-----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, F/FA7ilxBML+UOBhDaWWSLekWppJoXIDqa2cIjmuoLFxI/zYaP3DcWIT+NfZJ7vX ho/UcvmnGvu0N9USL0RDMQ== 0001047469-98-041256.txt : 19981118 0001047469-98-041256.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-041256 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752364 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 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, 1998 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) 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 9,610,394 Shares ---------------------------- --------------------------------- (Class) (Outstanding at October 30, 1998) 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, 1998 and December 31, 1997 3 Condensed Statements of Operations for the three- month and nine-month periods ended September 30, 1998 and 1997 4 Condensed Statements of Cash Flows for the nine-month periods ended September 30, 1998 and 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. 13 ITEM 2. CHANGES IN SECURITIES. 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 13 ITEM 5. OTHER INFORMATION. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13 SIGNATURES 15 EXHIBIT INDEX 16
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CIMA LABS INC. Condensed Balance Sheets
September 30, December 31, 1998 1997(1) ------------------------------------------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $3,188,295 $1,145,760 Short-term investments - 3,277,300 Accounts receivable: Net of allowance for doubtful accounts $64,300-1998; $32,150-1997 1,062,525 1,597,814 Inventories--Note B 638,698 630,619 Prepaid expenses 192,522 146,805 ------------------- ------------------ Total current assets 5,082,040 6,798,298 Property, plant and equipment 14,682,301 14,149,345 Less accumulated depreciation (4,946,149) (3,891,167) ------------------- ------------------ 9,736,152 10,258,178 Other assets: Lease deposits 40,651 40,651 Patents and trademarks, net of amortization 212,005 230,889 ------------------- ------------------ 252,656 271,540 ------------------- ------------------ ------------------- ------------------ Total assets $15,070,848 $17,328,016 ------------------- ------------------ ------------------- ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $363,961 $128,712 Accrued expenses 863,704 620,580 Advance royalties 576,405 741,405 ------------------- ------------------ Total current liabilities 1,804,070 1,490,697 Long term liabilities: Equipment financing 196,551 - Stockholders' equity Preferred Stock, $.01 par value: Authorized shares--5,000,000; issued and outstanding shares--none Common Stock, $.01 par value: Authorized shares--20,000,000; issued and outstanding shares--9,610,394--September 30, 1998; 9,608,394--December 31, 1997 96,104 96,084 Additional paid-in capital 57,274,274 57,268,594 Accumulated losses (44,300,151) (41,527,359) ------------------- ------------------ Total stockholders' equity 13,070,227 15,837,319 ------------------- ------------------ Total liabilities and stockholders' equity $15,070,848 $17,328,016 ------------------- ------------------ ------------------- ------------------
- -------- (1) The balance sheet at December 31, 1997 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. Condensed Statements of Income (Unaudited)
Three Months Ended Nine Months Ended ------------------------------------- ------------------------------------ September 30, September 30, ------------------------------------- ------------------------------------ 1998 1997 1998 1997 ------------------------------------- ------------------------------------ Revenues: Net sales $719,695 $825,117 $877,387 $1,657,689 Research and development fees & licensing revenues 1,587,669 800,884 3,905,594 1,258,996 ------------------------------------- ------------------------------------ 2,307,364 1,626,001 4,782,981 2,916,685 Costs and expenses: Cost of goods sold 1,166,857 1,323,096 1,804,379 2,891,202 Research and product development 1,030,371 594,773 3,378,147 2,579,434 Selling, general and administrative 793,869 739,751 2,494,811 2,628,110 ------------------------------------- ------------------------------------ 2,991,097 2,657,620 7,677,337 8,098,746 Other income (expense): Interest income, net 29,471 68,783 121,770 262,487 Other income (expense) (1,086) 1,418 (204) 125,640 ------------------------------------- ------------------------------------ 28,385 70,201 121,566 388,127 Net loss: ($655,348) ($961,418) ($2,772,790) ($4,793,934) ------------------------------------- ------------------------------------ ------------------------------------- ------------------------------------ Net loss per share: Basic and diluted $(0.07) $(0.10) $(0.29) $(0.50) Weighted average shares outstanding: Basic and diluted 9,610,394 9,556,054 9,610,006 9,498,266
See notes to condensed financial statements. 4 CIMA LABS INC. Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended Nine Months Ended September 30, September 30, ------------------------ ----------------------- 1998 1997 ------------------------ ----------------------- OPERATING ACTIVITIES Net loss ($2,772,792) ($4,793,934) Adjustments to reconcile net loss to net cash used in operating activities: depreciation and amortization 1,251,746 695,145 gain on sale of property, plant and equipment 4,734 0 Changes in operating assets and liabilities: accounts receivable 495,001 (1,122,175) inventories (8,078) (399,051) other current assets (5,429) (139,026) accounts payable 235,249 85,422 accrued expenses 208,798 860,635 advance royalties (180,000) 0 ------------------------ ----------------------- Net cash used in operating activities (770,771) (4,812,984) INVESTING ACTIVITIES Purchase of and deposits on property, plant and equipment (436,113) (588,969) Purchase of short-term investments 0 (1,257,262) Proceeds from sale of property, plant & equipment 33,000 0 Proceeds of maturities of short-term investments 3,277,300 5,350,885 Patents and trademarks (66,581) (80,030) ------------------------ ----------------------- Net cash provided by (used in) investing activities 2,807,606 3,424,624 FINANCING ACTIVITIES Proceeds from issuance of stock: Common Stock 5,700 562,188 Security deposits on leases 0 250,000 ------------------------ ----------------------- Net cash provided by financing activities 5,700 812,188 ------------------------ ----------------------- Increase (decrease) in cash and cash equivalents 2,042,535 (576,172) Cash and cash equivalents at beginning of period 1,145,760 2,666,032 ------------------------ ----------------------- Cash and cash equivalents at end of period $3,188,295 $2,089,860 ------------------------ ----------------------- ------------------------ ----------------------- Supplemental schedule of noncash investing and financing activities: Acquisition of equipment pursuant to equipment loan and capital lease obligation 245,876 --
See notes to condensed financial statements. 5 CIMA LABS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (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, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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, 1997. NOTE B - INVENTORIES Inventories are stated at the lower of cost (first in, first out) or fair market value.
September 30, December 31, 1998 1997 ------------------ ------------------ Raw materials $638,698 $484,582 Work in process -- -- Finished products -- 146,037 ------------------ ------------------ $638,698 $630,619 ------------------ ------------------ ------------------ ------------------
NOTE C - NET LOSS PER SHARE The Company has adopted Financial Accounting Standards Board Statement No. 128, EARNINGS PER SHARE. This statement replaces previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary EPS, basic EPS excludes any dilutive effect of options, warrants and convertible securities. Diluted earnings per share is very similar to previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented to conform with Statement 128 requirements. 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," "BELIEVE," "EXPECT," "ESTIMATE" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE SUCCESS OF THE COMPANY IN MANUFACTURING 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 LABS INC. (the "Company"), founded in 1986, is a drug delivery company focused primarily on the development and manufacture of pharmaceutical products based upon its patented OraSolv(R) 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 any of 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 regiments, for both prescription and over-the-counter ("OTC") products, thereby improving therapeutic outcomes and reducing costs in the healthcare system. The Company's business strategy is to commercialize its OraSolv technology through collaborations with multinational pharmaceutical companies with emphasis on products that command a large market share, are in large market segments, or are profitable prescription pharmaceuticals. 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 some of 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. In the third quarter of 1997, the Company signed its first two pharmaceutical license option and product development agreements with two multinational pharmaceutical companies, and is actively working on both of these projects. The Company is also continuing its ongoing 7 arrangements involving OTC products, having moved to a successive phase in its relationship with Novartis Consumer Health, Inc. ("Novartis"), a multinational pharmaceutical company, by signing exclusive License and Supply Agreements with that company on July 1, 1998. The agreements cover full scale production of three Triaminic(R) products in the Company's OraSolv dosage form. The Company began commercial production for this product during the second quarter of 1998, and sales commenced in the third quarter of 1998. This has been a regional launch, with a full national launch anticipated in 1999. The Company has also initiated the development of new oral drug delivery technologies. These technologies include a new oral solid delivery system, DuraSolv(TM); a unique sustained-released delivery system, OraSolv(R)SR; and an improved efficacy delivery system, OraVescent(TM). One of the Company's recently signed agreements utilizes the OraSolvSR technology. The goal of the Company is to focus on drug delivery technologies that improve efficacy and therefore provide greater value-added benefits. At September 30, 1998, the Company had accumulated losses of approximately $44,300,000. The Company recorded its first commercial sales using the Company's OraSolv technology in the three-month period ended March 31, 1997. The Company's revenues have previously been from sales using the Company's older AutoLution(R) (a liquid effervescent) technology, license fees paid by corporate partners in consideration of the transfer of rights under collaborative agreements, and product research and development fees paid by corporate partners to fund the Company's research and development efforts for products developed under such agreements. Approximately 48% of the Company's total revenues to date have been generated from development work and sales of AutoLution products. The Company is not currently manufacturing liquid effervescent products, and has not recognized any revenues from such products since 1995. Over the last three years approximately $11,200,000 of revenue has been generated from three major sources: product development fees (approximately 50% of the total) for work related to OraSolv products, and to a lesser extent sales (approximately 30%) of OraSolv products and licensing revenues (approximately 20%) related to OraSolv products. In addition to revenues from product development, manufacturing and licensing, the Company has funded operations from private and public sales of equity securities, realizing net proceeds of approximately $26,000,000 from private sales of equity securities and $16,400,000 and $12,000,000 from the Company's July 1994 initial public offering and May 1996 public offering of its Common Stock, respectively. At September 30, 1998, the Company had 9,610,394 shares of its Common Stock outstanding. The Company's ability to generate revenues is dependent upon its ability to develop new, innovative drug delivery technologies and to enter into and be successful in collaborative arrangements with pharmaceutical and other healthcare companies for the development and manufacture of OraSolv products and products based on the Company's other new technologies to be marketed by these corporate partners. The Company is highly dependent upon the efforts of their corporate partners to successfully market these. Although the Company believes these partners have, and future partners will have, an economic motivation to market these products vigorously, the amount and timing of their resources to be devoted to marketing are not within the control of the Company. These partners could make independent 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 the Company expects to continue to generate sales revenue from manufacturing OraSolv products in 1998. Research and development expenses will increase as the Company continues to investigate new drug delivery technologies. In addition, the Company is investigating the possibility of utilizing microencapsulation for the development of sustained-release systems. Personnel costs for research and development are expected to increase 8 moderately as the efforts expended on new technologies such as this increases. Personnel costs for administration may decrease slightly as a result of our effort to reduce corporate overhead. However, as the Company continues production, additional operations personnel may need to be added to meet corporate partners' orders. Manufacturing infrastructure costs should not increase materially in 1998 or 1999 as capacity is expected to meet short-term production needs. 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 with several different pharmaceutical companies regarding a variety of potential products, with an emphasis on prescription products. In the first quarter of 1997, the Company began commercial production for Bristol-Myers Squibb Company ("Bristol-Myers") of the first product in the Company's OraSolv dosage form, which was officially launched in September 1997. In the second quarter of 1997, the Company expanded its relationship with Bristol-Myers and signed a global non-exclusive license agreement which covers multiple products. In the third quarter of 1997, the first two prescription product license option and development agreements were signed. Each agreement is for a product which is currently marketed by the Company's partners, Schering Corporation ("Schering-Plough") and Zeneca Pharmaceuticals ("Zeneca"). The product under development for Zeneca is its new antimigraine compound zolmitriptan (Zomig-Registered Trademark-). In the third quarter of 1998, the development and option agreement with Schering-Plough was amended to extend the previously executed agreement. In October of 1998, the Company and SmithKline Beecham terminated their License Agreement related to an OTC product, as the Company continues to focus its efforts on the development of prescription pharmaceuticals. In the fourth quarter of 1997, the development and license option agreement was signed with Novartis which has been converted to exclusive license and supply agreements effective July 1, 1998. In the third quarter 1998 financial results, sales are recorded to Novartis for shipments of Triaminic-Registered Trademark- Softchews-Registered Trademark- for a regional launch. However, there can be no assurance that any of these activities or discussions will result in the eventual marketing of products using OraSolv or the Company's other technologies. RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 The Company's results of operations for the three- and nine-month periods ended September 30, 1998 reflect the continued emphasis of developing Orasolv products for its corporate partners and research efforts for the Company's new technologies. Total revenues increased to $2,307,000 and $4,783,000 in the three- and nine-month periods ended September 30, 1998, respectively, from $1,626,000 and $2,917,000 in the three- and nine-month periods ended September 30, 1997. In 1998, over 80% of the revenue relates to product development and milestone fees and licensing revenues earned from the Company's corporate partners. The majority of these revenues were generated by two prescription product collaborations, one each with each of Schering-Plough and Zeneca, and an over-the-counter cough cold product, Triaminic(R) Softchews, with Novartis. Sales were $720,000 for the three-month period ended September 30, 1998, representing the initial shipments to Novartis for their regional launch of Triaminic Softchews. Sales were $825,000 for the same period in 1997. The decrease in sales is caused by ordering patterns of our corporate partners to support the marketing of their products. Sales were $877,000 for the nine-month period ended September 30, 1998, as compared to $1,658,000 for the same period in 1997. The decrease in sales is due to the ordering patterns of our corporate partners, with the 1997 sales representing a national launch for a product, while in 1998, the majority of the sales are for the regional launch of Triaminic Softchews. Product development fees and licensing revenues were $1,587,000 and $3,906,000 for the three- and nine-month periods ended September 30, 1998, respectively, compared to $801,000 and $1,259,000, respectively, in the comparable periods of 1997. The increase in 1998 in these fees and revenues is mainly from the Company's collaborative arrangements with Novartis, Schering-Plough and Zeneca and represents progress made on these projects. In 1997, the revenues consist principally of the 9 license fees for the signing of the Company's two prescription product agreements in the third quarter of 1997, and product development fees for the OTC product, Tempra(R); from Bristol-Myers earned in the first half of 1997. The sales and other revenues reflect the signing of license option and development agreements with multinational pharmaceutical companies that provide for licensing fees, milestone payments and manufacturing fees. So long as the Company has relatively few agreements with corporate partners, sales, license revenues and product development fees will tend to fluctuate on a quarter-to-quarter basis. Cost of goods sold decreased to $1,167,000 and $1,804,000 in the three- and nine-month periods ended September 30, 1998, respectively, from $1,323,000 and $2,891,000 in the three- and nine-month periods ended September 30, 1997. The decrease in 1998 costs is primarily attributable to decreased production and to certain non-recurring start-up costs that were incurred in the first quarter of 1997 for the initial commercial production of a product using OraSolv technology. Research and development expenses increased to $1,030,000 and $3,378,000 for the three- and nine-month periods ended September 30, 1998, respectively, from $595,000 and $2,580,000 in the three- and nine-month periods ended September 30, 1997. The increase is a direct result of increased research and product development efforts being performed for the Company's corporate partners. In addition, research personnel have expended resources to focus on discovery and development of new technologies. Selling, general and administrative expenses increased to $794,000 for the three-month period ended September 30, 1998, as compared to $740,000 for the same period in 1997. This small increase is primarily attributable to the timing of recording the bonus accrual. On a year-to-date basis, the total of the accruals in 1997 and 1998 are approximately the same; however, for the three-month period ended September 30, 1998 there is approximately $60,000 more accrued than in the comparable period of 1997. On a year-to-date basis, 1998 selling, general and administrative expenses have decreased compared to 1997, as there has been a reduction in spending on consumer marketing research studies conducted to support OraSolv. Other income decreased to $29,000 and $121,000 in the three- and nine-month periods ended September 30, 1998, respectively, from $70,000 and $388,000 for the same periods in 1997, respectively. Other income is comprised mainly of interest income, which has decreased as it is dependent on the cash position of the Company. In addition, other income in the nine-month period ended September 30, 1997 included 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 and supply agreements. Through September 30, 1998, the Company had received net offering proceeds from such private and public sales of approximately $57,268,000, had net sales from manufacturing and supply agreements of approximately $17,257,000, and other revenues that include licensing fees, product and development and milestone fees of $11,536,000. Among other things, these funds were used to purchase approximately $16,100,000 of capital equipment, including approximately $7,500,000 in the last two quarters of 1994 in connection with completing the Company's manufacturing facility. Cash, cash equivalents and short-term investments were approximately $3,188,000 at September 30, 1998. The Company's long-term capital requirements will depend upon numerous factors, including the status of the Company's collaborative arrangements with corporate partners, the progress of the Company's research and development programs and receipt of revenues from the collaborative agreements, sales of the Company's products, and the need to expand production capacity. The Company believes that its currently available funds together with revenues from operations will meet its anticipated 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. 10 The Company has not generated taxable income through September 30, 1998. At December 31, 1997, the net operating losses available to offset taxable income were approximately $42,259,000. 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 began commercial production of its first product in the Company's OraSolv dosage form in the first quarter of 1997 and its second in the second quarter of 1998. The Company must be evaluated in light of the uncertainties and complications present for any company that only 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, 1998 of $44,300,000. Losses have resulted principally from costs incurred in research and development of the Company's technologies, marketing the Company's technologies and from general and administrative costs. These costs have exceeded the Company's revenues, which historically had been derived primarily from the manufacturing of AutoLution and other non-OraSolv products which the Company no longer manufactures. In more recent years, the Company has received revenue from its commercial partners for product development and licensing of OraSolv and, to a lesser extent, commercial production of an OraSolv dosage form product which commenced in the first quarter of 1997 for Bristol-Myers. The Company expects to continue to incur additional losses at least through the end of 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 has found the results of consumer research it has conducted to be very 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. 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 line and one facility capable of manufacturing OraSolv products. If this production line and/or facility becomes damaged or becomes incapable of manufacturing products due to natural disaster, governmental regulatory issues or otherwise, the Company would have no other means of producing OraSolv products. The quick dissolve drug delivery field is fairly new and rapidly evolving and it is expected to continue to undergo improvements and rapid technological changes. There can be no assurance that current or new competitors of the Company will not succeed in developing technologies and products that are more effective than any that are being developed by the Company or that could render the Company's technology and products non-competitive, or that any technology developed by the Company will be preferred by consumers to any existing or newly developed technologies. The Company intends to increase its research and development expenditures to enhance its current technologies, to pursue internal proprietary drug delivery technologies and to pursue new technologies. Even if 11 these technologies appear promising during various stages of development, they may not reach the commercialization stage for a number of reasons, including the inability to find a partner to market the product, difficulty in manufacturing the product on a large scale, or inability to render the product economical to market. The Company has substantially completed the assessment of the impact that the Year 2000 date conversion may have on its internal systems and software, including information technology ("IT") and non-IT, or embedded technology systems. The Company believes its risks relating to Year 2000 problems in its systems to be very low, as its IT systems are relatively small and predominantly new and its software consists entirely of "off the shelf" packages for which Year 2000 compliant upgrades are available and have largely already been implemented. The Company's engineers also believe that its non-IT systems will not experience adverse effects from the Year 2000 date conversion. The Company has designated an individual to oversee Year 2000 compliance, and has implemented a plan to ensure that during 1999 the Company will have upgraded each of its software packages to versions, or have converted to a replacement package, that the vendors thereof claim to be free of Year 2000 problems. The Company plans to replace any hardware that may be affected by the Year 2000 date conversion, or alter its use to one not sensitive to Year 2000 issues. The Company has spent approximately $3,000 on software upgrades and expects the total expenditure for such upgrades to be less than $10,000. The Company has largely completed its replacement or reallocation of hardware that may present Year 2000 concerns, and estimates the total cost of any replacement to be less than $10,000. The Company also plans to spend approximately $2,000 during the fourth quarter of 1998 to hire a consultant to review the Company's plans and actions relating to Year 2000 compliance. The Company believes that its risks related to Year 2000 compliance of its internal systems to be immaterial. The Company has also initiated discussions with its corporate partners to determine that those parties have appropriate plans to remediate Year 2000 issues. To date, none of the Company's partners has indicated significant concerns about their ability to do so. However, a substantial negative impact of Year 2000 issues on one of the Company's few large corporate partners that significantly affects the partner's ability to do business could have a material adverse effect on the operations and financial condition of the Company. The foregoing risks reflect the Company's stage of development and the nature of the Company's industry. The Company is also subject to a range of additional risks, including competition, uncertainties regarding the effects of healthcare reform on the pharmaceutical industry, including pressures exerted on the prices charged for pharmaceutical products and uncertainties regarding protection of patents and proprietary rights, all of which may have a material adverse effect on the Company's business. 12 CIMA LABS INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company has instituted an opposition proceeding in the European Patent Office, and has requested that the United States Patent and Trademark Office declare an interference proceeding, each of which has been reported in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. Eurand America, Inc. and Eurand International, S.p.A. (collectively, "Eurand") have filed a complaint in the United States District Court for the District of Delaware, but have not served the same upon the Company. The complaint alleges various causes of action including unfair competition, misappropriation of trade secrets and conversion, all arising out of the filing by the Company and Stanford Research Institute ("SRI") of a patent application relating to coating of active ingredients to taste-mask them by a process referred to as "coacervation". The Company has used, and may continue to use coacervation to provide taste-masking. The specific coacervation technology and active target addressed in the patent is not expected to be used in the future. The complaint was filed in the course of continuing negotiations between the Company and Eurand with regard to rights to the subject matter claimed in such applications. Those negotiations are continuing, and the Company presently expects to dispose of the matter through such negotiations without any material adverse effect on the Company. 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 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS
Item Description ---- ----------- 10.31 License Agreement between Novartis Consumer Health, Inc. and the Company, dated July 1, 1998.(1) 10.32 Supply Agreement between Novartis Consumer Health, Inc., and the Company, dated July 1, 1998.(1) 27 Financial Data Schedule.
- --------------- (1) Confidential treatment has been requested for this exhibit. 14 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 16, 1998 By: /s/ John M. Siebert ------------------------ ------------------------------------- John M. Siebert President and Chief Executive Officer Date: November 16, 1998 By: /s/ Keith P. Salenger ------------------------ ------------------------------------- Keith P. Salenger Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 15 EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION - -------------- ----------- 10.31 License Agreement between Novartis Consumer Health, Inc. and the Company, dated July 1, 1998.(1) 10.32 Supply Agreement between Novartis Consumer Health, Inc., and the Company, dated July 1, 1998.(1) 27 Financial Data Schedule.
- ----------------- (1) Confidential treatment has been requested for this exhibit. 16 EX-10.31 2 EXHIBIT 10.31 ***Text Omitted and Filed Separately Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 240.24b-2 LICENSE AGREEMENT BETWEEN NOVARTIS CONSUMER HEALTH, INC. AND CIMA LABS., INC. Dated: July 1, 1998 INDEX
PAGE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2. GRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 3. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 4. LICENSE FEES, MILESTONE PAYMENTS AND ROYALTIES. . . . . . . . . . . . . . . . .8 5. PAYMENT PROCEDURES, RECORDS, AUDITING . . . . . . . . . . . . . . . . . . . . 10 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . 11 7. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 9. PATENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10. INFRINGEMENT OF CIMA PATENT . . . . . . . . . . . . . . . . . . . . . . . . . 16 11. INFRINGEMENT OF THIRD PARTY RIGHTS. . . . . . . . . . . . . . . . . . . . . . 17 12. CIRCUMSTANCES FOR MANUFACTURE BY NCH. . . . . . . . . . . . . . . . . . . . . 18 13. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 14. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 15. PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 17. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 18. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20. INDEPENDENT CONTRACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 21. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 22. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2 LICENSE AGREEMENT This License Agreement (the "License Agreement") is made and entered into as of this First day of July, 1998 ("Effective Date"), by and between Novartis Consumer Health, Inc. (hereinafter referred to as "NCH"), a corporation organized and existing under the laws of the State of Delaware, having an office at 560 Morris Avenue, Summit, New Jersey 07901-1312, and CIMA LABS., Inc. (hereinafter referred to as "CIMA"), a corporation organized and existing under the laws of the State of Delaware, having an office at 10000 Valley View Road, Eden Prairie, Minnesota 55344-9361. WITNESSETH: WHEREAS, CIMA owns or possesses rights to certain patents and know-how (CIMA Patents and Know-How) and thus has the right to grant licenses with respect to the technology covered under the patents and know-how; and WHEREAS, CIMA wishes to grant to NCH a license under the CIMA Patents and Know-How to make and have made (under specified circumstances), use, offer for sale and sell Products (as hereinafter defined) in the Field (as hereinafter defined) and in the Territory (as hereinafter defined); and WHEREAS, NCH desires to acquire a license under said CIMA Patents and Know-How, on the terms and subject to the conditions set forth herein; and WHEREAS, NCH has substantial expertise and experience in the development, commercialization and marketing of human pharmaceutical products; and WHEREAS, the parties simultaneously herewith are entering into a Supply Agreement (the "Supply Agreement") with respect to the supply by CIMA to NCH of NCH's commercial requirements of Products covered by the terms of this License Agreement. NOW, THEREFORE, in consideration of the mutual covenants, agreements and obligations set forth herein, CIMA and NCH hereby agree as follows: 1. DEFINITIONS The following terms, as used in this License Agreement, shall have the meanings set forth in this Article 1: 1.1 "Active Ingredients" shall mean [...***...] 1.2 [...***...] 3 1.3 "Affiliate" shall mean any corporation or entity which directly or indirectly owns, is owned by, or is under common ownership with, a party to this License Agreement, where own or ownership means direct or indirect possession of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable equity interest in any other type of entity. 1.4 "Agreement Period" shall mean the period commencing upon the Effective Date and extending until the end of the Royalty Period (as hereinafter defined). 1.5 "Date of First Sale" shall mean the date of first commercial sale of one or more of the Products by NCH or any of its Affiliates. 1.6 "Development Agreement" shall mean the Development and License Option Agreement, between NCH and CIMA, executed November 18, 1997 and attached hereto as EXHIBIT A. 1.7 The "Field" shall mean [...***...] 1.8 "Net Sales" shall mean the actual gross sales invoiced by NCH or its sublicensees or Affiliates from factory sales to parties other than NCH or its Affiliates, for those Products made, used or sold in the Field and in the Territory, less, (i) trade, quantity and cash discounts actually allowed and taken in such amounts as are customary in the trade, if any, (ii) credits or allowances actually granted to customers, (iii) independent broker or agent commissions actually allowed and paid, up to [...***...] (iv) customer returns actually allowed, (v) freight, insurance, handling and transportation charges and (vi) all taxes other than income taxes on the income of NCH or its Affiliates. 1.9 "OraSolv Technology" shall mean CIMA's proprietary oral effervescent, fast-dissolving or chewable, drug-delivery tablet manufacturing and packaging technology [...***...] 1.10 "Improvements" shall mean any enhancement to the OraSolv Technology or Products (as hereinafter defined) made during the period as of November 18, 1997 (the Effective Date of the Development Agreement) through the expiration of the last to expire [...***...] or the earlier termination of this License Agreement. 1.11 "CIMA Patents" shall mean all patents and patent applications owned, or controlled, or licensed (with right to sublicense), during the term of this License Agreement, by or on behalf of CIMA or any of its Affiliates, which contain a claim covering inventions necessary to the development, manufacture, packaging, use, offer for sale or sale of Products, including those patents and patent applications now owned, controlled or licensed by CIMA listed in EXHIBIT B, attached hereto, which list shall be updated from time to time as appropriate, but at least once per calendar year, to incorporate any additional patents and patent applications NOT listed in EXHIBIT B as of the Effective Date, including patents covering any Improvements NCH elects to use in connection with the Products pursuant to Section 3.4 hereof, as well as any continuations, continuations-in-part, divisions, re-examinations, reissues or extensions to the patents or patent 4 applications listed in EXHIBIT B. CIMA Patents shall include Exclusive CIMA Patents, Nonexclusive CIMA Patents, [...***...] (each as hereinafter defined). 1.12 "CIMA Know-How" shall mean all tangible and intangible inventions, technology, trade secrets, data, processes, methods and any physical or chemical material, including any replication of any part of such material, other information that CIMA owns, controls or has a license to with the right to sublicense, existing as of the Effective Date, which are necessary or useful to the formulation, development, manufacture, packaging or commercialization of a Product, and any Improvements made to any of the foregoing. 1.13 [...***...] 1.14 "Product" shall mean the pharmaceutical products, in any flavor, dosage or form, that are developed using the OraSolv Technology and that contain as pharmaceutically active compounds only NCH Active Ingredients, and includes without limitation those formulations listed in EXHIBIT C attached hereto and made a part hereof, including Improvements, modifications and variations thereto made by CIMA or its Affiliates during the term of this License Agreement. 1.15 "Results" shall mean Product formulations as set forth in EXHIBIT C, Product prototypes, Product samples and finished Products, including any additional Product formulations, prototypes, Product samples and unfinished Product developed pursuant to Section 4.5 hereof, NCH proprietary processes and analytical methodology used in the validation, stability testing and other testing or analysis of the Products, [...***...] including information and data directly relating to any of the foregoing, obtained or developed from conduct of evaluations, product development, commercialization or manufacturing of the Products pursuant to this License Agreement or the Development Agreement; PROVIDED THAT, Results shall not include any tablet manufacturing or packaging processes or technology which are owned or otherwise controlled by CIMA and used to obtain, develop, manufacture or package Product formulations, Product prototypes, Product samples and finished Products, nor shall Results include information or data directly relating to such manufacturing or packaging processes or technology or any knowledge, skill or experience with respect to OraSolv Technology gained by CIMA personnel in performance of this License Agreement and/or the Development Agreement. 1.16 "Royalty Computation Period" shall mean a three (3) month calendar quarter ending on the last day of March, June, September and December of a given year. 1.17 "Royalty Period" means that period beginning on the Date of First Sale of the Products in the Field and in the Territory by NCH, and ending on [...***...] 1.18 "Territory" shall mean [...***...] or as otherwise amended from time to time as agreed upon in writing by the parties. 1.19 "FDA" shall mean the United States Food and Drug Administration. 5 1.20 "Exclusive CIMA Patent" shall mean those CIMA Patents to which CIMA has the right to grant an exclusive license, as listed in EXHIBIT B hereto. 1.21 "Nonexclusive CIMA Patent" shall mean those CIMA Patents to which CIMA does not have the right to grant an exclusive license, as listed in EXHIBIT B hereto. 1.22 [..***...] 1.23 [...***...] 1.24 "NCH Active Ingredients" shall mean [...***...] 2. GRANTS 2.1 Subject to the terms of this License Agreement, CIMA hereby grants, and NCH hereby accepts, an exclusive license under the Exclusive CIMA Patents and Know-How; and a nonexclusive license under the Nonexclusive CIMA Patents, all as set forth in EXHIBIT B, including the right to sublicense, to make and have made (subject to Article 12 hereof), use, market, distribute, offer for sale and sell the Products in the Field and in the Territory. [...***...] 2.2 CIMA hereby grants, and NCH hereby accepts, an exclusive option to acquire an exclusive license under the Exclusive CIMA Patents and Know-How; and a nonexclusive license under the Nonexclusive CIMA Patents, including the right to sublicense, to make and have made (subject to terms substantially similar to those set forth in Article 12 hereof), market, distribute, offer for sale and sell pharmaceutical products in the Field and in the Territory [...***...] The Option shall be in effect for [...***...] beginning on the Effective Date (the "Option Period"). In consideration for the Option, NCH shall pay to CIMA a non-refundable option fee of [...***...] (the "Option Fee") upon execution of this License Agreement. NCH may exercise the Option by notifying CIMA in writing at any time during the Option Period of its decision to do so. NCH and CIMA shall negotiate in good faith mutually agreed upon terms under which NCH shall acquire the exclusive license described above in this Section 2.2, which terms shall be no less favorable to NCH than the terms of this License Agreement. The final agreement memorializing these terms shall be entered into in the event NCH exercises the Option, no later than the end of the Option Period. During the Option Period, CIMA will not enter into discussions with any other party concerning developing, commercializing or making any product covered by the Option. The Option Fee shall be fully creditable against any license fees, royalties and/or milestone payments payable by NCH to CIMA pursuant to any agreement entered into between NCH and CIMA memorializing the agreed upon terms under which NCH shall acquire the exclusive license described in this Section 2.2. 2.3 [...***...] 6 2.4 Upon the expiration (but not the earlier termination) of the Royalty Period, NCH shall have a nonrevocable, perpetual, paid-up, royalty-free, non-exclusive license under the CIMA Patents and Know-How, with the right to sublicense, in the Field and in the Territory, to make and have made (subject to Article 12 hereof), use, market, distribute, offer for sale and sell Products in the Field and in the Territory. 3. COVENANTS 3.1 CIMA hereby covenants and agrees that in the event that CIMA enters into any Option, Development, License or Supply Agreement with a third party relating to the granting or possible granting of a license under the CIMA Patents or Know-How to make, have made, market, use, distribute, offer for sale and/or sell any [...***...] pharmaceutical product using the OraSolv Technology, which products are used for the treatment of [...***...] and contain any or all of the NCH Active Ingredients (but not [...***...] alone), to the extent permissible by law, CIMA shall contractually require of said third party that all such products, as well as any labels, promotional, advertising or marketing activities or materials relating to or used in conjunction with such products, exclude any indication, suggestion or reference, whether direct or indirect, or expressed, implied or inferred, regarding [...***...] use of such products. 3.2 CIMA hereby covenants and agrees that it shall use the Results and Confidential Information belonging to NCH (as to which obligations of confidentiality apply) solely for the purposes specified in this License Agreement and for no other purpose. 3.3 NCH hereby covenants and agrees that it shall use the licensed CIMA Patents and Know-How and Confidential Information belonging to CIMA (as to which obligations of confidentiality apply) solely for the purposes specified in this License Agreement and for no other purpose. 3.4 CIMA hereby covenants and agrees to keep NCH fully informed of all Improvements to the OraSolv Technology, but only to the extent such Improvements relate to the Products, including but not limited to improved taste masking. Information initially provided to NCH by CIMA under this Section 3.4 shall be sufficient to permit NCH to evaluate applicability of the Improvements to the Products. If NCH elects to use Improvements in connection with the Products, CIMA shall disclose such information as CIMA may have concerning such Improvement that is necessary to permit NCH to utilize the Improvement consistent with the rights granted under this License Agreement. In the event that NCH requests CIMA to incorporate an Improvement, NCH shall pay CIMA reasonable incremental costs associated with incorporating such Improvement that have been preapproved in writing by NCH. 3.5 CIMA hereby covenants and agrees during the term of this License Agreement, not to (1) commercialize, or cause to be commercialized, or fund, or provide services, including without limitation, consulting, research, development and/or manufacturing services, with respect to, the commercialization of, any chewable and/or fast dissolving, solid, oral dosage form pharmaceutical products that contain any NCH Active Ingredient in the Field and in the 7 Territory, or (2) license, assign or otherwise convey, to any third party, except as expressly permitted in Article 16 of this License Agreement, any of the rights or licenses granted to NCH under this License Agreement, and specifically including any rights or licenses with respect to Sections 2.1, 2.2 and 2.3; [...***...] 4. LICENSE FEES, MILESTONE PAYMENTS AND ROYALTIES 4.1 In consideration of the license granted to NCH under this License Agreement as stipulated in Article 2 above, NCH shall pay to CIMA the following non-refundable license and option fees and milestone payments at the times stated below: [...***...] 4.1.5 All payments by NCH to CIMA pursuant to Sections 4.1.2 and 4.1.3 and 4.5 will be made within [...***...] of receipt by NCH of documentation from CIMA verifying successful completion of the relevant activity. Such documentation shall be in the form of a written final report of findings for the relevant activity. 4.2 As further consideration for the license granted to NCH under this License Agreement as stipulated in Article 2 above, NCH shall pay to CIMA a running non-refundable royalty of [...***...] of Net Sales of all Products in the Field and in the Territory, in accordance with the provisions of Article 5. The running royalty shall be fully creditable against minimum annual royalties, as set forth below in Section 4.4. 4.2.1 The obligation to pay running royalties shall expire, on a country-by-country basis, with the expiration of the Royalty Period, except as otherwise provided for under this License Agreement. 4.2.2 In the event that all [...***...] expire or all claims of all [...***...] are held invalid or otherwise unenforceable by a court of competent jurisdiction prior to [...***...], the running royalty rate in the relevant country shall be reduced to [...***...] of the then-current running royalty rate until [...***...] or as otherwise provided for under this License Agreement. 4.2.3 If, as of the later of (i) [...***...] or (ii) the date on which the last to expire [...***...] expires, CIMA has obtained or possesses [...***...], then NCH shall continue to pay CIMA a running royalty equal to [...***...] of the then-current running royalty rate, and NCH shall continue to have an exclusive license with respect to such [...***...] until such time as the [...***...] expire, or all claims thereof which cover [...***...] are held invalid or otherwise unenforceable by a court of competent jurisdiction, whichever is sooner, at which time NCH's obligation to pay royalties shall cease. 8 4.2.4 In the event that CIMA materially breaches the Supply Agreement and fails to cure the material breach within [...***....] of being notified by NCH of the material breach, then the running royalty rate shall be reduced to [...***...] of the then-current running royalty rate until the expiration of the Royalty Period or until such time as the breach is cured, subject to additional adjustments as set forth in this Section 4.2 and Articles 8, 10 and 11 hereof. Upon cure, the royalty rate shall be increased to a rate equal to the rate in effect at the time of the breach, subject to any additional adjustments that have been made, or are later made, pursuant to this Section 4.2 or Articles 8, 10 or 11 hereof. 4.2.5 To the extent that CIMA is unable to meet NCH's firm orders made pursuant to, or any other NCH Product supply requirement in accordance with, the terms and conditions of the Supply Agreement, and as a direct result of CIMA's nonperformance with respect thereto, NCH is unable to supply Product to the Field such that an out-of-stock condition ensues in NCH warehouses, and NCH receives backorders for the Product, CIMA shall [...***...] Failure by CIMA to supply Product ordered pursuant to a change order issued to CIMA pursuant to Article 4 of the Supply Agreement which increases the order for the related month above NCH's forecast shall not be considered nonperformance by CIMA for purposes of this Section 4.2.5 and Section 12.2 of the Supply Agreement. 4.2.6 [...***...] 4.3 Royalties payable by NCH to CIMA under Sections 4.2 and 4.4 hereof further shall be reduced or otherwise adjusted in accordance with Articles 8, 10 and 11 hereof. 4.4 Commencing in the first calendar year in which NCH launches a Product on a national scale in [...***...] NCH shall pay to CIMA a minimum annual royalty, as set forth below, against which running royalties accrued during the relevant calendar year for which the minimum annual royalty is due are fully creditable. Should total running royalties accrued in any calendar year not equal at least the minimum annual royalty due for the relevant calendar year, concurrent with its submission to CIMA of its statement of Net Sales, as required under Section 5.2 hereof, for the last Royalty Computation Period of the calendar year, NCH shall pay to CIMA according to the provisions of Article 5 hereof, the difference between the minimum annual royalty due and the total annual running royalty accrued in the relevant calendar year. 4.4.1 The minimum annual royalty shall be equal to [...***...] per year, and shall be payable as set forth herein until [...***...] or until all of the [...***...] expire, or all claims of all of the [...***...] which cover the Products are held invalid or otherwise unenforceable by a court of competent jurisdiction, whichever is sooner, except as otherwise provided for in this License Agreement. 4.4.2 In the event all of the [...***...] expire or all claims of all of the [...***...] which cover the Products are held invalid or otherwise unenforceable by a court of competent jurisdiction prior to [...***...] and CIMA has neither obtained nor possesses [...***...] then 9 the annual minimum royalty due shall be reduced to [...***...] of the then-current minimum annual royalty until [...***...] at which time the obligation to pay minimum annual royalties shall cease. 4.4.3 In the event all of the [...***...] expire or all claims of all of the [...***...] which cover the Products are held invalid or otherwise unenforceable by a court of competent jurisdiction prior to [...***...] and CIMA has obtained or possesses [...***...] at least one claim of which covers [...***...] then the annual minimum royalty due shall be equal to [...***...] of the then-current minimum annual royalty until such time as the [...***...] expire, or all claims thereof which cover [...***...] are held invalid or otherwise unenforceable by a court of competent jurisdiction, at which time the obligation to pay minimum annual royalties shall cease. 4.4.4 In the event that CIMA commercializes, or causes to be commercialized, or funds, or provides services, including without limitation, consulting, research, development and/or manufacturing services, with respect to, the commercialization of, any oral chewable and/or fast dissolving, solid, dosage form pharmaceutical products which contain Active Ingredients other than NCH Active Ingredients, in the Field and in the Territory, then the minimum annual royalty due shall be reduced to [...***...] of the then-current minimum annual royalty, subject to additional adjustments, until expiration of the Royalty Period, at which time the obligation to pay minimum annual royalties shall cease; [...***...] This reduction in royalties shall be NCH's sole remedy for such commercialization. 4.4.5 [...***...] 4.5 As further consideration for the license granted in this License Agreement, NCH agrees to develop one additional Product formulation, subject to the provisions and terms of this License Agreement and as set forth on EXHIBIT D. [...***...] 5. PAYMENT PROCEDURES, RECORDS, AUDITING 5.1 All payments due CIMA pursuant to Article 4 shall be made in U.S. dollars by wire transfer to such bank in the United States of America as CIMA shall specify from time to time. For purposes of determining the running royalty payment due to CIMA, Net Sales shall be converted on a country-by-country basis to U.S. dollars at the exchange rate prevailing at the close of the last business day of the relevant Royalty Computation Period as published the next day in The Wall Street Journal. 5.1.1 Payments hereunder shall be made without deduction other than such amounts, if any, as NCH is required by law to deduct or withhold. NCH shall obtain a receipt from the relevant taxing authorities for all withholding taxes paid and forward such receipts to CIMA to enable CIMA to claim any and all tax credits for which it may be eligible. NCH shall reasonably 10 assist CIMA in claiming exemption from such deductions or withholdings under any double taxation or similar agreement or treaty from time to time. 5.2 NCH shall pay to CIMA royalties as set forth in Article 4 within [...***...] after the end of each Royalty Computation Period. Each payment of royalties shall be accompanied by a statement, on a country by country basis of the amount of Net Sales during such quarter, the amount of aggregate Net Sales in the Territory during such quarter and the amount of royalties or other payments due on such sales. 5.3 During the Agreement Period, NCH shall keep complete and accurate books and records setting forth gross sales, net sales, amounts deducted from gross sales to arrive at Net Sales, calculations of royalty payments owed to CIMA, and any other information necessary to allow the calculation of royalties to be paid by NCH to CIMA for each country within the Territory, for no less than three (3) years after the end of each Royalty Computation Period. NCH shall permit CIMA, at CIMA's expense, to have said books and records examined by independent certified public accountants retained by CIMA and acceptable to NCH, during regular business hours upon reasonable advance notice but not later than three (3) years following the close of the Royalty Computation Period in question, and no more than one (1) time per year. Such accountant shall report to CIMA only those findings required to verify or contradict the royalty amounts calculated by NCH to be owed to CIMA, and the amounts of any discrepancy. Any information obtained or reports completed by said accountants during such examination will be considered Confidential Information of NCH under Article 7 hereof. If it is determined as a result of said examination that there was an underpayment of royalties due CIMA, NCH will pay to CIMA the balance of the royalties due within [...***...] Similarly, in the event it is determined that there has been an overpayment of royalties, CIMA will credit such overpaid amount against running royalty payments owed by NCH at the end of the next Royalty Computation Period, or subsequent Royalty Computation Periods when required, until such time as such overpayment has been fully credited against the running royalties; PROVIDED, HOWEVER, that such credit shall not exceed [...***...] of any royalties due CIMA in such Royalty Computation Period, and any residual credit shall be carried over to the next Royalty Computation Period and applied in accordance with this Section 5.3. 6. REPRESENTATIONS AND WARRANTIES 6.1 CIMA warrants and represents that: 6.1.1 It 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 in Article 2. 6.1.2 The execution, delivery and performance of this License Agreement do not conflict with, violate or breach any agreement to which CIMA is a party, or CIMA's Certificate of Incorporation or Bylaws. 11 6.1.3 This License 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. 6.1.4 CIMA has the right, title and interest in and to the CIMA Patents and Know-How which are the subject of this License Agreement, necessary to grant the license granted pursuant to Article 2, and which, to the best of CIMA's knowledge, are free of any lien or encumbrance or any rights or claims of any third party in the Territory. 6.1.5 To the best of CIMA's knowledge as of the Effective Date, the practice of the OraSolv Technology does not infringe any valid patents or other proprietary rights of third parties, nor do said third parties have any claim of ownership with respect to the CIMA Patents and Know-How. 6.1.6 To the best of CIMA's knowledge as of the Effective Date, the CIMA Patents licensed under this License Agreement are neither invalid nor unenforceable, nor would they be held invalid or unenforceable by a court of competent jurisdiction. If, during the Agreement Period, CIMA (a) becomes aware that anyone (including CIMA) has requested a re-examination of any such CIMA Patents, (b) requests a re-issuance of any such CIMA Patents, or (c) becomes aware that a declaratory judgment action has been filed to have any such CIMA Patents declared invalid or unenforceable, CIMA promptly shall notify NCH of such and specify which CIMA Patents are involved. 6.1.7 During the term of this License Agreement, CIMA shall not enter into any agreement that is inconsistent with or in derogation of CIMA's representations and warranties under this License Agreement. 6.1.8 As of the Effective Date, CIMA is not aware of any third party that is infringing the CIMA Patents licensed to NCH. 6.2 NCH warrants and represents that: 6.2.1 It 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 License Agreement. 6.2.2 The execution, delivery and performance of this License Agreement do not conflict with, violate or breach any agreement to which NCH is a party, or NCH's Certificate of Incorporation or Bylaws. 6.2.3 This License Agreement has been duly executed and delivered by NCH and is a legal, valid and binding obligation enforceable against NCH in accordance with its terms. 7. CONFIDENTIALITY 12 7.1 Both CIMA and NCH agree that subject to the limitations set forth in Section 7.3, all information disclosed to the other party, whether in oral, written or graphic form, and identified in writing 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 Results, including any information or documentation relating thereto, any patent application or drawing or potential patent claim, trade secrets, information, ideas, inventions, samples, processes, procedures, methods, formulations, packaging designs and materials, test data, future development plans, Product launch date, technological know-how and engineering, manufacturing, regulatory, marketing, servicing, sales, financing or human resources matters relating to the disclosing party and its business. 7.2 Both parties will take precautions as it normally takes with its own confidential and proprietary information to prevent disclosure to third parties. 7.3 Both CIMA and NCH agree that, notwithstanding the above, the obligations of confidentiality shall not be deemed to apply to: 7.3.1 Information which at the time of disclosure is or thereafter becomes generally known or available to the public, through no wrongful act or failure to act on the part of the receiving party. 7.3.2 Information that was known by or in the possession of the receiving party at the time of receiving such information from the disclosing party as evidenced by written records. 7.3.3 Information obtained by the receiving party from a third party source who is not breaching a commitment of confidentiality to the disclosing party by revealing such information to the receiving party. 7.3.4 Information that is independently developed by the receiving party without use of confidential information of the other party as evidenced by written records. 7.3.5 Information that is the subject of a granted written permission to disclose that is issued by the disclosing party to the other party. 7.3.6 Information that is required to be disclosed pursuant to the law, but only to the extent required to be disclosed; PROVIDED, THAT, the disclosing party notifies the other party in writing and gives the other party reasonable time to comment on the same prior to disclosure. 7.4 During the Agreement Period and for a period of five (5) years after the end of the Agreement Period (seven (7) years for manufacturing process information) 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 such information for any unauthorized purpose, other than as authorized in Section 7.3 hereof or as necessary to accomplish the purpose of this License Agreement subject to an appropriate binder of confidentiality as set forth in Section 7.5. Each party may use such Confidential Information only to the extent required to 13 accomplish the purposes of this License Agreement. Confidential Information shall not be used for any purpose or in any manner that is not consistent with this License Agreement or 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. 7.5 Both parties will make diligent efforts to ensure that all employees, consultants, agents, subcontractors and manufacturing contractors who may have access to Confidential Information of the other party, and any other third parties who might have access to Confidential Information, will use such information in a manner consistent with the terms of this License Agreement and will be bound by the terms set forth in this Article 7. No Confidential Information shall be disclosed to any employees, subcontractors, agents or consultants who do not have a need to receive such information. 7.6 To the extent either party discloses confidential information of the other party to an employee, consultant, subcontractor or manufacturing contractor (collectively "Agents") or permits an Agent to have access to such confidential information, such party shall indemnify the other party for any claims, damages, losses, liabilities, costs or expenses, including reasonable attorneys' fees, incurred by the other party as a result of the indemnifying party's Agent further disclosing or misusing such confidential information. 8. TERM AND TERMINATION 8.1 The term of this License Agreement shall begin as of the Effective Date and shall remain in effect for the Agreement Period, unless earlier terminated as provided herein. 8.2 In the event either party commits a material breach or defaults in the performance or observance of any of the material provisions of this License Agreement, and such breach or default is not cured within [...***...] days after the receipt of notice thereof from the other party specifying such breach or default, the party not in breach or default shall be entitled (without prejudice to any of its' other rights) to terminate this License Agreement, without additional penalty, termination fee or cost, by giving notice to take effect immediately. 8.3 In addition to the provisions specified in Section 8.2, NCH shall have the right to terminate this License Agreement [...***...] 8.4 In addition to the provisions specified in Section 8.2, NCH shall have the right to terminate this License Agreement [...***...] 8.5 If NCH, in its sole discretion, chooses not to pursue the remedy provided for in Section 8.2 hereof in the event CIMA commits a material breach or defaults in the performance or 14 observance of any of the material provisions of this License Agreement, and such breach or default is not cured within [...***...] or, if such breach is not reasonably capable of cure within such [...***...] and CIMA reasonably demonstrates to NCH that it is making good faith efforts to cure such breach, [...***...] after the receipt of notice thereof from NCH specifying such breach or default, NCH shall be entitled to [...***...] 8.6 NCH shall have the right to terminate this License Agreement and the royalty obligations with respect thereto, without cause, effective on, or any time after, [...***...] by providing CIMA with [...***...] prior written notice of such termination and payment of a [...***...] termination fee upon such termination plus such other amounts as have accrued under this License Agreement and remain unpaid as of the date of termination, including the amount of the prorated minimum royalty for the year of termination or the actual earned royalties whichever is greater. [...***...] 8.7 The termination of this License Agreement by either party shall not release either party from any obligation that matured prior to the effective date of the termination. 8.8 Termination of this License Agreement by NCH pursuant to Sections 8.2, 8.3, 8.4, 8.5 or 8.6 shall immediately terminate any further minimum annual royalty obligation as to NCH. 8.9 The confidentiality provisions set forth in Article 7 hereof shall survive the termination or expiration of this License Agreement as set forth therein. 8.10 Except as otherwise expressly provided in this License Agreement, upon termination of this License Agreement: 8.10.1 All licensed rights under the CIMA Patents and Know-How granted to NCH shall terminate and revert to CIMA, and NCH shall not make any use whatsoever of said rights, nor sell any Products in the Territory, except as expressly provided for elsewhere in this License Agreement. 8.10.2 Title and ownership rights in the [...***...] and other Confidential Information of CIMA shall remain at all times with CIMA and NCH will have no title thereto as a result of this License Agreement. Upon written request by CIMA, NCH shall promptly return to CIMA all information regarding said [...***...] or Confidential Information; PROVIDED THAT, NCH will be permitted to keep archive copies of such Confidential Information. 8.10.3 Title and Ownership rights in the [...***...] and Confidential Information of NCH shall remain at all times with NCH and CIMA will have no title thereto as a result of this License Agreement. Upon written request by NCH, CIMA shall promptly return to NCH all information regarding said [...***...] and Confidential Information; PROVIDED THAT, CIMA will 15 be permitted to keep archive copies of said [...***...] for CIMA's internal use only and CIMA shall be prohibited from disclosing or providing [...***...] to any third party. 8.10.4 NCH shall have up to [...***...] from the date of termination of this License Agreement to sell or otherwise dispose of its existing stock of the Products and to fulfill any outstanding contractual obligations with respect to the sale or supply of the Products; PROVIDED THAT, CIMA shall continue to receive royalty payments as stipulated in Article 4 hereof. The parties acknowledge the seasonal nature of the Products, however, NCH shall make reasonable commercial efforts to dispose of such existing stock as expeditiously as reasonably possible. 8.10.5 Except as otherwise set forth herein, termination under this Article 8 shall be without prejudice to and shall not affect the right of either party to recover any and all damages to which it may be entitled, or exercise any other remedies which it may otherwise have under this License Agreement course and conduct of patent application prosecution matters within the scope of CIMA Patents licensed under this License. 9. PATENTS 9.1 CIMA shall undertake and shall bear all costs of the prosecution and maintenance of the Patent Rights in the Territory. CIMA shall employ reasonable efforts to keep NCH fully and timely informed, at NCH's reasonable expense, in respect to the course and conduct of the Patent application prosecution matters within the scope of the CIMA Patents licensed under this License Agreement and such information (to which the obligation of confidentiality applies) disclosed pursuant to this Section 9.1 shall be Confidential Information for purposes of Article 7. (CIMA shall not be obligated to furnish any information or documents to NCH other than documents filed in, or received from patent offices in the Territory in respect of the CIMA Patents.) 9.2 NCH shall mark appropriately all Products with the patent number of any CIMA patent, at least one claim of which covers the Products and/or packaging therefor, or processes for making or packaging the Products. 10. INFRINGEMENT OF CIMA PATENT 10.1 If either party shall become aware of any infringement of any CIMA Patent in the Territory and in the Field, then the party having such knowledge shall give notice to the other within ten (10) days of becoming aware of such infringement and the basis therefor. 10.2 Subject to Section 10.3 hereof, CIMA shall have the sole right to take such action, as it deems appropriate and reasonable, whether by action, suit, proceeding or otherwise, at its own expense, to prevent or eliminate the infringement of the CIMA Patents by others and to collect damages. NCH agrees to cooperate with CIMA in any reasonable manner in an action brought by CIMA. CIMA agrees to pay all reasonable out-of-pocket expense incurred by NCH as a result of NCH's cooperation in the prosecution of any such action, suit or proceeding for 16 infringement. CIMA shall be entitled to retain any damages recovered by bringing the action for patent infringement. 10.3 Within [...***...] of receipt of notice by CIMA of the infringement of any Exclusive CIMA Patents by commercial sale or offer for commercial sale through more than one (1) sales outlet within one (1) or more countries of the Territory, or by commercial use of the products in the Field, or contributing to, or inducement of, any of the foregoing, CIMA shall commence reasonable action to terminate such infringement. Should CIMA take such reasonable action within [...***...] of receipt of such notice and nevertheless fails to terminate the infringement within [...***...] of receipt of notice of such infringement, CIMA shall bring formal suit against the infringer in a court of competent jurisdiction to terminate such infringement. Should CIMA fail to take reasonable action to terminate such infringement within said [...***...] or to terminate such infringement within said [...***...] then, (i) if the infringed CIMA Patents include one or more [...***...] or (ii) if the Exclusive CIMA Patents in such country consist solely of [...***...] the running royalty for Products sold in such country shall be immediately reduced to [...***...] of the then-current running royalty rate, whereas if the infringed Exclusive CIMA Patents consist solely of [...***...] but one or more [...***...] are in force in such country at the time such infringement commences, the running royalty rate for Products sold in such country shall be reduced to [...***...] of the then-current royalty rate. The reduced rate shall remain in effect until expiration of the Royalty Period, or until such time as the infringement terminates, the infringed Exclusive CIMA Patents expire (as discussed in Sections 4.4.2 and 4.4.3), or as otherwise provided for in Article 4 of this License Agreement. 11. INFRINGEMENT OF THIRD PARTY RIGHTS 11.1 If either party to this License Agreement shall become aware of any action, or suit, or threat of action or suit, by a third party alleging that the manufacture, use, marketing, distribution, offer for sale or sale of any Product infringes a patent, or violates any other proprietary rights of any third party, the party aware of same shall notify the other party of the same and fully disclose the basis therefor within ten (10) days of becoming aware of such action, or suit, or threat of such action or suit. 11.2 CIMA shall have the right, but not the obligation, (a) to secure a license, at CIMA's expense, with the right to sublicense, which would obviate the alleged infringement and CIMA shall grant to NCH, at no additional cost, a sublicense under such license; or (b) to develop at CIMA's expense one or more substitute Products which are substantially equivalent in performance to the then-existing Products but which are free of the alleged infringement. NCH shall cooperate at NCH's reasonable expense in such development, and in negotiations for such license, as CIMA may reasonably request. 11.3 In the event CIMA elects not to exercise its rights under Section 11.2 within [...***...] of receiving notice of such claim, or otherwise notifies NCH within such [...***...] that it does not intend to exercise such right, NCH shall have the right to defend any such claim at its own 17 expense and sole discretion as to the control, conduct and prosecution of such defense. If, by the terms of any settlement or if by a judgment, decree or decision of a court, tribunal or other authority of competent jurisdiction emanating from NCH's defense of such claim, NCH is required to obtain a license from a third party in order to make, have made, use, offer for sale, sell or import Product (hereinafter "Third Party License") and/or to compensate or pay damages to such third party, and/or pay royalties under such license, and/or incur cost or expense in the defense of such claim, then, if such claim arises from the use of any OraSolv Technology or any Improvement thereto, NCH shall have the right to credit [...***...] of any such compensation, damages, royalties and reasonable out-of-pocket cost and expense against running royalties owed to CIMA until such time as any allowable credit is fully taken; PROVIDED THAT, CIMA shall have the right to approve any credits resulting from settlement (other than by judgment, decree or decision of a court, tribunal or other authority of competent jurisdiction) by NCH and the third party of any claim or action, which approval shall not be unreasonably withheld, and the dollar amount of any credit taken in any one Royalty Computation Period shall not exceed [...***...] of the dollar amount of royalty payments due CIMA in the relevant Royalty Computation Period. 11.4 Nothing in this Article 11, or in Article 10, shall be construed as a waiver or cure of any breach of any warranties set forth in Article 6, or any release of any claim by NCH as may be appropriate relating thereto. 12. CIRCUMSTANCES FOR MANUFACTURE BY NCH 12.1 NCH shall have the right to make the Product, or have the Product made by a third party supplier (reasonably acceptable to CIMA), only under the following circumstances: [...***...] 12.2 In the event NCH begins to make the Product, or have a third party supplier make the Product, in accordance with Section 12.1 hereof and/or Article 12 of the Supply Agreement, CIMA shall cooperate fully with NCH and the third party supplier, if any, and shall use commercially reasonable best efforts to enable NCH and/or the third party supplier to qualify and validate the Novartis Manufacturing Facility (as defined in the Supply Agreement) or the third party supplier's facilities, as the case may be, and to manufacture and package the Product. CIMA shall give NCH and any third party supplier prompt and unrestricted access to, or, if requested, CIMA immediately shall provide to NCH and any third party supplier, all Technical Information (as defined in the Supply Agreement). Any disclosure or use of Technical Information will be subject to the confidentiality restrictions set forth in Article 7 of this License Agreement. NCH and any third party supplier shall have the right to observe the operation of any laboratory and manufacturing and/or packaging facility of CIMA (subject to CIMA's obligations of confidentiality to third parties) and to have a reasonable number of employees or other representatives of CIMA visit the Novartis Manufacturing Facility or the third party supplier's facilities, at NCH's option and in accordance with a mutually agreed time table, to demonstrate and explain any of the Technical Information and the manufacturing and packaging processes. In the event that NCH manufactures and/or packages the Product, or has a third party 18 supplier manufacture and/or package Product pursuant to Section 12.1(ii) or (iii) above, [...***...] 13. NOTICES All notices required or permitted hereunder shall be given in writing and sent by facsimile transmission, or mailed postage prepaid by first class certified or registered mail, or sent by a nationally recognized express courier service, or hand delivered at the following addresses: Novartis Consumer Health, Inc. 560 Morris Avenue Summit, New Jersey 07901 Attention: Office of the Vice President, Marketing With a copy to: General Counsel CIMA LABS, Inc. 10000 Valley View Road Eden Prairie, Minnesota 55344-9361 Attention: Vice President Business Development Any notice, if mailed properly addressed, postage prepaid, shall be deemed made three (3) days after the date of mailing as indicated on the certified or registered mail receipt, or on the next business day if sent by express courier service or on the date of delivery or transmission if hand delivered or sent by facsimile transmission. 14. FORCE MAJEURE Neither party shall be responsible or liable to the other hereunder for failure or delay in performance of this License Agreement due to any war, fire, flood, accident or other casualty, or any labor disturbance or act of God or the public enemy, or any other contingency beyond such party's reasonable control. In addition, in the event of the applicability of this Article, the party affected by such force majeure shall use reasonable efforts, consistent with good business judgment, to eliminate, cure and overcome any of such causes and resume performance of its obligations. 15. PUBLICITY CIMA and NCH agree not to issue any press release or other public statement disclosing the existence of or relating to this License Agreement without prior written consent of the other party; PROVIDED, HOWEVER, that neither CIMA nor NCH shall be prevented from complying with any duty of disclosure it may have pursuant to law subject to notifying the other party in writing and giving such other party reasonable time to comment on the same prior to disclosure. Notwithstanding the foregoing, NCH and CIMA each shall have the right to disclose information regarding this License Agreement to potential investors and its financial advisors (including 19 allowing such investors and financial advisors to review this License Agreement itself); PROVIDED THAT, the disclosing party has obtained a commercially reasonable confidentiality agreement from each such investor and financial advisor. CIMA and NCH agree that the Press Releases attached hereto as EXHIBIT E are approved for release to the public immediately upon the execution of this License Agreement. 16. ASSIGNMENT This License Agreement and all rights and obligations hereunder are personal to the parties hereto and may not be assigned without the express prior written consent of the other party. Any assignment or attempt at same in the absence of such prior written consent shall be void and without effect; PROVIDED THAT, either party may assign this License Agreement to an Affiliate or any successor by merger or sale of all or substantially all of its business units to which this License Agreement relates without such consent. This License Agreement shall 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 License Agreement. 17. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware as though made and to be fully performed in said State. 18. SEVERABILITY If any one or more of the provisions of this License Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. In the event any provision shall be held invalid, illegal or unenforceable the parties shall use commercially reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as possible, implements the purposes hereof. 19. MISCELLANEOUS 19.1 CIMA must inform NCH in writing of CIMA's intention to file a voluntary petition in bankruptcy, or of another's intention to file an involuntary petition in bankruptcy in respect to CIMA at least thirty (30) days prior to the filing of such a petition; PROVIDED, THAT, if CIMA is not aware of another's intention to file an involuntary petition in bankruptcy in respect of CIMA thirty (30) days prior to the filing of such petition, CIMA shall inform NCH in writing of such other party's intention to file as soon as reasonably possible after CIMA becomes aware of it. Upon receipt of such notice, NCH in its sole discretion shall have the option of terminating this License Agreement upon sixty (60) days written notice to CIMA, unless CIMA refrains from 20 filing its petition, withdraws its petition, prevents the other party from filing its involuntary petition or obtains dismissal of the petition, as the case may be, during this sixty (60) period. The filing of such petition without conforming to this requirement shall be deemed a material, pre-petition incurable breach of this License Agreement. 19.2 The failure of any party hereto at any time or times to require performance of any provisions hereof shall in no manner affect its rights to enforce such provision at a later time. 19.3 Nothing in this License Agreement shall prevent NCH from labeling the Products with [...***...] 19.4 For the period beginning the Effective Date and ending on or about [...***...] NCH shall have the right to limit commercial sale of the Products to a regional market within the Territory. By no later than [...***...] NCH shall notify CIMA whether it intends to (i) launch the Products on a national scale or (ii) terminate this License Agreement pursuant to either Section 8.3 or 8.4 hereof, as appropriate. If NCH elects to proceed under clause (i) of this Section 19.4, it shall so launch by no later than [...***...] unless it is prevented from doing so due to CIMA's failure to produce sufficient Product pursuant to the Supply Agreement. 21 20. INDEPENDENT CONTRACTORS The parties shall perform their obligations under this License Agreement as independent contractors and nothing contained in this License Agreement shall be construed to be inconsistent with such relationship or status. This License Agreement shall not constitute, create or in any way be interpreted as a joint venture or partnership of any kind. 21. COUNTERPARTS This License Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 22 22. ENTIRE AGREEMENT This License Agreement together with the Supply Agreement constitute the entire understanding between the parties relating to the subject matter thereof, and no amendment or modification to this License Agreement shall be valid or binding upon the parties unless made in writing and signed by the representatives of such parties. IN WITNESS WHEREOF, the parties hereto have caused this License Agreement to be executed as of the date first written above by their duly authorized officers. NOVARTIS CONSUMER HEALTH, INC. CIMA LABS., INC 560 Morris Avenue 10000 Valley Road Building F Eden Prairie, Minnesota 55344 Summit, New Jersey (612) 947-8700 (908) 598-7614 By: /s/ [...***...] By: /s/ Jack Khattar ------------------------------- ------------------------------------ [...***...] Name: Jack Khattar Vice President & CFO ----------------------------------- Title: Vice President ---------------------------------- 23 EX-10.32 3 EXHIBIT 10.32 ***TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(B)(4), 200.83 AND 240.24B-2 SUPPLY AGREEMENT BETWEEN NOVARTIS CONSUMER HEALTH, INC. AND CIMA LABS., INC. Dated: July 1, 1998 TABLE OF CONTENTS
SECTION PAGE - ------- ---- Dated: July 1, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2. Purchase and Sale; Product Specifications. . . . . . . . . . . . . . . . . . .3 3. Price; Payment; Miscellaneous Terms and Conditions of Sale . . . . . . . . . .4 4. Forecasts; Shipments; Orders . . . . . . . . . . . . . . . . . . . . . . . . .4 5. Inspection of Shipments. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 6. Trade Secrets and Confidentiality. . . . . . . . . . . . . . . . . . . . . . .7 7. Safety and Health--Responsible Care. . . . . . . . . . . . . . . . . . . . . .9 8. Quality of the Product; Certain Regulatory Matters . . . . . . . . . . . . . .9 9. Changes in CIMA's Manufacturing Processes. . . . . . . . . . . . . . . . . . 11 10. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11. Term and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12. Meeting Product Supply Demands; Back-Up Supplier; Right to Manufacture . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13. Packaging and Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14. Recalls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 17. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 18. Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 19. Waiver; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 20. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 22. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 23. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 24. Parties' Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 25. Novartis Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 26. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1 SUPPLY AGREEMENT This Supply Agreement, including all attached Annexes which are incorporated and made a part hereof, dated this First day of July, 1998 (the "Effective Date"), by and between NOVARTIS CONSUMER HEALTH, INC., a Delaware corporation, with offices at 560 MORRIS AVENUE, SUMMIT, NJ 07901-1312 ("Novartis"), and & CIMA LABS., INC., a Delaware corporation, with offices at 10000 Valley View Road, Eden Prairie, MN 55344-9361 ("CIMA"), sets forth the terms and conditions for the commercial supply of the Product (as defined in the License Agreement); WHEREAS, Novartis and CIMA have simultaneously entered into the License Agreement, that establishes all terms and conditions relating to the license exclusivity of the Product, and both parties desire to proceed to commercialization of the Product; and WHEREAS, CIMA owns or has rights to certain patents and know-how applicable to the Product; and WHEREAS, CIMA has the requisite experience and facilities to manufacture and package the Product; and WHEREAS, Novartis and its Affiliates wish to purchase commercial quantities of the Product from CIMA, and CIMA is willing to supply the Product exclusively to Novartis and its Affiliates for use in the Field and in the Territory, in each case, upon the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS The following terms shall have the meanings set forth below, or where indicated, for purposes of this Agreement. Defined terms used, but not defined, herein shall have the meaning assigned to them in the License Agreement. "ACT" means the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, as amended from time to time and all other applicable laws and regulations in any other Territory. "BACK-UP SUPPLIER" shall have the meaning given thereto in Section 12.1 hereof. "CGMP" means current good manufacturing practices as required by the Act. "CIMA INDEMNIFIED PARTIES" shall have the meaning given thereto in Section 10.2 hereof. 2 "COMMERCIAL QUANTITIES" means quantities of the Product sufficient for launch and on-going market supply in the Territory consistent with the forecasting mechanism set forth in Article 4 of this Agreement. "CONFIDENTIAL INFORMATION" shall have the meaning given thereto in Section 6.1 hereof. "FDA" means the United States Food and Drug Administration. "INITIAL TERM" shall have the meaning given thereto in Section 11.1 hereof. "LICENSE AGREEMENT" means the License Agreement, between CIMA and Novartis, entered into simultaneously herewith. "MANUFACTURING PROCESS" means the processes, means and procedures for the manufacture and production of the Product that CIMA developed for Novartis. "NOVARTIS INDEMNIFIED PARTIES" shall have the meaning given thereto in Section 10.1 hereof. "NOVARTIS MANUFACTURING FACILITY" shall mean a manufacturing and/or packaging facility of Novartis or a Novartis Affiliate. "ORDER DATE" shall have the meaning given thereto in Section 4.1(b) hereof. "QUALITY ASSURANCE AGREEMENT" shall mean the Quality Assurance Agreement, between CIMA and Novartis, dated as of June 25, 1998, and attached hereto as ANNEX A. "RELEASE DATE" shall have the meaning given thereto in Section 4.2(b) hereto. "TECHNICAL INFORMATION" means all know how, trade secrets, inventions, data, technology and other information now owned or licensed by CIMA or hereafter acquired or licensed by CIMA during the term of this Agreement, including that related to the OraSolv Technology which are necessary or useful to the manufacture, packaging, use or sale of Products including, but not limited to, (i) medical, chemical and other scientific data, (ii) processes and analytic methodology used in the validation, stability testing and other testing or analysis of such Products and (iii) packaging and manufacturing data and processes. "THIRD PARTY SUPPLIER" shall have the meaning given thereto in Section 12.3 hereof. 2. PURCHASE AND SALE; PRODUCT SPECIFICATIONS 2.1 (a) Except as otherwise specifically permitted in this Agreement, during the term of this Agreement, and subject to the provisions hereof, CIMA agrees to manufacture, package, and supply the Product exclusively to Novartis and its Affiliates in sufficient quantities to meet the total 3 requirements, consistent with the forecasting mechanism set forth in Article 4 of this Agreement, of Novartis and its Affiliates for use in the Territory, and Novartis agrees to purchase from CIMA all of its requirements for the Product. (b) Product shall be supplied as finished product suitably packed for shipment to Novartis' distribution centers. (c) Except as otherwise specifically permitted in Article 12 of this Agreement, CIMA shall manufacture, package and supply the Product exclusively for Novartis for the term of this Agreement, including all renewal periods. (d) All orders for the Product shall be made pursuant to written purchase orders delivered to CIMA in accordance with ANNEX B and Article 4 hereof. Such purchase orders shall reference this Agreement and shall be governed exclusively by the terms of this Agreement. Any term or condition in any purchase order, confirmation, invoice or other document furnished by CIMA or Novartis that is in any way inconsistent with these terms and conditions is hereby expressly rejected. (e) Novartis agrees to use reasonable good faith efforts consistent with prudent business judgment to pursue commercialization of the Product in the Territory; [...***...]. 2.2 (a) CIMA shall manufacture and package the Product supplied to Novartis in accordance with the specifications set forth on the attached ANNEX A. No change in the specifications, methods, processes and/or procedures set forth in ANNEX A may be made unless (i) Novartis agrees in writing thereto or (ii) such change is required by (1) any regulatory agency which has jurisdiction over Novartis, CIMA and/or the Product or (2) by the U.S. Pharmacopoeia; PROVIDED, THAT, CIMA shall notify Novartis in writing prior to making any such required change. Any such change must also be made in compliance with Article 9 hereof. To the extent Novartis does not agree to a change necessary to incorporate an Improvement (as defined in the License Agreement), CIMA shall not be obligated to incorporate such Improvement in the Product; PROVIDED, HOWEVER, that CIMA shall remain otherwise obligated under the terms of this Agreement. 3. PRICE; PAYMENT; MISCELLANEOUS TERMS AND CONDITIONS OF SALE Pricing for commercial quantities of the Product shall be in accordance with the financial terms set forth in the Financial Agreement, ANNEX C, attached hereto and made part hereof, as developed and agreed to by Novartis and CIMA. 4. FORECASTS; SHIPMENTS; ORDERS 4.1 (a) In order to assist CIMA in planning its production, Novartis shall provide CIMA with a twelve (12) month rolling forecast of the quantities of Product required by Novartis, by month, for the following twelve (12) months. The first three (3) months of such projections shall 4 constitute a binding commitment to order the quantity of Products forecast for such period, subject to Section 4.1 hereof. Projections for months four (4) through twelve (12) shall be made in good faith and shall constitute Novartis' best estimates of future orders, but shall not be binding on Novartis. Novartis shall provide its first twelve (12) month forecast upon the Effective Date and each subsequent update will be provided no later than five (5) business days prior to the beginning of the next monthly period. Additionally, Novartis shall provide quarterly estimates for year two (2) of the forecast horizon, which quarterly estimates shall be made in good faith and shall constitute Novartis' best estimates of future orders, but which shall not be binding on Novartis. CIMA shall, no later than fifteen (15) business days after receipt of each such forecast, notify Novartis in writing of any prospective problems of which CIMA is aware that might prevent CIMA from meeting Novartis' forecasted order quantities or estimated delivery dates. Except as provided elsewhere in this Agreement and unless CIMA has previously identified to Novartis potential problems in meeting Novartis' forecasted requirements, CIMA shall be obligated to deliver during any month, pursuant to purchase orders provided under Section 4.1(b) hereof, up to [...***...] of Novartis' estimated purchases for such month. In addition, CIMA will make a good faith attempt to deliver all Product ordered in excess of [...***...] of Novartis' estimated requirements for the relevant month. (b) Novartis shall provide CIMA with its firm purchase orders for the Product in accordance with the lead-times and batch size increments specified in ANNEX B, however Novartis shall have the right, up to the date of manufacture, to issue binding change orders to increase or decrease such purchase orders by amounts of up to [...***...] of total SKUs ordered in such purchase order. To facilitate CIMA's responsiveness to changes in Novartis' requirements, while minimizing exposure to obsolescence, CIMA is authorized to procure necessary materials based upon the forecast plus an amount equal to [...***...] of the forecast. Manufacturing and procurement lead times, and the authorized procurement horizon are delineated in ANNEX B, attached hereto and made part hereof, as may be amended from time to time by mutual agreement of both parties. Novartis agrees to accept partial shipments of Product should, for any reason, it become necessary to ship in advance of order completion. CIMA shall make all commercially reasonable efforts to comply with any revisions to purchase order requirements consistent with the provisions of Section 4.1(a) and this Section 4.1(b). CIMA, within ten (10) business days after the date that a purchase order is deemed placed with it (the "Order Date"), shall acknowledge receipt of Novartis' order and confirm in writing that the order can be supplied. For purposes hereof, the Order Date shall be the earlier of (i) the date that CIMA receives the purchase order via mail and (ii) the date of receipt of the telecopied purchase order. (c) Novartis agrees to be held liable for all obsolescence of materials resulting from changes in Product or purchase order requirements, provided CIMA has ordered in accordance with the authorized procurement horizons specified in ANNEX B and/or standard container sizes and/or minimum order quantities. CIMA will use all reasonable commercial efforts to mitigate obsolescence potential. CIMA shall submit supporting documentation on all claims of obsolescence and requests for reimbursement thereof. 5 4.2 (a) Each purchase order shall specify the quantity of Product ordered and the required delivery date; PROVIDED THAT, such purchase order shall not specify a delivery date sooner than the lead times set forth in ANNEX B would permit calculated from the Order Date; PROVIDED FURTHER THAT, CIMA shall use commercially reasonable efforts to accommodate "Rush" orders from Novartis. Transportation details will be coordinated between Novartis and CIMA. (b) When all appropriate validation and quality control release criteria for a particular shipment of Product, as set forth in the Quality Assurance Agreement, have been met (the "Release Date"), CIMA shall notify Novartis in writing of the expected delivery dates (including details of destination, date and time) to enable delivery and receipt to be coordinated. CIMA shall deliver all orders on a business day to Novartis F.O.B. CIMA, within two (2) weeks of the Release Date. Title and risk of loss to all Product shall pass to Novartis upon delivery of the Product by CIMA to the carrier. 4.3 If for any reason CIMA experiences a shortage of materials required to manufacture products in an OraSolv-Registered Trademark- formulation ("OraSolv-Registered Trademark- products") and CIMA is therefore unable to supply Novartis with the full quantity of Products ordered by it and accepted by CIMA, Novartis shall be entitled to receive that quantity of Products which bears the same proportion to the total quantity of available OraSolv-Registered Trademark- products as the quantity of Products purchased by Novartis from CIMA in the twelve (12) months preceding the supply shortage bears to all orders received by CIMA from other customers for OraSolv-Registered Trademark-products. 4.4 CIMA agrees to use commercially reasonable best efforts to maintain available manufacturing and packaging capacities dedicated to Novartis equivalent to [...***...] above Novartis' then current forecasted production requirements. 4.5 If CIMA fails to deliver the Product in the quantities requested by Novartis within ten (10) business days of the date of delivery as specified in a purchase order, then Novartis shall have the right to cancel the amount of the purchase order which is unfulfilled. Said right shall apply only to the extent that such purchase order is unfulfilled. 4.6 The Product shall be delivered to Novartis as packed finished goods. In addition, Novartis shall have the right to require any special or varied packing that it believes is reasonably necessary to meet the customs and regulatory requirements within the Territory. Incremental costs that can be shown to result directly from any packing changes required by Novartis will be borne by Novartis. 5. INSPECTION OF SHIPMENTS Novartis will have the right to inspect the Products and verify their conformity to the order. If Novartis determines that the Products do not conform to the applicable specifications or there are other delivery errors, Novartis shall notify CIMA in writing of all nonconformities that existed at the time of delivery of the Products. Such notification shall be made as soon as reasonably possible after discovery of the nonconformity, but not later than thirty (30) days after delivery of the 6 Product. Such notice shall specify the reasons for rejection. If Novartis does not reject the Product within thirty (30) days after delivery, Novartis will be deemed to have accepted the Products. After Novartis accepts a Product, or is deemed to have accepted a Product, it shall have no recourse against CIMA except as set forth in Section 8.2 hereof. After notice of rejection is received by CIMA, Novartis shall cooperate with CIMA in determining whether rejection is necessary or justified. CIMA shall notify Novartis as soon as reasonably possible, but not later than thirty (30) days after receipt of the notice from Novartis, whether it accepts Novartis' basis for rejection. If CIMA accepts Novartis' determination that the Products are nonconforming, CIMA shall replace such Products or credit Novartis' account, at Novartis' discretion, as further set forth in Section 8.2. If CIMA does not accept Novartis' determination that the Products are nonconforming, Novartis and CIMA jointly shall select an independent third party expert to test the Products and determine whether they conform to the applicable specifications. The parties agree that such third party's determination shall be final. The party against whom the third party rules shall bear the reasonable costs of the third party testing. If the third party rules that the Product conforms to the specifications, Novartis shall purchase the Products at the agreed upon price. If the third party rules that the Product is nonconforming, CIMA shall replace the Products or credit Novartis' account, at Novartis' sole discretion. 6. TRADE SECRETS AND CONFIDENTIALITY 6.1 Both CIMA and NCH agree that subject to the limitations set forth in Section 6.3, all information disclosed to the other party, whether in oral, written or graphic form, and identified in writing 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 Results, including any information or documentation relating thereto, any patent application or drawing or potential patent claim, trade secrets, information, ideas, inventions, samples, processes, procedures, methods, formulations, packaging designs and materials, test data, future development plans, Product launch date, technological know-how and engineering, manufacturing, regulatory, marketing, servicing, sales, financing or human resources matters relating to the disclosing party and its business. 6.2 Both parties will take precautions as it normally takes with its own confidential and proprietary information to prevent disclosure to third parties. 6.3 Both CIMA and Novartis agree that, notwithstanding the above, the obligations of confidentiality shall not be deemed to apply to: 6.3.1 Information which at the time of disclosure is or thereafter becomes generally known or available to the public, through no wrongful act or failure to act on the part of the receiving party. 6.3.2 Information that was known by or in the possession of the receiving party at the time of receiving such information from the disclosing party as evidenced by written records. 7 6.3.3 Information obtained by the receiving party from a third-party source who is not breaching a commitment of confidentiality to the disclosing party by revealing such information to the receiving party. 6.3.4 Information that is independently developed by the receiving party without use of confidential information of the other party as evidenced by written records. 6.3.5 Information that is the subject of a granted written permission to disclose that is issued by the disclosing party to the other party. 6.3.6 Information that is required to be disclosed pursuant to the law, but only to the extent required to be disclosed; PROVIDED, THAT, the disclosing party notifies the other party in writing and gives the other party reasonable time to comment on the same prior to disclosure. 6.4 During the term of this Agreement and for a period of five (5) years after the expiration or termination of this Agreement (seven (7) years for manufacturing process information) 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 such information for any unauthorized purpose, other than as authorized in Section 6.3 or as necessary to accomplish the purpose of this Agreement subject to an appropriate binder of confidentiality as set forth in Section 6.5. 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 is not consistent with this Agreement or 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. 6.5 Both parties will make diligent efforts to ensure that all employees, consultants, agents, subcontractors and manufacturing contractors who may have access to Confidential Information of the other party, and any other third parties who might have access to Confidential Information, will use such information in a manner consistent with the terms of this Agreement and will be bound by the terms set forth in this Article 6. No Confidential Information shall be disclosed to any employees, subcontractors, agents or consultants who do not have a need to receive such information. 6.6 To the extent either party discloses confidential information of the other party to an employee, consultant, subcontractor or manufacturing contractor (collectively "Agents") or permits an Agent to have access to such confidential information, such party shall indemnify the other party for any claims, damages, losses, liabilities, costs or expenses, including reasonable attorneys' fees, incurred by the other party as a result of the indemnifying party's Agent further disclosing or misusing such confidential information. 8 7. SAFETY AND HEALTH-RESPONSIBLE CARE 7.1 From time to time CIMA may provide Novartis with safety and health information, including, without limitation, warnings, material safety data sheets, precautionary safety measures, and instructions on proper care, use and handling, storage, and disposal of the Product. Novartis agrees to observe all precautions and instructions provided by CIMA and to communicate all such environmental, safety and health information to its employees. 7.2 Novartis shall follow safe handling, storage, transportation, use, and disposal practices with respect to the Product, including, but not limited to, those required by U.S. federal, state, and local laws, regulations, and ordinances. 7.3 CIMA shall follow safe handling, processing, storage, transportation, use and disposal practices with respect to the Product, including, but not limited to, those required by U.S. federal, state, and local laws, regulations, and ordinances. 8. QUALITY OF THE PRODUCT; CERTAIN REGULATORY MATTERS 8.1 CIMA hereby represents and warrants that: (a) the Product shall be manufactured, packaged and delivered in compliance with the provisions of the Act and FDA's CGMP and the other applicable rules and regulations promulgated under the Act relating to the manufacture and packaging of OTC pharmaceutical products; (b) no Product constituting any shipment to Novartis shall be at the time of shipment (i) adulterated or misbranded within the meaning of the Act, or the rules and regulations promulgated thereunder, as such law, rule or regulation is constituted and in effect at the time of any such shipment or (ii) an article which may not, under the provisions of Sections 404, 505 or 512 of the Act, be introduced into interstate commerce; (c) the Product shall be manufactured, packaged and delivered in compliance with the terms and conditions of the Quality Assurance Agreement; (d) it has complied with, and during the term of this Agreement will continue to comply with, the laws, rules and regulations which affect the ability of CIMA to manufacture and package the Product in commercial quantities for use and sale in the Territory; (e) its manufacturing and packaging facilities shall remain in compliance with the FDA's CGMP at all times during the term of this Agreement to the extent applicable to the manufacture and packaging of the Product; and 9 (f) it shall obtain and maintain all necessary permits, registrations and licenses required to manufacture, package and supply the Products and it shall produce the Products and dispose of all waste in compliance with all applicable environmental laws, regulations, and standards. CIMA makes no representations with respect to the waste disposal practices of its suppliers. The foregoing warranties are the only warranties made by CIMA with respect to the Product delivered hereunder, and may only be modified or amended by a written instrument signed by a duly authorized officer of CIMA and a duly authorized officer/employee of Novartis. THE EXPRESS WARRANTIES CONTAINED IN THIS ARTICLE 8 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. 8.2 Any Products delivered to Novartis by CIMA which do not conform to the specifications and are rejected within thirty (30) days after delivery as set forth in Article 5, or which are otherwise not in compliance with the warranty made in Section 8.1, shall be replaced, or Novartis' account may be credited, at Novartis' election. The remedy of replacement or credit is available only if such nonconformance was not caused by Novartis' misuse, unauthorized modifications, neglect, improper testing or improper storage, including without limitation storage at inappropriate temperatures, transportation, use beyond any dating provided, by accident, fire or other hazard. THE EXPRESS OBLIGATIONS STATED IN THIS SECTION 8.2 AND IN ARTICLES 5 and 10 ARE IN LIEU OF ALL OTHER LIABILITIES OR OBLIGATIONS OF CIMA FOR DAMAGES, INCLUDING BUT NOT LIMITED TO DIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF CIMA'S PRODUCTS. 8.3 If requested in writing by Novartis, CIMA shall supply at Novartis' reasonable expense Technical Information and methods of manufacture and packaging to Novartis to enable Novartis to fulfill its obligations under this Agreement or to the extent that such information, in Novartis' judgment, is necessary to enable it to comply with any statutory or regulatory requirements, or with a request by any governmental or regulatory authority. 8.4 (a) If requested in writing by Novartis, CIMA shall permit Novartis to inspect, once per year, during normal business hours and hours during which CIMA is manufacturing Products, CIMA's facilities and records to the extent Novartis deems reasonably necessary to enable Novartis to verify compliance by CIMA with its obligations under this Agreement in relation to the Product and to verify compliance with any statutory or regulatory requirements to which Novartis is subject and which are applicable to the manufacture and/or packaging of the Product. Notwithstanding the foregoing, Novartis shall have the right to inspect CIMA's facilities and records at any time, in the event that there is a quality or regulatory problem with Product. (b) If, as a result of any such inspection, Novartis concludes that CIMA is not in compliance with any of the foregoing obligations or requirements, it shall so notify CIMA in writing, specifying such areas of noncompliance in reasonable detail and CIMA shall use its commercially reasonable best efforts to remedy the problems identified. 10 9. CHANGES IN CIMA'S MANUFACTURING PROCESSES 9.1 Subject to Section 2.2(a)(ii) hereof and the Quality Assurance Agreement, unless Novartis agrees otherwise in writing, CIMA shall not modify any method or process in the manufacture or packaging of the Product. Any change requires Novartis' prior written consent which consent shall not be unreasonably withheld. CIMA shall comply with all requirements of the Act and CGMP with respect to such modification or change, including providing written notice to Novartis of such modification or change. 9.2 CIMA hereby covenants that, to the best of its knowledge as of the Effective Date, its process for manufacturing and packaging the Product does not infringe any process patent in effect in the Territory. CIMA shall not modify the Product or any process for manufacturing and packaging the Product in any manner that would give rise to any patent infringement liability. If Novartis determines that the change may give rise to patent infringement liability, it shall be permitted to object thereto. If Novartis does so object, CIMA either shall refrain from introducing such change or, notwithstanding any other provision of this Agreement, shall, indemnify and hold Novartis harmless with respect to the potential infringement liability pursuant to Article 11 of the License Agreement. 10. INDEMNIFICATION 10.1 CIMA agrees to and hereby does indemnify, defend and hold Novartis, Novartis' Affiliates, its officers, directors and shareholders, and its successors and assigns (collectively the "Novartis Indemnified Parties") harmless from and against all claims, liabilities, suits and proceedings, and all damages (other than consequential, incidental, special or indirect damages), losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorney's fees) which the Novartis Indemnified Parties may incur, arising out of any third party claim of property damage or personal injury or death arising from (i) CIMA's negligent or willful misconduct in its performance under this Agreement or (ii) CIMA's breach of warranty hereunder. 10.2 Novartis agrees to and hereby does indemnify, defend and hold CIMA, CIMA's Affiliates, its officers, directors and shareholders, and its successors and assigns (collectively the "CIMA Indemnified Parties") harmless from and against all claims, liabilities, suits and proceedings, and all damages (other than consequential, incidental, special or indirect damages), losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) which the CIMA Indemnified Party may incur, arising our of any third party claim of property damage or personal injury or death arising from (i) Novartis' negligent or willful misconduct in its performance under this Agreement or (ii) any representations made by Novartis or its distributors or agents with respect to the Products. 10.3 The foregoing indemnification obligations of Novartis and CIMA are subject to the following: (a) the indemnifying party must be notified by or on behalf of the indemnified party in 11 writing promptly after a claim is made, a suit is filed or an action or investigation is initiated (each, a "Proceeding") against the indemnified party; (b) the indemnifying party shall be permitted, at its own cost, to defend, control, conduct and prosecute, in the indemnifying party's sole discretion and by counsel of the indemnifying party's choosing, the defense of such Proceeding brought against the indemnified party; (c) except as may otherwise be required by law, the indemnified party shall not compromise the position of the indemnifying party by admission, statements, disclosure or conduct (collectively, "Disclosure") in a way that could prejudice the defense, control, conduct or prosecution of said cause of action (it being understood that no indemnified party shall be deemed to have violated this provision so long as such party has acted in good faith to fulfill its obligations under this provision); and (d) the indemnified party shall cooperate with the indemnifying party in the defense, conduct, prosecution or termination of the Proceeding, including the furnishing of information and the assistance from employees of the indemnified party at the indemnifying party's reasonable request and at no charge to the indemnifying party. With respect to clause (c) above, the indemnified party will provide the indemnifying party with prompt written notice in advance of any such Disclosure being made to permit the indemnifying party to seek an appropriate protective order, restriction on response or withdrawal of the request for Disclosure. If, however, any such request for relief by the indemnifying party is denied or is otherwise unavailable, the relevant indemnified party may make the disclosure without any liability to the indemnifying party. 11. TERM AND TERMINATION 11.1 This Agreement shall commence on the date hereof and shall continue in effect for a term of [...***...] from the date that this Agreement is signed ("Initial Term") and, thereafter, shall be automatically renewed for successive periods of [...***...]; PROVIDED, HOWEVER, that Novartis may terminate this Agreement, effective not earlier than the end of the Initial Term or, thereafter, at the conclusion of any [...***...] renewal term, by giving CIMA at least [...***...] prior written notice of such termination. 11.2 Novartis shall have the right to terminate this Agreement at no cost, pursuant to Section 12.1 hereof, in the event that CIMA fails to supply conforming Product in accordance with Novartis' firm orders for [...***...]. 11.3 In the event either party commits a material breach or defaults in the performance or observance of any of the material provisions of this Agreement, and such breach is not cured within sixty (60) days after the receipt of written notice thereof from the other party specifying such breach or default, the party not in breach or default shall be entitled (without prejudice to its other rights) to terminate this Agreement without additional penalty, termination fee or cost by giving notice to take effect immediately. In addition, in the event that CIMA commits a material breach of this Agreement, and fails to cure such breach within sixty (60) days of receipt of written notice from Novartis of such breach, Novartis may exercise the remedy set forth in Section 4.2.4 of the License Agreement, which shall be Novartis' sole remedy. 12 11.4 Either party may terminate this Agreement upon sixty (60) days written notice to the other party in the event of insolvency, assignment for the benefit of creditors, or bankruptcy proceedings by or against the other party unless the other party (a) refrains from filing, or withdraws, any voluntary petition in bankruptcy, (b) prevents the filing, or obtains a dismissal, of any third party involuntary petition in bankruptcy against such party or (c) in some other way resolves its insolvency situation. In the event of termination pursuant to this Section 11.4, Novartis acknowledges and agrees that CIMA shall be entitled to cancel any purchase order accepted prior to the date notice of termination is given and shall not be obligated to ship any Product ordered by Novartis pursuant to such purchase order. 11.5 The termination of this Agreement shall not release Novartis from the obligation to pay any sum that may be owed to CIMA or operate to discharge any liability that had been incurred by any party prior to any such termination, including sums incurred in connection with the manufacture of Products in process at the time of the termination. The termination of this Agreement shall be without prejudice to and shall not affect the right of either party to recover any and all damages to which it may be entitled, or to exercise any other remedies which it might otherwise have under this Agreement. 11.6 Notwithstanding any termination of this Agreement, the provisions of Articles 6, 8, 10, 12, 14, and 15 shall remain in effect. 12. MEETING PRODUCT SUPPLY DEMANDS; BACK-UP SUPPLIER; RIGHT TO MANUFACTURE 12.1 In the event CIMA is unable to supply conforming Product sufficient to meet Novartis' firm orders made consistent with Section 4.1, Novartis shall have the immediate right to manufacture and package Product with a supplier other than CIMA ("Back-Up Supplier"). Novartis shall act as Back-Up Supplier, utilizing the Novartis Manufacturing Facility, unless Novartis determines, in its sole discretion, that an interruption of Product supply could result if the Novartis Manufacturing Facility is used, in which event, Novartis shall have the right to have a third party supplier of Novartis' choice (and reasonably acceptable to CIMA) act as Back-Up Supplier. CIMA shall cooperate fully with Novartis and the Back-Up Supplier, and shall use commercially reasonable best efforts to enable Back-Up Supplier to qualify and validate the Back-Up Supplier's facilities and to manufacture and package the Product. CIMA shall give Back-Up Supplier prompt and unrestricted access to, or, if requested, CIMA immediately shall provide to Back-Up Supplier, all Technical Information. Any disclosure or use of Technical Information will be subject to the confidentiality restrictions set forth in Article 6 of this Agreement. Back-Up Supplier shall have the right to observe the operation of any laboratory and manufacturing and/or packaging facility of CIMA (subject to CIMA's obligations of confidentiality to third parties) and to have a reasonable number of employees or other representatives of CIMA visit the Back-Up Suppliers' facilities, at Novartis' option and in accordance with a mutually agreed time table, to demonstrate and explain any of the Technical Information and the manufacturing and packaging processes. In the event that Novartis has the Back-Up Supplier manufacture and/or package Product pursuant to this Section 12.1, CIMA shall reimburse Novartis for all costs and related out-of-pocket expenses incurred by 13 Novartis in validating the manufacture and packaging of the Products at the Back-Up Supplier's facilities. If CIMA fails to supply conforming Product in accordance with Novartis' firm orders made consistent with Section 4.1 hereof for [...***...], for reasons other than force majeure, Novartis shall have the right to terminate this Agreement at no cost and have the Back-Up Supplier and/or Novartis, if Novartis is not the Back-Up Supplier, manufacture and package all of Novartis' commercial requirements of the Product from that time on. 12.2 If CIMA is unable to supply conforming Product in accordance with Novartis' firm orders made pursuant to and in accordance with the terms and conditions of this Agreement, and as a direct result of CIMA's nonperformance, (i) Novartis is unable to supply Product to the Market Place, (ii) an out-of-stock condition ensues at the Novartis warehouse and (iii) Novartis receives backorders for the Product, then Novartis shall have the remedy set forth in Section 4.2.5 of the License Agreement. Failure by CIMA to supply Product ordered pursuant to a change order issued to CIMA pursuant to Article 4 hereof which increased the order for the related month above Novartis' forecast shall not be considered nonperformance by CIMA for purposes of this Section 12.2. 12.3 [...***...] Notwithstanding the foregoing, if the license granted to Novartis under the License Agreement has been converted to a fully paid-up, royalty-free, irrevocable, nonexclusive license under the CIMA Patents and Know-How pursuant to Section 8.5 of the License Agreement and, therefore, Novartis has rights to the Technical Information pursuant to that Section 8.5, Novartis shall not be required to make any payments to CIMA under this Section 12.3 [...***...]. 13. PACKAGING AND LABELING Packaging and labeling content for Products shall be determined by Novartis in its sole discretion. A representative sample or proof of all packaging materials and labels will be submitted to Novartis for approval prior to initial use. If Novartis wishes to institute changes in artwork, both parties will develop a mutually acceptable implementation schedule and such changes will be at Novartis' expense. CIMA shall purchase labeling and packaging components in accordance with Novartis artwork. CIMA shall not alter, change or in any way modify Novartis supplied artwork for any reason, without prior written consent from Novartis. 14. RECALLS Product recalls shall be handled in accordance with the Quality Assurance Agreement. 14 15. INSURANCE CIMA shall obtain and maintain an insurance policy of at least [...***...] in aggregate which covers any and all potential claims, suits, losses expenses or damages arising out of CIMA's manufacturing and packaging obligations under this Agreement. The insurance policy shall name Novartis as an additional insured. Upon Novartis' request, CIMA shall furnish Novartis with certification of insurance evidencing the foregoing, and shall provide at least thirty (30) days prior written notice to Novartis of cancellation or modification. 16. PUBLICITY CIMA and Novartis agree not to issue any press release or other public statement disclosing the existence of or relating to this Agreement without prior written consent of the other party; PROVIDED, HOWEVER, that neither CIMA nor Novartis shall be prevented from complying with any duty of disclosure it may have pursuant to law subject to notifying the other party in writing and giving such other party reasonable time to comment on the same prior to disclosure. Notwithstanding the foregoing, Novartis and CIMA each shall have the right to disclose information regarding this Agreement to potential investors and its financial advisors (including allowing such investors and financial advisors to review this Agreement itself); PROVIDED, THAT, the disclosing party has obtained a commercially reasonable confidentiality agreement from each such investor and financial advisor. CIMA and Novartis agree that the Press Releases attached to the License Agreement as EXHIBIT D are approved for release to the public immediately upon the execution of the License Agreement. 17. FORCE MAJEURE 17.1 Neither party shall be liable for any failure to deliver or receive, or delay in delivery or receipt of, any shipment when such failure or delay shall be caused (directly or indirectly) by fire; flood; accident; explosion; sabotage; civil commotions; riots; invasions; wars (present or future); acts, restraints, requisitions, regulations, or directions of any governmental authority; compliance by a party with any request of any governmental authority, or any officer, department, agency, or committee thereof; compliance by a party with any request for material represented to be for purposes of (directly or indirectly) producing articles for national defense or national defense facilities; shortage of labor, fuel, power or raw materials; inability to obtain supplies; failures of normal sources of supplies; inability to obtain or delays of transportation facilities; any act of God; or any cause (whether similar or dissimilar to the foregoing) beyond the reasonable control of a party. 17.2 Except as provided below, if a force majeure event occurs, then the affected party's performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. If, however, any such event shall delay any shipment hereunder or the receipt thereof for more than thirty (30) days beyond the scheduled delivery date, then (a) if such event is suffered by Novartis and not also by CIMA, CIMA shall have the right, at its option, to cancel such shipment without incurring any liability to Novartis with 15 respect thereto, and (b) if such event is suffered by CIMA and not also by Novartis, Novartis shall have the right to cancel its order and to purchase from a third party the amount of Product ordered without incurring any liability to CIMA with respect thereto until such time as CIMA is able to perform its obligations hereunder. If any such disability exists for more than ninety (90) days, the party not under such disability may terminate this contract without liability to the other party or parties by giving such other party or parties thirty (30) days' prior written notice of termination, and this Agreement shall terminate on such thirtieth (30th) day unless prior thereto the force majeure event ceases to exist and performance under this Agreement resumes and the party or parties giving the notice of termination is/are so notified in writing. 18. ASSIGNABILITY Neither party hereto shall assign or otherwise transfer any of its rights or obligations under this Agreement, in whole or in part, without the prior written consent of the other party, except that either party may, without the necessity for such consent, assign this Agreement or any interest herein or any right hereunder, to any of its Affiliates or successors by merger or sale of all or substantially all of its business unit to which this Agreement relates. This Agreement shall be binding upon any permitted Assignee or successor of either party. Any assignment that is not in accordance with this Article 18 will be void. 19. WAIVER; SEVERABILITY 19.1 Each party acknowledges and agrees that any party's failure to enforce at any time any of the provisions of this Agreement shall not be deemed to be a waiver of such provisions or of the right of such other party or parties thereafter to enforce each and every such provision. 19.2 The rights and remedies set forth herein shall be the exclusive rights and remedies of the parties, except that nothing herein shall limit the right of CIMA to be paid for Product delivered to, and deemed accepted by, Novartis. 19.3 If and to the extent that any provision of this Agreement is determined by any legislature, court or administrative agency to be in whole or in part invalid or unenforceable, such provision or part thereof shall be deemed to be surplusage and, to the extent not so determined to be invalid or unenforceable, each provision hereof shall remain in full force and effect unless the purposes of this Agreement cannot be achieved. In the event any provisions shall be held invalid, illegal or unenforceable the parties shall use commercially reasonable efforts to substitute a valid, legal and enforceable provision which insofar as practical implements the purposes hereof. 20. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware as though made and to be fully performed in said State. 16 21. NOTICES All notices required or permitted hereunder shall be given in writing and sent by facsimile transmission, or mailed postage prepaid by first class certified or registered mail, or hand delivered to the following addresses: Novartis: Novartis Consumer Health, Inc. P.O. Box 83288 Lincoln, Nebraska 68501 Attention: [...***...] Fax No. 402/467-8606 Copy to: Novartis Consumer Health, Inc. General Counsel 560 Morris Avenue Summit, NJ 07901 CIMA: CIMA LABS., Inc. 10000 Valley View Road Eden Prairie, MN 55344-9361 Attention: Mr. Jack Khattar Fax No. (612) 947-8770 Copy to: Cooley Godward, LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attention: Barbara Kosacz, Esq. or to such other addresses as the parties may hereafter advise each other in writing. Any notice, if sent properly addressed, postage prepaid, shall be deemed made seven (7) days after the date of mailing as indicated on the certified or registered mail receipt, or on the next business day if sent by express courier service or if hand delivered or sent by facsimile transmission. 22. HEADINGS The headings of each section in this Agreement are intended for guidance only and shall not be considered part of this written understanding between the parties hereto. 17 23. ENTIRE AGREEMENT This Agreement, including all Annexes attached hereto together with the License Agreement, represent and incorporate the entire understanding among the parties hereto with respect to the subject matter of this Agreement, and each party acknowledges that there are no warranties, representations, covenants or understandings of any kind, nature or description whatsoever made by any party to the other or others, except such as are expressly herein above set forth. 23.2 Except with respect to the Annexes attached hereto, which may be amended as provided elsewhere in this Agreement, this Agreement shall not be subject to change or modification unless specifically agreed to in writing by both parties. 23.3 The parties recognize that, during the term of this Agreement, a purchase order, acknowledgment form or similar routine document (collectively "Forms") may be used to implement or administer provisions of this Agreement. Therefore, the parties agree that the terms of this Agreement prevail in the event of any conflict between this Agreement and the printed provisions of such Forms, or typed provisions of Forms that add to, vary, modify or are at conflict with the provisions of this Agreement. 24. PARTIES' RELATIONSHIP Nothing in this Agreement shall create among the parties a partnership, joint venture or principal-agent relationship and, for the avoidance of doubt, both parties now confirm they are independent contractors trading for and on their own behalf. 25. NOVARTIS AFFILIATES This Agreement is understood and accepted by CIMA as a general Novartis Agreement that facilitates application to all Novartis Affiliates in the world. Due to Affiliate-specific requirements relating to product supply, it is further recognized and agreed that each Novartis Affiliate will finalize their specific supply details, including Annexes if the Affiliate so elects, separately with CIMA; PROVIDED, HOWEVER, that CIMA agrees [...***...]. 18 26. COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NOVARTIS CONSUMER HEALTH, INC. CIMA LABS., INC. By: /s/ [...***...] By: /s/ Jack Khattar -------------------------------- ------------------------------------- [...***...] Name: Jack Khattar Vice President Product Supply, ----------------------------------- North America Title: Vice President ---------------------------------- Date: Date: ----------------------------- ----------------------------------- 19 EX-27 4 EXHIBIT 27
5 3-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,188,295 0 1,062,525 64,300 638,698 5,082,040 14,682,301 4,496,149 15,070,848 1,804,070 0 0 0 96,104 57,274,274 15,070,848 877,387 4,782,981 1,804,379 5,872,958 0 0 0 (2,772,790) 0 0 0 0 0 (2,772,790) (.29) (.29)
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