-----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, ANKS68KnnBMZkW+rJbqgPqTYE6jj4wBYs1msTQ/nHGqREoInHm9QTqKVQN6SEKOg eJk0O6C4gvu6n1pLp7Bw/A== 0001047469-97-004873.txt : 19971117 0001047469-97-004873.hdr.sgml : 19971117 ACCESSION NUMBER: 0001047469-97-004873 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIMA LABS INC CENTRAL INDEX KEY: 0000833298 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 411569769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24424 FILM NUMBER: 97720096 BUSINESS ADDRESS: STREET 1: 10000 VALLEY VIEW ROAD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-9361 BUSINESS PHONE: 6129478700 MAIL ADDRESS: STREET 1: 10000 VALLEY VIEW ROAD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-9361 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-24424 CIMA LABS INC. (Exact name of registrant as specified in its charter) Delaware 41-1569769 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10000 Valley View Road, Eden Prairie, Minnesota 55344-9361 (Address of principal executive offices including zip code) (612) 947-8700 (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.01 par value 9,591,394 Shares ---------------------------------- ---------------------------------- (Class) (Outstanding at November 10, 1997) 1 CIMA LABS INC. TABLE OF CONTENTS PAGE NUMBER ----------- COVER PAGE 1 TABLE OF CONTENTS 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Condensed Balance Sheets as of September 30, 1997 and December 31, 1996 3 Condensed Statements of Operations for the three- month and nine-month periods ended September 30, 1997 and 1996 and the period from December 12, 1986 (inception) to September 30, 1997 4 Condensed Statements of Cash Flows for the nine-month periods ended September 30, 1997 and 1996 and the period from December 12, 1986 (inception) to September 30, 1997 5 Notes to Condensed Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 7 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 12 ITEM 2. CHANGES IN SECURITIES. 12 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 12 ITEM 5. OTHER INFORMATION. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13 SIGNATURE 14 EXHIBIT INDEX 15 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CIMA LABS INC. (A Development Stage Company) Condensed Balance Sheets (Unaudited)
September 30, December 31, -------------- -------------- 1997 1996 (Note) ASSETS Current assets: Cash and cash equivalents $2,089,860 $2,666,032 Short-term investments 3,503,541 7,597,162 Accounts receivable 1,369,753 247,578 Inventories--Note B 933,638 534,587 Prepaid expenses 210,906 71,880 -------------- -------------- Total current assets 8,107,698 11,117,239 Property, plant and equipment 13,966,652 13,377,085 Less accumulated depreciation (3,572,457) (2,972,474) -------------- -------------- 10,394,195 10,404,611 Other assets: Lease deposits 40,651 290,650 Patents and trademarks, net of amortization 236,669 252,404 -------------- -------------- 277,320 543,054 -------------- -------------- -------------- -------------- Total assets $18,779,213 $22,064,904 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $349,792 $264,370 Accrued expenses 1,390,037 529,402 Advance royalties 250,000 250,000 -------------- -------------- Total current liabilities 1,989,829 1,043,772 Commitments and contingencies Stockholders' equity Convertible Preferred Stock, $.01 par value: Authorized shares--5,000,000; issued and outstanding shares-- none Common Stock, $.01 par value: Authorized shares--20,000,000; issued and outstanding shares-- 9,591,318--September 30, 1997; 9,411,589--December 31, 1996 95,913 94,116 Additional paid-in capital 57,176,371 56,586,958 Deficit accumulated during the development stage (40,482,900) (35,659,942) -------------- -------------- Total stockholders' equity 16,789,384 21,021,132 -------------- -------------- Total liabilities and stockholders' equity $18,779,213 $22,064,904 -------------- -------------- -------------- --------------
Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed financial statements. 3 CIMA LABS INC. (A Development Stage Company) Condensed Statements of Income (Unaudited)
Period from December 12, Three Months Ended Nine Months Ended 1986 -------------------------- --------------------------- (Inception) to September 30, September 30, September 30, -------------------------- --------------------------- ------------- 1997 1996 1997 1996 1997 -------------------------- --------------------------- ------------- Revenues: Net sales $825,117 $0 $1,657,689 $0 $15,408,573 Research and development fees & 800,884 504,425 1,258,996 1,171,560 6,605,586 Licensing revenues -------------------------- --------------------------- ------------- 1,626,001 504,425 2,916,685 1,171,560 22,014,159 Costs and expenses: Cost of goods sold 1,323,096 0 2,891,202 0 20,722,617 Research and product development 594,773 1,228,632 2,579,434 3,903,428 23,102,282 Selling, general and administrative 739,751 782,544 2,628,110 2,363,303 20,272,185 -------------------------- --------------------------- ------------- 2,657,620 2,011,176 8,098,746 6,266,731 64,097,084 Other income (expense): Interest income, net 68,783 200,096 262,487 367,574 1,381,887 Other income (expense) 1,418 (1,876) 125,640 (4,700) 395,670 -------------------------- --------------------------- ------------- 70,201 198,220 388,127 362,874 1,777,557 Net loss and deficit accumulated during the development stage ($961,418) ($1,308,531) ($4,793,934) ($4,732,297) ($40,305,368) -------------------------- --------------------------- ------------- -------------------------- --------------------------- ------------- Net loss per share: Primary $(0.10) $(0.14) $(0.50) $(0.55) $(11.96) Fully diluted $(0.10) $(0.14) $(0.50) $(0.55) $(8.82) Weighted average shares outstanding: Primary 9,556,054 9,405,846 9,498,266 8,633,939 3,370,411 Fully diluted 9,556,054 9,405,846 9,498,266 8,633,939 4,568,497
See notes to condensed financial statements. 4 CIMA LABS INC. (A Development Stage Company) Condensed Statements of Cash Flows (Unaudited)
Period from December 12, Nine Months Ended 1986 September 30, (Inception) to --------------------------- September 30, 1997 1996 1997 --------------------------- -------------- OPERATING ACTIVITIES Net loss ($4,793,934) ($4,732,297) ($40,305,368) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 695,145 442,374 4,715,708 Preferred stock issued for accrued interest 0 0 141,448 Gain on sale of property, plant and equipment 0 0 (53,270) Changes in operating assets and liabilities: Accounts receivable (1,122,175) (226,761) (1,369,753) Inventories (399,051) (25,173) (933,638) Other current assets (139,026) 175,028 (210,906) Accounts payable 85,422 (148,575) 349,788 Accrued expenses 860,635 293,809 1,390,037 Advance royalties 0 0 250,000 --------------------------- -------------- Net cash used in operating activities (4,812,984) (4,221,595) (36,025,954) INVESTING ACTIVITIES Purchase of and deposits on property, plant and equipment (588,969) (404,268) (15,050,305) Purchase of short-term investments (1,257,262) 0 (27,401,564) Proceeds from sale of property, plant & equipment 0 0 471,883 Proceeds of maturities of short-term investments 5,350,885 0 23,898,025 Patents and trademarks (80,030) (81,959) (695,458) --------------------------- -------------- Net cash used in investing activities 3,424,624 (486,227) (18,777,419) FINANCING ACTIVITIES Proceeds from issuance of stock: Common Stock 562,188 13,083,130 31,394,363 Preferred Stock 0 0 25,458,690 Lease financing of equipment 0 0 2,441,650 Security deposits on leases 250,000 0 (40,651) Proceeds from issuance of notes payable and warrants 0 0 1,923,951 Payments on notes payable 0 0 (1,823,700) Payments on capital leases 0 0 (2,441,650) Organization costs 0 0 (19,420) --------------------------- -------------- Net cash (used in) provided by financing activities 812,188 13,083,130 56,893,233 --------------------------- -------------- Increase (decrease) in cash and cash equivalents (576,172) 8,375,308 2,089,860 Cash and cash equivalents at beginning of period 2,666,032 3,558,743 - --------------------------- -------------- Cash and cash equivalents at end of period $2,089,860 $11,934,051 $2,089,860 --------------------------- -------------- --------------------------- -------------- Supplemental schedule of noncash investing and financing activities: Note payable exchanged for issuance of common stock $1,517,500 Common stock issued for note receivable 50,000
See notes to condensed financial statements. 5 CIMA LABS INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. NOTE B - INVENTORIES Inventories are stated at the lower of cost (first in, first out) or fair market value. September 30, December 31, 1997 1996 ------------- ------------ Raw materials $426,413 $534,587 Work in process 141,404 -- Finished products 365,821 -- ------------- ------------ $933,638 $534,587 NOTE C - INITIAL PUBLIC OFFERING The Company completed its initial public offering ("IPO") of its Common Stock in August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were automatically converted on a one-for-one basis to shares of Common Stock on the closing date of August 4, 1994. NOTE D - NET LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding during the period. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is antidilutive. In February 1997, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the presentation of primary earnings per share (EPS) with basic EPS and also requires dual presentation of basic and diluted EPS for entities with complex capital structures. This Statement is effective for the fiscal year ended December 31, 1997. For the quarter ended September 30, 1997, there is no difference between basic earnings per share under Statement No. 128 and primary net loss per share as reported. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE SUCCESS OF THE COMPANY IN MANUFACTURING PRODUCTS USING THE COMPANY'S TECHNOLOGY, THE AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF THE COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE DISCUSSED IN "BUSINESS RISKS" BELOW. GENERAL CIMA, founded in 1986, is a drug delivery company focused primarily on the development and manufacture of pharmaceutical products based upon its patented OraSolv-REGISTERED TRADEMARK- technology for marketing by multinational pharmaceutical companies. OraSolv is an oral dosage formulation incorporating microencapsulated active drug ingredients into a tablet which dissolves quickly in the mouth without chewing or water and which effectively masks the taste of the medication being delivered. OraSolv's fast-dissolving capability may enable patients in certain age groups or those with a variety of conditions that limit their ability to swallow conventional tablets to receive medication in a more convenient oral dosage form. The Company believes that OraSolv is more convenient than traditional tablet-based oral dosages as it does not require water to be ingested, thereby enabling immediate medication at the onset of symptoms. In addition, OraSolv can provide more accurate administration of doses than liquid or suspension formulations as no measuring is required. The Company believes OraSolv's ease of use and effective taste-masking may foster greater patient compliance with recommended dosage regimens, both for over-the-counter ("OTC") and prescription products, thereby improving therapeutic outcomes and reducing costs in the healthcare system. CIMA's business strategy is to commercialize its OraSolv technology through collaborations with multinational pharmaceutical companies with emphasis on products which command a large market share and/or are in large market segments. Product differentiation and brand name identity are critical to the successful marketing of pharmaceutical products. The Company believes that OraSolv affords pharmaceutical companies a means to significantly differentiate their products in the competitive pharmaceutical marketplace. Because it is a patented technology, OraSolv affords more enduring product differentiation than the more traditional approaches of changing product flavor or packaging innovations, which can be easily replicated. The Company has entered into agreements with a number of pharmaceutical companies for development, manufacture and commercialization of OraSolv products. The Company is currently focusing on developing OraSolv products for selected prescription drug applications. The Company believes that such prescription OraSolv products should result in improved taste acceptance and ease of administration, and so enhance patient compliance with the recommended dosage regimen for such prescription pharmaceuticals. This quarter the Company signed its first two pharmaceutical product development agreements with two major multinational pharmaceutical companies. The Company has also initiated the development of new drug technologies. These technologies include a new oral solid delivery system, DuraSolv-TM-; a unique sustained-released delivery system, OraSolv-REGISTERED TRADEMARK- SR; and an improved efficacy delivery system. One of the Company's recently signed agreements will utilize the unique sustained-released technology. The goal of the Company is to focus on drug delivery technologies that improve efficacy. 7 At September 30, 1997, the Company had accumulated losses of approximately $ 40,305,000. The Company recorded its first commercial sales using the Company's OraSolv technology in the three month period ending March 31, 1997. Prior to this the Company's revenues have been from sales using the Company's AutoLution (a liquid effervescent) technology, license fees paid by corporate partners in consideration of the transfer of rights under collaboration agreements, and research and development fees paid by corporate partners to fund the Company's research and development efforts for products developed under such agreements. To date, such revenues have been derived primarily from manufacturing agreements with third parties for liquid effervescent, other products, and products using OraSolv technology, the latter generated in the last seven months. To a lesser extent revenue has been generated from research and development fees and licensing arrangements, primarily in the last five years. The Company is not currently manufacturing liquid effervescent products, and has not recognized any revenues from such products since 1995. The Company expects to continue generating revenue from manufacturing OraSolv products. In addition to revenues from manufacturing, research and development and licensing, the Company has funded operations from private and public sales of equity securities, realizing net proceeds of approximately $25,963,000 from private sales of equity securities and $16,379,000 and $12,038,000 from the Company's July 1994 initial public offering and May 1996 public offering of its Common Stock, respectively. The total shares outstanding at September 30, 1997 were 9,591,318. The Company's ability to generate revenues is dependent upon its ability to develop new, innovative drug delivery technologies and to enter into and be successful in collaborative arrangements with pharmaceutical and other healthcare companies for the development and manufacture of OraSolv products to be marketed by these corporate partners. The Company is highly dependent upon the efforts of the corporate partners to successfully market OraSolv products. Although the Company believes these partners have and will have an economic motivation to market these products vigorously, the amount and timing of resources to be devoted to marketing are not within the control of the Company. These partners independently could make material marketing and other commercialization decisions which could adversely affect the Company's future revenues. Moreover, certain of the Company's products are seasonal in nature and the Company's revenues could vary materially from quarter to quarter depending on which of such products, if any, are then being marketed. The Company expects that losses will continue through at least 1998, even though CIMA expects to continue generating sales revenue from manufacturing OraSolv products in 1997 and 1998. Research and development expenses will increase as CIMA investigates new drug delivery technologies, including the possibility of utilizing microencapsulation for the development of sustained released systems, as well as sublingual systems which could deliver faster absorption of drug ingredients. Personnel costs for research and development are expected to remain relatively stable as the majority of the necessary personnel for this function has already been hired. Personnel costs for administration may decrease slightly in an effort to reduce corporate overhead. As CIMA continues production, additional operations personnel may need to be added to meet corporate partners' orders. Manufacturing infrastructure costs should not need to increase materially as there is capacity to meet short-term production needs. In the fourth quarter of 1996, the Company signed a Supply Agreement with Bristol-Myers Squibb, a major pharmaceutical company. The Agreement covers full-scale production of an over-the-counter product in CIMA's OraSolv dosage form. CIMA began commercial production for this product during the first quarter of 1997. The product was officially launched in September 1997. In the second quarter of 1997, the Company expanded its relationship with Bristol-Myers Squibb and signed a global non-exclusive license agreement which covers multiple products. In the third quarter, the first two prescription product license and development agreements were signed. Each agreement is for a product which is currently marketed by the Company's partners, Schering-Plough and Zeneca. In recent years the Company has actively marketed its OraSolv technology to the pharmaceutical industry. The Company is presently engaged in product development and manufacturing scale-up efforts and negotiations with several different pharmaceutical companies regarding a variety of potential products. There can be no assurance, however, that these activities or discussions will result in license agreements or the marketing of products using the OraSolv technology. The Company believes that mergers and acquisitions in the pharmaceutical industry in recent years, together with changes in product plans by potential partners, may have had an adverse effect on the progress of certain projects, and the eventual marketing of products incorporating the Company's technology. 8 RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 The Company's results of operations for the three- and nine-month periods ended September 30, 1997 reflect an increased emphasis on the manufacturing of an OraSolv product for a commercial launch by Bristol-Myers Products in 1997. Net product sales increased to $825,000 and $1,658,000 in the three- and nine-month periods ended September 30, 1997 from zero in the first nine months in 1996. The majority of sales in 1997 relate to the first commercial sales of a product using the OraSolv technology, which began in March 1997. Research and development fees and licensing revenues were $801,000 and $1,259,000 for the three- and nine-month periods ended September 30, 1997, respectively, compared to $504,000 and $1,172,000, respectively, in the comparable periods of 1996. These fees and revenues reflect the signing of license option and development agreements with multinational pharmaceutical companies that provide for licensing fees, product development fees, milestone payments, royalties and manufacturing fees. The 1997 revenues are for agreements that relate to Prescription ("Rx"), Rx to OTC switch, and OTC products. The 1996 revenues are only for agreements that relate to OTC, and Rx to OTC switch products. So long as the Company has relatively few agreements with corporate partners, research and development fees will tend to fluctuate on a quarter to quarter basis. Cost of goods sold increased to $1,323,000 and $2,891,000 in the three- and nine-month periods ended September 30, 1997, respectively, from zero in the first nine months of 1996. Costs in cost of goods sold include the manufacturing infrastructure costs necessary to meet future anticipated sales levels. These costs caused the cost of goods sold to exceed the net sales price for the products in the first nine months of 1997. The Company anticipates this situation will not improve until production significantly increases, and it approaches full manufacturing capacity. In 1996, these costs were classified as product development expenses. Research and development expenses decreased to $595,000 and $2,579,000 in the three- and nine-month periods ended September 30, 1997, respectively, from $1,229,000 and $3,903,000 in the three- and nine-month periods ended September 30, 1996, respectively. After accounting for the reclassification of manufacturing infrastructure costs, as noted above, research and development expenses actually increased on a like-to-like comparison by approximately $76,000, and $446,000 for the three- and nine-month periods ended September 30, 1997, over the corresponding prior year periods, respectively. The increase, which was mostly in the first three-months of 1997, was due to expenses related to the hiring of the new Vice President of Research and Development, additional efforts on the development of future technologies, and product development expenses related to the transition to commercial production. Selling, general and administrative expenses decreased to $740,000 from $783,000 in the three-month period ended September 30, 1997 and 1996, respectively. The decrease was related to the reduction of outside consulting services. Selling, general and administrative expenses, however, increased to $2,628,000 for the nine-month period ended September 30, 1997 from $2,363,000 for the same period in 1996. This increase is primarily due to spending on consumer studies to support OraSolv marketing claims. Net interest income decreased to $69,000, and $262,000, respectively, in the three- and nine-month periods ended September 30, 1997 from $200,000 and $368,000, respectively, for the same periods in 1996. This decrease is due to the reduced cash position of the Company. Other income (expense) increased to $1,000 and $126,000, respectively, in the three- and nine-month periods ended September 30, 1997 from ($2,000) and ($5,000) respectively, for the same periods in 1996. The major component for the increase is a $120,000 state sales and use tax refund for previously purchased fixed assets. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations to date primarily through private and public sales of its equity securities and revenues from manufacturing agreements. Through September 30, 1997, CIMA had received net offering proceeds from such private and public sales of approximately $57,176,000 and had net sales from manufacturing agreements of approximately $15,409,000. Cash, cash equivalents and short-term investments were approximately $5,593,000 at September 30, 1997, a decrease of $4,670,000 from $10,263,000 at December 31, 1996. However, the net cash position only has decreased by approximately $900,000 in the third quarter ending September 30, 1997 to $5,593,000 from $6,492,000 at the end of the second quarter ending June 30, 1997. 9 The Company's long-term capital requirements will depend upon numerous factors, including the status of the Company's collaborative arrangements, the progress of the Company's research and development programs and receipt of revenues from the collaborative agreements, sales of the Company's products and the need to expand production capacity. The Company believes that its currently available funds, including any license fees product development fees, and sales revenue anticipated to be received in the future, will meet its needs through 1998. Thereafter, or sooner if conditions make it necessary, the Company will need to raise additional funds through research and development relationships with suitable potential corporate partners and/or through public or private financings, including equity financing which may be dilutive to stockholders. There can be no assurance that the Company will be able to raise additional funds if its capital resources are exhausted, or that funds will be available on terms attractive to the Company. The Company has not generated taxable income through September 1997. At December 31, 1996, the net operating losses available to offset taxable income were approximately $35,247,000. Because the Company has experienced ownership changes, pursuant to Internal Revenue Code regulations, future utilization of the operating loss carryforwards will be limited in any one fiscal year. The carryforwards expire beginning in 2001. As a result of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce potential federal income tax liabilities. BUSINESS RISKS The Company has recently initiated commercial production of its first product in CIMA's OraSolv dosage form, and must be evaluated in light of the uncertainties and complications present for any company that has just recently began to derive product revenues and, in particular, a company in the pharmaceutical industry. The Company has accumulated aggregate net losses from inception through September 30, 1997 of $40,305,000. Losses have resulted principally from costs incurred in research and development of the Company's technologies and from general and administrative costs. These costs have exceeded Company's revenues, which until recently have been derived primarily from the manufacturing of AutoLution-REGISETRED TRADEMARK- (a liquid effervescent) and other non-OraSolv products for which the Company no longer manufactures. In more recent years, the Company has also received revenue from its commercial partners for product development and licensing of OraSolv, and to a lesser extent, OraSolv for which commercial production commenced in the first quarter of 1997 for Bristol-Myers Products. The Company expects to continue to incur losses at least through 1998. There can be no assurance that the Company will ever generate substantial revenues or achieve profitability. The Company is dependent upon its ability to enter into and perform under collaborative arrangements with pharmaceutical companies for the development and commercialization of its products. Failure of these partners to market the Company's products successfully could have a material adverse effect on the Company's financial condition and results of operations. The Company's revenues are also dependent upon ultimate consumer acceptance of the OraSolv drug delivery system and newly developed technologies as alternatives to conventional oral dosage forms. The Company expects that OraSolv products will be priced slightly higher than conventional swallow tablets. Although the Company believes that initial consumer research has been encouraging, there can be no assurance that market acceptance for the Company's OraSolv products will ever develop or be sustained. The Company began manufacturing OraSolv products in commercial quantities in February 1997. Commercial sales have been made and revenue has been recognized from sales of OraSolv products. To achieve future desired levels of production, the Company will be required to increase its manufacturing capabilities. There can be no assurance that manufacturing can be scaled-up in a timely manner to allow production in sufficient quantities to meet the needs of the Company's corporate partners. Furthermore, the Company has only one manufacturing facility capable of manufacturing OraSolv products. If this facility becomes damaged or becomes incapable of manufacturing products due to natural disaster, governmental regulatory issues or otherwise, the Company would have no other means of producing OraSolv products. 10 The Company intends to increase its research and development expenditures to enhance its current technologies, and to pursue internal proprietary drug delivery technologies that are being developed. Even if these technologies appear promising during various stages of development, they may not reach the commercialization stage for a number of reasons. Such reasons include the possibilities of not finding a partner to market the product, the product being difficult to manufacture on a large scale or of being uneconomical to market. The Company has conducted an initial review regarding the effect the upcoming year 2000 will have on its computer applications. The Company has determined that there will be little to no impact for the Company, and minimal financial and human resources will be utilized to address this issue. The Company computer support is provided by a server supported, PC-based, LAN system. Software vendors for the software used by the Company are aware of the issue and the Company has been informed that they have taken necessary steps to address the date-field issue. However, the conversion is an uncertainty and there can be no assurance that unforeseen problems will not arise in connection with this issue. The foregoing risks reflect the Company's stage of development and the nature of the Company's industry and products. Also inherent in the Company's stage of development and the nature of the Company's industry is a range of additional risks, including competition, uncertainties regarding the effects of healthcare reform on the pharmaceutical industry, including pressures exerted on the prices charged for pharmaceutical products, and uncertainties regarding protection of patents and proprietary rights. 11 CIMA LABS INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On October 29, 1997, the Company instituted an opposition proceeding in the European Patent Office seeking cancellation of a patent owned by Laboratoires Prographarm of Chateauneuf, France ("Prographarm"). The Company has alleged in the opposition proceeding that publications exist which are prior art against the European patent, including an international patent application owned by the Company which was published prior to the priority date of the European patent. On February 27, 1997, the United States Patent and Trademark Office ("USPTO") suspended prosecution of a U.S. patent application owned by the Company to consider the Company's request that an interference proceeding be declared between a pending U.S. patent application owned by the Company and a U.S. patent owned by Prographarm. The Company is seeking a determination by the USPTO that either (i) the Company's personnel are the prior inventors of the invention encompassed by the Prographarm U.S. patent and accordingly that the Company is entitled to claims directed to the same invention in a new patent to be owned by the Company, or (ii) in the alternative, a determination that the claims are unpatentable to the Company or Prographarm. Either holding would result in cancellation of the Prographarm U.S. patent. The Company's factual allegations are the same as in the European opposition, and further include the Company's pending U.S. patent application itself and the priority date of such pending application. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS Item Description ---- ----------- 10.28 Development and Option Agreement between Schering Corporation and the Company, dated August 11, 1997.(1) 10.29 Development and License Option Agreement between IPR PHARMACEUTICALS, INC. and the Company, dated September 10, 1997.(1) 10.30 Employment Agreement, dated October 29, 1997, between the Company and John M. Siebert, Ph.D. 27 Financial Data Schedule. ___________ (1) Confidential treatment has been requested for this exhibit. 13 CIMA LABS INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. CIMA LABS INC. Date: November 14, 1997 By: /s/ John M. Siebert --------------------- -------------------------------------- John M. Siebert President and Chief Executive Officer Date: November 14, 1997 By: /s/ Keith P. Salenger --------------------- -------------------------------------- Keith P. Salenger Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 14 EXHIBIT INDEX NO. OF EXHIBIT DESCRIPTION - -------------- ----------- 10.28 Development and Option Agreement between Schering Corporation and the Company, dated August 11, 1997.(1) 10.29 Development and License Option Agreement between IPR PHARMACEUTICALS,INC. and the Company, dated September 10, 1997.(1) 10.30 Employment Agreement, dated October 29, 1997, between the Company and John M. Siebert, Ph.D. 27 Financial Data Schedule. ____________ (1) Confidential treatment has been requested for this exhibit. 15 EX-10.28 2 EXHIBIT 10.28 Exhibit 10.28 *** TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 DEVELOPMENT AND OPTION AGREEMENT BETWEEN SCHERING CORPORATION AND CIMA LABS, INC. 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 "Basic License Terms". . . . . . . . . . . . . . . . . . . . . . 1 1.3 "CIMA Know-How". . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 "CIMA Patent Rights" . . . . . . . . . . . . . . . . . . . . . . 2 1.5 "Confidential Information" . . . . . . . . . . . . . . . . . . . 2 1.6 "Delivery System". . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 "Field". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 "Final Prototype". . . . . . . . . . . . . . . . . . . . . . . . 2 1.9 "Initial Prototype". . . . . . . . . . . . . . . . . . . . . . . 2 1.10 "Invention". . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 "License Agreement" . . . . . . . . . . . . . . . . . . . . . . 2 1.12 "Option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13 "Option Period". . . . . . . . . . . . . . . . . . . . . . . . . 3 1.14 "Patent Rights". . . . . . . . . . . . . . . . . . . . . . . . . 3 1.15 "Product". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.16 "Prototype Development Plan" . . . . . . . . . . . . . . . . . . 3 1.17 "Schering Confidential Information". . . . . . . . . . . . . . . 3 2. Grant of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Option Grant. . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2 Option Exercise. . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 License Agreement. . . . . . . . . . . . . . . . . . . . . . . . 4 2.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.5 Research Licenses. . . . . . . . . . . . . . . . . . . . . . . . 4 3. Prototype Development. . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Development Schedule.. . . . . . . . . . . . . . . . . . . . . . 5 3.3 Facilities Visits. . . . . . . . . . . . . . . . . . . . . . . . 5 4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 Option Fee.. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Development and Milestone Fees. . . . . . . . . . . . . . . . . 5 4.3 Other Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.4 Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . . 6 5. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.1 Secrecy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.2 Publications.. . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.3 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . 7 6.1 Inventions Arising Under This Agreement; License.. . . . . . . . 7 6.2 Filing of Patent Applications. . . . . . . . . . . . . . . . . . 8 6.3 Status of Patent Applications. . . . . . . . . . . . . . . . . . 8 6.4 Abandonment. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . 8 7.1 Representations and Warranties of Each Party.. . . . . . . . . . 8 7.2 CIMA's Representations.. . . . . . . . . . . . . . . . . . . . . 9 7.3 Disclosure of Technology . . . . . . . . . . . . . . . . . . . . 10 7.4 No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . 10 7.5 Warranty Disclaimer. . . . . . . . . . . . . . . . . . . . . . . 10 8. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8.1 Indemnification by Schering. . . . . . . . . . . . . . . . . . . 10 8.2 Indemnification by CIMA. . . . . . . . . . . . . . . . . . . . . 11 8.3 Conditions to Indemnification. . . . . . . . . . . . . . . . . . 11 8.4 Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.5 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 12 8.6 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9. Term/Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.1 Term and Expiration. . . . . . . . . . . . . . . . . . . . . . . 12 9.2 Termination by Schering. . . . . . . . . . . . . . . . . . . . . 12 9.3 Termination for Cause. . . . . . . . . . . . . . . . . . . . . . 12 9.4 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 13 9.5 Accrued Rights.. . . . . . . . . . . . . . . . . . . . . . . . . 13 11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 11.1 Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . 13 11.2 Independent Contractors. . . . . . . . . . . . . . . . . . . . . 13 11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 14 11.5 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . 14 11.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.7 Descriptive Headings.. . . . . . . . . . . . . . . . . . . . . . 15 11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.9 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.11 Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . 15 - ------------------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBITS AND ATTACHMENTS Exhibit 1.2 Basic License Terms Attachment 3.3 Development, Scale-Up and Commercialization Activities for a [. . . *** . . .] Attachment 4.3 Preliminary Cost of Goods Estimate Exhibit 1.4 CIMA Patent Rights Exhibit 1.8 Final Prototype - General Specifications Exhibit 1.16 Prototype Development Plan Exhibit 5.3 Press Release Exhibit 11.5 Arbitration Provisions - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 DEVELOPMENT AND OPTION AGREEMENT THIS DEVELOPMENT AND OPTION AGREEMENT ("Agreement") is made effective as of the last date on the signature page hereof (the "Effective Date") by and between SCHERING CORPORATION, a New Jersey corporation having its principal place of business at 2000 Galloping Hill Road, Kenilworth, New Jersey 07033 (hereinafter "Schering") and CIMA LABS, INC., a Delaware corporation having its principal place of business at 10,000 Valley View Road, Eden Prairie, Minnesota 55344 (hereinafter "CIMA"). References to Schering and CIMA shall include their respective Affiliates (as hereinafter defined). WHEREAS, CIMA owns or has rights to certain patented oral drug-delivery technology referred to as ORASOLV, which has applications in the field of pharmaceutical product formulation; and WHEREAS, Schering wishes to sponsor the development by CIMA of a prototype of a certain pharmaceutical product formulation for Schering's evaluation, subject to the granting by CIMA to Schering of an option to enter into a license agreement with CIMA on terms further described herein; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized terms, whether used in the singular or plural, shall have the respective meanings set forth below: 1.1 "AFFILIATE" shall mean any individual or entity directly or indirectly controlling, controlled by or under common control with, a party to this Agreement. For purposes of this Agreement, the direct or indirect ownership of fifty percent (50%) or more of the outstanding voting securities of an entity, or the right to receive fifty percent (50%) or more of the profits or earnings of an entity shall be deemed to constitute control. Such other relationship as in fact results in actual control over the management, business and affairs of an entity shall also be deemed to constitute control. 1.2 "BASIC LICENSE TERMS" shall mean the terms set forth in Exhibit 1.2 of this Agreement. 1.3 "CIMA KNOW-HOW" shall mean any and all Confidential Information of CIMA's necessary or useful to the development, registration, manufacture, use or sale of the Product and which is owned, controlled or licensed to CIMA, prior to or during the term of this Agreement. 1 1.4 "CIMA PATENT RIGHTS" shall mean all Patent Rights necessary or useful for the development, registration, manufacture, use or sale of the Product (including, without limitation, all Patent Rights covering the Delivery System) and which are owned or controlled by CIMA prior to or during the term of this Agreement or licensed to CIMA with rights to sublicense as of the Effective Date of this Agreement or during the term of this Agreement, including, without limitation, the Patent Rights on Exhibit 1.4. 1.E "CONFIDENTIAL INFORMATION" shall mean all Inventions, research materials, information relating to Patent Rights, copyrights, and any other developments, techniques, methods, materials, reagents, processes, procedures, data, results, conclusions, apparatus, products, trade secrets or other proprietary information or materials, improvements thereto, modifications thereof and know-how, whether patentable or not, which is disclosed by a party or arises under this Agreement (i) during discussions or negotiations in connection with this Agreement (including, without limitation, the terms of this Agreement), (ii) during the term of this Agreement, or (iii) which is developed by or becomes known by either party as a result of the receipt and use of the other party's Confidential Information, including, without limitation, by use of the other party's materials. 1.F "DELIVERY SYSTEM" shall mean CIMA's effervescent, fast-dissolving, oral drug-delivery tablet technology including that technology known as ORASOLV-REGISTERED TRADEMARK- which includes, to the extent applicable to the formulation of a product, an active ingredient of which is [. . . *** . . .] (i) the inventions disclosed in the Patents Rights owned, controlled or licensed (with the right to sublicense) by CIMA during the term of this Agreement, and (ii) all CIMA Know-How. 1.G "FIELD" shall mean over-the-counter and prescription pharmaceutical products incorporating the Delivery System with a [. . . *** . . .] as an active ingredient intended [. . . *** . . .]. 1.H "FINAL PROTOTYPE" shall mean the prototype of the Product to be developed by CIMA pursuant to the Prototype Development Plan (Exhibit 1.16) and in accordance with the general specifications set forth in Exhibit 1.8 and any further specifications agreed by the parties. 1.I "INITIAL PROTOTYPE" shall mean the Product which meets the description under Section B of the Prototype Development Plan. 1.J "INVENTION" shall mean any new invention, development, derivative material, biological material, discovery or innovation, whether patentable or not, arising during and as a result of the performance of the Prototype Development Plan or arising from the use of materials and/or Confidential Information of the other party. 1.K "LICENSE AGREEMENT" shall mean an agreement negotiated and executed by CIMA and Schering pursuant to the exercise of the Option and containing the Basic License Terms. 2 1.L "OPTION" shall mean the exclusive right to enter into the License Agreement. 1.M "OPTION PERIOD" shall mean the period beginning on the Effective Date and expiring (unless extended in accordance with this Agreement) on the earlier of (i) the [. . . *** . . .], or (ii) the date on which [. . . *** . . .]. In the event that the Final Prototype is not delivered by CIMA to Schering within [. . . *** . . .] from the date of initiation of phase B of the Prototype Development Plan, then the Option Period shall be automatically extended for a period of time equal to the time elapsed between the date of the delivery of the Final Prototype and [. . . *** . . .] from the date of initiation of phase B of the Prototype Development Plan. 1.N "PATENT RIGHTS" shall mean any patents and/or patent applications which are owned, controlled or, if applicable under this Agreement, licensed, with rights to sublicense, by a party to this Agreement, including any substitutions, divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates or the like, or provisional applications of any such patents and patent applications. 1.O "PRODUCT" shall mean the pharmaceutical dosage form which is formulated using the Delivery System and which contains [. . . *** . . .]. 1.P "PROTOTYPE DEVELOPMENT PLAN" shall mean the plan set forth on Exhibit 1.16 for the development of the Final Prototype. 1.Q "SCHERING CONFIDENTIAL INFORMATION" shall mean any and all Confidential Information relating to [. . . *** . . .] and which is owned, controlled or licensed to Schering prior to or during the term of this Agreement or which arises out of this Agreement and relates to the [. . . *** . . .]provided to CIMA by Schering. Nothing in this definition shall be construed to cover the existing Delivery System and any improvements specifically and solely to the Delivery System. 2. GRANT OF RIGHTS. 2.A OPTION GRANT. Effective upon the Effective Date and subject to the terms and conditions set forth herein, CIMA hereby grants to Schering the Option to enter into the License Agreement to utilize the Delivery System for the development, marketing, distribution and sale of Products in the Field in the Territory (as defined in the Basic License Terms). The term of such Option shall be the Option Period. The Option Period may be extended by mutual written agreement of the parties. 2.B OPTION EXERCISE. Schering, in its sole discretion, may exercise the Option by (i) providing CIMA with written notice thereof and (ii) negotiating and executing the License - ---------- *CONFIDENTIAL TREATMENT REQUESTED 3 Agreement prior to the end of the Option Period. After the expiration of the Option Period and if Schering does not exercise its Option and execute the License Agreement, CIMA's obligations under Article 2 hereof shall terminate and CIMA shall be free to enter into any license agreement with respect to Products in the Field with any third party, on any terms CIMA may, in its sole discretion, deem appropriate. 2.C LICENSE AGREEMENT. (I) FINALIZATION. In the event that Schering elects to exercise the Option, Schering and CIMA shall use good faith efforts to finalize the License Agreement and enter into such License Agreement. The License Agreement shall include the Basic License Terms and include such other terms and conditions, consistent with the Basic License Terms as are reasonable and customary in the industry for such agreements. (II) UNRESOLVED TERMS. In the event that Schering and CIMA are unable, after exercising good faith efforts, to reach agreement on all of the terms and conditions of the License Agreement during the Option Period, then the Vice President, Marketing & Sales, Key Pharmaceuticals of Schering and the Vice President, Business Development of CIMA shall have a [. . . *** . . .] to meet and use good faith efforts to reach agreement on the unresolved terms and conditions. (III) In the event that a party gives notice of arbitration under Section 11.5 hereof regarding unresolved terms or conditions of the License Agreement, the parties hereby agree that the arbitration mechanism set forth in Section 11.5 shall be utilized as a mediation mechanism with the objective of resolving the unresolved terms or conditions. 2.D EXCLUSIVITY. In consideration for the Option Fee, CIMA hereby agrees that from the Effective Date until the expiration or termination of the Option Period, CIMA shall not enter into any negotiations or agreements with any third party relating to the development or commercialization of Products in the Field. 2.E RESEARCH LICENSES. (I) LICENSE TO SCHERING. CIMA hereby grants to Schering a [. . . *** . . .], under the CIMA Patent Rights and CIMA Know-How for the sole purpose of performing the Prototype Development Plan and evaluating the Initial Prototype and Final Prototype. (II) LICENSE TO CIMA. Schering hereby grants to CIMA a [. . . *** . . .], under the Schering Know-How and Patent Rights of Schering's relating to [. . . *** . . .] for the sole purpose of performing the Prototype Development Plan. 3. PROTOTYPE DEVELOPMENT. - ---------- *CONFIDENTIAL TREATMENT REQUESTED 4 3.A GENERAL. In consideration for certain development fees set forth below, CIMA will use [. . . *** . . .] to perform the Prototype Development Plan and to develop and deliver to Schering a Final Prototype, subject to the terms of this Agreement and in accordance with the specifications set forth on Exhibit 1.9. CIMA shall keep Schering informed as to the progress related to the performance of the Prototype Development Plan and will provide results and supporting data from time to time relating to the performance of the Prototype Development Plan and the development of the Initial Prototype and Final Prototype. Upon receipt of the Final Prototype, Schering will conduct or have conducted [. . . *** . . .] within [. . . *** . . .]. 3.B DEVELOPMENT SCHEDULE. (I) Following the Effective Date and receipt of the materials from Schering delineated under phase A of the Prototype Development Plan, CIMA shall initiate development of the Initial Prototype. (II) CIMA and Schering each acknowledge and agree that the Prototype Development Plan is expected to be completed within approximately [. . . *** . . .] from the date of initiation of phase B of the Prototype Development Plan. To that end, during the implementation of the Prototype Development Plan, Schering agrees [. . . *** . . .] of the Initial Prototype and/or [. . . *** . . .] and respond to CIMA within [. . . *** . . .] of receipt thereof. Schering's response will indicate the acceptability of such proposed Initial Prototype and/or the need, if any, for modification of the specifications in light of the results of Schering's evaluation. (III) CIMA will develop the Final Prototype in [. . . *** . . .] to be determined by mutual agreement. 3.C FACILITIES VISITS. During the term of this Agreement, CIMA shall allow personnel of Schering, at Schering's expense, to visit the manufacturing and research facilities of CIMA and to consult with CIMA personnel, [. . . *** . . .], to discuss and review the development of the Initial Prototype, Final Prototype and Product. 4. PAYMENTS. 4.A OPTION FEE. In consideration for the exclusivity obligations set forth in Section 3.2 and the Option granted in Section 3.1, Schering shall pay to CIMA the sum of [. . . *** . . .] (the "Option Fee") within [. . . *** . . .]of the Effective Date. 4.B DEVELOPMENT AND MILESTONE FEES. (i) In consideration for CIMA's development and production of the Initial Prototype and Final Prototype in accordance with this Agreement, Schering shall make the following non-refundable payments to CIMA: (1) [. . . *** . . .] within [. . . *** . . .] of the Effective Date; - ---------- *CONFIDENTIAL TREATMENT REQUESTED 5 (2) [. . . *** . . .] upon [. . . *** . . .] by CIMA under [. . . *** . . .] of the Prototype Development Plan, including [. . . *** . . .], and delivery to Schering of [. . . *** . . .] in accordance with [. . . *** . . .]of the Prototype Development Plan; (3) [. . . *** . . .] upon written request by Schering for up to [. . . *** . . .] of the approved formulation of the Product; and (4) [. . . *** . . .] after shipment by CIMA to Schering of up to [. . . *** . . .] of the approved formulation of the Product. (II) PAYMENT OF MILESTONE FEES. Schering shall pay to CIMA the appropriate milestone payment due under Subsections 4.2(a)(ii), (iii) and (iv) within [. . . *** . . .] after receipt by Schering of an invoice from CIMA for such milestone payment. The applicable milestone payment shall be payable only once upon the completion of each such milestone and no amounts shall be due hereunder for subsequent or repeated achievement of such milestone. 4.C OTHER COSTS. Except as expressly set forth in this Agreement, each of Schering and CIMA shall be solely responsible for its own out-of-pocket costs and disbursements incurred, and for providing the necessary facilities, supplies, personnel and other resources necessary, in the performance of its obligations under this Agreement. 4.D MANNER OF PAYMENT. All payments due hereunder shall be paid in U.S. dollars via wire transfer to Northwest Bank Minnesota, N.A., Northwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479, Account Number: [. . . *** . . .], and with confirmation to CIMA when such wire transfer has been made. Alternatively, payments may be made to such other bank account as otherwise instructed in writing by CIMA. 5. CONFIDENTIALITY. 5.A SECRECY. Except as provided in Section 5.2, each of CIMA and Schering shall use only in accordance with this Agreement and shall not disclose to any third party any Confidential Information, without the prior written consent of the other party. The foregoing obligations shall survive the expiration or termination of this Agreement for a period of [. . . *** . . .]. These obligations shall not apply to Confidential Information that: (1) is known by the receiving party at the time of its receipt, and not through a prior disclosure by the disclosing party, as documented by the receiving party's business records; (2) is at the time of disclosure, or thereafter becomes, published or otherwise part of the public domain without breach of this Agreement by the receiving party; (3) is obtained from a third party who has the legal right to make such disclosure and without any confidentiality obligation to the disclosing party; - ---------- *CONFIDENTIAL TREATMENT REQUESTED 6 (4) is independently developed by the receiving party without the use of Confidential Information received from the disclosing party and such independent development can be documented by the receiving party; (5) is disclosed to governmental or other regulatory agencies in order to obtain patents, PROVIDED that such disclosure may be made only to the extent reasonably necessary to obtain such patents or authorizations and PROVIDED FURTHER that any patent application filings shall only be made in accordance with this Agreement and the License Agreement; or (6) is required by law, regulation, rule, act or order of any governmental authority or agency to be disclosed, PROVIDED that notice of such impending required disclosure by the receiving party is promptly delivered by the receiving party to the disclosing party in order to provide the disclosing party with an opportunity to seek a protective order or other similar order with respect to such Confidential Information and thereafter that the receiving party discloses only the minimum Confidential Information required to be disclosed in order to comply with the request or order, whether or not a protective order or other similar order is obtained by the disclosing party. 5.B PUBLICATIONS. [. . . *** . . .] of the work carried out pursuant to this Agreement [. . . *** . . .] and only [. . . *** . . .] of the Public Presentation (as defined below) prior to submission for publication. CIMA and Schering each acknowledges and agree that, during the term of this Agreement, no Public Presentation shall contain any Confidential Information of the other party without the prior written consent of such party, which consent [. . . *** . . .]. For purposes of this Article 5, the term "Public Presentation" shall mean any manuscript, abstracts or other forms of public presentation, including, without limitation, slides and texts of oral or other public presentations, and texts of any transmission through any electronic media, e.g., any computer access system such as the Internet, World Wide Web, etc. Nothing in this Section 5.2 shall limit the disclosures permitted by Section 5.3. 5.C PUBLICITY. A party may not use the name of the other party, or its Affiliates, in any publicity or advertising and may not issue a press release or otherwise publicize or disclose any information related to the existence of this Agreement or the terms or conditions hereof, without the prior written consent of the other party. Nothing in the foregoing, however, shall prohibit a party from making such disclosures to the extent deemed necessary under applicable federal or state securities laws or any rule or regulation of any nationally recognized securities exchange. In such event, however, such party shall use good faith efforts to consult with the other party prior to such disclosure and, where applicable, shall request confidential treatment to the extent available. Notwithstanding the foregoing, the parties consent to a press release announcing this Agreement in substantially the form attached hereto as Exhibit 5.3. In addition, the parties agree to consult regarding any disclosures of the terms of this Agreement to potential investors, acquirers or financial advisors, it being understood no disclosure shall be made without the written consent of the other party. - ---------- *CONFIDENTIAL TREATMENT REQUESTED 7 6. INTELLECTUAL PROPERTY. 6.A INVENTIONS ARISING UNDER THIS AGREEMENT; LICENSE. (I) Each of Schering and CIMA shall promptly notify the other party of any Invention arising in connection with the Prototype Development Plan or arising from the use of the other party's Confidential Information. Such notice shall provide sufficient detail regarding the Invention, and upon request of the notifying party shall provide the other party with any underlying background data and information, so as to enable the party receiving such notice to properly evaluate the inventorship of such Invention in accordance with U.S. Patent Laws. Ownership of such Inventions shall be determined based on the scope of the claims and in accordance with the following guidelines: (1) Inventions conceived and reduced to practice [. . . *** . . .]; (2) Inventions conceived and reduced to practice [. . . *** . . .]; and (3) Inventions conceived and reduced to practice [. . . *** . . .]. (II) Notwithstanding anything contained herein to the contrary, with respect to all Inventions arising hereunder, both parties may only use such Inventions [. . . *** . . .] and each party [. . . *** . . .]; PROVIDED, HOWEVER, the above limitation on [. . . *** . . .]. 6.B FILING OF PATENT APPLICATIONS. Inventions by a party shall be promptly and fully disclosed in writing to the other party. With regard to Inventions which are solely owned by a party to this Agreement, any patent applications considered necessary in the reasonable legal and business judgment of the owning party shall be prepared and filed by such owning party at such party's sole expense. Each of CIMA and Schering agree, at the other party's request and expense, to provide the other party with reasonable assistance in preparing, filing, prosecuting and maintaining patent applications covering Inventions owned by such other party, including causing the execution and delivery of any assignments or other related documents. With regard to Inventions which are jointly owned, each party will cooperate fully with the other party to prepare and file jointly owned patent applications and the expenses therefore shall be shared equally. 6.C STATUS OF PATENT APPLICATIONS. CIMA shall keep Schering advised of the status of patent applications filed in accordance with Section 6.2. CIMA further agrees that with respect to any such patent applications it shall provide to Schering, upon request and at Schering's expense, copies of any substantive papers, including, without limitation, copies of such patent applications and copies of any substantive communications with any national Patent Office related to the filing, prosecution and maintenance of such patent applications. 6.D ABANDONMENT. Each party shall provide written notice to the other at least [. . . *** . . .] prior to the lapse, revocation, surrender, invalidation or abandonment of any Patent - ---------- *CONFIDENTIAL TREATMENT REQUESTED 8 Rights which are subject to the Option, and shall promptly give written notice to the other party of the grant of any such Patent Rights. 7. REPRESENTATIONS AND WARRANTIES. 7.A REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each of CIMA and Schering hereby represents, warrants and covenants to the other party hereto as follows: (I) it is a corporation duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation or formation; (II) the execution, delivery and performance of this Agreement by such party has been duly authorized by all requisite corporate action; (III) it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (IV) 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 agreement or instrument binding or affecting it or its property; (ii) the provisions of its charter 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; (V) the execution, delivery and performance of this Agreement by such party does not require the consent, approval, or authorization of, or notice, declaration, filing or registration with, any governmental or regulatory authority, and the execution, delivery or performance of this Agreement will not violate any law, rule or regulation applicable to such party; (VI) this Agreement has been duly authorized, executed and delivered and constitutes such party's legal, valid and binding obligation enforceable against it in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to the availability of particular remedies under general equity principles; and (VII) it shall comply with all applicable material laws and regulations relating to its activities under this Agreement. 7.B CIMA'S REPRESENTATIONS. CIMA hereby represents, warrants and covenants to Schering as follows: - ---------- *CONFIDENTIAL TREATMENT REQUESTED 9 (I) to the best of CIMA's knowledge, the CIMA Patent Rights and CIMA Know-How are subsisting and are not invalid or unenforceable, in whole or in part (it being understood that CIMA has a license to U.S. Patent No. 5,252,197); (II) CIMA has the full right, power and authority to grant all of the right, title and interest in the Option granted under Article 2 hereof, and in the licenses granted under the License Agreement; (III) it has not previously assigned, transferred, conveyed or otherwise encumbered (nor will it do so with any third party during the Option Period) its right, title and interest in the CIMA Patent Rights or the CIMA Know-How in any way that would encumber the use thereof with the Product as contemplated by this Agreement; (IV) to the best of CIMA's knowledge, CIMA is the sole and exclusive owner of the CIMA Patent Rights (except U.S. Patent No. 5,225,197) and CIMA Know-How, which are free and clear of any liens, charges and encumbrances, and no other person, corporate or other private entity, or governmental entity or subdivision thereof, has or shall have any claim of ownership with respect to the CIMA Patent Rights or CIMA Know-How, whatsoever; (V) to the best of CIMA's knowledge, the practice of the CIMA Patent Rights does not interfere or infringe the claims of any third party patent nor are there any such third party claims that would provide any basis for such an allegation of infringement; (VI) to the best of CIMA's knowledge, there are no third party pending patent applications having claims which, if issued, may cover the development, manufacture, use or sale of the CIMA Patent Rights; and (VII) to the best of CIMA's knowledge, there are no claims, judgments or settlements against or owed by CIMA, or any pending or threatened claims or litigation relating to the CIMA Patent Rights or CIMA Know-How. 7.C DISCLOSURE OF TECHNOLOGY. During the term of this Agreement, CIMA will use reasonable efforts to disclose (i) all relevant CIMA Patent Rights and CIMA Know-How to Schering which are necessary or useful to Schering's performance of the Prototype Development Plan and/or the development, manufacture, use or sale of the Products. 7.D NO INCONSISTENT AGREEMENTS. As of the Effective Date 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. 7.E WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY PATENT RIGHTS OR KNOW-HOW, SERVICES, GOODS OR OTHER SUBJECT MATTER 10 OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 8. INDEMNIFICATION. 8.A INDEMNIFICATION BY SCHERING. Except to the extent caused by CIMA's negligence or willful misconduct, and subject to the limitations set forth in Section 8.5, Schering shall indemnify, defend and hold harmless CIMA and each of its employees, officers, directors and agents (each, a "CIMA Indemnified Party") from and against any and all liability, loss, damage, cost, and expense (including reasonable attorneys' 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 Schering of any covenant, representation or warranty contained in this Agreement, (ii) any third party claim of infringement relating to CIMA's use of the Schering Confidential Information arising under the Prototype Development Plan or in the performance of this Agreement, (iii) any negligent act or omission, or willful misconduct of Schering in the performance of the Prototype Development Plan which is the proximate cause of injury, death or property damage to a third party, or (iv) the successful enforcement by a CIMA Indemnified Party of any of the foregoing. 8.B INDEMNIFICATION BY CIMA. Except to the extent caused by Schering's negligence or willful misconduct and subject to the limitations set forth in Section 8.5, CIMA shall indemnify, defend and hold harmless Schering and each of its employees, officers, directors and agents (each, a "Schering Indemnified Party") from and against any Liability which the Schering Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by CIMA of any covenant, representation or warranty contained in this Agreement, (ii) any third party claim of infringement relating to Schering's use of the CIMA Know-How arising under the Prototype Development Plan or in the performance of this Agreement, (iii) any negligent act or omission, or willful misconduct of CIMA in performance of the Prototype Development Plan which is the proximate cause of injury, death or property damage to a third party, or (iv) the successful enforcement by a Schering Indemnified Party of any of the foregoing. 8.C CONDITIONS TO INDEMNIFICATION. The obligations of the indemnifying party under Sections 8.1 and 8.2 are conditioned upon the delivery of written notice to the indemnifying party of any potential Liability promptly after the indemnified party becomes aware of such potential Liability. The indemnified party, its employees and agents shall cooperate fully with the indemnifying party and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 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. Notwithstanding the foregoing, if in the 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 11 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. 8.D SETTLEMENTS. Neither party may settle a claim or 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, which consent shall not be unreasonably withheld. Any payment made by a party to settle any such claim or action shall be at its own cost and expense. 8.E LIMITATION OF LIABILITY. With respect to any claim by one party against the other arising out of the performance or failure of performance of the other party under this Agreement, the parties expressly agree that the liability of such party to the other party for such breach shall be limited under this Agreement or otherwise at law or equity to direct damages only and in no event shall a party be liable for: (i) punitive, exemplary or consequential damages, or (ii) the cost of procurement of substitute goods, technology or services. 8.F INSURANCE. Each party acknowledges that they each maintain and shall, during the term of this Agreement, maintain adequate insurance and/or a self-insurance program for liability insurance, including products liability and contractual liability insurance, adequately covering such party's obligations under this Agreement. Each party shall provide the other party with evidence of such insurance and/or self-insurance program, upon request. 9. TERM/TERMINATION. 9.A TERM AND EXPIRATION. The term of this Agreement shall commence on the Effective Date and, unless terminated earlier pursuant to Section 9.2 or 9.3, shall continue in full force and effect until [. . . *** . . .]. 9.B TERMINATION BY SCHERING. Notwithstanding anything contained herein to the contrary, Schering shall have the unilateral right to terminate this Agreement, with or without cause, at any time by giving [. . . *** . . .] advance written notice to CIMA. 9.C TERMINATION FOR CAUSE. This Agreement may be terminated by written notice by either party at any time during the term of this Agreement as follows: (I) TERMINATION FOR BREACH. If the other party is in breach of its material obligations hereunder by causes and reasons within its control and has not cured such breach within [. . . *** . . .] after notice of the breach; or (II) TERMINATION FOR INSOLVENCY. Upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other party or in the event a receiver or custodian is appointed for such party's business, or if a substantial portion of such party's business is subject to attachment or similar process; PROVIDED, HOWEVER, in the case of any involuntary 12 bankruptcy proceeding such right to terminate shall only become effective if such proceeding is not dismissed within [. . . *** . . .] after the filing thereof. The Option and related rights to licenses granted thereunder or pursuant to this Agreement by CIMA to Schering are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(52) of the Bankruptcy Code. The parties agree that Schering, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against CIMA under the Bankruptcy Code, Schering shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property upon written request therefore by Schering. Such intellectual property and all embodiments thereof shall be promptly delivered to Schering (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by Schering, unless CIMA elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of CIMA upon written request therefor by Schering. 9.D EFFECT OF TERMINATION. In the event this Agreement is terminated, Schering shall pay to CIMA [. . . *** . . .] as of the date of notice [. . . *** . . .] of notice of termination. 9.E ACCRUED RIGHTS. Expiration or termination of this Agreement shall not release either party from any obligation accruing prior to or upon such expiration or termination. Accordingly, the following provisions shall survive expiration or termination of this Agreement: Article 4, Article 5, Article 6, Article 7, Article 8, Section 9.4 and Section 11.5. 11. MISCELLANEOUS. 11.1 ASSIGNABILITY. This Agreement may not be assigned or otherwise transferred by either party without the consent of the other party. The foregoing notwithstanding, either CIMA or Schering may, without the other party's consent, assign its rights and obligations under this Agreement (i) to any Affiliate, or (ii) in connection with a merger, consolidation or sale of all or substantially all of such party's assets pertaining to this Agreement to an unrelated third party, PROVIDED, HOWEVER,, that the assigning party's rights and obligations under this Agreement shall be assumed by its successor in interest in any such transaction. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. 11.2 INDEPENDENT CONTRACTORS. It is expressly agreed that CIMA and Schering shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither CIMA nor Schering shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other party to do so. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 13 11.3 NOTICES. Notices, invoices and communications hereunder shall be deemed made (i) five (5) days after having been sent by registered or certified mall, postage prepaid, or (ii) on the day of hand delivery, or (iii) on the day of facsimile transmission, upon confirmation of receipt, if addressed to the party to receive such notice, invoice or communication at the addresses given below, or such other address as may hereafter be designated by notice in writing. If to CIMA: CIMA Labs, Inc. 10,000 Valley View Road Eden Prairie, Minnesota 55344 Attention: Vice President, Business Development Fax- (612)947-8770 cc: Cooley Godward llp 5 Palo Alto Square 5000 El Camino Real Palo Alto, CA 94306 Attention: Barbara Kosacz, Esq. If to Schering: Schering-Plough Corporation 2000 Galloping Hill Road Kenilworth, New Jersey 07032 Attention: Vice President, Business Development Fax- (908) 298-5379 cc: Law Department -- Senior Director, Licensing Fax - (908) 298-2739 11.4 ENTIRE AGREEMENT. This Agreement, together with the exhibits hereto, contains the entire understanding of the parties with respect to the subject matter hereof. All previous agreements are superseded hereby and all express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both parties hereto. 11.5 DISPUTE RESOLUTION. (a) COOPERATION. In the event that Schering and CIMA are unable, after exercising good faith efforts, to reach agreement on an issue relating to this Agreement, then upon written notice to the other party, the issue shall be referred to the Vice President, Marketing & - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 14 Sales, Key Pharmaceuticals of Schering and the Vice President, Business Development of CIMA, who shall meet and use good faith efforts to reach agreement on the issue ("Dispute"). In the event that such representatives of Schering and CIMA are unable to reach agreement on the Dispute in such meeting, then either party shall have the right to submit the Dispute to arbitration in accordance with the provisions of Section 11.5(b) by providing written notice to the other party within [. . . *** . . .] after such meeting. (b) ARBITRATION. All Disputes arising in connection with this Agreement shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as modified by the provisions set forth in Exhibit 11.5. 11.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of New Jersey, without giving effect to the choice of laws provisions thereof. 11.7 DESCRIPTIVE HEADINGS. The captions to the several Articles and Sections hereof are not a part of this Agreement, and are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. 11.8 COUNTERPARTS. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures of each of the parties hereto. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.9 FORCE MAJEURE. Failure of any party to perform its obligations under this Agreement (except the obligation to make payments when properly due) shall not subject such party to any liability or place them in breach of any term or condition of this Agreement if such failure is caused by any cause beyond the reasonable control of such non-performing party, including without limitation, acts of God, fire, explosion, flood, drought, war, riot, sabotage, embargo, strikes or other labor trouble, failure in whole or in part of suppliers to deliver on schedule materials, equipment or machinery, interruption of or delay in transportation, a national health emergency or compliance with any order or regulation of any government entity acting with color of right, PROVIDED, HOWEVER, that the party affected shall promptly notify, the other party of the condition constituting force majeure as defined herein and shall exert reasonable efforts to eliminate, cure and overcome any such causes and to resume performance of its obligations with all possible speed. If a condition constituting force majeure as defined herein exists for more than [. . . *** . . .], the parties shall meet to negotiate a mutually satisfactory solution to the problem, if practicable. 11.10 SEVERABILITY. If any provision of this Agreement is declared illegal, invalid or unenforceable by a court having competent jurisdiction, it is mutually agreed that this Agreement shall endure except for the part declared invalid or unenforceable by order of such court, PROVIDED, HOWEVER,, that in the event that the terms and conditions of this Agreement are materially - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 15 altered, the parties shall, in good faith, renegotiate the terms and conditions of this Agreement to reasonably substitute such invalid or unenforceable provision in light of the intent of this Agreement. 11.11 FURTHER ACTIONS. Each party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute and deliver this Agreement as of the last date set forth below. SCHERING CORPORATION CIMA LABS, INC. By: /s/ Marty Driscoll By:/s/ Jack Khattar --------------------------------- ------------------------------------- Title: V.P. Marketing & Sales Title: V.P. Business Development Date: 8/8/97 Date: 8/11/97 - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 16 EXHIBIT 1.2 BASIC LICENSE TERMS 1. DEFINITIONS. 1.1 As used in the License Agreement, the following capitalized terms, whether used in the singular or plural, shall have the respective meanings set forth in this Article 1. In addition to the definitions set forth below and herein, this Article 1 shall include those definitions from Article 1 of the Development and Option Agreement that relate to the License Agreement and such definitions are incorporated herein by reference. 1.2 "CIMA PATENT RIGHTS" as defined in Article 1 of the Development and Option Agreement shall also include any patents or patent applications covering any CIMA Inventions arising thereunder. 1.3 "COMPETITIVE PRODUCT" shall mean a product in the Field with a quick dissolving formulation substantially equivalent or similar to the Delivery System. 1.4 "EFFECTIVE DATE" shall mean, for purposes of this License Agreement, the date on which the License Agreement has been signed by duly authorized representatives of each of the parties to said License Agreement. 1.5 "FDA" shall mean the United States Food and Drug Administration or any successor agency thereto. 1.6 "NET SALES" shall mean, in the Territory, the [. . . *** . . .] in the Territory, less the [. . . *** . . .] from such gross amounts including: (i) [. . . *** . . .]; (ii) credits or allowances actually granted for damaged goods, returns or rejections of Product and retroactive price reductions; (iii) [. . . *** . . .]; and (iv) freight, postage, shipping, customs (i.e. import or export) duties and insurance charges. 1.7 "TERRITORY" shall mean [. . . *** . . .]. 1.8 "VALID CLAIM" means a claim of an issued and unexpired patent included within the Patent Rights, which has not been revoked or held unenforceable or invalid by a decision of a court of other governmental agency of competent jurisdiction, unappealable or unappealed with 1 the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissued or disclaimer or otherwise. 2. LICENSES. 2.1 LICENSE GRANT TO SCHERING. (a) CIMA shall grant to Schering an exclusive (even as to CIMA) [. . . *** . . .] in the Territory under the CIMA Patent Rights and the CIMA Know-How to make, use, offer for sale, sell and have made, used, offered for sale and sold, Products. (b) The license granted in Section 2. l(a) above includes the right to sublicense to third parties and Affiliates the right to sell, make, offer to sell, and have sold, made and offered for sale, Products. 2.2 DUE DILIGENCE BY SCHERING. (a) DILIGENT EFFORTS. Schering shall, [. . . *** . . .], consistent with [. . . *** . . .] in pursuing the [. . . *** . . .] a Product in the Territory where [. . . *** . . .] to do so. (b) The diligence obligations of Schering under Section 2.2(a) are expressly conditioned upon the continuing absence of any adverse condition or event which warrants a delay in development, clinical testing or commercialization of the Product, including, without limitation, (i) failure of CIMA to perform its obligations under the License Agreement, including, without limitation, its obligation to provide Schering with adequate supplies of materials needed for such development, testing or commercialization, and/or (ii) unanticipated negative toxicological or pharmacological test results, and/or (iii) an adverse condition or event relating to the safety or efficacy of the Product, and/or (iv) delays arising due to action or inaction by the United States Food and Drug Administration once the application has been filed, and/or (v) unfavorable labeling, and/or (vi) the issuance of a dominating third party patent required for Licensed Product. In the event of such event or condition, the parties agree to discuss such event or condition and appropriate mechanisms to address it. The obligation of Schering to develop, test or market such Product shall be delayed or suspended so long as in Schering's opinion any such condition or event exists; PROVIDED, HOWEVER,, there must be [. . . *** . . .] and Schering must use [. . . *** . . .] consistent with [. . . *** . . .], to address such adverse condition or event. 3. PAYMENTS AND ROYALTIES. 3.1 LICENSE ISSUANCE FEE. In consideration for the licenses granted hereunder, Schering shall pay to CIMA a one time license fee of [. . . *** . . .] for the grant of license to the CIMA Patent Rights and CIMA Know-How for a Product. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 3.2 MILESTONE PAYMENTS. Subject to the terms and conditions contained in the License Agreement, Schering shall pay to CIMA the following milestone payments: (i) [. . . *** . . .] upon the successful [. . . *** . . .] of Product; (ii) [. . . *** . . .] upon successful [. . . *** . . .] of Product; (iii) [. . . *** . . .] upon successful [. . . *** . . .] of Product; (iv) [. . . *** . . .] upon the submission [. . . *** . . .] of the Product; and (v) [. . . *** . . .] upon [. . . *** . . .] for the Product. 3.3 DEVELOPMENT COSTS. Subject to the terms and conditions in the License Agreement, Schering shall pay to CIMA the costs set forth on Attachment 3.3 for actual work performed for the development, scale-up and commercialization of the Product. Such amounts shall be payable within [. . . *** . . .] after invoice therefore. In the event additional activities other than those set forth on Attachment 3.3 are necessary for the development, scale-up and commercialization of the Product, then the parties shall confer and agree on such activities, and Schering shall reimburse CIMA for the costs therefore as agreed between the parties and in an amount consistent with the applicable costs for similar activities set forth on Attachment 3.3. 3.4 ROYALTIES. (a) Scherings hall pay to CIMA earned royalties on a Product-by- Product basis in an amount equal to: (i) [. . . *** . . .] of Products where such Product is covered by a Valid Claim of a CIMA Patent Right; or (ii) [. . . *** . . .] of Product if such Product is not covered by a Valid Claim of a CIMA Patent Right and [. . . *** . . .] in the Territory. (iii) [. . . *** . . .] of Product if such Product is not covered by a Valid Claim of a CIMA Patent Right and [. . . *** . . .] in the Territory. (b) Notwithstanding Subsection 3.4(a) above, Schering shall pay to CIMA minimum royalties in an amount equal to the following: (i) [. . . *** . . .] for the [. . . *** . . .] of the Product; (ii) [. . . *** . . .] for the [. . . *** . . .] of the Product; and - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 3 (iii) [. . . *** . . .] for the [. . . *** . . .] of the Product and for [. . . *** . . .] thereafter. In the event that earned royalties payable in a year do not equal or exceed the minimum royalties due during such year, then Schering shall pay [. . . *** . . .] with such payment being made with the [. . . *** . . .] in such year. For purposes of this subsection, a year shall be calculated based on a twelve month period beginning on the [. . . *** . . .] of the Product and each subsequent year shall begin on the anniversary of such date in such [. . . *** . . .]. 3.5 TERM OF ROYALTY OBLIGATION; CERTAIN CONDITIONS. Royalties on each Product at the rate set forth in Section 3.4 shall be effective as of the date of first commercial sale of Product and shall continue until either: (i) the expiration of the last applicable CIMA Patent Right in the case of sales for which there is a Valid Claim; or (ii) in the case of sales of Product for which there is not a Valid Claim (or if the patent application did not issue), until [. . . *** . . .] after the first commercial sale of the Product. 3.6 THIRD PARTY PATENT LICENSES. In the event that patent licenses from third parties relating to the Delivery System being utilized in the Product are required by Schering, its Affiliates and sublicensees in order to develop, make, have made, use or sell Product (hereinafter "Third Party Patent Licenses"), up to [. . . *** . . .] of royalties and/or payments actually paid under such Third Party Patent Licenses by Schering for sale of such Product for such calendar quarter shall be creditable against the royalty payments due CIMA by Schering, PROVIDED, HOWEVER, that in no event shall the royalty payments due CIMA under Sections 3.3(i) or 3.3(ii) be [. . . *** . . .]. 4. MANUFACTURING RIGHTS AND ACTIVITIES. 4.1 SUPPLY OF SCHERING'S REQUIREMENTS. CIMA shall manufacture and supply to Schering, and Schering shall purchase from CIMA, Schering's Requirements of the Product. The term "Requirements" shall mean all quantities of the Product that shall be required by Schering, its Affiliates and its sublicensees for clinical trial materials and for distribution, marketing and sale of the Product in the Territory during the term hereof. 4.2 SELF-sUPPLY BY SCHERING AND ITS AFFILIATES. At any time after the [. . . *** . . .] after the [. . . *** . . .] of the Product, Schering and its Affiliates shall have the right at their sole discretion, from time to time during the term of the Agreement, to self-supply any portion of, or all of, its Requirements of the Product. The License Agreement shall contain the terms and conditions for notice and for the transfer of technology and know-how to Schering to enable it to self-supply the Product. In addition, Schering shall pay [. . . *** . . .] the Product. The License Agreement shall set forth the calculation for such amount, which shall be based upon [. . . *** . . .] (it being understood that nothing contained herein shall be construed to obligate CIMA to disclose its profit margins for supplied Product). - ----------------- *CONFIDENTIAL TREATMENT REQUESTED 4 4.3 SUPPLY PRICE. The parties hereto agree that the supply price for the Product shall be calculated and consistent with Attachment 4.3. The License Agreement shall include the terms and conditions for price adjustment and maximum price increase of Product. 4.4 DEVELOPMENT PROGRAM. Subject to Section 3.3, CIMA shall perform the development, scale-up and validation activities as necessary for the regulatory approval of the Product in the Territory, including, without limitation, the activities set forth in Attachment 3.3 hereto. 5. PATENTS. 5.1 INVENTIONS. The License Agreement shall set forth the provisions for determining the ownership of Inventions arising during the performance of the development program during the License Agreement. It is agreed that such terms and provisions shall be substantially in accordance with the corresponding terms and provisions of the Development and Option Agreement. 5.2 FILING, PROSECUTION AND MAINTENANCE. CIMA shall diligently file, prosecute and maintain in the Territory, at its expense, the CIMA Patent Rights licensed to Schering under the License Agreement. 5.3 SCHERING'S OPTION TO PROSECUTE AND MAINTAIN PATENTS. CIMA shall notify Schering of any decision to cease prosecution and/or maintenance of CIMA Patent Rights, and Schering shall have the right, in its sole discretion, to take over responsibility for the prosecution and maintenance of such CIMA Patent Rights, at Schering's expense. The License Agreement shall set forth in detail the specific rights and responsibilities of the parties with respect to CIMA Patent Rights for which Schering assumes responsibility under this Section 5.3. 5.4 ENFORCEMENT. (A) NOTICE AND DISCONTINUANCE OF INFRINGEMENT. Each of CIMA and Schering shall promptly notify the other party in writing in the event that it becomes aware of any infringement by a third party in the Territory of any issued patent within the Patent Rights. Any such notification shall include evidence to support an allegation of infringement by such third party. Each of Schering and CIMA shall have primary responsibility for obtaining a discontinuance of such infringement or bringing suit against such third party infringer with respect to Patent Rights for which it has responsibility under the License Agreement. The License Agreement shall set forth additional provisions, to be negotiated by the parties, detailing the parties' responsibilities and obligations with regard to resolution of any alleged third party infringement and for apportionment between the parties of any recovery or damages awarded from a suit or action brought by CIMA and/or Schering. (b) CONTINUANCE OF INFRINGEMENT. The License Agreement shall set forth provisions, to be negotiated by the parties, whereby each party shall have the right, but not the 5 obligation, to assume responsibility and control of the resolution of any third party infringement matter relating to the Patent Rights in the event that party having responsibility under Section 5.4(a) fails to take appropriate enforcement action against such third party infringer within a reasonable time period to be established by the parties. 5.5 INFRINGEMENT - THIRD PARTY LICENSES. The License Agreement shall set forth terms, to be negotiated by the parties, defining the rights and responsibilities of each party in the event that Schering's making, having made, using, distributing, marketing, promoting, offering for sale or selling of Products will infringe or is alleged to infringe any third party patents. 6. TERM AND TERMINATION. 6.1 TERM AND EXPIRATION. The License Agreement shall be effective as of the Effective Date and unless terminated earlier pursuant to Sections 6.2 below, the term of the License Agreement shall continue in effect until the later of the expiration of the last to expire CIMA Patent Right or [. . . *** . . .] from [. . . *** . . .] of the Product. Upon expiration of the License Agreement, Schering's licenses shall become fully paid-up, perpetual licenses. 6.2 TERMINATION BY SCHERING. Notwithstanding anything herein to the contrary, Schering shall have the unilateral right to terminate the License Agreement, with or without cause, at any time by giving [. . . *** . . .] advance written notice to CIMA. In the event of such termination, the rights and obligations thereunder, including any payment obligations not due and owing as of the termination date, shall terminate and the licenses granted to Schering shall revert back to CIMA. In the event Schering terminates this Agreement without cause, Schering shall pay CIMA a termination fee in an amount equal to (i) [. . . *** . . .], plus (ii) [. . . *** . . .] in order to perform its obligations under this Agreement. 6.3 TERMINATION. (A) TERMINATION FOR CAUSE. The License Agreement may be terminated by written notice by either party at any time during the term of this Agreement: (I) if the other party is in breach of its material obligations thereunder by causes and reasons within its control and has not cured such breach or taken steps to substantially cure such breach within [. . . *** . . .], after notice requesting cure of the breach; or (II) upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other party or in the event a receiver or custodian is appointed for such party's business, or if a substantial portion of such party's business is subject to attachment or similar process, PROVIDED, HOWEVER, in the case of any involuntary bankruptcy - ----------------- *CONFIDENTIAL TREATMENT REQUESTED 6 proceeding such right to terminate shall only become effective if the proceeding is not dismissed within [. . . *** . . .] after the filing thereof. The License Agreement shall provide that in the event that there is a dispute as to whether a party can terminate under Subsections 6.3(a)(i) or (ii), the issue shall be referred to arbitration which shall be conducted under the terms and conditions set forth in Exhibit 11.5 and such issue shall be decided by the arbitrator in order for the rights and remedies in Section (b)(i) and (ii) to take effect. (B) EFFECT OF TERMINATION FOR CAUSE ON LICENSE. (I) In the event Schering properly terminates the License Agreement under Section 6.3(a)(i) under circumstances where Schering suffers material harm or where such breach causes a competitive disadvantage to Schering, then Schering's license under the License Agreement shall continue to be royalty-bearing but at a royalty rate reduced by [. . . *** . . .] of the applicable royalty rate for period not to exceed [. . . *** . . .]. (II) In the event CIMA properly terminates the License Agreement under Section 6.3(a)(i), Schering shall pay CIMA a termination fee in an amount equal to (i) [. . . *** . . .], plus (ii) [. . . *** . . .] in order to perform its obligations under this Agreement. (III) With respect to termination of the License Agreement under Section 6.3(a)(ii), the licenses granted under or pursuant to the License Agreement by CIMA to Schering are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(52) of the Bankruptcy Code. The parties agree that Schering, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against CIMA under the Bankruptcy Code, Schering shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property upon written request therefore by Schering. Such intellectual property and all embodiments thereof shall be promptly delivered to Schering (i) upon any such commencement of a bankruptcy proceeding upon written request therefore by Schering, unless CIMA elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of CIMA upon written request therefore by Schering. 7. OTHER PROVISIONS The License Agreement will have additional customary terms and provisions including, without limitation, those relating to royalty reports, maintenance of royalty records, audit rights of CIMA, confidentiality and publication, patent prosecution, maintenance and enforcement, representations and warranties of each party, indemnification provisions, dispute resolution - ----------------- *CONFIDENTIAL TREATMENT REQUESTED 7 mechanisms and miscellaneous provisions relating to assignment, governing law, export control, force majeure and notices. - ----------------- *CONFIDENTIAL TREATMENT REQUESTED 8 ATTACHMENT 3.3 Development, Scale-Up and Commercialization Activities for a [. . . *** . . .]
Estimated Estimated* Time to Cost/(000's) Completion --------------- ---------------- I Prototype Development (per Exhibit 1.16 and Section 3 of Development Agreement) $[. . . *** . . .] [. . . *** . . .] II Initial Scale-Up at R&D Facility [. . . *** . . .] A. [. . . *** . . .]. $[. . . *** . . .] B. Manufacture [. . . *** . . .] for use in [. . . *** $[. . . *** . . .] . . .]. C. Stability for [. . . *** . . .] under [. . . *** . . .] $[. . . *** . . .] (SEE ATTACHED TABLE) III Full-Scale Manufacturing/Optimization [. . . *** . . .] A. Manufacture up to [. . . *** . . .] $[. . . *** . . .] B. Manufacture [. . . *** . . .] follow-up $[. . . *** . . .] C. Stability on [. . . *** . . .] (SEE ATTACHED TABLE) $[. . . *** . . .] D. Preparation of CMC, in Schering's approved format. $[. . . *** . . .] IV. Validation/Commercialization [. . . *** . . .] A. Manufacture [. . . *** . . .] 1. If Saleable $[. . . *** . . .] 2. If Not Saleable $[. . . *** . . .] B. Stability studies on above [. . . *** . . .] (SEE $[. . . *** . . .] ATTACHED TABLE) C. Validation labor costs $[. . . *** . . .] Tooling lead time** [. . . *** . . .]
* Cost estimate does not include capital and tooling costs that may be needed to accommodate the [. . . *** . . .]. These are estimated at $[. . . *** . . .] for tooling and $[. . . *** . . .] for needed modifications to the packaging line. ** If tooling for tablet size/packaging configuration is ordered upon the completion of Phase I above; i.e., upon Schering's approval of final formulation, CIMA expects the addition of [. . . *** . . .] to the timeline due to tooling lead times. If the decision to order tooling is pushed back to wait for the results from [. . . *** . . .], the timeline will be further extended by the waiting period.
- ----------------- *CONFIDENTIAL TREATMENT REQUESTED 1 ATTACHMENT 3.3 (cont.) STABILITY STUDIES SUMMARY Item II C - ------------------------------------------------------------ - ------------------------------------------------------------ Storage Conditions - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X - ------------------------------------------------------------ - ------------------------------------------------------------ Item III C; Item IV B - ------------------------------------------------------------ - ------------------------------------------------------------ Storage Conditions - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X X X X X X - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X X - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 ATTACHMENT 4.3 PRELIMINARY COST OF GOODS ESTIMATE 3/12/97 Product Cost per Tablet (cents) - ------- ----------------------- [. . . *** . . .] - - Cost does not include cost of [. . . *** . . .]. - - Volumes of [. . . *** . . .]. - - Pricing assumes finished product to ship FOB point of manufacture. - - Packages of [. . . *** . . .], packed [. . . *** . . .]. - - Quality Control procedures normal to CIMA which include: a) Testing and release of raw materials, packaging components, and finished product. b) In-process sampling and testing. - - Released finished product not to be stored at CIMA. - - [. . . *** . . .] as mandated by regulatory revisions (i.e., plate and die charges due to label changes and product identification requirements, etc.) - - [. . . *** . . .]. - - Cost does not include [. . . *** . . .]. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 1.4 CIMA PATENT RIGHTS Country Patent/Application No. Filing/Issue Date - ------- ---------------------- ----------------- US [. . . *** . . .](1) [. . . *** . . .] US [. . . *** . . .](1) [. . . *** . . .] US [. . . *** . . .](1) [. . . *** . . .] US [. . . *** . . .](2) [. . . *** . . .] US [. . . *** . . .](2) [. . . *** . . .] US [. . . *** . . .](2) [. . . *** . . .] - -------------------- (1) Issued Patents (2) Pending Patent Applications - ------------------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 1.8 FINAL PROTOTYPE - GENERAL SPECIFICATIONS - - TABLET SIZE/SHAPE [. . . *** . . .] - - FLAVOR Tablet flavor(s) to be determined mutually by the parties based upon (i) optimum taste-masking characteristics and (ii) market appeal. - - COLOR Tablet color(s) will be determined mutually by the parties. - - TABLET DISINTEGRATION Targeted tablet disintegration time [. . . *** . . .]. - - PACKAGING The tablet will be [. . . *** . . .]. - - STABILITY Prototype development (implementation of the Development Plan) will include [. . . *** . . .]. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 1.16 PROTOTYPE DEVELOPMENT PLAN REVISED 7/17/97 A. Schering to provide CIMA within [. . . *** . . .] from Effective Date with: 1) [. . . *** . . .] of the [. . . *** . . .] form of [. . . *** . . .] for development work at [. . . *** . . .]. 2) Safety handling data (MSDS) for [. . . *** . . .]. 3) Analytical methods and reference standard for [. . . *** . . .]. 4) Clean-up procedures for active [. . . *** . . .]. 5) Any other technical information deemed by Schering to be beneficial. B. CIMA to develop [. . . *** . . .] formulations of OraSolv-Registered Trademark- tablets for [. . . *** . . .] by Schering [. . . *** . . .]. NOTE: Multiple formulations with no more than [. . . *** . . .] will be produced and evaluated by CIMA and Schering. The best formulations will be provided to Schering. Up to [. . . *** . . .] may be undertaken if necessary in the judgment of Schering. Further formulation cycles may be undertaken on terms to be mutually agreed by the parties. C. Schering approves [. . . *** . . .]. D. CIMA develops the analytical method(s) for testing, release and stability assessment of the Prototype. E. CIMA to manufacture [. . . *** . . .] and set up sufficient samples for conducting [. . . *** . . .]. F. CIMA to deliver to Schering [. . . *** . . .] of the approved prototype formulation together with the results of the [. . . *** . . .]. G. CIMA to continue the [. . . *** . . .] at [. . . *** . . .] and provide results to Schering. (SEE ATTACHED TABLE) H. CIMA to produce [. . . *** . . .] of the approved formulation of the Product, as requested by Schering. Duration of prototype development activities at CIMA is estimated at [. . . *** . . .] from receipt by CIMA of the [. . . *** . . .] from Schering. This does not include timing of Schering's activities. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 1 EXHIBIT 1.16 (cont.) STABILITY STUDIES SUMMARY Item E-G - ------------------------------------------------------------ - ------------------------------------------------------------ Storage Conditions - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X - ------------------------------------------------------------ [. . . *** . . .] - ------------------------------------------------------------ [. . . *** . . .] X X X - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 EXHIBIT 5.3 PROPOSED PRESS RELEASE CIMA LABS INC. ANNOUNCES AGREEMENT WITH SCHERING CORPORATION SUSTAINED RELEASE PRESCRIPTION PRODUCT TO BE COMBINED WITH ORASOLV-Registered Trademark- Minneapolis, MN, xxxx xx, 199x - CIMA LABS INC. (NASDAQ: CIMA) today announced an exclusive development and license option agreement with Schering Corporation, a wholly-owned subsidiary of Schering-Plough Corporation (NYSE: SGP). The agreement pertains to one of Schering-Plough's currently marketed prescription products and represents CIMA's first collaboration on developing a fast dissolve formulation of a sustained release product. In exchange for its development work and license option, CIMA will receive an option fee and development fees. "We are excited to announce our first corporate partner for the combination of a sustained release prescription drug with our fast dissolve technology," commented John M. Siebert, Ph.D., President and Chief Executive Officer of CIMA LABS INC. "This agreement tracks our corporate goal to develop relationships in the prescription marketplace and we look forward to working with the Schering-Plough team." OraSolv-Registered Trademark- is a patented oral dosage form which incorporates microencapsulated drug ingredients into tablets that dissolve quickly in the mouth. OraSolv-Registered Trademark- is designed to improve taste acceptance, address difficulty of swallowing traditional tablets and capsules, while offering a convenient oral dosage form that can be taken anywhere and anytime, therefore increasing compliance. CIMA LABS INC. is a drug delivery company that develops and manufactures product based upon its OraSolv-Registered Trademark- technology for marketing by multinational pharmaceutical companies to improve patient compliance and drug efficacy. CIMA was founded in 1986 and has been publicly held since July 1994. The Company's corporate headquarters and manufacturing facility are located in Eden Prairie, MN and its Research & Development facility is located in Brooklyn Park, MN. EXHIBIT 11.5 ARBITRATION PROVISIONS l) Within [. . . *** . . .] after the receipt of the notice provided for in Section 11.5(a) of this Agreement, each party shall appoint an independent expert, knowledgeable in the field concerning the Dispute, to serve on the special arbitration panel (the "Panel"). The two independent experts so appointed by the parties, shall, within [. . . *** . . .] thereafter, appoint a neutral third independent expert, knowledgeable in the field concerning the Dispute. Such neutral third independent expert shall serve as the chairperson of the Panel. Each of the members of the Panel shall be required to sign a secrecy agreement, acceptable in form to both parties, with respect to any information provided by either party during the arbitration procedure. 2) Within [. . . *** . . .] after the chairperson of the Panel is appointed, each party shall submit to each member of the Panel, and to the other party, a written statement setting forth the relevant facts with respect to the Dispute and arguments supporting such party's position with respect to the resolution of the Dispute. 3) Within [. . . *** . . .] after such written statements are provided to the Panel, the Panel and appropriate representatives of each party shall meet so that the parties can present oral arguments to the Panel, and the Panel can have the opportunity to ask questions of the parties. The location of such meeting shall be at Schering's facility in Kenilworth, New Jersey if CIMA requests the arbitration and at CIMA's facility in Eden Prairie, Minnesota if Schering requests the arbitration. Each party shall have [. . . *** . . .] to present its arguments to the Panel and [. . . *** . . .] to rebut the arguments made by the other party. The party requesting the arbitration shall be the first to present its oral argument to the Panel. 4) Within [. . . *** . . .] after such meeting, the Panel shall render a decision on the Dispute, which decision shall be reduced to writing by the chairperson of the Panel and signed by each member of the Panel. The chairperson of the Panel shall be responsible for immediately providing a copy of the written decision to each party. Such decision shall be binding with respect to any Disputes under this Agreement. 5) Each party shall be responsible for its own costs incurred in such arbitration procedures and the cost of the Panel shall be shared equally by the parties. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED EX-10.29 3 EXHIBIT 10.29 *** TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 CIMA LABS INC. DEVELOPMENT AND LICENSE OPTION AGREEMENT WITH IPR PHARMACEUTICALS, INC. THIS DEVELOPMENT AND LICENSE OPTION AGREEMENT (the "Agreement") is entered into by and between CIMA LABS INC., a Delaware corporation ("CIMA") and IPR PHARMACEUTICALS, INC., ("IPR"), on this 10th day of September, 1997 (the "EFFECTIVE DATE"). RECITALS WHEREAS, CIMA owns or has rights to certain patented oral drug-delivery technology referred to as OraSolv-Registered Trademark-, which has applications in the field of pharmaceutical product formulation; and WHEREAS, IPR has an exclusive license to make, have made, use and sell [...***...] on a [...***...] and has access to substantial expertise and experience in the development, commercialization and marketing of human pharmaceutical products; and WHEREAS, the parties desire to explore the possibility of entering into future agreements regarding the development and commercialization of OraSolv-Registered Trademark- formulations of a certain pharmaceutical product for sale in the prescription markets worldwide; and WHEREAS, IPR wishes to sponsor the development by CIMA of a prototype of a certain pharmaceutical product formulation for IPR's evaluation, subject to the granting by CIMA to IPR of an option to enter into a license agreement with CIMA on terms further described herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties hereby agree as follows: ARTICLE 1. DEFINITIONS 1.1 "AFFILIATE" means with respect to each party, any corporation or other business entity which (a) directly or indirectly owns, is owned by or is under common ownership with a party to this Agreement to the extent of at least fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign organization in a particular jurisdiction) having the power to vote or direct the affairs of such entity, or (b) directly or indirectly controls, is controlled by or is under common control with such party. As used herein, the term "control" means possession of the power to direct, or cause the - ---------- * CONFIDENTIAL TREATMENT REQUESTED direction of the management and policies of a corporation or other entity whether through the ownership of voting securities, by contract or otherwise. 1.2 "DEVELOPMENT AND SCALE-UP PLAN" shall mean the plan set forth on Exhibit A for the development of the Prototype and its scale-up. 1.3 "FIELD" shall mean prescription pharmaceutical products incorporating the OraSolv-Registered Trademark- Technology containing as active ingredient in any formulation or dosage, [...***...], or any other [...***...] compound for the treatment of [...***...], including without limitation, the Product for sale in prescription markets [...***...]. 1.4 "FINAL PROTOTYPE" shall mean the product which meets the general specifications as set forth in Exhibit C as agreed to by the parties and any further specifications agreed to by the parties. 1.5 "OPTION" shall have the meaning assigned thereto in Section 3.1. 1.6 "ORASOLV-Registered Trademark- TECHNOLOGY" shall mean CIMA's effervescent, fast-dissolving, oral drug-delivery tablet technology which includes, to the extent applicable to the formulation of a product which meets the criteria set forth on Exhibit D, (i) the inventions disclosed in patents and patent applications owned, controlled or licensed (with the right to sublicense) by CIMA during the term of this Agreement, including those listed on Exhibit B, and (ii) all know-how, technology, trade secrets, data, processes and methods, or other information owned, controlled or licensed (with the right to sublicense) by CIMA during the term of this Agreement. 1.7 "PRODUCT" shall mean the pharmaceutical dosage form which is formulated using the OraSolv-Registered Trademark- Technology and which contains [...***...] as its active ingredient, whether [...***...]. 1.8 "PROTOTYPE" shall mean the prototype of the Product to be developed by CIMA pursuant to the Development and Scale-Up Plan and in accordance with the general specifications set forth on Exhibit C, and any further specifications agreed to by the parties. ARTICLE 2. PROTOTYPE DEVELOPMENT 2.1 GENERAL. In consideration for certain development fees set forth below, CIMA will use all commercially reasonable efforts to develop and deliver to IPR a Prototype, subject to the terms of this Agreement and in accordance with the specifications set forth on Exhibit C (and any further specifications agreed to by the parties) and the schedule set forth in Section 2.2. Upon receipt of the Prototype, IPR will evaluate the Prototype in accordance with the schedule set forth in Section 2.2. In consideration for certain fees set forth in, and subject to the terms of, this Agreement, CIMA shall grant to IPR the license option with respect to the commercialization of the Product further described below. 2.2 DEVELOPMENT SCHEDULE. Following the Effective Date and receipt of the materials from IPR delineated under Phase I of the Development and Scale-Up Plan in such quantities as may be necessary from - ---------- * CONFIDENTIAL TREATMENT REQUESTED 2 time to time to complete the Development and Scale-Up Plan, CIMA shall initiate development of the Prototype. CIMA will develop the Final Prototype in [...***...] to be determined by mutual agreement as described in Exhibit C. CIMA and IPR each acknowledge and agree that Phase I of the Development and Scale-Up Plan is expected to be completed within approximately [...***...] from the date of initiation of Phase I of the Development and Scale-Up Plan (which date shall be agreed upon and recorded in writing by the parties) (the "Initiation Date"). To that end, during the implementation of Phase I of the Development and Scale-Up Plan, IPR agrees to evaluate promptly each iteration of the Prototype and/or report of results delivered by CIMA and use all commercially reasonable efforts to respond to CIMA within [...***...] of receipt thereof. IPR's response will indicate the acceptability of such proposed Prototype and/or the need, if any, for modification of the specifications in light of the results of IPR's evaluation. In the event of any unanticipated changes in the regulatory environment, or extreme market conditions or similar unforeseen events which affect the development of the Prototype and which are beyond the parties' control (including but not limited to IPR's failure to respond to CIMA within [...***...] of IPR's receipt of any iteration of the Prototype or report of results), the parties will discuss such changed circumstances, the appropriate mechanisms to address them and their impact on the Development and Scale-Up Plan schedule. 2.2.1 TIMELINESS PAYMENTS. In addition to the Development Fees set forth in Section 2.3 below, IPR will pay to CIMA, at the same time as the payment due under Section 2.3.3, a bonus of $[...***...] if CIMA completes Phase I of the Development and Scale-Up Plan in less than [...***...] after the Initiation Date. If CIMA completes Phase I of the Development and Scale-Up Plan after the expiration of [...***...] from the Effective Date, due solely to circumstances within CIMA's control, IPR may deduct $[...***...] from the payment due CIMA under Section 2.3.3 of this Agreement; PROVIDED, HOWEVER, that if the parties determine that the Prototype must be reformulated, CIMA shall have an additional [...***...], for a total of [...***...], to complete Phase I of the Development and Scale Up Plan without deduction from the payment due CIMA under Section 2.3.3. For the purposes of this Agreement, completion of Phase I of the Development and Scale-Up Plan shall be deemed to occur when [...***...]. 2.3 DEVELOPMENT FEES. In consideration for CIMA's development and production of the Prototype in accordance with this Agreement, IPR shall make the following non-refundable payments to CIMA: 2.3.1 [...***...] within [...***...] of the Effective Date; 2.3.2 [...***...] within [...***...] of shipment by CIMA of [...***...] as outlined in [...***...] of Phase I of the Development and Scale-Up Plan; and 2.3.2 [...***...] within [...***...] of completion of Phase I of the Development and Scale-Up Plan. 2.4 DEVELOPMENT PROGRAM CONTACTS. The parties will each communicate and cooperate with the other, through their designated contact persons, to the extent necessary to implement the Development and Scale-Up Plan. Exhibit E sets out the appropriate contact person at each of CIMA and IPR for the various tasks within each phase of the Development and Scale-Up Plan, and may be amended from time to time to reflect changes in the amending party's designated contact persons. - --------- * CONFIDENTIAL TREATMENT REQUESTED 3 ARTICLE 3. OPTION, EXCLUSIVITY, LICENSE 3.1 OPTION. Effective upon delivery of the Option Fee described in Section 3.3 below, CIMA hereby grants to IPR an option to enter into an exclusive license agreement to utilize the OraSolv-Registered Trademark- Technology for the development, marketing, distribution and sale of the Product [...***...] (the "Option"). The term of such Option shall extend from the Effective Date until the earlier of (i) [...***...] after completion of data analysis from the pilot bio-study of the Final Prototype developed pursuant to Section 2.2, or (ii) [...***...], unless otherwise agreed by the parties or unless the U.S. Food and Drug Administration requests or requires the parties to perform efficacy and/or stability studies in addition to, or instead of, those activities provided in the Development and Scale-Up Plan, in which case the parties shall establish a mutually acceptable extension of the Option term. IPR may exercise the Option by (i) providing CIMA with written notice thereof, and (ii) negotiating and entering into a license agreement with CIMA in accordance with the terms set forth in Section 3.4 below (the "License Agreement") prior to the end of the Option term. In the event that the parties fail to negotiate and enter into the License Agreement by the end of the Option term, CIMA's obligations under Section 3.2 hereof shall terminate and CIMA shall be free to enter into any license agreement with respect to the Field with any third-party, on any terms CIMA may, in its sole discretion, deem appropriate. 3.2 EXCLUSIVITY. 3.2.1 CIMA. In consideration for the Option Fee, CIMA hereby agrees that from the Effective Date until the expiration or termination of the Option term set forth in Section 3.1, CIMA shall not enter into any negotiations or agreements with any third party relating to the development or commercialization of products containing as an active ingredient [...***...] compound in the Field. 3.2.2 IPR. In consideration for the Option granted hereunder, IPR hereby agrees that from the Effective Date until the expiration or termination of the Option term set forth in Section 3.1, IPR shall not develop or commercialize, or enter into any negotiations or agreements with any third party relating to the development or commercialization of, [...***...] compound that disintegrates or dissolves in the mouth [...***...] by either placing on the tongue or by chewing. 3.3 OPTION FEE. In consideration for the exclusivity obligations set forth in Section 3.2 and the Option granted in Section 3.1, IPR shall pay to CIMA the sum of [...***...] (the "Option Fee"). CIMA acknowledges that [...***...], creditable against the Option Fee, has been paid by IPR to CIMA as of the Effective Date. IPR shall pay the balance due on the Option Fee, [...***...] within [...***...] of the Effective Date. The total Option Fee payable hereunder shall be creditable against the upfront license fee payable to CIMA upon execution of the License Agreement as set forth on Exhibit F. 3.4 TERMS OF LICENSE. The terms of the proposed License Agreement shall include, but not be limited to, the terms set forth on Exhibit F. 3.5 SUPPLY AGREEMENT. Simultaneously (unless otherwise agreed by the parties) with the execution of the License Agreement, the parties shall enter into a commercialization and supply agreement pursuant to which CIMA shall be the exclusive supplier of IPR's commercial requirements of the Product with - --------- * CONFIDENTIAL TREATMENT REQUESTED 4 the exception that IPR may negotiate manufacturing rights to the Product. Such agreement shall include, but not be limited to, the terms set forth on Exhibit G and shall also set forth the obligations of CIMA with respect to finalization of development, scale-up and validation of the Product. Scale-up and commercialization costs shall be paid by IPR and are delineated in Exhibit H. 3.6 FACILITIES VISITS. During the term of this Agreement, CIMA shall allow personnel of IPR and/or Zeneca Limited, at IPR's expense, to visit the manufacturing and research facilities of CIMA and to consult with CIMA personnel, at mutually agreeable times and upon reasonable notice, to discuss and review the development of the Product, PROVIDED, HOWEVER, that such personnel shall not be permitted to visit any area of the manufacturing and research facilities of CIMA which contain confidential information or materials of a third party which cannot be removed or protected from such personnel's view. However, CIMA acknowledges that infrequently for regulatory or similar compliance reasons, all areas of the manufacturing and research facilities of CIMA may need to be visited and inspected by such personnel and CIMA shall use all reasonable commercial efforts to manage its manufacturing and site arrangements to permit such "all areas" visits and inspections, but CIMA shall not be required by virtue of this provision or otherwise to breach any confidentiality or other provisions in its agreements with any third party. ARTICLE 4. GENERAL PROVISION 4.1 LIMITATIONS ON USE. IPR and CIMA agree that each shall use the Prototype and the Confidential Information (as defined in Section 4.3.1) of the other solely for the purposes specified in this Agreement and for no other purpose, including without limitation, use of the Prototype or Confidential Information relating to [...***...] in any research or commercial activities other than those which relate directly to the purposes specified herein. Each party's permitted use of [...***...] and the Prototype shall be in compliance with all applicable laws and regulations. Unless the parties enter into the License Agreement, upon expiration or termination of the Agreement, each party shall return or destroy, all Confidential Information of the other party, as directed by said other party, including all unused quantities of the Prototype or samples of [...***...], and also including information related to [...***...]and copies of any and all information, data and results obtained from conduct of evaluations under this Agreement or relating to the use of the Prototype (the "Results"). However, one copy of the other party's Confidential Information may be retained by each party solely for the purpose of determining its continuing obligations under this Agreement. Neither party shall sell, transfer, disclose or otherwise provide access to Confidential Information concerning [...***...], the Prototype or the Results, any method or process relating thereto or any material that could not have been made but for access to the foregoing, to any person or entity without the prior expressed written consent of the party owning the Confidential Information, except that either party may allow access to the Confidential Information to employees, subcontractors or agents during the term of, and solely for purposes consistent with, this Agreement. Each party will make diligent efforts to ensure that such employees, agents and subcontractors will use the Confidential Information in a manner consistent with the terms of this Agreement. - --------- * CONFIDENTIAL TREATMENT REQUESTED 5 4.2 TERM AND TERMINATION. 4.2.1 TERM. Unless sooner terminated in accordance with Section 4.2.2 or 4.2.3 below, this Agreement shall expire upon the expiration or termination of the Option. 4.2.2 TERMINATION FOR BREACH. Either party may terminate this Agreement upon [...***...] written notice to the other in the event the other commits a material breach of a provision of this Agreement and fails to cure such breach prior to the end of such [...***...] period. 4.2.3 TERMINATION BY IPR. IPR shall have the right to terminate this Agreement prior to exercise of the Option upon [...***...] written notice to CIMA. 4.2.4 EFFECT OF TERMINATION. Upon termination or expiration of this Agreement pursuant to Sections 4.2.1 or 4.2.3 above, or termination by CIMA pursuant to Section 4.2.2 above, IPR shall [...***...]. Upon termination by IPR pursuant to Section 4.2.2, CIMA shall [...***...] pursuant to Section 3.3. Nothing in this Agreement shall be construed to relieve either party of any obligations incurred by it hereunder prior to the effective date of termination hereof. This Article 4 shall survive any termination or expiration of this Agreement. 4.3 CONFIDENTIALITY. Each of the parties shall be bound by the following terms and conditions: 4.3.1 Subject to the limitations set forth in Section 4.3.2 below, all information disclosed to the other party and identified by the disclosing party as confidential shall be deemed "Confidential Information" of the disclosing party. In particular, Confidential Information shall be deemed to include, but not be limited to, the Prototype and any documentation relating thereto, information related to [...***...], the Results, any patent application or drawing or potential patent claim the subject matter of which is directly or indirectly derived from information disclosed hereunder, any trade secret, information, invention, idea, samples, process, method, procedures, formulations, packaging designs and materials, test data relating to any research project, work in process, future development, engineering, manufacturing, regulatory, marketing, servicing, financing, or personnel matter relating to the disclosing party, its present or future products, sales, suppliers, clients, customers, employees, investors or business, whether in oral, written, graphic or electronic form. 4.3.2 The term "Confidential Information" shall not be deemed to include information which (i) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available; (ii) is known by the receiving party at the time of receiving such information, as evidenced by its records except where the same was previously disclosed by the disclosing party to the receiving party or its Affiliates under the terms of a Confidentiality Agreement; (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure; (iv) is independently developed by the receiving party without use of Confidential Information of the other party; (v) is the subject of a written permission to disclose provided by the disclosing party (vi) is required to be disclosed by law; or (vii) is required to be disclosed to establish rights or enforce obligations under this Agreement, but only to the extent such disclosure is necessary. - --------- * CONFIDENTIAL TREATMENT REQUESTED 6 4.3.3 During the term of this Agreement and for a period of [...***...] after termination hereof [...***...] with respect to information pertaining to manufacturing processes and know-how), each party shall maintain all Confidential Information in trust and confidence and shall not disclose any Confidential Information to any third party or use any Confidential Information for any unauthorized purpose. Each party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Confidential Information shall not be used for any purpose or in any manner that would constitute a violation of any laws or regulations, including without limitation the export control laws of the United States. Each party hereby agrees that it will not in any way attempt to obtain, either directly or indirectly, any information regarding any Confidential Information from any third party who has been employed by, provided consulting services to, or received in confidence information from, the other party. 4.3.4 The parties under this Agreement shall advise their employees who might have access to Confidential Information of the confidential nature thereof and agree that their employees and agents shall be bound by the terms of this Agreement. No Confidential Information shall be disclosed to any employee who does not have a need for such information. Each party may disclose Confidential Information to its Affiliates to the extent required to accomplish the purposes of this Agreement. 4.4 OWNERSHIP. Title and ownership rights in the OraSolv Technology and other Confidential Information of CIMA shall remain at all times with CIMA. IPR acknowledges that the OraSolv Technology and such Confidential Information shall remain the sole property of CIMA and IPR will acquire no title thereto as a result of this Agreement. Title and ownership rights in IPR's Confidential Information shall remain at all times with IPR. CIMA acknowledges that the Confidential Information of IPR shall remain the sole property of IPR and CIMA will acquire no title thereto as a result of this Agreement. Nothing in this Agreement shall be construed as conferring on either party an expressed or implied license or option to license any disclosed Confidential Information, technology, or any patent or patent application except as expressly provided herein. 4.4.1 INVENTIONS. CIMA shall solely own all right, title and interest in and to any technology invented during the course of the development work for IPR under this Agreement, whether patentable or not, that is necessary or useful to the manufacture or distribution of the Product ("New Technology"). Any such New Technology shall be included in the OraSolv Technology (except to the extent that such New Technology would otherwise be excluded from the definition of Orasolv Technology pursuant to the Product Criteria set forth in Exhibit D), and as such shall be subject to the terms of the License Agreement. CIMA may, in its sole discretion and at its sole expense, file and prosecute patent applications on New Technology and obtain and enforce patents issuing from such applications. CIMA shall solely own all such patent applications and patents. If CIMA files and prosecutes patent applications on any New Technology relating to [...***...], it will consult with IPR regarding the content of any filings made with the United States Patent and Trademark Office (or any foreign equivalent thereof) with respect to such applications and shall keep IPR informed of the progress of such patent prosecution efforts and related proceedings. IPR agrees to execute such documents and render such assistance to CIMA as may be necessary or appropriate to enable CIMA to obtain and maintain title to any New Technology and to any patent application or patent on such New Technology, and to enforce any such patents. - --------- * CONFIDENTIAL TREATMENT REQUESTED 7 4.5 Representations and Warranties. 4.5.1 CIMA WARRANTS THAT DEVELOPMENT AND PILOT-SCALE MANUFACTURE BY CIMA OF THE PROTOTYPE SHALL BE CONDUCTED IN A WORKMANLIKE MANNER USING REASONABLE SKILL AND CARE AND IN ACCORDANCE WITH CURRENT GOOD MANUFACTURING PRACTICES PROMULGATED BY THE U.S. FDA. EXCEPT AS SET FORTH ABOVE, THE PROTOTYPE IS BEING SUPPLIED TO IPR WITH NO WARRANTIES OF ANY KIND, EXPRESSED OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT IT IS FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE, OF ANY PATENT OR OTHER PROPRIETARY RIGHTS OF SUCH PARTY. TO THE BEST OF CIMA'S KNOWLEDGE WITHOUT INVESTIGATION, CIMA HAS NOT BEEN SERVED WITH OR NOTIFIED OF ANY CLAIM OR POTENTIAL CLAIM OF ANY THIRD PARTY THAT THE ORASOLV TECHNOLOGY INFRINGES ANY PATENT OR OTHER PROPRIETARY RIGHTS OF SUCH PARTY AND NEITHER IS IT AWARE OF ANY PATENT OR OTHER PROPERTY OF ANY THIRD PARTY WHICH INFRINGES THE ORASOLV TECHNOLOGY. 4.5.2 CIMA represents and warrants that: (i) CIMA is a corporation duly organized, existing and in good standing under the laws of the State of Delaware, 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. (ii) 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 Certificate of Incorporation or Bylaws. (iii) This Agreement has been duly executed and delivered by CIMA and is a legal, valid and binding obligation enforceable against CIMA in accordance with its terms. 4.5.3 IPR represents and warrants that: (i) IPR is a corporation duly organized, existing and in good standing under the laws of Puerto Rico, 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. (ii) The execution, delivery and performance of this Agreement do not conflict with, violate or breach any agreement to which IPR is a party, or IPR's Certificate of Incorporation or Bylaws. (iii) This Agreement has been duly executed and delivered by IPR, and is a legal, valid and binding obligation enforceable against IPR in accordance with its terms. 4.6 INDEMNITY. 4.6.1 CIMA agrees to and hereby does indemnify and hold IPR and its Affiliates harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, 8 including reasonable legal expenses and costs (including attorneys' fees), which IPR or its Affiliates may incur, arising out of any third party claim of property damages or personal injury or death arising from CIMA's application of the OraSolv Technology to [...***...] 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; PROVIDED, HOWEVER, that in no event shall CIMA be liable for any such claims, damages, losses, costs or expenses to the extent arising out of or resulting from materials supplied by IPR to CIMA, or IPR's negligence or willful misconduct. 4.6.2 IPR agrees to and hereby does indemnify and hold CIMA and its Affiliates harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) which CIMA or its Affiliates may incur, arising out of any third party claim relating to the Prototype developed by CIMA for IPR hereunder or any aspect of IPR's performance of this Agreement, to the extent such liability results from the negligence or willful misconduct of IPR, or any breach of a representation or warranty given herein by IPR, PROVIDED, HOWEVER, that in no event shall IPR be liable for any such claims, damages, losses, costs or expenses to the extent arising out of or resulting from materials supplied by CIMA to IPR, or CIMA's negligence or willful misconduct. 4.7 INDEPENDENT CONTRACTORS. The parties shall perform their obligations under this Agreement as independent contractors and nothing contained in this Agreement shall be construed to be inconsistent with such relationship or status. This agreement shall not constitute, create or in any way be interpreted as a joint venture or partnership of any kind. 4.8 PUBLICITY. Any public disclosure of this Agreement or of the activities or rights hereunder, including but not limited to press releases, shall be reviewed and consented to by each party prior to such disclosure; PROVIDED, HOWEVER, that the foregoing shall not apply to make such disclosures (a) as may be required by law (including securities laws), provided that the party subject to such law shall seek confidential treatment of key commercial and scientific terms to the extent such treatment is available under law; (b) made in connection with an assertion of its rights under this Agreement; (c) made under a binder of confidentiality to any person or entity who may be interested in investing in or acquiring all or substantially all of the assets or securities of such party, or (d) made to its financial advisors provided that such party has used its best efforts in good faith to obtain a binder of confidentiality. Any consent required hereunder shall not be untimely or unreasonably withheld by either party. Notwithstanding the foregoing, the parties consent to a press release announcing this Agreement, in the form attached hereto as Exhibit J. 4.9 FINAL AGREEMENT; AMENDMENTS. This Agreement sets forth the complete and final agreement of the parties and supersedes all prior and contemporaneous negotiations, understandings and agreements with respect to the subject matter hereof. No subsequent amendment or modification to this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by the respective officers of the parties hereto. 4.10 ASSIGNMENT. Except as otherwise provided herein, neither this Agreement nor any interest hereunder will be assignable in part or in whole by any party without the prior written consent of the other; PROVIDED, HOWEVER, that either party may assign or transfer its rights and obligations under this Agreement to an Affiliate or a purchaser of all or substantially all of the stock or assets of such party or to an entity into 9 which such party is merged, without such consent. This Agreement will be binding upon the successors and permitted assigns of the parties and the name of a party appearing herein will be deemed to include the names of such party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment which is not in accordance with this Section 4.10 will be void. 4.11 MISCELLANEOUS. This Agreement shall be governed by the laws of the State of Delaware. If any provision of this Agreement is found by a proper authority to be unenforceable, that provision shall be severed and the remainder of this Agreement will continue in full force and effect. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original. 4.12 NOTICES. Any notices required or permitted hereunder shall be given in writing to the appropriate party at the address specified below or at such other address as the party shall specify in writing. 4.13 SUBCONTRACTING. CIMA acknowledges that IPR and Zeneca Limited have entered into certain agreements regarding the performance of development activities (the "Zeneca/IPR Agreements") relevant to IPR's obligations under this Agreement, and that IPR may subcontract certain development activities set forth in the Development and Scale-Up Plan to Zeneca Limited pursuant to the Zeneca/IPR Agreements upon prior notice of such subcontracting to CIMA. IN WITNESS WHEREOF, the parties have by duly authorized persons, executed this Agreement, as of the date first written above. CIMA LABS INC. IPR PHARMACEUTICALS, INC. 10000 Valley View Road P.O. Box 1967 Eden Prairie, Minnesota 55344 Carolina USA Puerto Rico 00984 Tel: (612) 947-8700 Tel: (809) 750-5353 Fax: (612) 947-8770 Fax: (809) 750-5332 By:/s/ Jack Khattar By:/s/ B.J. Thorpe -------------------------- ---------------------- - -------- Title: V.P. Business Development Title: Chairman 10 EXHIBIT A PROTOTYPE DEVELOPMENT AND SCALE-UP PLAN PHASE I A. CIMA to develop and scale-up a [...***...] using [...***...]. CIMA will validate the coating process and place a [...***...] batch and [...***...] (see attached [...***...]). IPR to provide CIMA, at no cost to CIMA, an [...***...] for the initial development of the coating process. Additional material, [...***...], will be provided to CIMA, at no cost to CIMA, for the scale-up and validation of the coating process and manufacture of batches in part E of this plan. IPR will provide [...***...] drug substance. CIMA will validate the coated drug substance analytical testing methods. IPR will supply reference standards for [...***...] and key degradents or impurities. [...***...] based on taste characteristics described to CIMA by IPR. If [...***...] is required time and cost estimates will have to be determined. B. CIMA to manufacture [...***...] formulations of OraSolv Tablet Formulations containing [...***..] selected by IPR. CIMA will provide [...***...] for IPR to conduct consumer testing. IPR will complete the consumer testing and select [...***...] to be carried forward in development. If IPR does not complete the evaluation in the time allotted [...***...] the Development and scale-up timeline will be extended accordingly. CIMA to develop [...***...] OraSolv Tablet formulations. [...***...] formulations containing [...***...] drug substance (developed in part A of this plan) and [...***...] formulations containing [...***...] drug substance. CIMA will develop and validate both cleaning verification and final product testing analytical methods. CIMA will validate the final product testing microbial test methods. IPR will provide CIMA current analytical testing methods and validation documents for cleaning verification and product release of [...***...]. CIMA will perform excipient compatibility experiments between [...***...]. No other excipient compatibility work will be conducted. D. CIMA to manufacture and release [...***...] of the [...***...] developed in part C of this plan ([...***...]). CIMA will place these [...***...] on [...***...]. IPR will evaluate the [...***...] batches within [...***...] after receiving [...***...] and make a final [...***...] selection. If IPR does not complete the evaluation in the time allotted the Development and Scale-up timeline will be extended accordingly. The stability studies for the [...***...] will be carried forward. The [...***...] will be discontinued [...***...]. Of the [...***...] will be [...***...]. This decision will be made before the [...***...] time point of the [...***...] is reached. - ---------- *CONFIDENTIAL TREATMENT REQUESTED 1 Up to [...***...] may be undertaken if necessary in the judgment of IPR. If a [...***...] is initiated, [...***...] will be added to the development schedule. [...***...] can not be initiated based on a request for a [...***...] selected in Part B of this development plan. [...***...] may be undertaken only under terms to be mutually agreed by the parties. E1. CIMA will scale-up the tablet manufacturing process for the [...***...] selected in Part D of this plan up to a scale representing [...***...] of the eventual production size batch or [...***...], whichever is greater. A production size batch is expected to be [...***...]. CIMA will manufacture [...***...] or [...***...], whichever is greater, of each formulation selected in Part D of this agreement for use in a bioequivalence study. CIMA will place these batches on [...***...]. CIMA will write the required CMC documents, in IPR's required format, for the submission of an IND. IPR will supply to CIMA sample documents, templates or documentation to enable CIMA to write the CMC documents in IPR's preferred format. IPR will conduct the bioequivalence study and report the results back to CIMA within [...***...] of receiving released material. Tablet specification for [...***...] will be established based on formulation and process capabilities. For a minimum of Phase I, data will be collected for information only on [...***...]. [...***...] will attempt to match the current [...***...], if possible [...***...]. Only [...***...] will be supplied in the final product. This evaluation will be performed before the manufacture of the definitive stability batches. Some additional capital expense may be incurred for tablet tooling. Specifics will be discussed with IPR before any expenditures are made and will be billed to IPR separately. E2. CIMA will manufacture an additional [...***...] batches or [...***...] batches, whichever is greater, of each formulation and place them on stability at the agreed upon conditions. The [...***...] referred to in Part E1 and E2 will be initiated at the same time, estimated to be [...***...]. The batches will be packaged [...***...]. The tablet layout will likely be [...***...] for development batches, even though the commercial format will be [...***...]. CIMA will completely package (in unlabeled [...***...]) at least [...***...] of each formulation for use in clinical studies in [...***...]. F. CIMA will manufacture and package in unlabeled [...***...] to deliver at least [...***...] for use in clinical studies during [...***...]. Once the bioequivalence results are known, IPR will select [...***...]. The [...***...] for the selected formulation will be carried out to completion (see attached [...***...]), the other [...***...] will be discontinued. This selection of a formulation for final scale-up will be made prior to the [...***...] for the relevant [...***...] studies is reached. [...***...] has been estimated for completion up to but not including Part E2 of Phase I of this development plan. If an [...***...], an additional [...***...] will be added to the schedule or [...***...] will be required to complete up to but not including Part E2 of Phase I. The work outlined in Part E2 may require [...***...] and will be completed while IPR is conducting bioequivalence testing. Any time delays in receiving required drug substance supplies or decisions ([...***...] - ---------- *CONFIDENTIAL TREATMENT REQUESTED 2 selection, prototype evaluation etc.) from IPR will increase the time allotted to CIMA to complete the development program. PHASE II CIMA will scale up the formulation selected in Part E of this plan by manufacturing [...***...] batches. A full scale GMP batch will be manufactured and placed on [...***...] (see attached [...***...]). The full scale GMP batch will be sampled and tested according to the agreed process validation protocol. A full scale batch is expected to be approximately [...***...]. CIMA will write the required CMC documents in the appropriate IPR format. The stability plan will include [...***...] on [...***...] and [...***...] on [...***...] (see attached [...***...]). The batch will be packaged in the exact components as the intended commercial product. The tablet layout will likely be [...***...] for development batches, even though the commercial format will be [...***...]. If IPR elects to proceed forward with a [...***...], CIMA will place an additional [...***...] batches [...***...] on bulk drug stability (see attached [...***...]). Process validation batches are not included in Phase II of the development plan. Process validation batches will be manufactured at IPR's request and will be billed separately. The cost of the validation batches will be negotiated based on the agreed upon validation protocol. The validation protocol will be negotiated and agreed upon prior to regulatory submission in order to have the signed protocol available at the time of a PAI. Validation batches will not be manufactured prior to a PAI and are expected to be manufactured just prior to or just after the first regulatory approval ([...***...]). The first commercial manufacturing campaign will consist of at [...***...], IPR will order this minimal quantity even if this represents a quantity in excess of the first years commercial requirements. MONITORING CIMA will issue update reports within [...***...] of key milestone events. A series of key milestone events will be mutually agreed to between the CIMA and IPR. At the end of Phase I, a full development report(s) will be written within [...***...] of initiating the last definitive stability study. Two key dates have been identified for meetings in Minneapolis: - - [...***...] (after [...***...] and prior to [...***...]). - - [...***...] and prior to [...***...]. Scheduled visits of IPR personnel to CIMA Labs: - - [...***...] - ---------- *CONFIDENTIAL TREATMENT REQUESTED 3 - - Monitor of GMP batch manufacture - - Additional visits will be scheduled as needs arise A minimum of [...***...] will be made by CIMA to IPR based upon a mutually agreed to [...***...] schedule. [...***...] [...***...] [...***...] [...***...] - ---------- *CONFIDENTIAL TREATMENT REQUESTED 4 EXHIBIT B PATENTS AND PATENT APPLICATIONS COUNTRY PATENT/APPLICATION NO. FILING/ISSUE DATE ------- ---------------------- ----------------- United States [...***...] [...***...] United States [...***...] [...***...] United States [...***...] [...***...] United States [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] ________________________ 1 Issued Patents 2 Pending Patent Applications * Licensed Technology - ---------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT C GENERAL SPECIFICATIONS - - Dose ---- [...***...] - - Tablet Size/Shape ----------------- [...***...] - - Flavor ------ [...***...] to be determined [...***...]. - - Color ----- [...***...] - - Tablet disintegration --------------------- [...***...] - - Packaging --------- [...***...] - - Stability --------- Sufficient to give a [...***...]. - - Bioavailability --------------- Bioequivalent to conventional [...***...]. Variability in [...***...] within ranges acceptable to the regulatory authorities [...***...]. - ---------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT D PRODUCT CRITERIA (FOR PURPOSES OF SECTION 1.6) - - Tablets contain [...***...] compound for the treatment of [...***...]. - - Tablets that disintegrate or dissolve in the mouth in [...***...] by either placing on the tongue or by chewing, such disintegration or dissolution time to be measured in accordance with the in vitro test specification set out below. - - Tablets that include either a [...***...]. OraSolv Technology will not include any CIMA technology that is specifically designed to increase or enhance the rate and/or the extent of absorption of active drug substances [...***...], regardless of the in-vitro or in-vivo disintegration/dissolution time. This exclusion also extends to enhanced absorption in the oral cavity (sublingual or buccal) or upon ingestion throughout the GI tract (stomach, intestines and colon). [...***...] - ---------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT E CONTACT PERSONS AREA OF RESPONSIBILITY CIMA ZENECA (ON BEHALF OF IPR) ---------------------- ---- ------------------------- Business Development Jack Khattar Bob Nolan Research and Development John Hontz John Shatwell Mfg. and Packaging Brian Jones John Thornton Accounting and Finance Keith Salenger Katrina Starkie Regulatory John Kosewick Frances Duffy-Warren EXHIBIT F PRINCIPAL LICENSE TERMS 1. DEFINITIONS. The License Agreement shall include those definitions from the Development and Option Agreement which are applicable to the License Agreement and such other definitions as are appropriate. 1.1 IMPROVEMENTS. The definition of OraSolv-Registered Trademark- Technology will include improvements thereto to the extent the improvement is necessary or useful to the manufacture of the Product. 2. LICENSES. 2.1 LICENSE GRANT. CIMA will grant to IPR an exclusive (even as to CIMA), [...***...], royalty-bearing license (with the right to sublicense) in the Field to utilize the OraSolv-Registered Trademark- Technology for the development, marketing, distribution and sale of the Product. 2.2 TERM OF LICENSE. The term of the license granted under Section 2.1 shall expire on a country-by-country basis on the later of (i) the last to expire of the licensed patents or (ii) [...***...] after the effective date of the License Agreement. The parties shall jointly consider ways of extending the term of such license to the extent permitted by applicable law or regulation. 2.3 EXCLUSIVITY. In consideration for the license granted under Section 2.1, IPR will not, from the Effective Date until the expiration or termination of the License Agreement, develop or commercialize, either internally or through its Affiliates, or enter into any negotiations or agreements with any third party relating to the development or commercialization of, a formulation of [...***...] compound that disintegrates or dissolves in the mouth in [...***...] by either placing on the tongue or by chewing. This provision shall be subject to IPR's right to self-supply as described in Exhibit G of this Agreement. 3. COMMERCIALIZATION AND MARKETING. 3.1 COMMERCIALIZATION DILIGENCE. IPR will file its application for FDA approval to market the Product in the United States and [...***...] (such countries together with the United States hereafter called "Major Countries") within [...***...] of final stability data for the Product being available to IPR. Such filing timetable is based upon the following assumptions: that regulatory authorities will approve the Product on the basis of a successful bioequivalence study only, and that an efficacy study is not required; and that the following stability data will be sufficient for regulatory approval: [...***...] [...***...] [...***...] - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 1 If either clinical efficacy data or additional stability data is required, IPR's filing timetable will be amended to be not more than [...***...] after the last required data becomes available to IPR. IPR will launch the Product in each Major Country in which it receives regulatory and pricing approval to market the Product within [...***...] of receiving the later received approval. 3.1.1 FAILURE OF IPR TO MEET COMMERCIALIZATION DILIGENCE OBLIGATIONS. In the event IPR fails to meet any of the commercialization diligence milestones set forth in Section 3.1, CIMA may, [...***...]. If CIMA elects to terminate the license, CIMA shall give IPR [...***...] notice of termination, during which period the parties shall discuss the circumstances which caused IPR to fail to meet the relevant milestone and IPR may propose appropriate strategies to cure its failure. CIMA may, in its discretion, elect to permit IPR to implement its proposed strategy for such time as the parties may agree. If at the end of such agreed upon period IPR still has not met the relevant milestone, CIMA may terminate the license in the relevant Major Country upon [...***...] written notice to IPR. 3.1.2 REGULATORY ASSISTANCE. CIMA will provide, such assistance to IPR in connection with IPR's application for approval to market the Product in any country as may reasonably be necessary to assist IPR in obtaining such approval. CIMA will provide [...***...] of assistance per annum at CIMA's expense, with any further assistance to be provided at IPR's expense. 3.2 MARKETING DILIGENCE. IPR will use commercially reasonable efforts to market the Product consistent with IPR's usual practice in commercializing and marketing products of similar market potential. 3.3 MINIMUM SALES. Commencing on the [...***...] of the later of (i) [...***...] of the Product in [...***...] or (ii) [...***...] of the Product in [...***...], IPR will meet an annual minimum sales target of [...***...] of its projected sales for the Product as set forth on Exhibit K. The minimum sales targets form the basis for calculating a material component of CIMA's compensation under this Agreement; as such, they will not be amended except by mutual agreement of the parties. In any event, Exhibit K shall not be subject to revision or amendment by virtue of the forecasting and ordering procedures set out in any Supply Agreement which the parties may enter. In the event that IPR fails to gain marketing and/or price approval for the Product in one or more Major Countries, the parties will meet to agree a fair and reasonable adjustment to the projected sales for the Product as set forth on Exhibit K to take account of such non-approval. 3.3.1 FAILURE TO MEET MINIMUM SALES REQUIREMENTS. In the event IPR fails to meet the minimum sales target in any year in which such minimum sales target applies set forth above (i) the [...***...], and (ii) CIMA will be free to license the OraSolv Technology in the Field to third parties. CIMA will have no financial or accounting obligations to IPR as a result of any license by CIMA of the OraSolv Technology to third parties under Section 3.3.1(ii). Prior to exercising any of the rights set out in parts (i) and (ii) of this Section 3.3.1, CIMA shall [...***...], and if IPR elects to make such payment, the License Agreement shall continue on an exclusive basis in full force and effect. 3.4 ADDITIONAL LANGUAGE. The License Agreement will contain such additional language as is appropriate to govern the parties' respective commercialization, marketing and diligence obligations. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 4. PAYMENTS AND ROYALTIES. 4.1 LICENSE FEE. In consideration for the license granted under the License Agreement, IPR will pay to CIMA within [...***...] of the effective date of the License Agreement a one-time fee of [...***...] PROVIDED, HOWEVER, that the License Option Fee of [...***...] paid pursuant to the Development and License Option Agreement shall be credited against the License Fee due under this Section 4.1. 4.2 MILESTONE PAYMENTS. Subject to the terms and conditions of the License Agreement, IPR will pay to CIMA the following milestone payments: 4.2.1 [...***...] within [...***...] of successful [...***...]; 4.2.2 [...***...] within [...***...] of successful [...***...] of the Product; 4.2.3 [...***...] within [...***...] of [...***...] of the Product, of which [...***...] shall be creditable against earned royalties on net sales of the Product, PROVIDED, HOWEVER,, that IPR may not take as a credit an amount in excess of [...***...] and any excess credit shall be carried over to the next royalty period until all such credit is exhausted; 4.2.4 [...***...] within [...***...] days of the earlier of (i) [...***...] the Product, or (ii) the [...***...] the Product [...***...] in the Territory. 4.3 ROYALTIES. IPR shall pay to CIMA royalties on worldwide annual net sales of the Product at the marginal royalty rates set forth below: ANNUAL NET SALES RATE (i) [...***...] [...***...] (ii) [...***...] [...***...] (iii) [...***...] [...***...] The net sales amounts set forth above shall be subject to annual increases as provided herein. Within [...***...] after the end of each calendar year in which IPR sells the Product pursuant to this Agreement, IPR shall report to CIMA the percentages of worldwide net sales of the Product during that calendar year resulting from the sale of the Product both within and outside of the United States. The sales levels marked by * and ** above ("Trigger Point I" and "Trigger Point II", respectively) shall be increased for the purpose of calculating royalties payable to CIMA during the following calendar, as follows: First, the applicable percentage increase in the Trigger Points shall be calculated: C = [...***...], where A = [...***...]; - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 3 B = [...***...]; C = [...***...]. Then, the Trigger Points shall be increased for the following calendar year according to the following formulae: Trigger Point I = [...***...] Trigger Point II = [...***...]. For example, if during the first calendar year of Product sales the net sales of the Product within the United States equal [...***...] of the Product during that calendar year, then the percentage increase for each of the Trigger Points for the following calendar year shall equal [...***...]. Trigger Point I for the second calendar year of sales would therefore equal [...***...], and Trigger Point II for the second calendar year of sales would therefore equal [...***...]. If during the second calendar year of Product sales the net sales of the Product within the United States equal [...***...] of the Product during that calendar year, then the percentage increase for each of the Trigger Points for the following calendar year shall equal [...***...]. Trigger Point I for the third calendar year of sales would therefore equal [...***...], and Trigger Point II for the third year of sales would therefore equal [...***...]. In the event that IPR has to pay a license fee to any third party to enable IPR to continue to use the OraSolv Technology, the amounts payable to CIMA under this Section 4.3 shall be correspondingly reduced such that [...***...], provided however, that such reduction shall not exceed [...***...] and that any unused credit may be carried forward and applied in accordance herewith. If at any time during the term of the License Agreement the manufacture, use, sale, offer for sale or import of the Product in a Major Country would, but for the license granted to IPR pursuant to the License Agreement, infringe a patent included in the OraSolv Technology, and if all claims of such patents in such country subsequently become invalid, then the royalty rates set out above in this Section 4.3 on net sales of the Product in such Major Country shall be reduced by [...***...] for so long as the manufacture, use, sale, offer for sale or import of the Product in such Major Country would not, but for the licenses granted pursuant to this Agreement, infringe a patent included in the Orasolv Technology. 4.4 TERM OF ROYALTY OBLIGATION. The royalties set forth in Section 4.3 above shall be effective as of the date of [...***...] and shall continue on a country-by-country basis until the later of (i) the expiration of the last to expire of the licensed patents in such country, or (ii) [...***...] of the Product in such country. 5. INTELLECTUAL PROPERTY 5.1 OWNERSHIP. Title and ownership rights in the OraSolv Technology and other Confidential Information of CIMA shall remain at all times with CIMA. IPR acknowledges that the OraSolv Technology and such Confidential Information shall remain the sole property of CIMA and IPR will acquire no title thereto - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 4 as a result of this Agreement. Title and ownership rights in IPR's Confidential Information shall remain at all times with IPR. CIMA acknowledges that the Confidential Information of IPR shall remain the sole property of IPR and CIMA will acquire no title thereto as a result of this Agreement. Nothing in this Agreement shall be construed as conferring on either party an expressed or implied license or option to license any disclosed Confidential Information, technology, or any patent or patent application except as expressly provided herein. 5.2 NEW INVENTIONS. CIMA shall solely own all right, title and interest in and to any technology invented during the course of the development work for IPR under this Agreement, whether patentable or not, that is necessary or useful to the manufacture or distribution of the Product ("New Technology"). Any such New Technology shall be included in the OraSolv Technology (except to the extent that such New Technology would otherwise be excluded from the definition of Orasolv Technology pursuant to the Product Criteria set forth in Exhibit D), and as such shall be subject to the terms of the License Agreement. CIMA may, in its sole discretion and at its sole expense, file and prosecute patent applications on New Technology and obtain and enforce patents issuing from such applications. CIMA shall solely own all such patent applications and patents. If CIMA files and prosecutes patent applications on any New Technology relating to [...***...], it will consult with IPR regarding the content of any filings made with the United States Patent and Trademark Office (or any foreign equivalent thereof) with respect to such applications and shall keep IPR informed of the progress of such patent prosecution efforts and related proceedings. IPR agrees to execute such documents and render such assistance to CIMA as may be necessary or appropriate to enable CIMA to obtain and maintain title to any New Technology and to any patent application or patent on such New Technology, and to enforce any such patents. 5.3 PROSECUTION OF PATENTS. The License Agreement shall provide that CIMA will have the right, but not the obligation, to prosecute all patents encompassed by the OraSolv Technology and the New Technology, and that if CIMA elects to abandon or otherwise not prosecute such patents, IPR may assume prosecution of such patents. 5.4 ENFORCEMENT AND DEFENSE OF PATENTS. The License Agreement will contain appropriate provisions for the enforcement of the OraSolv Technology and New Technology (at CIMA's cost and expense) against infringement and for the defense of third party claims that the OraSolv Technology or the New Technology infringes such third party's intellectual property rights. 6. TERMINATION. The License Agreement shall provide that in the event of termination by IPR for any reason (other than because of CIMA's breach of the License Agreement), or by CIMA because of IPR's breach of the License Agreement, IPR shall pay to CIMA a termination fee in an amount equal to (i) [...***...] plus (ii) [...***...] in order to perform its obligations under the License Agreement or the Supply Agreement. 7. ADDITIONAL PROVISIONS. The License Agreement shall contain such additional provisions as are customary, including without limitation, provisions relating to royalty reports, audit rights, maintenance of royalty records, confidentiality, publicity, representations and warranties of each party, indemnification, dispute resolution, assignment, governing law, export control, force majeure and notices. 5 EXHIBIT G PRINCIPAL SUPPLY TERMS 1. SUPPLY OF PRODUCT. CIMA shall manufacture and supply to IPR, and IPR shall purchase from CIMA, IPR's Requirements of the Product. As used herein, the term "Requirements" shall mean all quantities of the Product required by IPR, its Affiliates and sublicensees for clinical trial materials and for distribution, marketing and sale of the Product during the term of the Supply Agreement. 1.1 CIMA will grant to IPR an option to manufacture or have manufactured up to one hundred percent (100%) of its requirements of the Product for distribution, marketing and sale by IPR, its Affiliates and sublicensees ("Self-Supply") commencing at any time after the [...***...] after commercial launch of the Product, except as provided in Section 1.2. IPR may exercise such option by so notifying CIMA in writing at least [...***...] before IPR requires the Technology Transfer to begin that IPR intends to Self-Supply. If IPR exercises its option to Self-Supply, IPR shall pay an Option fee (the "Self-Supply Option Fee") equal to [...***...] of which amount shall be paid to CIMA within [...***...] after IPR notifies CIMA that it will Self-Supply and the remaining [...***...] of which amount shall be paid to CIMA within [...***...] after the facility at which IPR will manufacture or have manufactured the Product receives the necessary regulatory approval(s) by the U.S. Food and Drug Administration (or equivalent regulatory agency, if applicable). 1.2 If CIMA is unable to supply IPR with IPR's requirements of the Product for any reason other than force majeure of a duration less than [...***...], IPR may elect to manufacture the Product or have it manufactured by its Affiliates and sublicensees. In such situation, if IPR has already elected to Self-Supply at the time CIMA becomes unable to supply the balance of IPR's requirements, IPR will receive a refund of any portion of the Self-Supply Option Fee that IPR has paid to CIMA. However, IPR shall in such circumstances continue to be obligated to pay to CIMA the per tablet fee referred to in Section 1.3 below. If CIMA subsequently becomes able to again supply IPR with IPR's requirements of the Product and IPR elects to purchase any portion of its requirements of the Product from CIMA or elects to have CIMA reserve manufacturing capacity for manufacture of any portion of IPR's requirements of the Product, IPR shall repay to CIMA that portion of the Self-Supply Option fee refunded to IPR under this Section 1.2. 1.3 If IPR elects to Self-Supply or to manufacture under Section 1.2, in addition to the technology transfer fee, IPR shall pay to CIMA either (i) [...***...] manufactured by IPR, if at the time IPR elects to self-supply CIMA is supplying finished packaged Product to IPR, or (ii) [...***...] manufactured by IPR, if at the time IPR elects to Self-Supply CIMA is supplying [...***...] to IPR. 1.4 If IPR elects to Self-Supply or to manufacture, under Section 1.2, IPR will have [...***...] without CIMA's written consent, may not use or permit its Affiliates or sublicensees to use the technology for any purpose other than to manufacture the Product, and may not permit its Affiliates or sublicensees to further transfer the technology. If IPR ceases to utilize the manufacturing technology to manufacture the Product, the manufacturing license will automatically terminate and revert to CIMA. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 1 1.5 If IPR elects to Self-Supply or to manufacture under Section 1.2, CIMA will provide to IPR, its Affiliates and/or sublicensees, at IPR's sole expense, technical support and assistance to ensure the smooth and satisfactory establishment of the OraSolv Technology at the new manufacturing site. 2. SUPPLY PRICE. The supply price will be calculated consistent with Exhibit I. Such price shall not in any event exceed [...***...] during the life of the Supply Agreement, based on IPR taking delivery of [...***...] Product. If IPR elects to take delivery of [...***...] of the Product from CIMA, CIMA shall adjust such [...***...] to [...***...] for the term of the Supply Agreement. The parties acknowledge that for the purposes of the Supply Agreement, the [...***...] will nonetheless contain certain variable data (such as [...***...]). The definitive Supply Agreement will contain language appropriate to address these requirements. 3. PACKAGING. CIMA shall supply [...***...] or [...***...] of the Product to IPR, whichever IPR in its sole discretion elects to purchase. The Supply Agreement will contain appropriate terms concerning packaging and labeling the Product. IPR will provide all approved and final art and copy for the Product packaging and labeling. 4. ADDITIONAL PROVISIONS. The Supply Agreement will have additional customary terms and provisions, including without limitation, provisions relating to forecasting and firm orders, manufacturing requirements, regulatory requirements, risk of loss, rejection of Product, warranties, compliance with specifications and law, records, quality control, term and termination, inability to supply and indemnification, audits, manufacturing change control mechanism, performance criteria and measurement. In addition, the parties will enter a quality assurance agreement in substantially the form attached hereto as Exhibit L. - ------------------- *CONFIDENTIAL TREATMENT REQUESTED 2 EXHIBIT H DEVELOPMENT, SCALE-UP AND COMMERCIALIZATION COSTS [...***...] (REVISED 8/18/97)
PHASE I. DEVELOPMENT AND SCALE-UP [...***...] A. Develop [...***...] $ [...***...] [...***...] [...***...] [...***...] [...***...] -------------------- Cost of [...***...] [...***...] B. Cost to [...***...] [...***...] ([...***...] tablets per [...***...]) C. Product Development Costs [...***...] Analytical Support [...***...] Method Validation(1) [...***...] -------------------- COST OF FORMULA AND METHOD DEVELOPMENT $ [...***...] D. [...***...] $ [...***...] Micro Testing [...***...] Prototype Stability Costs(2) [...***...] -------------------- COST OF [...***...] AND STABILITY $ [...***...] E. Initial Formulation(s) Scale-up $ [...***...] Preparation of CMC Docs [...***...] [...***...] [...***...] Micro Testing [...***...] Definitive Stability Cost(3) [...***...] -------------------- COST OF SCALE-UP AND BIO BATCH(S) $ [...***...] F. Cost to [...***...] $ [...***...] ([...***...] Tablets) TOTAL PHASE I [...***...] -------------------- -------------------- PHASE II Shipping Study [...***...](4) $ TBD [...***...] Stability [...***...]* Final Scale-up Batches [...***...] [...***...] [...***...] Micro Testing [...***...] Stability Costs [...***...] Preparation of CMC Docs [...***...] -------------------- TOTAL PHASE II $ [...***...] -------------------- --------------------
- ----------- *CONFIDENTIAL TREATMENT REQUESTED (1)Includes validation of analytical and microbial testing methods. (2)Price discount based on [...***...] initiated at the same time. (3)Price discounted based on [...***...] initiated at the same time. (4)Conditions, etc. * If required. - ----------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT I [...***...] PRELIMINARY COST OF GOODS ESTIMATE 6/26/97 MAXIMUM COST PER TABLET: [...***...] [...***...] KEY ASSUMPTIONS: - - Pricing assumes shipments to be FOB point of manufacture. - - A Product supplied by CIMA will be in the configuration of [...***...]. - - Quality Control procedures normal to CIMA, which include: - testing and release of raw material, packaging components, and finished product. - in-process sampling and testing. - - Released finished product not to be stored at CIMA for more than [...***...] - - Costs incurred by CIMA as mandated by regulatory revisions (i.e. plate and die charges due to label changes and product identification requirements, etc.) shall be additional and paid for by IPR. - - Pricing does not include [...***...]. - - Costs of Goods based on CIMA manufacturing 100% of IPR's production requirements. - - IPR provides raw drug substance, [...***...], at no cost to CIMA. *[...***...] shall be subject to the provisions of Section 2 of Exhibit G. - ----------- *CONFIDENTIAL TREATMENT REQUESTED EXHIBIT J FOR IMMEDIATE RELEASE: Contact: JOHN M. SIEBERT, PH.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER CIMA LABS INC. (612) 947-8700 KEITH P. SALENGER VICE PRESIDENT AND CHIEF FINANCIAL OFFICER CIMA LABS INC. (612) 947-8731 CIMA LABS AND ZENECA ANNOUNCE DEVELOPMENT AND LICENSE OPTION AGREEMENT ZENECA'S PRESCRIPTION PRODUCT TO BE COMBINED WITH ORASOLV-Registered Trademark- Eden Prairie, MN, __/__/97 - CIMA LABS INC. (NASDAQ: CIMA) AND ZENECA. (NYSE:ZEN) today announced the signing of an exclusive development and license option agreement pertaining to one of Zeneca's currently marketed prescription products. This represents CIMA's second collaboration on developing a fast-dissolve formulation of a prescription product. In exchange for its development work and license option, CIMA will receive an option fee and development fees. "Our partnership with Zeneca to combine one of their major prescription drugs with our fast-melt technology is a significant milestone for CIMA LABS," commented John M. Siebert, Ph.D., President and Chief Executive Officer of CIMA LABS INC. "We are pleased to announce that as a result of market research and consumer testing, the outstanding acceptance of our OraSolv-Registered Trademark- formulation was a key factor in Zeneca's decision to team up with CIMA." "Providing value-added proprietary delivery of medication to our patients is a primary concern," commented Robert Nolan, Ph.D., of Product Licensing at ZENECA. "We believe OraSolv-Registered Trademark- offers us a superior drug delivery vector for our product." OraSolv-Registered Trademark- is patented oral dosage form which incorporates microencapsulated drug ingredients into tablets that dissolve quickly in the mouth. OraSolv-Registered Trademark- is designed to improve taste acceptance, address difficulty of swallowing traditional tablets and capsules, while offering a convenient oral dosage form that can be taken anywhere and anytime, therefore increasing compliance. CIMA LABS INC. is a drug delivery company that develops and manufactures products based upon its OraSolv-Registered Trademark- technology for marketing by multinational pharmaceutical companies to improve patient compliance and drug efficacy. CIMA was founded in 1986 and has been publicly held since July 1994. The Company's corporate headquarters and manufacturing facility is located in Eden Prairie, MN, and its Research and Development facility is located in Brooklyn Park, MN. Zeneca is a broadly-based, bioscience group comprising international pharmaceuticals, agrochemicals and specialties businesses. All three businesses invent, develop, manufacture and market products designed to meet human needs around the world. Zeneca had total sales of GBP5.4bn in 1996. In pharmaceuticals, the main therapeutic areas of interest are cardiovascular, cancer, anti-infection, central nervous system disorders, anesthetics and respiratory disease, with an annual Research and Development expenditure of around GBP390m. In 1996, sales in pharmaceuticals amounted to GBP2.4bn. 1 EXHIBIT K ORASOLV-Registered Trademark- FAST MELT VOLUME PROJECTIONS FOR MINIMUM SALES TARGET CALCULATIONS [...***...] YEAR TABLETS [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] The parties will agree on a mutually acceptable method for converting the above volume targets and, where necessary, related agreement provisions to a calendar year basis to avoid unnecessary accounting effort. - ----------- *CONFIDENTIAL TREATMENT REQUESTED EX-10.30 4 EXHIBIT 10.30 CIMA LABS INC. EMPLOYMENT AGREEMENT WITH JOHN M. SIEBERT THIS AGREEMENT is entered into effective as of the date of signing by and between CIMA LABS INC., a Delaware corporation (the "Company"), and John M. Siebert, Ph.D. (the "Employee"). WHEREAS the Company desires to engage the Employee in the position of President and Chief Executive Officer to render services for the Company on the terms and conditions set forth in this Agreement; WHEREAS, the Employee desires to be retained by the Company as its President and Chief Executive Officer; and WHEREAS, both parties recognize the critical importance to the Company, its employees, and its investors of preserving the confidentiality of the Company's trade secrets and confidential information and of protecting the Company against competition from former executives or other key employees of the Company following their separation from the Company; NOW, THEREFORE, in consideration of the foregoing premises and the parties' mutual covenants and undertakings contained in this Agreement, the sufficiency of which is hereby acknowledged, the Company and the Employee agree as follows: 1. EMPLOYMENT AND TERM. Subject to the terms and conditions herein provided, the Company hereby continues employment of the Employee, and the Employee hereby accepts employment by the Company, for a term continuing as of January 1, 1998 and thereafter for three (3) years to January 1, 2001. The employment term of the Employee will expire at the expiration of this (3) year employment continuation term, without further obligation for either party. On or before January 1, 2000, the Company expects to indicate to the Employee whether the Company is interested in continuing employment of the Employee with respect to a new employment agreement. Notwithstanding the foregoing, the Company may terminate the Employee's employment for cause and without notice and without further obligation of any kind to the Employee. For purposes of this Agreement, "cause" means: (a) any felony conviction; (b) use of intoxicating beverages or chemical abuse that negatively affects job performance (following at least one written warning); (c) an act or acts of personal dishonesty taken by the Employee and intended to result in personal enrichment of the Employee at the expense of the Company; (d) any material breach of the Employee's obligations under this Agreement; 16 (e) the willful misconduct or gross negligence of the Employee in connection with the performance of his duties, responsibilities, agreements, and covenants hereunder, or his failure to comply with the reasonable rules, regulations, policies, directions, and restrictions as may be established from time to time by the Board of Directors, and which misconduct, negligence, or failure shall continue for a period of thirty (30) days after written notice to the Employee; or (f) willful conduct of the Employee which brings discredit to the Company, its products, or its services. It is further agreed that the term of the Employee's employment under this Agreement shall automatically terminate in the event of the Employee's death. In the event the Employee becomes mentally or physically disabled during the term of employment hereunder, his employment under this Agreement shall terminate as of the date such disability is established. As used in this paragraph, the term "disabled" shall have the meaning as set forth in the Americans with Disabilities Act, as amended. Upon termination for disability, the Employee shall be entitled to receive continuation of his base salary (as herein defined) for a period of one hundred eighty (180) days. If the Company maintains a disability policy covering the employee, then the amount of payment to be made by the Company to the Employee pursuant to this provision shall be reduced by any amount so paid to the Employee under any such insurance policy. Upon termination in the event of the Employee's death, the Company shall continue to pay the Employee's base salary (as herein defined) for a period of one hundred eighty (180) days. 2. DUTIES AND REPRESENTATIONS OF THE EMPLOYEE. During the Employee's employment hereunder, he shall serve as the Company's President and Chief Executive Officer. The Employee shall devote his full time, attention, knowledge, and skill exclusively to the loyal service of the Company. The Employee represents and warrants to the Company that: (a) his acceptance of employment under this Agreement and his performance of the duties contemplated herein are not in conflict with any obligation, undertaking, or agreement between the Employee and any third party; and (b) he has not and will not, during the course of his employment with the Company, disclose or utilize without permission, any confidential or proprietary information, trade secrets, materials, documents, or property owned by any third party. The Company through the Compensation Committee expects to evaluate the Employee's performance every twelve (12) months during the term of this Agreement. 3. COMPENSATION. The Company shall pay to the Employee the following compensation: (a) BASE SALARY. The Company shall pay to the Employee an annual base salary of $255,000 beginning January 1, 1998, less legally required deductions and withholdings, payable in periodic installments in accordance with the standard payroll practices of the Company in effect from time-to-time. On January 1, 1999, the annual base salary will be adjusted upwards by 5%. On January 1, 2000, the annual base salary will be adjusted upwards from the 1999 increase by an incremental 5%. In the event of change of control of the Company which leads to the termination or separation of the Employee (1) because the position is eliminated, (2) because continuing to work in the position would require the Employee to transfer to a work site outside a 100-mile radius of his work location at the time of change in control and Employee is unwilling to relocate, or because his responsibilities change so substantially that the Employee has effectively been removed from the position held by him prior to the change in control, the Employee will automatically get an additional twelve (12) months of compensation or the remainder of his contract (less any amount of salary received in a subsequent job during such twelve (12) month period or remainder of contract, as applicable), whichever is 17 longer, in addition to the benefits of any corporate severance plan, during which time the terms of the Agreement will remain in full force and effect. (b) INCENTIVE BONUS. The Employee will be entitled to receive an incentive bonus award of up to fifty percent (50%) of his base salary depending upon the achievement of objectives defined and agreed to by the Compensation Committee of the Board of Directors prior to the last Board meeting of each calendar year. The award for achievement that occurs against objectives in that year will be agreed-upon by the Compensation Committee and paid before February 1 of the next year. The determination of whether and when any of the objectives are achieved shall be in the reasonable discretion of the Compensation Committee. The determination of any additional incentive bonus programs shall be in the sole discretion of the Compensation Committee. In the event of change of control of the Company, a minimum bonus of $100,000 will be paid for each year of compensation remaining under the terms of this Agreement for which a bonus has not yet been paid. (c) PARTICIPATION IN BENEFIT PLANS. The Employee shall also be entitled to participate in all employee benefit plans or programs of the Company, including any disability and life insurance group plans, to the extent that his position, title, tenure, salary, age, health, and other qualifications make him eligible to participate. The Company will provide a life insurance policy with minimum payout of $500,000 in the event the Employee is killed or disabled during travel which is undertaken in the course of business. (d) VACATION. During the term of the Employee's employment under this Agreement, the Employee shall be entitled to take twenty (20) days of vacation per year with pay, at such times as shall be mutually convenient to the Company and the Employee. Vacation time may be accumulated throughout the term of this and any prior Agreements. Two weeks before the final Board meeting of each year, the Vice President, CFO will provide the Compensation Committee with a report outlining the Employee's paid time off (PTO) taken and remaining for that year. (e) EMPLOYMENT-RELATED EXPENSES. The Company shall pay or reimburse the Employee for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate vouchers in accordance with the Company's normal policies for expenses verification. (f) CAR ALLOWANCE. The Employee will be paid a car allowance in the amount of six hundred fifty dollars ($650.00) per month, consistent with the Company's payroll and accounting practices. (g) STOCK OPTION. Subject to the terms of the Company's Equity Incentive Plan, and subject to the Employee executing this document, the Company shall issue to the Employee an incentive stock option to purchase one hundred thousand (100,000) shares of common stock in the Company effective at the date of signing this Agreement. This award will vest as follows: (i) thirty-three percent (33%) of the shares subject to the option will vest on December 31, 1998; (ii) thirty-three percent (33%) of the shares subject to the option will vest on December 31, 1999; (iii) thirty-three percent (33%) of the shares subject to the option will vest on December 31, 2000; subject to accelerated vesting as provided in the Equity Incentive Plan. Any payment or benefit hereunder shall be reduced to the extent that, due to the excise tax on excess parachute payments under Section 4999 of the Internal Revenue Code of 1986, such reduction would increase the Employee's after-tax income. The Employee shall determine which payments or benefits shall be so reduced." 18 4. CONFIDENTIAL INFORMATION. Except as permitted or directed by the Company's Board of Directors, during the term of this Agreement or at any time thereafter, the Employee shall not divulge, furnish, or make accessible to anyone or use in any way (other than in the ordinary course of business of the Compete) any confidential or secret knowledge of the Company which the Employee has acquired or become acquainted with or will acquire or become acquainted with prior to the termination of the period of his employment by the Company, whether developed by himself or by others, concerning any trade secrets, confidential or secret designs, processes, formulae, plans, devices, or materials (whether or not patented or patentable), directly or indirectly useful in any aspect of the business of the Company, any customer or supplier list of the Company, any confidential or secret development or research work of the Company. or any other confidential information or secret aspects of the business of the Company. The Employee acknowledges that the above-described knowledge or information constitutes a unique and valuable asset of the Company and represents a substantial investment of time and expense by the Company and its predecessors, and that any disclosure or other use of such knowledge or information other than for the sole benefit of the Company would be wrong and would cause irreparable harm to the Company. Both during and after the term of this Agreement, the Employee will refrain from any acts or omissions that would reduce the value of such knowledge or information to the Company. The foregoing obligations of confidentiality, however, shall not apply to any knowledge or information which is now published or which subsequently becomes generally publicly known in the form in which it was obtained from the Company, other than as a direct or indirect result of a breach of this Agreement by the Employee. 5. RETURN OF PROPRIETARY PROPERTY. The Employee agrees that all property in the Employee's possession belonging to the Company, including without limitation, all documents, reports, manuals, memoranda, computer print-outs, customer lists, credit cards, keys, identification, products, access cards, and all other property relating in any way to the business of the Company are the exclusive property of the Company, even if the Employee authored, created, or assisted in authoring or creating such property. The Employee shall return to the Company all such documents and property immediately upon termination of employment or at such earlier time as the Company may reasonably request. 6. RESTRICTIVE COVENANT. The Employee acknowledges that the Company needs to be protected against the potential for unfair competition and impairment of the Company's good will by the Employee's use of the Company's training, assistance, confidential information, and trade secrets in direct competition with the Company. The Employee therefore agrees that for a period of one (1) year from the date of termination of his employment hereunder, the Employee shall not operate, join, control, be employed by, or participate in ownership, management, operation, or control of, or be connected in any manner as an independent contractor, consultant, or otherwise, with any person or organization engaged in any business activity which is the same as, or directly competitive with any business of the Company or any successor of the Company as of the date of the termination of his employment hereunder within the states of the United States of America. The Employee expressly agrees that the provisions of this paragraph 6 shall survive the termination of the Employee's employment hereunder or the termination of this Agreement for a period of one (1) year, whether such termination be voluntary or involuntary or with or without cause. 7. COVENANT NOT TO RECRUIT. The Employee recognizes that the Company's work force constitutes an important and vital aspect of its business. The Employee agrees that for a period of one (1) year following the termination of his employment hereunder or the termination of this Agreement for any reason whatsoever, he shall not recruit, or assist anyone else in the solicitation of, any of the Company's then current employees to terminate their employment with the Company and to become employed by any business enterprise with which the Employee may then be associated or connected, whether as an owner, employee, partner, agent, investor, consultant, contractor or otherwise. 19 8. ASSIGNMENT. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. The Employee may not assign this Agreement or any rights hereunder. Any purported or attempted assignment or transfer by the Employee of this Agreement or any of the Employee's duties, responsibilities, or obligations hereunder shall be void. 9. NOTICES. For purposes of this Agreement, notices provided in this Agreement shall be in writing; and shall be deemed to have been given when personally served, sent by courier or mailed by United States registered or certified mail, return receipt requested, postage prepaid, to the last known residence address of the Employee or, in the case of the Company, to its principal office to the attention of the Board of Directors, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. CONSTRUCTION AND SEVERABILITY. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Minnesota. In the event any provision of this Agreement shall be held illegal or invalid for any reason, said illegality or invalidity will not in any way affect the legality or validity of any other provision hereof. It is the intention of the parties hereto that the Company be given the broadest possible protection respecting its confidential information and trade secrets; and respecting competition by the Employee following his separation by the Company. 11. ARBITRATION. Except as provided in this paragraph, any claims or disputes of any nature between the parties arising from or related to the performance, breach, termination, expiration, application, or meaning of this Agreement or any matter relating to the Employee's employment and the termination of that employment by the Company, shall be resolved exclusively by arbitration before the American Arbitration Association in Minneapolis, Minnesota, in accordance with the applicable rules then obtaining of the American Arbitration Association. The decision of the arbitrator(s) shall be final and binding upon both parties Judgment of the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. In the event of submission of any dispute to arbitration, each party shall, not later than thirty (30) days prior to the date set for hearing, provide to the other party and to the arbitrator(s) a copy of all exhibits upon which the party intends to rely at the hearing and a list of all persons each party intends to all at the hearing. This paragraph shall have no obligation to claims by the Company asserting a violation of or seeking to enforce, by injunction or otherwise, the terms of paragraphs 4, 5, 6 and 7 above. Such claims may be maintained by the Company in a lawsuit subject to the terms of paragraph 12 below. The Employee agrees that, in addition to, but not to the exclusion of any other available remedy, the Company shall have the right to enforce the provisions of paragraphs 4, 5, 6 and 7 by applying for and obtaining temporary and permanent restraining orders or injunctions from a court of competent jurisdiction without the necessity of filing a bond therefore, and the Company shall be entitled to recover from the Employee its reasonable attorneys' fees and costs in enforcing the provisions of paragraphs 4, 5, 6 and 7. 12. VENUE. Any action at law, suit in equity, or judicial proceeding arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement or any provision hereof, shall be litigated only in the courts of the State of Minnesota, County of Hennepin. The Employee waives any right the Employee may have to transfer or change the venue of any litigation brought against the Employee by the Company. 20 13. ENTIRE AGREEMENT. This Agreement sets forth the entire Agreement between the Company and the Employee with respect to his employment by the Company and there are no undertakings, covenants, or commitments other than as set forth herein. This Agreement may not be altered or amended, except by a writing executed by the party against whom such alteration or amendment is to be enforced. This Agreement supersedes any and all prior understandings or agreements between the parties. 14. COUNTERPARTS. This Agreement may be simultaneously executed in any number of counterparts, and such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. 15. CAPTIONS AND HEADINGS. The captions and paragraph headings used in this Agreement are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof. 16. SURVIVAL. The parties expressly acknowledge and agree that the provisions of this Agreement which by their express or implied terms extend beyond the expiration of this Agreement or the termination of the Employee's employment hereunder, shall continue in full force and effect, notwithstanding the Employee's termination of employment hereunder or the expiration of this Agreement. 17. WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof, or the exercise of any other right or remedy granted hereby or by any related document or by law. No single or partial waiver of rights or remedies hereunder, nor any course of conduct of the parties, shall be construed as a waiver of rights or remedies by either party (other than as expressly and specifically waived). 18. RELIANCE BY THIRD PARTIES. This Agreement is intended for the exclusive benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors, and permitted assigns, and no other person or entity shall have any right to rely on this Agreement or to claim or derive any benefit therefrom, absent the express written consent of the party to be charged with such reliance or benefit. IN WITNESS WHEREOF, the parties have signed this Agreement. This Agreement terminates the prior Agreement. CIMA LABS INC. Dated: OCTOBER 29, 1997 By: /s/ Terrence W. Glarner ---------------- ----------------------------------- Its: Chairman ----------------------------------- Dated: OCTOBER 29, 1997 /s/ John M. Siebert --------------- ----------------------------------- John M. Siebert, Ph.D. 21 EX-27 5 EXHIBIT 27 FDS
5 0000833298 CIMA LABS INC 9-MOS DEC-31-1997 SEP-30-1997 2,089,860 3,503,541 1,369,753 0 933,638 8,107,698 13,966,652 13,572,457 18,779,213 1,989,829 0 0 0 95,913 57,176,371 18,779,213 1,657,689 2,916,685 2,891,202 5,207,544 0 0 0 4,793,934 0 0 0 0 0 4,793,934 (.50) (.50)
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