The arbitration shall be in lieu of any other remedy and the award shall be final, binding and enforceable by any court having jurisdiction for that purpose. The Parties further agree that the arbitrators are not authorized to award punitive damages in connection with any controversy or claim settled by arbitration. 14.5 This Article shall, however, not be construed to limit or to preclude either Party from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate. ARTICLE 15 NON CONCURRENCE AND NEW DEVELOPMENTS [...***...] ARTICLE 16 MISCELLANEOUS 11 11 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 16.1 Publicity. Except as may be required by law or regulatory authorities, neither party shall release or generate any publicity concerning the transactions contemplated hereunder without the express consent of the other party, which consent shall not be unreasonably withheld or delayed. A press release announcing this Agreement is attached as Exhibit III. The term "publicity" shall not include responses to press or trade inquiries or internal communications by either party directly or solely to its employees, provided, that such responses or communications do not describe the specific terms of the transactions contemplated hereunder in substantially greater detail than contained in a description of the transactions agreed to by both parties, and provided further, that each party will be free to provide employees with information required in the performance of their duties. Any party that determines applicable securities laws require it to file this Agreement shall first provide the other party a copy of the redacted version it intends to file and shall provide the other party the opportunity to comment thereon. Nonetheless the filing party will make the final decision regarding the version to file, based on the advice of its counsel. 16.2 Headings. All headings of the Articles and Paragraphs of this Agreement are added to those Articles and Paragraphs for the purpose of convenience only and the contents and meaning of such headings shall in no way limit the meaning and applicability of the relevant Articles and Paragraphs. 16.3 Entire Agreement. This Agreement, the Development and License Option Agreement and the Toll Manufacturing Agreement constitute the entire agreement between the Parties and annuls and replaces any other agreement or understanding whether written or oral which may have existed between the parties with respect to the subject matter hereof. All schedules and Exhibits referred to form an integral part of this Agreement. this Agreement can be modified or amended and rights under this Agreement waived only in writing signed by the Party to be charged. 16.4 No Assignment. Organon shall not assign or otherwise transfer this Agreement or any part thereof to any third party, without the written consent of CIMA. 16.5 Binding upon Successors. This Agreement shall bind and benefit the Parties and their respective successors and assigns. 12 12 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 16.6 Notices. All notices in connection with this Agreement shall be in writing and be in the English language (as shall all other written communications and correspondence) and may be given by personal delivery, prepaid registered airmail letter, telegram or telefax, addressed to the Party required or entitled to receive same at its address set forth below, or to such other address as it shall later designate by like notice to the other Party. Notice of termination of this Agreement if given by telegram or telefax, shall be confirmed by prepaid registered airmail letter dated and posted the same day. The effective date of any notice if served by telegram, telex or telefax shall be deemed the first business day in the city of destination following the dispatch thereof and if given by prepaid registered airmail letter only, it shall unless earlier received, be deemed served not later than seven (7) days after date of posting. Notice to Organon shall be to: Organon International AG Switzerland Telefax: + 41 55 4151998 Attention: General Manager with a copy to: N.V. Organon PO Box 20 5340 BH OSS The Netherlands Telefax: 31 412 646923 Attention: President Notice to CIMA shall be to: CIMA Labs Inc. + 1 612 947 8770 Attention: President 16.7 Severability. All stipulations contained in this Agreement shall be so construed as not to infringe any provision of any law prevailing to this Agreement. To the extent that, and only to the extent that, any stipulation does infringe any such provisions, said stipulation shall be deemed void and shall be replaced by a stipulation in such a way as in accordance with the prevailing law is possible and in such a way as will be the least prejudicable to the interest of either Party. The infringement of any provision by a stipulation shall not affect the validity of any other stipulation of this Agreement. 13 13 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 16.8 Independent Contractors. The Parties are independent contractors and nothing in this Agreement shall imply any principal or agent relationship or other joint relationship and neither Party shall have the power or authority, either express or implied, to obligate the other Party. 16.9 Language. This Agreement is written in the English language and executed in two (2) counterparts, each of which shall be deemed an original. The English language text of this Agreement shall prevail over any translation thereof. 16.10 No Waiver. Failure of either party to insist upon the strict and punctual performance of any provision of this Agreement shall not constitute a waiver of, or estoppel against asserting the right to require such performance, nor should a waiver or estoppel in one case constitute a waiver or estoppel with respect to a later breach whether of similar nature or otherwise. 16.11 [...***...] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized representatives to be effective as of the date first written above. ORGANON INTERNATIONAL AG. CIMA Labs Inc. By : /s/ T. Boerma By : John M. Siebert Name : Mr. T. Boerm Name : John M. Siebert, Ph.D. Title: General Manager Title: President and CEO By : /s/ R. Hugli By : ___________________ Name : Mr. R. Hugli Name : ___________________ Title: General Manager Title: ___________________ N.V. ORGANON By : /s/ J. Lakeman Name : Dr. J. Lakeman Title: Managing Director International Production and Quality Affairs By : /s/ T.J. Kalff Name : Drs. T.J. Kalff Title: President EX-10.21 5 DEVELOPMENT & LICENSE AGREEMENT 1 Exhibit 10.21 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 DEVELOPMENT AND LICENSE AGREEMENT BETWEEN CIMA LABS INC. AND AMERICAN HOME PRODUCTS CORPORATION ACTING THROUGH ITS DIVISION ESI LEDERLE FOR [...***...] 2 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 DEVELOPMENT AND LICENSE AGREEMENT THIS AGREEMENT is signed this 14th day of January 2000 between CIMA LABS INC., a corporation organized and existing under the laws of the State of Delaware with offices located at 1000 Valley View Road, Eden Prairie, Minnesota 55344 (hereafter, together with its Affiliates, referred to as ("CIMA"), and American Home Products Corporation (acting through its division, ESI Lederle), a corporation organized and existing under the laws of the State of Delaware with offices located at 130 N. Radnor-Chester Road, St. Davids, Pennsylvania 19087 ("ESI"). ARTICLE I DEFINITIONS 1.1 [...***...] 1.2 ADVERSE EXPERIENCE means the definition in the current 21 CFR " Sections 312.32 and 314.80, as in effect from time to time. 1.3 AFFILIATE means (i) any Person which at the time of determination is directly or indirectly controlled by any party hereto; (ii) any Person which at the time of determination directly or indirectly controls any party hereto; or (iii) any Person which is under the direct or 1 3 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 indirect control of any such Person as described in subparagraphs (i) or (ii). Control in this Section means ownership of greater than fifty percent (50%) of the voting stock or other voting interests in the Person in question. [...***...] 1.4 AGENCY means any governmental regulatory authority responsible for granting approvals, including Pricing Approvals, for the sale of the Product in a country in the Territory. 1.5 [...***...] 1.6 CIMA PATENTS shall mean those Patents and Patent applications owned or Controlled by CIMA during the Term of this Agreement that claim the Product, its manufacture or method of use, including the Patents and Patent applications which are set forth on Exhibit A hereto. 1.7 COMMERCIALLY REASONABLE EFFORTS means efforts and resources normally used by a party for a compound or product owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the compound or product, the regulatory structure involved, the profitability of the applicable products, and other relevant factors. It is anticipated that the level of efforts and resources may change at different times during the product life cycle of a compound or product. 1.8 CONTROL OR CONTROLLED in the context of intellectual property rights means rights to intellectual property sufficient to allow a grant of rights to a party. 2 4 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.9 DIRECT COST means the costs for those items specified in Exhibit B, which costs are calculated in accordance with U.S. generally accepted accounting principles consistently applied. 1.10 EFFECTIVE DATE means the date determined in Section 14.10. 1.11 FDA means the United States Food and Drug Administration, or any successor thereto. 1.12 GOOD CLINICAL PRACTICE OR GCP means the then current standards for clinical trials for pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good clinical practice as are required by the European Union and other organizations and governmental agencies in countries in which Product is intended to be sold, to the extent such standards are not inconsistent with United States GCP. 1.13 GOOD LABORATORY PRACTICE OR GLP means the then current standards for laboratory activities for pharmaceuticals, as set forth in the United States Federal, Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good laboratory practice as are required by the European Union and other organizations and governmental agencies in countries in which Product is intended to be sold, to the extent such standards are not inconsistent with United States GLP. 3 5 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.14 GOOD MANUFACTURING PRACTICE OR GMP means the current standards for the manufacture of pharmaceuticals, as set forth in the United States Federal, Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good manufacturing practices as are required by the European Union and other organizations and governmental agencies in countries in which Product is intended to be sold, to the extent such standards are not inconsistent with United States GMP. 1.15 [...***...] 1.16 HSR ACT means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. 1.17 LAUNCH DATE means the date of first commercial shipment of the Product by ESI or its Affiliates or their respective subdistributors to Third Parties in a country in the Territory. 1.18 MAJOR COUNTRY means any of the United States, Germany, or the United Kingdom. The foregoing countries may also collectively be referred to as Major Countries. 1.19 [...***...] Such amounts shall be determined from the books and records of ESI, its Affiliates and their respective sublicensees and subdistributors maintained in accordance with U.S. generally accepted accounting principles consistently applied, and such amounts shall be calculated using the same accounting principles used for other ESI products. 4 6 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 [...***...] Where (i) Product is sold by ESI, its Affiliates or its sublicensees and subdistributors other than in an arms-length sale or as one of a number of items without a separate invoiced price; or (ii) consideration for Product shall include any non-cash element, the Net Sales applicable to any such transaction shall be deemed to be ESI's average Net Sales for the applicable quantity of to the Product at that time. 1.20 PATENTS means all patents and patent applications, and all additions, divisions, continuations, continuations in-part, pipeline protection, substitutions, reissues, extensions, registrations, patent term extensions, supplementary protection certificates and renewals of any of the above. 1. 21 PERSON means an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency thereof. 1.22 PRICING APPROVAL means any approval for price or reimbursement as may be necessary or appropriate as a prerequisite for marketing the Product in a particular country of the Territory. 1.23 [...***...] 1.24 REGULATORY APPROVAL means the product license or marketing approval necessary as a prerequisite for marketing the Product in a particular country in the Territory. 1. 25 REGULATORY DOCUMENTS means all regulatory submissions, Regulatory Approvals, and Pricing Approvals. 5 7 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.26 SPECIFICATIONS means the specifications for the Product as set forth in Exhibit C hereto, as may be amended from time to time by the parties in the course of Product development and in accordance with the regulatory submissions and/or Regulatory Approvals, or as otherwise required by regulatory authorities. 1.27 SUPPLY AGREEMENT means the agreement for the exclusive supply of Product by CIMA to ESI between the parties and effective on the Effective Date. 1.28 TECHNICAL INFORMATION means (a) techniques and data, including ideas, inventions (including patentable inventions), practices, methods, knowledge, know-how, trade secrets, skill, experience, documents, apparatus, clinical and regulatory strategies, test data, including pharmacological, toxicological and clinical test data, analytical and quality control data, manufacturing, patent data or descriptions relating to Product, and (b) chemical formulations, compositions of matter, product samples and assays relating to Product. 1.29 TERM shall have the meaning set forth in Section 10.1. 1.30 TERRITORY means the world. 1.31 THIRD PARTY means any Person other than a party to this Agreement or an Affiliate of a party to this Agreement 1.32 $ means United States dollars. ARTICLE II GRANT OF RIGHTS; EXCLUSIVITY 6 8 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 2.1 GRANT OF RIGHTS During the Term of this Agreement, CIMA hereby grants to ESI, an exclusive license under the CIMA Patents and Technical Information, and CIMA's interest in Joint Patent Rights, to market, promote, use, distribute, sell, have sold and to import and export Product within the Territory, provided that CIMA grants only a non-exclusive license under [...***...] and corresponding patents throughout the world. In addition to the foregoing, ESI shall have an exclusive license under the CIMA Patents ad Technical Information, and CIMA's interest in the Joint Patent Rights, to make (and to have made) Product in the Territory subject to, and in accordance with, the provisions of Sections 2.4,11.3(b) and the applicable provisions of the Supply Agreement. 2.2 SUBLICENSE RIGHTS The rights granted to ESI hereunder includes the right to sublicense all or part of such rights [...***...]; provided that (a) the terms and conditions of such grant of sublicense rights (i) are consistent with and do not violate the terms and conditions of this Agreement, and (ii) provide ESI with the right and obligation to enforce such terms and conditions; (b) ESI remains primarily liable and responsible for the performance of any such Affiliates and Third Parties according to the terms of this Agreement; and (c) if ESI grants a sublicense to a Third Party, then ESI shall promptly notify CIMA of the identify of the Third Party; provided, however that any sublicense of the rights contained in Section 2.4 hereof or Section 2.9 of the Supply Agreement shall be subject to the prior written consent of CIMA, such consent not to be unreasonably withheld or delayed. 2.3 [...***...] 7 9 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 2.4 [...***...] ARTICLE III DEVELOPMENT ACTIVITIES 3.1 DEVELOPMENT AND REGISTRATION RESPONSIBILITIES FOR THE PRODUCT Each party agrees to use its Commercially Reasonable Efforts to perform its obligations to develop, [...***...], and register the Product to meet the timetable set forth in Exhibit D. Each party shall comply with all applicable GLP, GCP and GMP in the conduct of the development of the Product. CIMA shall (a) be responsible for conducting the ongoing development work for Product; (b) design and conduct all dosage form, formulation, process, and chemistry manufacturing and control (CMC) and related technical studies on Product, including preparation of dosage form CMC regulatory documents, and conduct scale-up activities for the manufacture of Product. ESI shall be responsible for and shall (a) conduct all pivotal biostudies, and (b) file, own and maintain all submissions for Regulatory Approval and Regulatory Approvals of Product in the Territory. CIMA shall be responsible for providing the CMC and related technical components of such submissions, as jointly determined by the parties, and ESI shall be responsible for formatting such documentation for, and submitting such documentation to, the appropriate Agencies in the Territory. The ANDA shall be filed with CIMA as approved manufacturer. The parties shall cooperate with, and assist, each other in connection with their activities hereunder including addressing regulatory questions, and preparing updates and supplements to regulatory 8 10 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 filings for Product in the Territory. ESI, however, shall be responsible for all communications with the FDA and post-Regulatory Approval regulatory requirements in the Territory, including pharmacovigilance and Adverse Drug Experience reporting, unless otherwise agreed in advance in writing by the parties. 3.2 [...***...] ARTICLE IV DILIGENCE OBLIGATIONS 4.1 PERFORMANCE OBLIGATIONS (a) ESI shall, subject to supply by CIMA of launch quantities of Product, use Commercially Reasonable Efforts to launch Product as soon as commercially reasonable in each Major Country, within three (3) months following the later of Regulatory Approval or if applicable, Pricing Approval, provided the pricing is approved within ESI's global pricing limits. The Product must also be free of all other legal and regulatory encumbrances. 4.2 RECORD KEEPING Each party shall record, to the extent practical and customary in the industry, all Technical Information relating to the Product development in written form, which writing shall be signed, dated and witnessed, consistent with standard practices of each party. All such written records of the parties shall be maintained in a form sufficient to satisfy Regulatory Agencies. 9 11 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 4.3 ADVERSE DRUG EXPERIENCES To the extent either party receives any information regarding Adverse Drug Experiences related to the use of the Product, such party shall promptly provide the other party with such information in accordance with the Adverse Event Reporting Procedures set forth in Exhibit E hereto (as may be amended from time to time upon written agreement of the parties). ARTICLE V ROYALTY PAYMENTS TO CIMA 5.1 [...***...] 5.2 [...***...] 5.3 INSPECTION OF RECORDS The parties shall maintain at their offices, accurate and complete books and records consistent with sound business and accounting this Agreement by the respective party to be determined. ESI and CIMA shall permit an independent certified accountant (subject to obligations of confidentiality) appointed by the other party and reasonably acceptable to ESI or CIMA (as applicable), at the other party's expense, to examine such books and records at all reasonable times for the sole purpose of (i) verifying ESI's or CIMA's (as applicable) reports and accounting submitted to the other party hereunder and (ii) determining the correctness of payments. In the event of any underpayment of any payment by at least five percent (5%), the costs of such inspection shall be borne by the party who made such underpayment and such underpayment shall be 10 12 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 forthwith paid by such party to the other party with interest at the rate specified in Section 5.5. 5.4 PAYMENTS Each party shall make all payments due to the other party hereunder in $ by wire transfer in immediately available funds to an account designated by the payee party. 5.5 INTEREST The parties shall pay interest on any amounts overdue under this Agreement at a rate equal to the $ prime or equivalent rate quoted by Citibank N.A. or another mutually acceptable bank, as in effect during the period from the date due until payment. 5.6 EXCHANGE RATES All royalty payments to be made pursuant to this Agreement shall be made in $. Amounts based on Net Sales in currencies other than $ shall be converted to $ at the ESI financial statement exchange rates applied by ESI on a consistent basis in ESI's own financial accounting on the date such payment is due. 5.7 CURRENCY BLOCKAGE Where payments are due hereunder for sales of Product in a country where, by reason of currency regulations or taxes of any kind, it is impossible or illegal for ESI to transfer payments to CIMA in that country, such payments shall be deposited by ESI in whatever currency is allowable for the benefit or credit of CIMA in an accredited bank in that country that is reasonably acceptable to CIMA. 5.8 WITHHOLDINGS Any and all income or similar taxes imposed or levied on account of the receipt of payments under this Agreement which are required to be withheld shall be paid by ESI on behalf of CIMA and shall be paid to the proper taxing authority. 11 13 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 Proof of payment shall be secured, if available, and sent to CIMA by ESI as evidence of such payment in such form as required by the tax authorities having jurisdiction over ESI. Such taxes shall be deducted from the payments that would otherwise be remittable by ESI. ESI shall take reasonable measures to assist CIMA in obtaining credit for such taxes against CIMA's United States tax liabilities. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 REPRESENTATION AND WARRANTIES OF EACH PARTY Each of CIMA and ESI hereby represents, warrants and covenants to the other party hereto as follows: (a) it is a corporation or entity duly organized and validly existing under (b) the laws of the state or other jurisdiction of incorporation or formation; (c) the execution, delivery and performance of this Agreement by such (d) party has been duly authorized by all requisite corporate action and does not (e) require any shareholder action or approval; (f) it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and (g) the execution, delivery and performance by such party of this Agreement and its compliance with the terms and provisions hereof does not and will not conflict with or result in a breach of any of the terms and provisions of or constitute a default under (i) a loan agreement, guaranty, financing agreement, agreement affecting a product or other 12 14 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 agreement or instrument binding or affecting it or its property (ii) the provisions of its charter or operative documents or bylaws; or (iii) any order, writ, injunction or decree of any court or governmental authority entered against it or by which any of its property is bound. 6.2 REPRESENTATIONS AND WARRANTIES OF CIMA In addition to the representations and warranties made by CIMA under Section 6.1 above, CIMA hereby further represents and warrants to ESI that: (a) As of the Effective Date, the CIMA Patents are existing and, to the best of its knowledge, are not invalid or unenforceable, in whole or in part; (b) It has the full right, power and authority to grant all of the right, title and interest in the licenses granted under Article II hereof; (c) It has not, prior to the Effective Date, previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in Product, or the CIMA Patents, or CIMA Technical Information, with respect to which ESI has been granted a license or other rights hereunder in the Territory, provided that CIMA has granted, and may in the future grant, licenses to Third Parties under such CIMA Patents and CIMA Technical Information which licenses do not conflict with the rights granted to ESI under this Agreement; (d) It is the sole and exclusive owner of the CIMA Patents and Technical Information existing as of the Effective Date, all of which are free and clear of any liens, charges and encumbrances, except as provided in Section 6.2(c), and no other person, 13 15 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 corporate or other private entity, or governmental entity or subdivision thereof, has or shall have any claim of ownership with respect to the CIMA Patents or Technical Information in the Territory, [...***...] (e) To the best of its knowledge the CIMA Patents and Technical Information do not, as of the Effective Date, interfere or infringe on anyvalid intellectual property rights owned or possessed by any Third Party in the Territory, [...***...] (f) As of the Effective Date, there are no claims, judgments or settlements against or owed by CIMA or, to the best of its knowledge, pending or threatened claims or litigation relating to the CIMA Patents or Technical Information; (g) During the Term of this Agreement it will use Commercially Reasonable Efforts not to diminish the rights under the CIMA Patents and Technical Information licensed to ESI hereunder, by not committing or permitting any actions or omissions which would cause the breach of any agreements between itself and Third Parties which provide for intellectual property rights applicable to the development, manufacture, use or sale of Product, that it will provide ESI promptly with notice of any such alleged breach, and that as of the Effective Date, it is in compliance in all material respects with any agreements with Third Parties relating to the CIMA Patents and Technical Information. 6.3 REPRESENTATION BY LEGAL COUNSEL Each party hereto represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the parties agree that no presumption shall exist or be implied 14 16 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 against the party which drafted such terms and provisions. ARTICLE VII INDEMNIFICATION 7.1 INDEMNIFICATION BY ESI Except as provided in Section 9.3, ESI shall indemnify, defend and hold harmless CIMA and its Affiliates, and each of its and their respective employees, officers, directors and agents (each a "CIMA Indemnified Party") from and against any all liability, loss, damage, cost and expense (including reasonable attorney's fees) (collectively, a "Liability") which the CIMA Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by ESI of any representation or warranty contained in this Agreement, or (ii) the manufacture, promotion, distribution, use, testing, marketing, sale or other disposition of Product by ESI, its Affiliates or sublicensees. Notwithstanding the foregoing, ESI shall have no obligation under this Agreement to indemnify, defend or hold harmless any CIMA Indemnified Party with respect to claims, demands, costs or judgments which result from either (x) the failure of Product supplied by CIMA or its Affiliates to comply with the Specifications or the applicable Regulatory Approvals or (y) the willful misconduct or negligent acts or omissions of CIMA, its Affiliates, or any of their respective employees, officers, directors or agents. 7.2 INDEMNIFICATION BY CIMA Except as provided in Section 9.3, CIMA shall indemnify, defend and hold harmless ESI and its Affiliates, and each of its and their respective employees, officers, directors and agents (each, a "ESI Indemnified Party") from 15 17 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 and against any Liability which the ESI Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with the breach by CIMA of any representation or warranty contained in this Agreement. Notwithstanding the foregoing, CIMA shall have no obligation under this Agreement to indemnify, defend, or hold harmless any ESI Indemnified Party with respect to claims, demands, costs or judgments which result from the failure of Active Ingredient supplied by ESI or its Affiliates to comply with the Specifications or the applicable Regulatory Approvals, or from the willful misconduct or negligent acts or omissions of ESI, its Affiliates, or any of their respective employees, officers, directors or agents. 7.3 CONDITIONS TO INDEMNIFICATION The obligations of the indemnifying party under Sections 7.1 and 7.2 are conditioned upon delivery of written notice to the indemnifying party of any potential Liability promptly after the indemnified party becomes aware of such potential Liability, provided, however, that the failure to give such notice promptly shall not impair a party's rights to indemnification under this Article VII unless the delay in providing such notice has a material adverse effect on the ability of the indemnifying party to defend against such Liability. The indemnifying party shall have the right to assume the defense of any suit or claim related to the Liability if it has assumed responsibility for the suit or claim in writing; however, if in the reasonable judgment of the indemnified party, such suit or claim involves an issue or matter which could have a material adverse effect on the business operations or assets of the indemnified party, the indemnified party may waive its rights to indemnity under this Agreement and control the 16 18 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 defense or settlement thereof, but in no event shall any such waiver be construed as a waiver of any rights such party may have as against any Third Party at law or in equity. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense. 7.4 SETTLEMENTS Neither party may settle a claim of action related to a Liability without the consent of the other party, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this Agreement. Any payment made by a party to settle any such claim or action shall be at its own cost and expense except in the event that such payment was made with the prior written consent of the indemnifying party, in which case such payment will be subject to the indemnification obligations of the parties as set forth in this Article VII. 7.5 INSURANCE Each party further agrees to obtain and maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carriers to cover its indemnification obligations under Section 7.1 or 7.2, as applicable, [...***...] ARTICLE VIII CONFIDENTIALITY 8.1 NONDISCLOSURE During the Term of this Agreement and for a period of five (5) years thereafter, all proprietary and confidential business, technical, scientific and/or 17 19 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 regulatory information, including Technical Information, disclosed to the receiving party or its Affiliates (herein collectively, the (Receiving Party) by the other party or its Affiliates (herein collectively, the (Disclosing Party) hereunder or under the existing Confidentiality Agreement between the parties which is marked as confidential at the time of disclosure, or if disclosed or obtained orally or visually (or otherwise in a non-written form), was described or summarized in a writing or other tangible form and identified as confidential and forwarded to the Receiving Party within thirty (30) days of such disclosure (collectively, Confidential Information), shall be deemed to be confidential and shall be treated as such by the Receiving Party and shall not be disclosed, in whole or in part, by the Receiving Party to any other Person except as expressly set forth herein, and shall be used only for the purposes of this Agreement. Notwithstanding the foregoing these mutual obligations of confidentiality shall not apply to any information to the extent that such information is: (i) independently developed by such party as documented by prior written records outside the scope and not in violation of this Agreement; (ii) legally in the public domain at the time of its receipt or thereafter legally becomes part of the public domain through no fault of the recipient; (iii) received without an obligation of confidentiality from a Third Party having the right to disclose such information; (iv) released from the restrictions of this Article VIII by the express written consent of the Disclosing Party; 18 20 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 (v) as may be required for securing Regulatory Approval, or as may be required to be disclosed to an Agency or as otherwise required by a court order or any law or regulation (including, as may be required in connection with any filings made with the Securities and Exchange Commission or by the disclosure policies of a major stock exchange in the Territory); provided, however, that at the other party's request, the disclosing party shall request that the relevant legal or regulatory authority, or major stock exchange, treat as confidential any Confidential Information of either party included in any such disclosure and generally use diligent efforts to seek confidential treatment where available. 8.2 SCOPE OF CONFIDENTIALITY CIMA and ESI agree to limit the disclosure of any Technical Information and other Confidential Information received hereunder to such Affiliates, officers and employees as are necessary to carry out the provisions of this Agreement and who are likewise bound by provisions equivalent to this Article VIII, except that, with CIMA's written consent, which shall not be unreasonably withheld or delayed, ESI may disclose Confidential Information of CIMA to consultants, to distributors, and to actual or potential sublicencees and subdistributors, provided that they are likewise bound by confidentiality provisions similar to, or more stringent than, those set forth in this Article VIII. The parties shall take reasonable measures to assure that no unauthorized use or disclosure is made by Persons to whom access to such Confidential Information is granted. Unauthorized use or disclosure by any person who has been given access to Confidential Information by a Receiving Party hereunder shall be deemed to be unauthorized use or 19 21 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 disclosure by such Receiving Party, and the Receiving Party shall be responsible to the Disclosing Party hereunder. ARTICLE IX TECHNOLOGY AND DATA OWNERSHIP RIGHTS; INFRINGEMENT 9.1 OWNERSHIP OF DATA AND TECHNICAL INFORMATION [...***...] (B) Inventorship of any inventions acquired or developed in connection with the development program shall be determined by reference to United States patent laws pertaining to inventorship. Accordingly, (i) if an invention is made in connection with the development program by one (1) or more employees or consultants of each party, it shall be deemed to be a "Joint Invention". If one or more claims included in an issued Patent or pending patent application which is filed in a patent office in the Territory claim such Joint Invention following rules shall govern ownership of such Patent or patent application: [...***...] (c) any other Joint Inventions shall be jointly owned by CIMA and ESI as Joint Patent Rights hereunder. If an invention is made in connection with the development program solely by an employee or consultant of a party, it shall be solely owned by such party, and any Patent filed claiming such solely owned invention shall also be solely owned by such party. Each party shall require its employees and consultants to disclose to it any inventions relating to the Product in writing promptly after conception, and each party shall, subsequent to any such disclosures to it by its employees or consultants, 20 22 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 promptly disclose such inventions to the other party. Each party shall ensure that its employees and consultants shall assign his/her interest in such invention(s) to his/her respective party employer, as the case may be, and such rights shall therefore vest in the respective party employer to whom the inventor assigns his/her rights. [...***...] The parties shall mutually agree upon how and where to file and prosecute any Joint Patent Rights, the maintenance of any ensuing Joint Patent Rights covering such Joint Inventions, and how to license, enforce, defend and protect any such Joint Patent Rights and how to share the costs relating thereto. 9.2 INFRINGEMENT (a) Each party shall promptly report in writing to the other party during the term of this Agreement any known infringement or suspected infringement of any of the CIMA Patents in the Territory by manufacture, use or sale of a Product on a commercial scale in derogation of the rights granted to ESI hereunder (hereinafter, a "Related Infringement") of which it becomes aware, and shall provide the other party with all available evidence supporting said infringement or suspected infringement. (b) Except as provided in paragraph (d) below, CIMA shall have the right to initiate an infringement or other appropriate suit anywhere in the Territory against any Third Party who at any time has infringed, or is suspected of infringing, any of the CIMA Patents. CIMA shall give ESI sufficient advance notice of its intent to file any suit on account of a Related Infringement and the reasons therefor, and shall provide ESI with an opportunity to make suggestions and comments regarding such suit. CIMA shall keep ESI promptly 21 23 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 informed, and shall from time to time consult with ESI regarding the status of any such suit on account of a Related Infringement and shall provide ESI with copies of all documents filed in, and all written communications relating to, such suit. (c) CIMA shall have the sole and exclusive right to select counsel for any suit referred to in subsection (b) above and shall, except as provided below, pay all expenses of the suit, including without limitation attorneys' fees and court costs. ESI, in its sole discretion, may elect, within 60 days after the commencement of such litigation on account of a Related Infringement, to contribute to the costs incurred by CIMA in connection with such litigation and, if it so elects, any damages, royalties, settlement fees or other consideration received by CIMA as a result of such litigation shall be shared by CIMA and ESI pro rata based on their respective sharing of the costs of such litigation provided that such pro rata share shall not exceed fifty percent (50%) unless CIMA has consented to a higher share in writing. In the event that ESI elects not to contribute to the costs of such litigation, CIMA shall be entitled to retain any damages, royalties, settlement fees or other consideration for infringement resulting therefrom. If necessary, ESI shall join as a party to the suit but shall be under no obligation to participate except to the extent that such participation is required as the result of being a named party to the suit. ESI shall offer reasonable assistance to CIMA therewith at no charge to CIMA except for reimbursement of reasonable out-of-pocket expenses incurred in rendering such assistance. ESI shall have the right to participate and be represented in any such suit by its own counsel at its own expense. CIMA shall not settle any such suit on terms which grant any license to any other 22 24 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 party in derogation of the rights granted to ESI hereunder without obtaining the prior written consent of ESI, which consent shall not be unreasonably withheld. (d) In the event that CIMA elects not to initiate an infringement or other appropriate suit pursuant to subsection (b) above on account of a Related Infringement after reasonable efforts to abate such Related Infringement without litigation have failed, but in no event later than ninety (90) days after ESI's notice to CIMA under Section 9.3(a), CIMA shall promptly advise ESI of its intent not to initiate such a suit, ESI shall have the right, at the expense of ESI, of initiating an infringement or other appropriate suit against the party or parties committing such Related Infringement. In exercising its rights pursuant to this subsection (d), ESI have the sole and exclusive right to select counsel and shall, except as provided below, pay all expenses of the suit including without limitation attorneys' fees and court costs. CIMA, in its sole discretion, may elect, within 60 days after the commencement of such litigation, to contribute to the costs incurred by ESI in connection with such litigation, and, if it so elects, any damages royalties, settlement fees or other consideration received by ESI as a result of such litigation shall be shared by ESI and CIMA pro rata based on their respective sharing of the costs of such litigation provided that such pro rata share shall not exceed fifty percent (50%) unless ESI has consented to a higher share in writing. In the event that CIMA elects not to contribute to the costs of such litigation, ESI shall be entitled to retain any damages, royalties, settlement fees or other consideration for infringement resulting therefrom. If necessary, CIMA shall join as a party to the suit but shall 23 25 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 be under no obligation to participate except to the extent that such participation is required as a result of being named a party to the suit. At ESI's request, CIMA shall offer reasonable assistance to ESI in connection therewith at no charge to ESI except for reimbursement of reasonable out-of-pocket expenses incurred in rendering such assistance. CIMA shall have the right to participate and be represented in any such suit by its own counsel at its own expense. 9.3 CLAIMED INFRINGEMENT (a) In the event that a Third Party at any time provides written notice of a claim to, or brings an action, suit or proceeding against, either party or any of their respective Affiliates, claiming infringement of its patent rights, [...***...] (b) If a Third Party at any time brings an action, suit or proceeding against ESI and/or CIMA and/or their Affiliates, claiming infringement of its patent rights, [...***...] ESI shall have the right to use counsel of its own choice and shall control the defense of any such action, suit or proceeding. If CIMA desires to have additional counsel of its own choice participate in the defense, CIMA shall be solely responsible for the costs and expenses of its counsel. ESI shall have the authority to settle any such action, suit or proceeding with the prior written consent of CIMA, such consent not to be unreasonably withheld or delayed. If ESI receives any payment(s) as part of the settlement of any such threatened or actual action, suit or proceeding, [...***...] (c) If a Third Party at any time brings an action, suit or proceeding against ESI and/or its Affiliates, claiming infringement of its patent rights, based upon an assertion or 24 26 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 claim arising out of the use, importation, distribution, [...***...], the parties shall share equally responsibility for and any and all costs and expenses associated with such legal actions including, without limitation, damages, settlement payments, attorneys' fees and court costs. Each party shall offer reasonable assistance to the other party in connection therewith at no charge to the other party except for reimbursement of reasonable out-of-pocket expenses incurred in rendering such assistance. (d) This Section 9.3 states the entire responsibility of CIMA in the case of any claimed infringement or violation of any Third Party's patent rights. ARTICLE X TERM AND TERMINATION 10.1 TERM This Agreement shall be effective as of the Effective Date, and, unless sooner terminated by mutual agreement or pursuant to any other provision of this Agreement, shall continue in full force and effect, on a country-by-country basis, until the later to occur of (a) ten (10) years from the Launch Date of Product in such country, or (b) expiration of the last to expire of the CIMA Patents in each such country (the "Term"). 10.2 TERMINATION FOR DEFAULT Each party may terminate this Agreement if the other party commits a material breach of any material obligation under this Agreement and fails to remedy such breach within sixty (60) days (or, in the case of a late payment, ten (10) business days of notice of such breach), or other longer period of time if mutually agreed; provided that if the defaulting party initiates steps within the sixty (60) day notice period to 25 27 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 remedy or cure the breach, unless the parties mutually agree otherwise, such termination shall become effective only if the breach is not remedied within one hundred and twenty (120) days after the initial notice from the non-defaulting party. For purposes of clarification, unless otherwise mutually agreed by the parties in writing, (a) in no event shall a defaulting party have longer than one hundred twenty (120) days to remedy a material breach (other than a material breach of a payment obligation) under this Section, and (b) in no event shall a defaulting party have longer than ten (10) business days to remedy a material breach of a payment obligation under this Section. 10.3 [...***...] ARTICLE XI EFFECT OF EXPIRATION AND TERMINATION 11.1 [...***...] 11.2 DEVELOPMENT COMMITMENTS In the event that CIMA terminates this Agreement pursuant to Section 10.2 or ESI terminates this Agreement pursuant to Section 10.3, all development commitments (internal and external) of CIMA incurred or committed up through the effective date of such termination shall become due and payable to CIMA by ESI on the effective date of such termination. 11.3 [...***...] In the event that no such assignment may legally be made in any country in the Territory, [...***...] 26 28 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 11.4 NO DAMAGES UPON EXPIRATION OR TERMINATION Except as otherwise set forth in this Agreement, neither party shall be entitled to any compensation whatsoever as a result of expiration or termination of this Agreement, but without limiting either party's damages for any breach of this Agreement. 11.5 CONTINUING OBLIGATIONS Termination or expiration of this Agreement for any reason shall be without prejudice to any obligations which shall have accrued to the benefit of either party prior to such termination or expiration. Upon termination or expiration of this Agreement, any payments owed to the other party on or before the effective date of termination would be due within thirty (30) days of the effective date of such termination or expiration. The following provisions of this Agreement shall survive expiration or termination hereof Article VIII, Section 9.1, Articles XI and XIV. ARTICLE XII TRADEMARKS 12.1 [...***...] 12.2 TRADEMARK OWNERSHIP AND USE a.ESI recognizes CIMA's exclusive ownership of and title in and to the MARKS, and shall not at any time do or permit to be done any act or thing which would in any way impair the rights of CIMA in and to the MARKS or in any trademark registration application therefor, and shall not at any time claim any right of interest in or to the MARKS or the aforesaid trademark application therefor. 27 29 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 b. ESI agrees that during the term of the Agreement and after its termination, however occurring, that ESI shall not: (i) use the MARKS or any other mark confusingly similar thereto in connection with any goods not covered by this Agreement which would be likely to cause confusion between the parties; or (ii) apply for or seek registration anywhere in the world, at any time, for the MARKS or any other mark confusingly similar thereto; or (iii) commit or do any act which might prejudice or adversely affect the validity of the MARKS or CIMA's ownership thereof or dilute or diminish the value of the MARKS to CIMA. c. ESI shall use the MARKS only in a proper trademark sense and shall identify the MARKS as a registered trademark of CIMA by including use of the registered trademark symbol (R) or the symbol (TM) in association with the MARKS as specified by CIMA. d. ESI agrees that all goodwill resulting from its use of the MARKS shall inure to the exclusive benefit of CIMA. e. ESI shall assist CIMA in obtaining or maintaining registrations for the MARKS by supplying specimens, other proofs of use and other information or documents reasonably necessary to obtain or maintain registration of the MARKS in all jurisdictions within the Territory. 12.3 [...***...] 28 30 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 ARTICLE XIII PRESS RELEASES AND PUBLICATIONS 13.1 PRESS RELEASES The parties agree to issue a joint press release, in the form attached hereto as Exhibit F, upon the Effective Date. All other press releases and public announcements related to this Agreement shall be approved in advance in writing by the other party. 13.2 PUBLICATIONS The parties shall mutually agree upon publications and the publication strategy with respect to work undertaken by the parties relating to Product, and neither party shall publish any result or study generated or developed under this Agreement except upon review by the other party at least sixty (60) days prior to submission of an abstract or manuscript for publication. ARTICLE XIV MISCELLANEOUS 14.1 FORCE MAJEURE Neither party shall be liable for delay or failure to perform its obligations hereunder for so long as that failure or delay is the result of an event beyond its control which it could not have avoided by the exercise of reasonable diligence, (a force majeure event), provided that such party uses commercially Reasonable Efforts to comply with the terms of this Agreement as soon as practicable. A party asserting a force majeure event shall notify the other party promptly, giving an indication of the likely extent and duration thereof. 29 31 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 14.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS Neither party shall at any time, without obtaining the prior written consent of the other party, assign or transfer this Agreement to any Person. Notwithstanding the foregoing, each party shall be permitted to assign this Agreement to its Affiliates or to perform this Agreement, in whole or in part, through its Affiliates, provided that such party shall be primarily liable and responsible for performance by such Affiliate hereunder; and each party may also assign this Agreement to any successor by merger or upon a sale of all or substantially all of the assets to which this Agreement relates. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns. 14.3 NOTICES Any notices required or permitted to be given hereunder shall be in writing and shall be delivered by air courier service (requiring signature upon receipt) or sent by first class air mail, postage prepaid, or telefax (confirmed by phone conversation with the recipient) to the addresses set forth below. The parties may change the address at which notice is to be given by giving notice to the other party as herein provided. All notices shall be deemed effective upon receipt by the party to whom it is addressed. 30 32 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 If to CIMA: CIMA LABS, Inc. 10000 Valley View Road Eden Prairie, Minnesota 55344 Attention: Dr. John Siebert President and CEO Telephone: (612) 947-8762 Telefax: (612) 947-8770 If to ESI: ESI Lederle With a copy to: 130 North Radnor-Chester Road American Home Products Corporation St. Davids, Pennsylvania 19087 5 Giralda Farms Madison, New Jersey 07940 Attention: President Attention: Telephone: (610) 971-4550 Senior Vice President & General Counsel Telefax: (610) 995-3394 Telephone: (973) 660-6040 Telefax: (973) 660-7050 14.4 GOVERNING LAW AND JURISDICTION This Agreement and its execution, validity and interpretation shall be governed in all respects in accordance with the laws of the State of Delaware, excluding conflicts of law rules. 14.5 SEVERABILITY In the event that any provision of this Agreement shall be held to be unenforceable, invalid or in contravention of applicable law, such provision shall be of no effect, and the parties shall negotiate in good faith to replace such provision with a provision which effects to the extent possible the original intent of such provision. 14.6 COMPLETE AGREEMENT; MODIFICATIONS This Agreement, together with all Exhibits attached hereto, constitutes the entire Agreement between the parties with respect to the present subject matter, all prior negotiations, agreements and understandings being 31 33 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 expressly canceled hereby. This Agreement may be amended only by a written agreement embodying the full terms of the amendment signed by authorized representatives of both parties. 14.7 NO AGENCY Neither party shall by virtue of this Agreement have any power to bind the other to any obligation nor shall this Agreement create any relationship of agency, partnership or joint venture. 14.8 NO WAIVER No term or condition of this Agreement shall be considered waived unless reduced to writing and duly executed by an officer of the waiving party. Any waiver by any party of a breach of any term or condition of this Agreement will not be considered as a waiver of any subsequent breach of this Agreement, of that term or condition or any other term or condition hereof. 14.9 COUNTERPARTS This Agreement may be executed in counterparts, each of which together shall constitute one and the same Agreement. 14.10 [...***...] 14.11 COMPLIANCE ISSUES The parties acknowledge that the export of technical data, materials or products is subject to the exporting party receiving the necessary export licenses and that the parties cannot be responsible for any delays attributable to export controls which are beyond the reasonable control of either party. The parties agree that regardless of any disclosure made by the party receiving an export of any ultimate destination of any technical data, materials or products, the receiving party will not re-export either directly or indirectly, any technical data, material or products without first obtaining the 32 34 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 applicable validated or general license from the United States Department of Commerce, FDA and/or any other agency or department of the United States Government as required. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CIMA LABS INC. ESI LEDERLE By: /s/ John M. Siebert By: /s/ Mike Dey Name: John M Siebert Name: Mike Dey Title: President and CEO Title: President 33 EX-10.22 6 SUPPLY AGREEMENT 1 EXHIBIT 10.22 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 SUPPLY AGREEMENT BETWEEN CIMA LABS INC. AND AMERICAN HOME PRODUCTS CORPORATION ESI LEDERLE DIVISION 2 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 SUPPLY AGREEMENT THIS SUPPLY AGREEMENT is signed this 14th day of January 2000 between CIMA LABS., a corporation organized and existing under the laws of the State of with offices located at 10000 Valley View Road, Eden Prairie, Minnesota 55344-9361 (hereafter, together with its Affiliates, referred to "CIMA"), and American Home Products Corporation (acting through its division, ESI Lederle), a corporation organized and existing under the laws of the State of Delaware with offices located at 130 North Radnor-Chester Road, St. Davids, Pennsylvania 19087 ("ESI"). ARTICLE I DEFINITIONS 1.1 [...***...] 1.2 ADVERSE DRUG EXPERIENCE means the definition in the current 21 CFR " Sections 312.32 and 314.80, as in effect from time to time. 1.3 AFFILIATE means (i) any Person which at the time of determination is directly or indirectly controlled by any party hereto; (ii) any Person which at the time of determination directly or indirectly controls any party hereto; or (iii) any Person which is under the direct or indirect control of any such Person as described in subparagraphs 3 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 (i) or (ii). "Control" shall in this Section mean ownership of greater than fifty percent (50%) of the voting stock or other voting interests in the Person in question. For purposes of this Agreement, Immunex Corporation shall not be considered to be an affiliate of ESI. 1.4 AGENCY means any governmental regulatory authority responsible for granting approvals, including Pricing Approvals, for the sale of a Product in a country in the Territory. 1.5 COMMERCIALLY REASONABLE EFFORTS means efforts and resources normally used by a party for a compound or product owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the compound or product, the regulatory structure involved, the profitability of the applicable products, and other relevant factors. It is anticipated that the level of efforts and resources may change at different times during the product life cycle of a compound or product. 1.6 CONTROL OR CONTROLLED in the context of intellectual property rights means rights to intellectual property sufficient to allow a grant of rights without any obligation to any Third Party. 1.7 [...***...] 4 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.8 DEVELOPMENT AND LICENSE AGREEMENT means the Development and License Agreement between the parties signed contemporaneously with this Agreement 1.9 EFFECTIVE DATE means the effective date of the Development and License Agreement. 1.10 EXTENDED TERM shall have the meaning set forth in Section 9.1. 1.11 FDA means the United States Food and Drug Administration, or any successor thereto. 1.12 GOOD MANUFACTURING PRACTICE OR GMP means the current standards for the manufacture of pharmaceuticals, as set forth in the United States Federal, Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good manufacturing practices as are required by the European Union and other organizations and governmental agencies in countries in which Product is intended to be sold, to the extent such standards are not inconsistent with United States GMP. 1.13 INITIAL TERM shall have the meaning set forth in Section 9.1 1.14 LAUNCH DATE means the date of first commercial shipment of a Product by ESI or its Affiliates or their respective subdistributors of Product to Third Parties in a country of the Territory. 5 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.15 MAJOR COUNTRY means any of the United States, Germany, or the United Kingdom. The foregoing countries may also collectively be referred to as Major Countries. 1.16 NDA means a New Drug Application, as defined in the United States Food, Drug and Cosmetic Act, as amended, and applicable FDA rules and regulations. 1.17 PERSON shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency thereof. 1.18 PRICING APPROVAL means any approval for price or reimbursement as may be necessary or appropriate as a prerequisite for marketing Product in a particular country of the Territory. 1.19 PRODUCT means rapid dissolving tablets containing 10 milligrams Active Ingredient meeting the Specifications. 1.20 REGULATORY APPROVAL means the product license or marketing approval necessary as a prerequisite for marketing Product in a particular country in the Territory. 1.21 REGULATORY DOCUMENTS means all regulatory submissions, Regulatory Approvals, and Pricing Approvals. 6 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 1.22 SPECIFICATIONS means the initial specifications for the Product as set forth in Exhibit A hereto, as may be amended from time to time by the parties in the course of Product development and in accordance with the regulatory submissions and/or Regulatory Approvals, or as otherwise required by regulatory authorities. 1.23 TECHNICAL INFORMATION means (a) techniques and data, including ideas, inventions (including patentable inventions), practices, methods, knowledge, know-how, trade secrets, skill, experience, documents, apparatus, clinical and regulatory strategies, test data, including pharmacological, toxicological and clinical test data, analytical and quality control data, manufacturing, patent data or descriptions relating to Product, and (b) chemical formulations, compositions of matter, product samples and assays relating to Product. 1.24 TERM shall have the meaning set forth in Section 9.1 1.25 TERRITORY means the world. 1.26 THIRD PARTY means any Person other than a party to this Agreement or an Affiliate of a party to this Agreement. ARTICLE II SUPPLY AND MANUFACTURING 2.1 MANUFACTURING During the Term of this Agreement, CIMA shall manufacture and supply ESI with, and ESI shall purchase from CIMA Product in 7 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 accordance with the terms specified in this Article II. Subject to Section 2.9, ESI shall exclusively purchase all of ESI's requirements of Product from CIMA and CIMA shall exclusively supply Product to ESI. 2.2 [...***...] 2.3 FORECASTS (a) [...***...], ESI shall provide to CIMA a non-binding rolling three (3) year Product forecast (based on calendar years and updated at least semi-annually) for long-term manufacturing planning purposes. (b) During the Term of this Agreement, ESI shall provide CIMA on a calendar basis, with a non-binding one (1) year rolling forecast, providing CIMA with a written estimate of the quantities of Product required during the next four (4) calendar half years. Each such quarterly estimate shall contain an update of the immediately preceding estimate with respect to the calendar quarters referred to in such preceding estimate. 2.4 FIRM ORDERS (a ) [...***...] (b) Notwithstanding the foregoing, CIMA has the right to satisfy ESI's firm order requirements pursuant to this Article II by supplying ESI with Product in full batch 8 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 quantities provided that CIMA may round up or down ESI's actual order for Product to the nearest full batch. 2.5 LIMITS ON FIRM ORDERS If a firm order made pursuant to Section 2.4 is greater than one hundred fifty percent (150%) of the one (1) year rolling forecast received by CIMA for such ninety (90) day period, then CIMA shall use Commercially Reasonable Efforts, but shall not be obligated, to ship that portion of the excess over one hundred fifty percent (150%). 2.6 CANCELLATIONS OF ORDERS If ESI cancels a firm order made pursuant to Section 2.4, then ESI shall reimburse CIMA for all costs incurred by CIMA as a result of such cancellation of such order, including materials, labor, work in progress, obsolete inventory disposal and overhead; but this obligation shall not cover capital costs. 2.7 PAYMENT TERMS (a) [...***...] (b) [...***...] (c) In the event the Actual Amount for Product purchased by ESI in a calendar half year is less than the Estimated Amount for that calendar half year, then CIMA shall pay to ESI such difference amount with CIMA's report for that calendar half 9 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 year. In the event the Actual Amount for Product purchased by ESI in a calendar half year is greater than the Estimated Amount for that calendar half year, then ESI shall pay to CIMA such greater amount within fourteen (14) days of ESI's receipt of CIMA's invoice for such amount with regard to ESI's purchases of Product in that calendar half year. 2.8 QUALITY ASSURANCE (a) Prior to the shipment of Product to ESI, CIMA shall test representative samples of each of the batch(es) to be shipped in accordance with validated, approved methods of analysis defined in the Specifications. CIMA shall provide ESI with a Certificate of Analysis for each batch of Product shipped to ESI stating that the Product so shipped conforms to the Specifications. The Certificate of Analysis shall be in a format agreed upon by the parties. (b) CIMA shall retain production samples and batch records from each batch of Product for the longer of (i) five (5) years after the manufacture of each such batch of Product or (ii) the time period required under GMP. Upon request, CIMA shall provide ESI's Quality Control Department with production samples of Product and/or copies of completed Batch records. (c) Master batch process documentation will be prepared and approved by CIMA as per its normal procedures. The parties agree that 10 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 deviations from master batch process documentation may be necessary from time to time. Such deviations shall be discussed with ESI before any proposed shipment of Product. Individual batch process documentation shall be photocopied from the approval master and issued for each batch as per CIMA's routine system. Original batch records will be filed securely by CIMA. CIMA will perform all in-process control tests demanded by the approved batch process. (d) ESI shall have the right to test Product to verify compliance with Specifications and applicable Regulatory Approvals and CIMA shall supply ESI with its testing procedures. ESI may, by written notice provided to CIMA within sixty (60) days of ESI's receipt of a shipment of Product, reject all or part of such shipment of Product if, based upon the testing of such Product conducted under this Section 2.8, such Product does not comply with the Specifications or applicable Regulatory Approvals. If ESI fails to notify CIMA within such sixty (60) day period, that it is rejecting such Product, ESI shall be deemed to have accepted such Product. (e) If CIMA, after good faith consultation with ESI, disputes any finding by ESI that Product does not comply with the Specifications or applicable Regulatory Approvals, samples of such Product shall be forwarded to a Third Party jointly selected by ESI and CIMA for analysis, which analysis shall be 11 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 performed in compliance with applicable regulatory requirements. The findings of such Third Party regarding whether Product complies with the Specifications and the applicable Regulatory Approvals shall be binding upon the parties for purposes of this Section 2.8. The cost of such analysis by such Third Party shall be borne by the party whose findings differed from those generated by such Third Party. (f) If as determined in accordance with this Section 2.8, a shipment of Product does not conform to the Specifications or applicable Regulatory Approvals, CIMA shall replace such shipment free of charge with a substitute shipment which meets such Specifications and applicable Regulatory Approvals according to the following time frame: If the Product is in inventory then conforming Product will be shipped so as to arrive as soon as practicable. If the Product is not in inventory, CIMA will take all reasonable steps to ensure expeditious manufacture of conforming Product which will be shipped on the next shipping day after completion of manufacture so as to arrive as soon as possible thereafter. In the event that testing at ESI indicates that Product does not conform with Specifications or applicable Regulatory Approvals: (i) ESI shall immediately notify CIMA (ii) ESI and CIMA shall mutually agree on an investigation program to determine the cause of the discrepancy and the 12 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 outcome of this investigation shall be used to determine disposition of the batch; (iii) where appropriate, given the timetable for the agreed upon investigation program, CIMA shall take all reasonable steps to ensure expeditious manufacture and shipment of conforming Product; and (iv) shipment of such replacement Product shall take place the next shipping day following completion of analytical work to demonstrate conformance with Specifications and applicable Regulatory Approvals. Shipment shall be by the quickest agreed route. At CIMA's expense and at ESI's sole option: the non-conforming shipment shall be (i) returned to CIMA; or (ii) disposed of by ESI, upon final determination in accordance with this Section 2.8 that it does not meet the Specifications or applicable Regulatory Approvals. If the non-conformity in the Product is due to a non-conformity of the Active Ingredient with the Specifications at the time of its delivery to CIMA, then the Replacement Product manufactured and shipped by CIMA under this Section 2.8 and the disposal of the non-conforming shipment shall be at the sole cost and expense of ESI. 2.9 [...***...] 2.10 NOTIFICATION OF INSPECTIONS Each party agrees to notify the other within two (2) business days of its receipt of notification of any inquiries, notifications, or inspection activity by any Agency, regulatory authority or other authority in regard to 13 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 or affecting Product. The recipient party shall provide a reasonable description to the other party of any such governmental inquiries, notifications or inspections promptly (but in no event later than five (5) calendar days) after notification of completion of such visit or inquiry. The recipient party shall furnish to the other party, (i) within two (2) business days after receipt any report or correspondence issued by the Agency or regulatory authority in connection with such visit or inquiry, including but not limited to, any FDA Form 483, Establishment Inspection Reports or warning letters and (ii) at the same time it provides to any Agency or regulatory authority, copies of any and all documents, responses or explanations relating to items set forth above, in each case purged only of trade secrets of the recipient that are unrelated to the obligations under this Agreement or are unrelated to Product. In the event such governmental agency or authority requests or requires any action to be taken to address any citations, the recipient agrees, after consultation with the other party, to take such action as necessary to address such citations , and agrees to cooperate with the other party with respect to any such citation and/or action taken with respect thereto. 2.11 INSPECTION BY ESI CIMA shall permit ESI (at its own expense) to visit, during normal business hours and with reasonable advance notice CIMA's manufacturing facility(ies) and warehouse, subject to the confidentiality provisions of this Agreement, for the purposes of (a) observing the manufacture, packaging, testing 14 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 and warehousing of Product and to inspect for compliance with GMP's, applicable regulatory requirements, the requirements of any applicable Regulatory Approvals, and environmental monitoring, (b) solving technical or quality problems, (c) examining the premises, equipment, procedures and personnel used when producing, testing or controlling Product and (d) all books and records relating to (a), (b) or (c). CIMA representatives shall be entitled to accompany ESI representatives on any such inspection. 2.12 ENVIRONMENTAL AND OTHER LAWS AND REGULATIONS (a) In carrying out its obligations under this Agreement, CIMA shall comply with all applicable environmental, health and safety laws (current or as amended or added, collectively "Laws"), and shall be solely responsible for determining how to comply with same. CIMA represents and warrants that it has the appropriate skills, personnel, equipment, permits or approvals necessary to perform its services under this Agreement in compliance with all applicable Laws. (b) CIMA shall notify ESI, in writing, no later than one (1) business day after the event, of any circumstances, including the receipt of any notice, warning, citation, finding, report or service of process, relating to compliance with the Laws, or the occurrence of any release, spill, upset or discharge of "Hazardous Active Ingredients" as defined by the Comprehensive Environmental Response, Compensation and 15 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 Liability Act of 1980, as amended, which relates to CIMA's ability to manufacture or supply Product. ESI reserves the right to conduct an environmental inspection of CIMA's facility(ies), during normal business hours and with reasonable advance notice, for the purpose of determining compliance with this Section 2.12(b), no more frequently than once per year during the term hereof and under conditions of confidentiality as provided under Article VIII. Upon CIMA's request, ESI shall share the results of any environmental inspection with CIMA. Such inspection, if it occurs, does not relieve CIMA of its sole obligation to comply with the Laws and does not constitute a waiver of any right otherwise available to ESI. 2.13 SPECIFICATIONS AMENDMENTS The Specifications shall be amended or supplemented to comply with GMPs and to comply with any applicable Agency directive and may also be amended or supplemented (including, without limitation, for the purpose of incorporating improvements) from time to time. In the event CIMA intends to amend the Specifications, ESI shall receive prompt advance notice of any such amendments. No such amendment shall be filed with any applicable Agency or otherwise become effective without the prior written mutual approval of ESI and CIMA. In the event that after the parties have initially agreed upon the Specifications, ESI requests that the Specifications be amended, CIMA shall receive prompt advance notice of any such amendment for the purpose of determining what, if any, impact the 16 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 proposed amendment would have on the manufacture of Product for ESI hereunder and ESI shall reimburse CIMA for the actual costs incurred by CIMA (provided that such costs are approved in writing by ESI prior to being incurred by CIMA) because such amendment requires changes to be made in the processes, equipment, testing procedures, or components used to manufacture Product for ESI hereunder. Such costs may include, without limitation, validation of new processes, equipment and facilities, development of testing methods and start-up costs. Any costs incurred by CIMA in implementing an amendment of the Specifications under this Section shall not be included in CIMA's Direct Manufacturing Cost. 2.14 APPROVAL FOR MANUFACTURING CHANGES; THIRD PARTY MANUFACTURING CIMA agrees that no changes will be made to any materials, equipment or methods of production or testing which are specified in the Specifications or any Regulatory Approval by any Agency for Product without ESI's prior written approval, which approval shall not be unreasonably withheld. Under no circumstances will CIMA contract out all or any part of the manufacturing of Product to a Third Party without prior written approval from ESI. 2.15 PERMITTED SUBCONTRACTORS CIMA shall ensure that the permitted contract manufacturers for the manufacture of Product have sufficient knowledge and expertise to carry out the manufacture of Product and other subcontracted 17 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 responsibilities. In addition CIMA shall ensure that (i) each such contract manufacturer shall be in compliance with GMPs and shall be under the inspection of all relevant Agencies and audited to be in compliance therewith, and (ii) ESI will have the right to inspect and audit each such subcontractor's facilities and records as provided in Section 2.11 hereof. ARTICLE III ACTIVE INGREDIENT 3.1 SUPPLY OF ACTIVE INGREDIENT (a) ESI agrees to supply CIMA, at no charge, all Active Ingredient CIMA requires for the manufacture of Product under this Agreement and CIMA agrees to use all and only, Active Ingredient supplied by ESI exclusively in the manufacture of Product. (b) As of the time of delivery to CIMA, all Active Ingredient will conform to the Specifications. (c) CIMA shall procure all ingredients other than the Active Ingredient used in the manufacture of Product, including excipients, inactive ingredients, imprinting materials, packaging and labeling materials unless otherwise mutually agreed to by the parties. 18 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 (d) CIMA agrees to notify ESI in writing of its requirements for Active Ingredient in a timely manner so as to assure the timely filling of ESI's purchase orders for Product. In the event that ESI fails to have supplied CIMA with sufficient quantities of conforming Active Ingredient at least sixty days prior to the due date for delivery of a Product order, CIMA will be relieved of its obligation to timely fill ESI's purchase orders for such Product to the extent prevented by ESI's failure to have Active Ingredient timely delivered. (e) Upon receipt of Active Ingredient, CIMA shall promptly, and in no event later than thirty (30) business days following receipt, sample and analyze the same to assure that it complies with the applicable Specifications. CIMA agrees to provide ESI with the results of such analysis as soon as reasonably possible, but in no event later than CIMA's manufacture of Product containing such Active Ingredient, and to keep, true, accurate and complete records of all such sampling and analyses, which records shall at all reasonable times be available for examination, audit and copying by ESI and its representatives. (f) In the event that any Active Ingredient is determined by CIMA not 19 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 to be in compliance with applicable Specifications, CIMA shall immediately notify ESI and shall follow all instructions of ESI regarding, and be responsible for, re-analysis, sampling, processing, return, disposal or destruction, including certification of destruction, of such non-conforming Active Ingredient. (g) If CIMA and ESI disagree as to whether any Active Ingredient meets the applicable Specifications, the matter will be submitted to an independent testing laboratory, acceptable to both parties, for analysis, which analysis shall be performed in compliance with applicable regulatory requirements. If the Active Ingredient is determined to be non-conforming, ESI will reimburse CIMA for CIMA's out-of-pocket expenses relating to re-analysis, sampling, processing, returns, disposal and/or destruction thereof. 3.2 USE OF ACTIVE INGREDIENT (a) Title to all Active ingredient supplied to CIMA by ESI shall at all times remain in ESI. CIMA shall clearly mark such Active Ingredient as the property of ESI and keep such Active Ingredient separate and apart from other raw materials. (b) CIMA shall not at any time sell or offer for sale, assign, mortgage, 20 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 pledge, or allow any lien to be created upon the Active Ingredient provided by ESI or any portion thereof. (c) At the termination of this Agreement, CIMA shall surrender to ESI all Active Ingredient in CIMA's possession. (d) CIMA shall be responsible for all loss or damage, howsoever occasioned, in Active Ingredient at all times it is in the possession of CIMA excepting only reasonable loss necessarily inherent in the manufacturing process. The parties agree that the amount of Active Ingredient loss reasonable to the Product's manufacturing process shall in no event be more than six percent (6%) per batch or more than four percent (4%) per any twelve month production period. CIMA shall permit ESI, during normal business hours and upon reasonable advance written notice, access to all records necessary to determine and verify Active Ingredient loss or damages. CIMA shall reimburse ESI for all costs and expenses (including shipping costs incurred by ESI in replacing Active Ingredient lost or damaged but not Active Ingredient which is determined by on analysis pursuant to Paragraph 5.1(g) not to be in compliance with the Specifications. 21 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 (e) ESI shall not be liable for any damage, loss or injury directly or indirectly resulting from the storage or handling by CIMA of any Active Ingredient. ARTICLE IV REGULATORY COMPLIANCE 4.1 ADVERSE DRUG EXPERIENCES In order for the parties to comply with their respective responsibilities under this Article IV and otherwise relating to the reporting of Adverse Drug Experiences, to the extent either party receives any information regarding Adverse Drug Experiences related to use of Product, such party shall promptly provide the other party with such information in accordance with the Adverse Event Reporting Procedures set forth in Exhibit B hereto (as may be amended from time to time upon written agreement of the parties). 4.2 PRODUCT COMPLAINTS ESI shall be solely responsible for interacting with the public with respect to customer complaints regarding Product quantity. With respect to any such complaints, each party shall have the responsibility for promptly conducting an investigation of any activities conducted by it under this Agreement which may be relevant to the complaint. Each party shall inform the other party of the nature, scope and details of any such complaint which requires an investigation by the other party, and each party shall promptly report the results of such investigation to the 22 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 other party. Either party shall cooperate in any investigation by the other party of each such complaint which involves the parties' duties under this Agreement. 4.3 COMPLIANCE ISSUES The parties acknowledge that the export of technical data, materials or products is subject to the exporting party receiving the necessary export licenses and that the parties cannot be responsible for any delays attributable to export controls which are beyond the reasonable control of either party. The parties agree that regardless of any disclosure made by the party receiving an export of any ultimate destination of any technical data, materials or products, the receiving party will not re-export either directly or indirectly, any technical data, material or products without first obtaining the applicable validated or general license form the United States Department of Commerce. ARTICLE V PAYMENT PROVISIONS 5.1 INSPECTION OF RECORDS The parties shall maintain at their offices, accurate and complete books and records consistent with sound business and accounting practices and in such form and in such detail as to enable the amount of payments payable under this Agreement by the respective party to be determined. ESI and CIMA shall permit an independent certified accountant (subject to obligations of confidentiality) appointed by the other party and reasonably acceptable to ESI or 23 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 CIMA(as applicable), at the other party's expense, to examine such books and records at all reasonable times for the sole purpose of (i) verifying ESI's or CIMA's (as applicable) reports and accounting submitted to the other party hereunder and (ii) determining the correctness of payments. In the event of any underpayment of any payment by at least five percent (5%), the costs of such inspection shall be borne by the party who made such underpayment and such underpayment shall be forthwith paid by such party to the other party with interest at the rate specified in Section 5.3. 5.2 PAYMENTS Each party shall make all payments due to the other party hereunder by wire transfer in immediately available funds to an account designated by the payee party. 5.3 INTEREST The parties shall pay interest on any amounts overdue under this Agreement at a rate equal to the U.S. dollar prime or equivalent rate quoted by Citibank N.A. or another mutually acceptable bank, as in effect during the period from the date due until payment. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6. REPRESENTATION AND WARRANTIES OF EACH PARTY Each of CIMA and ESI hereby represents, warrants and covenants to the other party hereto as follows: 24 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 (a) it is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of incorporation or formation; (b) the execution, delivery and performance of this Agreement by such party has been duly authorized by all requisite corporate action and does not require any shareholder action or approval; (c) it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and (d) the execution, delivery and performance by such party of this Agreement and its compliance with the terms and provisions hereof does not and will not conflict with or result in a breach of any of the terms and provisions of or constitute a default under (ii) a loan agreement, guaranty, financing agreement, agreement affecting a product or other agreement or instrument binding or affecting it or its property (ii) the provisions of its charter or operative documents or bylaws; or (iii) any order, writ, injunction or decree of any court or governmental authority entered against it or by which any of its property is bound. 6.2 REPRESENTATIONS AND WARRANTIES OF CIMA In addition to the representations and warranties made by CIMA under Section 6.1 above, CIMA hereby further represents and warrants to ESI that: 25 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 (a) At the time of delivery of Product to the specified point of delivery, Product shall (i) have been manufactured, stored and shipped in accordance with GMPs, as applicable, and all other applicable laws, rules, regulations or requirements in effect at the time of manufacture in the country of manufacture (for example, in accordance with the procedures described in the applicable Regulatory Approval); (ii) conform to the Specifications; (iii)) meet the provisions of the Specifications; (iv) shall not be adulterated or misbranded as provided for under any applicable law, order or regulation in effect in the country of manufacture and the country in which Product is being sold; (v) shall have been manufactured and have shelf-life in accordance with [to be discussed]; and (vi) have been shipped in accordance with approved procedures agreed between ESI and CIMA. (b) It shall have good and marketable title to all Product delivered to ESI. 6.3 NO INCONSISTENT AGREEMENTS Neither party has in effect and after the Effective Date neither party shall enter into any oral or written agreement or arrangement that would be inconsistent with its obligations under this Agreement. 6.4 REPRESENTATION BY LEGAL COUNSEL Each party hereto represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the parties agree that no 26 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 presumption shall exist or be implied against the party which drafted such terms and provisions. ARTICLE VII INDEMNIFICATION 7.1 INDEMNIFICATION BY ESI ESI shall indemnify, defend and hold harmless CIMA and its Affiliates, and each of its and their respective employees, officers, directors and agents (each a "CIMA Indemnified Party") from and against any all liability, loss, damage, cost and expense (including reasonable attorney's fees) (collectively, a "Liability") which the CIMA Indemnified Party may incur, suffer or be required to pay resulting form or arising in connection with (i) the breach by ESI of any representation or warranty contained in this Agreement, or (ii) the manufacture, promotion, distribution, use, testing, marketing, sale or other disposition of Product by ESI, its Affiliates or sublicenses. Notwithstanding the foregoing, ESI shall have no obligation under this Agreement to indemnify, defend or hold harmless any CIMA Indemnified Party with respect to claims, demands, costs or judgments which result from either (x) the failure of Product supplied by CIMA or its Affiliates to comply with the Specifications or the applicable Regulatory Approvals or (y) the willful misconduct or negligent acts or omissions of CIMA, its Affiliates, or any of their respective employees, officers, directors or agents. 27 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 7.2 INDEMNIFICATION BY CIMA CIMA shall indemnify, defend and hold harmless ESI and its Affiliates, and each of its and their respective employees, officers, directors and agents (each, an "ESI Indemnified Party") form and against any Liability which the ESI Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with the breach by CIMA of any representation or warranty contained in this Agreement. Notwithstanding the foregoing, CIMA shall have no obligation under this Agreement to indemnify, defend, or hold harmless any ESI Indemnified Party with respect to claims, demands, costs of judgments which result from the willful misconduct or negligent acts or omissions of ESI, its Affiliates, or sublicensees or any of their respective employees, officers, directors or agents. 7.3 CONDITIONS TO INDEMNIFICATION The obligations of the indemnifying party under Sections 7.1 and 7.2 are conditioned upon delivery of written notice to the indemnifying party of any potential Liability promptly after the indemnified party becomes aware of such potential Liability, provided, however, that the failure to give such notice promptly shall not impair a party's rights to indemnification under this Article VII unless the delay in providing such notice has a material adverse effect on the ability of the indemnifying party to defend against such Liability. The indemnifying party shall have the right to assume the defense of any suit or claim related to the Liability if it has assumed responsibility for the suit or claim in writing; however, if in the 28 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 reasonable judgment of the indemnified party, such suit or claim involves an issue or matter which could have a materially adverse effect on the business operations or assets of the indemnified party, the indemnified party may waive its rights to indemnity under this Agreement and control the defense or settlement thereof, but in no event shall any such waiver be construed as a waiver of any indemnification rights such party may have at law or in equity. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense. 7.4 SETTLEMENTS Neither party may settle a claim of action related to a Liability without the consent of the other party, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this Agreement. Any payment made by a party to settle any such claim or action shall be at its own cost and expense except in the event that such payment was made with the prior written consent of the indemnifying party, in which case such payment will be subject to the indemnification obligations of the parties as set forth in this Article VII. 7.5 INSURANCE Each party further agrees to obtain and maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carriers to cover its 29 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 indemnification obligations under Section 7.1or 7.2, as applicable, or, in the case of ESI, self-insurance, in each case with limits of not less than five million dollars ($5,000,000.00) per occurrence and ten million dollars ($10,000,000.00) in the aggregate. ARTICLE VIII CONFIDENTIALITY 8.1 NONDISCLOSURE During the Term of this Agreement and for a period of five (5) years thereafter, all proprietary and confidential business, technical, scientific and/or regulatory information, including Technical Information, disclosed to the receiving party or its Affiliates (herein collectively, the (Receiving Party) by the other party or its Affiliates (herein collectively, the (Disclosing Party) hereunder or under the existing Confidentiality Agreement between the parties, which is marked as confidential at the time of disclosure, or if disclosed or obtained orally or visually (or otherwise in a non-written form), was described or summarized in a writing or other tangible form and identified as confidential and forwarded to the Receiving Party within thirty (30) days of such disclosure (collectively, Confidential Information), shall be deemed to be confidential and shall be treated as such by the Receiving Party and shall not be disclosed, in whole or in part, by the Receiving Party to any other Person except as expressly set forth herein, and shall be used only for the purposes of this 30 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 Agreement. Notwithstanding the foregoing these mutual obligations of confidentiality shall not apply to any information to the extent that such information is: (i) independently developed by such party as documented by prior written records outside the scope and not in violation of this Agreement; (ii) legally in the public domain at the time of its receipt or thereafter legally becomes part of the public domain through no fault of the recipient; (iii) received without an obligation of confidentiality from a Third Party having the right to disclose such information; (iv) released from the restrictions of this Article VIII by the express written consent of the Disclosing Party; (v) as may be required for securing Regulatory Approval, or as may be required to be disclosed to an Agency or as otherwise required by a court order or any law or regulation (including, as may be required in connection with any filings made with the Securities and Exchange Commission or by the disclosure policies of a major stock exchange in the Territory); provided, however, that at the other party's request, the disclosing party shall request that the relevant legal or regulatory authority, or major stock exchange, treat as confidential any Confidential Information of either party included in any such disclosure and generally use diligent efforts to seek confidential treatment where available. 31 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 8.2 SCOPE OF CONFIDENTIALITY CIMA and ESI agree to limit the disclosure of any Technical Information and other Confidential Information received hereunder to such Affiliates, employees, consultants and distributors as are necessary to carry out the provisions of this Agreement and who are likewise bound by provisions equivalent to this Article VIII, except that, ESI may disclose Confidential Information to actual or potential sublicenses and subdistributors, provided that they are likewise bound by confidentiality provisions similar to, or more stringent than, those set forth in this Article VIII. The parties shall take reasonable measures to assure that no unauthorized use or disclosure is made by Persons to whom access to such Confidential Information is granted. ARTICLE IX TERM AND TERMINATION 9.1 TERM This Agreement shall be effective as of the Effective Date, and, unless sooner terminated by mutual agreement or pursuant to any other provision of this Agreement, shall continue in full force and effect in each country of the Territory for a period of ten (10) years after the Launch Date of Product in the first Major Country of the Territory which shall be deemed to occur no later than six (6) months after obtaining 32 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 Regulatory Approval or where applicable, Pricing Approval, in the first Major Country of the Territory (the Initial Term). After the Initial Term, this Agreement shall be automatically renewed for successive two (2) year periods (each, an Extended Term), unless ESI notifies CIMA of ESI's intent not to renew this Agreement at least nine (9) months prior to the expiration of the Initial Term or the then current Extended Term. The Term shall include the Initial Tem and any Extended Term. If the Development and License Agreement is terminated for any reason other than expiration, then this Agreement shall automatically terminate. 9.2 TERMINATION FOR DEFAULT Each party may terminate this Agreement as a whole if the other party commits a material breach of any material obligation under this Agreement and fails to remedy such breach within sixty (60) days (or, in the case of a late payment, ten (10) business days of notice of such breach, or other longer period of time if mutually agreed. 9.3 TERMINATION BY ESI ESI shall have the right, in its sole discretion, to terminate this Agreement at any time during the Term of this Agreement upon six (6) months' prior written notice to CIMA. 9.4 NO DAMAGES UPON EXPIRATION OR TERMINATION Except as otherwise set forth in this Agreement, neither party shall be entitled to any compensation whatsoever 33 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 as a result of expiration or termination of this Agreement, but without limiting either party's damages for any breach of this Agreement. 9.5 CONTINUING OBLIGATIONS Termination or expiration of this Agreement for any reason shall be without prejudice to any obligations which shall have accrued to the benefit of either party prior to such termination or expiration. Upon termination or expiration of this Agreement, any payments owed to the other party on or before the effective date of termination would be due within thirty (30) days of the effective date of such termination or expiration. The following provisions of this Agreement shall survive expiration or termination hereof: Articles VIII, IX, and XI. ARTICLE X PUBLICATIONS 10.1 PUBLICATIONS The parties shall mutually agree upon publications and the publication strategy with respect to work undertaken by the parties relating to Product, and neither party shall publish any result or study generated or developed under this Agreement except upon review by the other party at least sixty (60) days prior to submission of an abstract or manuscript for publication. 34 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 ARTICLE XI MISCELLANEOUS 11.1 FORCE MAJEURE Neither party shall be liable for delay or failure to perform its obligations hereunder for so long as that failure or delay is the result of an event beyond its control which it could not have avoided by the exercise of reasonable diligence, (a force majeure event), provided that such party uses Commercially Reasonable Efforts to comply with the terms of this Agreement as soon as practicable. A party asserting a force majeure event shall notify the other party promptly, giving an indication of the likely extent and duration thereof. 11.2 ASSIGNMENT; SUCCESSORS AND ASSIGNS Neither party shall at any time, without obtaining the prior written consent of the other party, assign or transfer this Agreement to any Person. Notwithstanding the foregoing, each party shall be permitted to assign this Agreement to its Affiliates or to perform this Agreement, in whole or in part, through its Affiliates, provided that such party shall be primarily liable and responsible for performance by such Affiliate hereunder; and each party may also assign this Agreement to any successor by merger or upon a sale of all or substantially all of its assets. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns. 35 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 11.3 NOTICES Any notices required or permitted to be given hereunder shall be in writing in the English language and shall be delivered by international courier service (requiring signature upon receipt) or sent by first class air mail, postage prepaid, or telefax (confirmed by phone conversation with the recipient) to the addresses set forth below. The parties may change the address at which notice is to be given by giving notice to the other party as herein provided. All notices shall be deemed effective upon receipt by the party to whom it is addressed. If to CIMA: CIMA, Labs. Inc. 10000 Valley View Road Eden Prairie, MN 55344 Attention: Dr. John Siebert President and CEO Telephone: (612) 947-8762 Telefax: (612) 947-8770 36 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 If to ESI: With a copy to: ESI Lederle American Home Products Corporation 130 North Radnor-Chester Road 5 Giralda Farms St. Davids, Pennsylvania 19087 Madison, New Jersey 07940 Attention: President Attention: Telephone: (610) 971-4550 Senior Vice President & General Counsel Telefax: (610) 995-3394 Telephone: (973) 660-6040 Telefax: (973) 660-7050 11.4 GOVERNING LAW AND JURISDICTION This Agreement and its execution, validity and interpretation shall be governed in all respects in accordance with the laws of the State of New York, excluding conflicts of law rules. 11.5 SEVERABILITY In the event that any provision of this Agreement shall be held to be unenforceable, invalid or in contravention of applicable law, such provision shall be of no effect, and the parties shall negotiate in good faith to replace such provision with a provision which effects to the extent possible the original intent of such provision. 11.6 COMPLETE AGREEMENT; MODIFICATIONS This Agreement, together with the Development and License Agreement and all Exhibits attached to each, constitutes the entire Agreement between the parties with respect to the present subject matter, all prior negotiations, agreements and understandings being expressly canceled hereby. This Agreement may be amended only by a written agreement embodying the full terms of the amendment signed by authorized representatives of both parties. 37 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4) 200.83 AND 204.24B-2 11.7 NO AGENCY Neither party shall by virtue of this Agreement have any power to bind the other to any obligation nor shall this Agreement create any relationship of agency, partnership or joint venture. 11.8 NO WAIVER No term or condition of this Agreement shall be considered waived unless reduced to writing and duly executed by an officer of the waiving party. Any waiver by any party of a breach of any term or condition of this Agreement will not be considered as a waiver of any subsequent breach of this Agreement, of that term or condition or any other term or condition hereof. 11.9 COUNTERPARTS This Agreement may be executed in counterparts, each of which together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CIMA LABS INC. ESI LEDERLE By: /s/ John M. Siebert By: /s/ Mike Dey Name: John M Siebert Name: Mike Dey Title: President and CEO Title: President EX-23.1 7 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-32233, Form S-8 No. 333-05741, Form S-8 No. 333-05741, Form S-8 No. 33-82794 and Form S-8 No. 33-82790) pertaining to certain stock option plans of the Company, of our report dated February 11, 2000, with respect to the financial statements and schedule of CIMA LABS, INC. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ Ernst & Young LLP Minneapolis, Minnesota March 28, 2000 EX-24.1 8 POWER OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below hereby constitutes and appoints John M. Siebert and David A. Feste and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of CIMA Labs Inc. for the twelve months ended December 31, 1999, and all amendments to such Annual Report on Form 10-K and to file same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Signature Date --------- ---- /s/ John M. Siebert March 24, 2000 - ------------------- John M. Siebert President & Chief Executive Officer (Principal Executive Officer) and Director /s/ Terrence W. Glarner March 23, 2000 - ----------------------- Terrence W. Glarner Director /s/ Steven B. Ratoff March 22, 2000 - -------------------- Steven B. Ratoff Director /s/ Joseph R. Robinson March 22, 2000 - ---------------------- Joseph R. Robinson Director EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS OF CIMA LABS, INC. AS OF DECEMBER 31, 1999, AND THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 2,480,698 0 3,094,258 36,000 2,772,429 8,384,427 16,355,463 5,996,024 19,269,808 4,186,222 0 0 0 96,462 57,454,661 19,269,808 4,839,511 13,392,464 7,545,341 7,225,475 0 0 0 (1,262,359) 0 (1,262,359) 0 0 0 (1,262,359) (.13) (.13)
EX-99.1 10 RISK FACTORS 1 Exhibit 99.1 RISK FACTORS Certain statements made in this Annual Report on Form 10-K are forward-looking statements based on our current expectations, assumptions, estimates and projections about our business and our industry. These forward-looking statements involve risks and uncertainties. Our business, financial condition and results of operations could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described below and elsewhere in this Form 10-K. You should consider carefully the risks and uncertainties described below, which are not the only ones facing our company. Additional risks and uncertainties also may impair our business operations. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. RISK RELATED TO OUR COMPANY WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS. We recorded the first commercial sales of products using our fast-dissolve technologies in early 1997. Since 1997, we have generated revenues from product development fees, licensing arrangements, sales of products using our fast-dissolve technologies and from royalties. We are currently making the transition from research and product development operations with limited production to commercializing our technologies and expanding our production capabilities, in addition to research and product development activities. Accordingly, we have only a limited operating history and our business and prospects must be evaluated in light of the risks and uncertainties of a company with a limited operating history and, in particular, one in the pharmaceutical industry. Many of these risks are discussed in the subheadings below. WE MAY NOT BE PROFITABLE IN THE FUTURE. We have accumulated aggregate net losses from inception through December 31, 1999 of approximately $46 million. Our losses have resulted principally from the research and product development costs for our drug delivery technologies and from general and administrative costs. If we are not profitable, the market price of our stock may fall. Profitable operations depend on a number of factors, many of which are beyond our direct control. These factors include: o the demand for our products; o our ability to manufacture our products efficiently and with the required quality; o our ability to increase our manufacturing capacity; o the level of product and price competition; o our ability to develop additional commercial applications for our products; o our ability to control our costs; and o general economic conditions. THE LOSS OF ONE OF OUR MAJOR CUSTOMERS COULD HARM OUR BUSINESS. Revenues from our three largest customers represented over 85% of our total revenues for the year ended December 31, 1999. The loss of any one of those customers could have a material adverse effect on our business and results of operations. If we cannot broaden our customer base, we will continue to depend on a few customers for the majority of our revenues. We may be unable to negotiate favorable business terms with customers that represent a significant portion of our revenues and our business and results of operations may be adversely affected. IF WE DO NOT ENTER INTO ADDITIONAL COLLABORATIVE AGREEMENTS WITH PHARMACEUTICAL COMPANIES, WE MAY NOT BE ABLE TO BECOME PROFITABLE. Our revenues depend on entering into collaborative agreements with pharmaceutical companies to develop, test, obtain governmental approval for, and commercialize oral dosage forms of active pharmaceutical ingredients using our drug delivery technologies. We currently have collaborative 1 2 agreements with six pharmaceutical companies. If we do not enter into additional agreements in the future, or if our current or future agreements do not result in successful marketing of our products, our financial condition and results of operations could be materially adversely affected. In addition, we cannot be sure that: o we will be able to enter into collaborative agreements to develop additional products using our drug delivery technologies; o any existing or future collaborative agreements will result in additional commercial products, or that any of these products will be successful; o we will meet the milestones established in our current or future collaborative agreements; or o we will successfully develop new drug delivery technologies that will be attractive to potential pharmaceutical company partners. WE RELY ON THIRD PARTIES TO MARKET, DISTRIBUTE AND SELL THE PRODUCTS INCORPORATING OUR DRUG DELIVERY TECHNOLOGIES AND THOSE THIRD PARTIES MAY NOT PERFORM. We develop, manufacture and sell our products through relationships with our pharmaceutical company partners. The timing and other aspects of the development of products are sometimes out of our control, as the other party to the relationship may have priorities that differ form ours. Therefore, the timing of the commercialization of our products under development may be subject to unanticipated delays. Further, our drug delivery technologies are incorporated into the oral dosage forms of products marketed and sold by our pharmaceutical company partner and we do not have a direct marketing channel to consumers for our drug delivery technologies. Therefore, the success of the products incorporating our technologies will depend on the success of the marketing organizations of our pharmaceutical company partners, as well as the level of priority assigned to the marketing of our products by these entities, which may differ from our priorities. If one or more of our pharmaceutical company partners fail to pursue the development of, or the marketing of, our products as planned, our business may be adversely affected. IF WE CANNOT INCREASE OUR PRODUCTION CAPACITY, OUR BUSINESS WILL SUFFER. We must increase our production capacity to meet expected demand for our products. We currently have one production line and a second line is being developed. We expect our second production line to be operational in the second half of 2001, although we may experience difficulties, which could delay our ability to increase manufacturing capability. Production lines in the pharmaceutical industry generally take 16 to 24 months to complete because of the long lead times required for precision production equipment and the lengthy testing and approval process. We cannot be sure that our production capacity can be increased quickly enough to meet the requirements of our pharmaceutical company partners with whom we are developing our drug delivery technologies. If we are unable to increase our production capacity as scheduled, our revenues may be reduced and our relationship with our pharmaceutical company partners may be harmed. WE HAVE A SINGLE MANUFACTURING FACILITY AND OUR BUSINESS WOULD SUFFER IF WE WERE TO LOOSE ITS PRODUCTION CAPACITY. All of the products that we produce are manufactured on our existing production line in our Eden Prairie facility. If our existing production line or facility becomes incapable of manufacturing products for any reason, we would have no other means of producing products incorporating our drug delivery technologies until we are able to restore the manufacturing capability at our facility or develop an alternative manufacturing facility. Although we carry business interruption insurance to cover lost revenues and profits in an amount we consider adequate, this insurance does not cover all possible situations. In addition, our business interruption insurance would not compensate us for the loss of opportunity and potential adverse impact on relations with our existing pharmaceutical company partners resulting from our inability to produce products for them. 2 3 WE RELY ON A SINGLE SOURCE FOR SOME OF OUR RAW MATERIALS AND OUR BUSINESS COULD SUFFER IF THE MATERIALS WERE NOT AVAILABLE FROM THEIR CURRENT SOURCE. We rely on a single supplier for some of our raw materials and packaging supplies. If these raw materials or packaging supplies were no longer available, our manufacturing operations may be interrupted until another supplier could be identified, its products validated and trading terms with it negotiated. We cannot be sure that an alternative supplier could be identified in a timely manner, or at all, or that favorable terms could be negotiated with an alternative supplier. Any disruptions in our manufacturing operations from the loss of a supplier could have a material adverse effect on our results of operations, and potentially damage our relations with our pharmaceutical company partners. OUR ABILITY TO DEVELOP ADDITIONAL PRODUCTS IS UNCERTAIN. We intend to continue to enhance our current technologies and pursue additional proprietary drug delivery technologies. Even if these technologies appear promising during various stages of development, we may not be able to develop commercial applications for them because: o the potential technologies may fail clinical studies; o we may not find a pharmaceutical company to adopt the technologies; o it may be difficult to apply the technologies on a commercial scale; or o the technologies may be uneconomical to market. IF PATIENTS AND PHYSICIANS DO NOT ACCEPT OUR DRUG DELIVERY TECHNOLOGIES, WE MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUES, IF ANY. Our revenues depend on ultimate patient and physician acceptance of our drug delivery technologies as an alternative to conventional drug delivery systems. If our drug delivery technologies are not accepted in the marketplace, our pharmaceutical company partners may be unable to successfully market and sell our products, which would limit our ability to generate revenues and harm our results of operations. The degree of acceptance of any drug delivery system depends on a number of factors. These factors include, but are not limited to: o demonstrated clinical efficacy and safety; o cost-effectiveness; o convenience and ease of administration; o advantages over alternative drug delivery systems; and o marketing and distribution support. Because only a limited number of products incorporating our drug delivery technologies are commercially available, we cannot be sure of the level of market acceptance of our drug delivery technologies. We expect that products incorporating our drug delivery technologies will be priced slightly higher than conventional swallowable or chewable tablets. DEMAND FOR SOME OF OUR PRODUCTS IS SEASONAL, AND OUR OPERATING RESULTS MAY SUFFER DURING PERIODS WHEN DEMAND IS LIGHT. Certain non-prescription products we manufacture are used to treat seasonal ailments such as colds and the flu. In 1999, revenue from Novartis, which included sales of our Triaminic products, royalties on sales of Triaminic by Novartis and product development fees, represented 42% of our total revenues. Our partners may not market our products in off-seasons and our operating results consequently may suffer. We are focused on developing a mix of non-prescription and prescription products to reduce these seasonal variations but we may not be successful. 3 4 IF WE CANNOT ADEQUATELY PROTECT OUR PATENT AND PROPRIETARY RIGHTS, OUR BUSINESS WILL SUFFER. Our success depends, in part, on our ability to obtain and enforce patents for our products, processes and technologies and to preserve our trade secrets and other proprietary information. We have been granted seven patents on our drug delivery systems in the U.S., which will expire beginning in 2010. We cannot be sure that any patent applications relating to our potential products or processes will result in patents being issued. Our current patents may not be valid or enforceable, or protect us against competitors who challenge our patents, or obtain patents that may have an adverse effect on our ability to conduct business, or who are able to circumvent our patents. Further, we cannot be sure that we will have the necessary financial resources to enforce our patents. To protect our trade secrets and proprietary technologies and processes, we rely, in part, on confidentiality agreements with our employees, consultants and advisors. We cannot be sure that these agreements will prove adequate protection for our trade secrets and other proprietary information in the event of any unauthorized use or disclosure, or if others lawfully develop the information. WE MAY BE SUBJECT TO CLAIMS THAT OUR TECHNOLOGIES, OR THE PRODUCTS IN WHICH THEY ARE USED, INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS. The manufacture, use or sale of our drug delivery technologies may infringe the patent rights of others. We may be unable to avoid infringement of those patents and we may have to seek licenses, defend infringement actions or challenge the validity of those patents in court. We cannot be sure that, if required, licenses from third parties will be available to us on terms and conditions acceptable to us, if at all, or that we would prevail in any patent litigation. If we could not obtain required licenses, are found liable for infringement, or are not able to have these patents declared invalid, we may be liable for significant monetary damages, encounter significant delays in bringing products to market, or be precluded from participating in the manufacture, use or sale of products or methods of drug delivery covered by the patents of others. We cannot be sure that we have identified, or will identify in the future, U.S. and foreign patents that pose a risk of potential infringement claims. We enter into collaborative agreements with pharmaceutical companies to apply our drug delivery technologies to drugs developed by others and, ultimately, receive license revenues and product development fees, as well as revenues from the sale of products incorporating our technology and royalties. The drugs are generally the property of the pharmaceutical companies and may be the subject of patents or patent applications and other forms of protection owned by the pharmaceutical companies. To the extent those patents or other forms of protection expire, become invalid or otherwise ineffective, or to the extent the drugs are covered by patents or other forms of protection owned by third parties, sales of the drugs by the collaborating pharmaceutical company may be restricted, limited or may cease. Our revenues, in that event, may be adversely affected. WE MAY NOT BE ABLE TO OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY BASIS, OR AT ALL. All new pharmaceutical products, including our products and those under development, are subject to extensive and rigorous regulation by the federal government, principally the U.S. Food and Drug Administration, or FDA, and by state and local government agencies. These regulations govern the research, development, testing, manufacture, safety, storage, record keeping, labeling, advertising and promotion and marketing and distribution of pharmaceutical products. If marketed abroad, these products also are subject to regulation by foreign governments. The process for obtaining FDA approvals for drug products is generally lengthy, expensive and uncertain. Securing FDA approvals often requires applicants to submit extensive clinical data and supporting information to the FDA. We depend on external laboratories and medical institutions to conduct pre-clinical and clinical testing of our products in compliance with clinical and laboratory practices established by the FDA. The data obtained from pre-clinical and clinical testing is subject to varying 4 5 interpretations that could delay, limit or prevent regulatory approval. Delays or rejection also may occur due to changes in FDA approval policy during the development period, or changes in regulatory review for each submitted New Drug Application. Even if the FDA approves a product, the approval may limit the uses or "indications" for which a product may be marketed, or may require further studies. The FDA also can withdraw product clearances and approvals for failure to comply with regulatory requirements or if unforeseen problems follow initial marketing. Once a drug product is approved, the Division of Drug Marketing, Advertising and Communication, or DDMAC, the FDA's marketing surveillance department within the Center for Drugs, must approve marketing claims asserted by our pharmaceutical company partners, which are the basis for a product's labeling, advertising and promotion. We cannot be sure that the claims our pharmaceutical company partners are asserting about our drug delivery technology, or the drug product itself, will be approved by DDMAC. If our pharmaceutical company partners fail to obtain from DDMAC acceptable marketing claims for a product, our business and results of operations could be materially adversely effected. If we, or pharmaceutical companies with whom we are developing our technologies, fail to comply with applicable FDA and other regulatory requirements, we, and they, are subject to sanctions, including: o warning letters; o fines; o product seizures or recalls; o injunctions; o refusals to permit products to be imported into or exported out of the U.S.; o total or partial suspension of production; o withdrawals of previously approved marketing applications; and o criminal prosecutions. Manufacturers of drugs also must comply with applicable Good Manufacturing Practices, or GMP, requirements, which relate to product testing, quality assurance and maintaining records and documentation. We cannot be sure that we will be able to comply with the applicable GMP and other FDA regulatory requirements for manufacturing as we expand our manufacturing operations, which would impair our business. If our products are marketed in foreign jurisdictions, we, and the pharmaceutical companies with whom we are developing our technologies, must obtain required regulatory approvals from foreign regulatory agencies and comply with extensive regulations regarding safety and quality. We cannot be sure that we will obtain all necessary regulatory approvals or that we will not be required to incur significant costs in obtaining or maintaining any foreign regulatory approvals. If approvals to market our products are delayed, if we fail to receive these approvals, or if we lose previously received approvals, our business would be impaired. 5 6 WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH. Any failure to properly manage our growth may have a material adverse effect on our business, operating results and financial condition. The rapid growth that we have experienced places significant challenges on our management, administrative and operational resources. To properly manage this growth, we must, among other things, implement additional and improve existing administrative, financial and operational systems, procedures and controls on a timely basis. We will also need to expand our finance, administrative and operations staff. We may not be able to complete the improvements to our systems, procedures and controls necessary to support our future operations in a timely manner. Management may not be able to hire, train, integrate, retain, motivate and manage required personnel and may not be able to successfully identify, manage and exploit existing and potential market opportunities. Improving our systems and increasing our staff will increase our operating expenses. Our failure to generate additional revenue in excess of increased operating expenses in any fiscal period could have a material adverse effect on our financial results for that period. WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY PERSONNEL. Our success depends upon the continued contributions of our executive officers and scientific and technical personnel. During our operating history, many key responsibilities within our company have been assigned to a relatively small number of individuals. The competition for qualified personnel is intense, and the loss of services of key personnel could adversely affect our business. In particular, the loss of the services of John Siebert, our Chief Executive Officer, and John Hontz, our Chief Operating Officer, could have a material adverse effect on our operations. We have an employment agreement through December 31, 2000 with Dr. Seibert. We rely on and our consultants to assist us in formulating our research and development strategy. All of our consultants are otherwise employed and each of these consultants may have commitments to other entities that may limit their availability to us or other interests that may conflict with our interests. WE MAY FACE PRODUCT LIABILITY CLAIMS RELATED TO PARTICIPATION IN CLINICAL TRIALS OR THE USE OR MISUSE OF OUR PRODUCTS. The testing, manufacturing and marketing of products utilizing our drug delivery technologies may expose us to potential product liability and other claims resulting from their use. We cannot be sure that any indemnification we have obtained, or may obtain, from contract research organizations or pharmaceutical companies conducting human clinical trials on our behalf protect us from product liability claims or from the costs of related litigation. Similarly, we cannot be sure that any indemnification we have obtained, or may obtain, from pharmaceutical companies with whom we are developing our drug delivery technologies will protect us from product liability claims from the consumers of those products or from the costs of related litigation. If we are subject to a product liability claim, we cannot be sure that our product liability insurance, which has an aggregate policy limit of $5 million, will reimburse us, or will be sufficient to reimburse us, for any expenses or losses we may suffer. A successful product liability claim against us, if not covered by, or if in excess of, our product liability insurance, may have a material adverse effect on our business and results of operations. RISKS RELATED TO OUR INDUSTRY WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION. Our success depends, in part, upon maintaining a competitive position in the development of products and technologies in a rapidly evolving field. We compete with other drug delivery, biotechnology and pharmaceutical companies, engaged in the development of alternative drug delivery technologies or new drug research and testing, as well as with entities developing new drugs that may be taken orally. Many of these competitors have substantially greater financial, technological, manufacturing, marketing, managerial and research and development resources and experience than we do, and, therefore, represent significant competition for us. 6 7 Our competitors may succeed in developing competing technologies or obtaining governmental approval for products before we do. The products of our competitors may gain market acceptance more rapidly than our products. Developments by competitors may render our products, or potential products, noncompetitive or obsolete. OUR COMMERCIAL PRODUCTS ARE SUBJECT TO CONTINUING REGULATION. Even if our products receive regulatory approval, either in the U.S. or internationally, we will continue to be subject to extensive regulatory requirements. These regulations are wide-ranging and govern, among other things: o adverse drug experience reporting regulations; o product promotion; o product manufacturing, including good manufacturing practice, or GMP, requirements; and o product changes or modifications. If we fail to comply or maintain compliance with these laws and regulations, we may be fined or barred from selling our products. If the FDA believes that we are not complying with the law, it can: o seize our products; o mandate a recall; o stop future sales through injunctive procedures; and/or o assess civil and criminal penalties against us. RISKS RELATED TO OUR COMMON STOCK ANTI-TAKEOVER PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS, DELAWARE LAW AND OUR STOCKHOLDERS' RIGHTS PLAN MAY AFFECT THE PRICE OF OUR COMMON STOCK. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of holders of our common stock may be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. Additional provisions of our certificate of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting common stock. These include provisions that limit the ability of stockholders to take action by written consent, call special meetings or remove a director for cause. We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, either alone or together with affiliates and associates, owns (or within the past three years, did own) 15% or more of the corporation's voting stock. We also have a stockholders' rights plan, commonly referred to as a poison pill, that makes it difficult, if not impossible, for a person to acquire control of us without the consent of our board of directors. The anti-takeover provisions or our corporate charter documents, Delaware law and our stockholders' rights plan may have the effect of depriving our stockholders of the opportunity to sell their stock at a price in excess of prevailing market prices in an acquisition of us by another company. 7 8 OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE. The trading price of our common stock has been, and is likely to continue to be highly volatile. The market prices for securities of drug delivery, biotechnology and pharmaceutical companies historically have been highly volatile. Factors that could adversely affect our stock price include: o fluctuations in our operating results; o announcements of technological collaborations, innovations or new products by us or our competitors; o governmental regulations; o developments in patent or other proprietary rights; o public concern as to the safety of drugs developed by us or others; o the results of preclinical testing and clinical studies or trials by us or our competitors; o litigation; and o general market conditions. OUR OPERATING RESULTS MAY FLUCTUATE, CAUSING OUR STOCK PRICE TO FALL. Our operating results may fluctuate from quarter to quarter and from year to year depending on: o demand by patients for the products we produce; o new product introductions; o the seasonal nature of the products produced to treat seasonal ailments; o pharmaceutical company ordering patterns; o the number of new collaborative agreements that we enter into; o our achievement of product development milestones under collaborative agreements; and o our level of activity conducted on behalf and at the direction of pharmaceutical companies. Fluctuations in our operating results may lead to fluctuations, including declines, in our stock price. FUTURE SALES OF COMMON STOCK, OR THE PROSPECT OF FUTURE SALES, MAY DEPRESS OUR STOCK PRICE. Sales of a substantial number of shares of common stock, or the perception that sales could occur, could adversely affect the market price of our common stock. On March 17, 2000, we issued and sold 1,100,000 shares of our common stock to a limited number of investors in a private placement, exempt from registration under the Securities Act of 1933. Under the stock purchase agreement with the investors, we are required to file a registration statement with the Securities and Exchange Commission within thirty days after March 17, 2000 for the resale by the investors of the shares of common stock issued in the private placement. We also are required to use our reasonable efforts to have the registration statement declared effective by the Securities and Exchange Commission and maintain its effectiveness until the earlier of March 17, 2002, the time at which all shares acquired in the private placement have been sold under the registration statement, or the date on which each investor may sell all of the shares of common stock acquired by the investor in the private placement without registration or without regard to any volume limitations. Significant resales of the common stock issued in the private placement could adversely affect the market price of our common stock. WE MAY REQUIRE ADDITIONAL FINANCING. We expect operating expenses and capital expenditures to increase as we commercialize additional applications of our drug delivery technologies and increase our production capacity. We believe our cash and cash equivalents, together with the net proceeds from the private placement of common stock and expected revenues from operations, will be sufficient to meet our anticipated capital requirements for the foreseeable future. However, we may elect to pursue additional financing at any time to more aggressively pursue development of new drug delivery technologies and expand manufacturing capacity beyond that 8 9 currently planned. In addition, other factors that will affect future capital requirements and may require us to seek additional financing, include the level of expenditures necessary to develop new products or technologies, the progress of our research and product development programs, the need to construct a larger than currently anticipated manufacturing facility to meet demand for our products, results of our collaborative efforts with current and potential pharmaceutical company partners, and the timing of and amounts received from future product sales, product development fees and licensing revenue and royalties. We cannot be sure that additional financing will be available to us or, if available, on acceptable terms. Further, if we issue equity securities, our stockholders may experience dilution. 9 -----END PRIVACY-ENHANCED MESSAGE-----