-----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, KhpaT7Hg0ci+ZtS6/ukWCfRoAJmj1zj+bcO1OLOAiMDG0QqdiyMouDKotCC5v+nc JbVwzW5DjAZtznS3YHUuWA== 0001047469-99-032200.txt : 19990817 0001047469-99-032200.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032200 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99690567 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 June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-24424 CIMA LABS INC. (Exact name of registrant as specified in its charter) Delaware 41-1569769 - ------------------------------------------------------------------------------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10000 Valley View Road, Eden Prairie, Minnesota 55344-9361 (Address of principal executive offices, including zip code) (612) 947-8700 (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value 9,616,154 Shares -------------------------------- ---------------------------------- (Class) (Outstanding at July 30, 1999) 1 CIMA LABS INC. TABLE OF CONTENTS
PAGE NUMBER ----------- COVER PAGE 1 TABLE OF CONTENTS 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Balance Sheets as of June 30, 1999 and December 31, 1998 3 Condensed Statements of Operations for the three- month and six-month periods ended June 30, 1999 and 1998 4 Condensed Statements of Cash Flows for the six-month periods ended June 30, 1999 and 1998 5 Notes to Condensed Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 13 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIMA LABS INC. CONDENSED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 1999 1998(1) ------------ ------------ (Note) ASSETS Cash and cash equivalents $ 718,665 $ 2,722,590 Accounts receivable 2,321,200 1,654,796 Inventories, net 1,664,979 479,045 Prepaid expenses 118,199 79,866 ------------ ------------ Total current assets 4,823,043 4,936,297 Property, plant and equipment: Construction in progress 494,299 72,204 Equipment 9,314,867 9,314,867 Leasehold improvements 4,757,169 4,757,169 Furniture and fixtures 604,204 604,204 ------------ ------------ 15,170,539 14,748,444 Less accumulated depreciation (6,160,622) (5,318,107) ------------ ------------ 9,009,917 9,430,337 Other assets: Lease deposits 311,804 345,146 Patents and trademarks, net 182,143 204,648 ------------ ------------ Total other assets 493,947 549,794 ------------ ------------ Total assets $ 14,326,907 $ 14,916,428 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,331,272 $ 670,597 Accrued expenses 791,304 835,043 Advance royalties 468,334 459,105 Current portion of lease obligation 68,164 64,998 ------------ ------------ Total current liabilities 2,659,074 2,029,743 Lease obligations 196,252 231,145 ------------ ------------ Total liabilities: 2,855,326 2,260,888 Stockholders' equity Convertible Preferred Stock, $0.01 par value: Authorized shares--5,000,000; issued and outstanding shares--none Common Stock, $0.01 par value: Authorized shares--20,000,000; issued and outstanding shares: 9,610,394 June 30, 1999 and December 31, 1998 96,104 96,104 Additional paid-in capital 57,274,274 57,274,274 Accumulated losses (45,898,797) (44,714,838) ------------ ------------ Total stockholders' equity 11,471,581 12,655,540 ------------ ------------ Total liabilities and stockholders' equity $ 14,326,907 $ 14,916,428 ============ ============ - --------------------------
1 The balance sheet at December 31, 1998 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 Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 ------------------------------ ------------------------------ REVENUES: Net sales $ 1,398,862 $ - $ 1,433,862 $ 157,692 R&D fees and licensing revenue 1,738,153 1,336,125 3,382,605 2,317,925 ------------------------------ ------------------------------ 3,137,015 1,336,125 4,816,467 2,475,617 COSTS AND EXPENSES: Cost of goods sold 1,866,108 296,900 2,299,679 637,522 Research and product development 872,762 869,276 2,270,032 2,347,776 Selling, general and administrative 790,171 940,094 1,475,142 1,700,942 ------------------------------ ------------------------------ 3,529,041 2,106,270 6,044,853 4,686,240 OTHER INCOME (EXPENSE): Interest income, net 13,329 34,339 42,869 92,298 Other income (expense), net 10,139 (609) 1,558 882 ------------------------------ ------------------------------ 23,468 33,730 44,427 93,180 NET LOSS: $ (368,558) $ (736,415) $(1,183,959) $(2,117,443) ==================================================================== Net loss per share: Basic and diluted $ (0.04) $ (0.08) $ (0.12) $ (0.22) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted 9,610,394 9,610,394 9,610,394 9,609,808
See notes to financial statements 4 CIMA LABS INC. Condensed Statements of Cash Flows (Unaudited)
Six Months Ended June 30, ----------------------------------- 1999 1998 ----------------------------------- OPERATING ACTIVITIES Net loss $(1,183,959) $(2,117,443) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 897,299 807,438 Gain on sale of property, plant and equipment - 2,982 Changes in operating assets and liabilities: Accounts receivable (666,403) 545,662 Inventories (1,185,933) (545,222) Other current assets (38,333) 22,916 Accounts payable 660,674 209,824 Accrued expenses (43,741) (35,958) Advance royalties 9,229 (105,000) ----------------------------------- NET CASH USED IN OPERATING ACTIVITIES (1,551,167) (1,214,801) ----------------------------------- INVESTING ACTIVITIES Purchases of property, plant and equipment (420,478) (349,878) Proceeds from sale of property, plant & equipment - 27,000 Proceeds of maturities of short-term investments - 3,277,297 Patents and trademarks (32,280) (56,255) ----------------------------------- Net cash used in investing activities (452,758) 2,898,164 ----------------------------------- FINANCING ACTIVITIES Proceeds from issuance of common stock - 5,700 ----------------------------------- Net Cash Used In Financing Activities - 5,700 ----------------------------------- Increase (decrease) in cash and cash equivalents (2,003,925) 1,689,063 Cash and cash equivalents at beginning of period 2,722,590 1,145,760 ----------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 718,665 $ 2,834,823 =================================== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of equipment pursuant to equipment loan and capital lease obligation 257,490
See notes to financial statements. 5 CIMA LABS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. 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, 1998. NOTE B - INVENTORIES Inventories are stated at the lower of cost (first in, first out) or fair market value.
June 30, December 31, 1999 1998 --------------- ------------- Raw materials $1,190,966 $479,045 Work in process 60,342 -- Finished products 413,671 -- --------------- ------------- $1,664,979 $479,045 =============== =============
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 ANTICIPATED LAUNCHES OF CIMA'S PRODUCTS BY ITS PARTNERS, THE ABILITY TO ACHIEVE THE DESIRED LEVELS OF PRODUCTION REQUESTED BY CIMA'S PARTNERS, THE MARKET ACCEPTANCE OF THE COMPANY'S ORASOLV-Registered Trademark- TECHNOLOGY, AND THE SUCCESSFUL PERFORMANCE UNDER THE COLLABORATIVE ARRANGEMENTS WITH THE COMPANY'S PARTNERS. CIMA'S RESULTS OF OPERATIONS AND FINANCIAL POSITION COULD ALSO BE AFFECTED BY SEVERAL FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDING, BUT NOT LIMITED TO, CIMA'S RELIANCE ON COLLABORATIVE PARTNERS, THE GROWTH OF THE ANTIMIGRAINE MARKET, THE SUCCESS OF THE COMPANY IN SCALE-UP AND COMMERCIALIZING ITS CURRENT DEVELOPMENT PROGRAMS, THE COMPANY'S ABILITY TO RAISE ADDITIONAL CAPITAL TO FUND ITS OPERATION, AND FUTURE CAPITAL REQUIREMENTS. THESE AND OTHER FACTORS ARE MORE FULLY DISCUSSED IN "BUSINESS RISKS" BELOW. GENERAL CIMA LABS INC. ("CIMA" or the "Company") was founded in 1986, and focused initially on contract manufacturing liquid effervescent products. In September 1992, patent claims were allowed on the Company's OraSolv-Registered Trademark- technology. Following the issuance of the OraSolv patent, CIMA changed its focus and emerged as a drug delivery company offering technologies in the fast-dissolve and transmucosal area. OraSolv and DuraSolv-TM-, the Company's premier fast-dissolve technologies, are oral dosage formulations incorporating microencapsulated active drug ingredients into tablets which dissolve quickly in the mouth without chewing or water which effectively mask the taste of the medication being delivered. OraSolv's and DuraSolv's fast-dissolving capability may enable patients in certain age groups or those with a variety of conditions that limit their ability to swallow conventional tablets to receive medication in a more convenient dosage form. In addition, OraSolv and DuraSolv can provide more accurate administration of doses than liquid or suspension formulations as no measuring is required. Additional drug delivery technologies in the transmucosal area are also under development by the Company. In early-1997 the Company recorded its first commercial sales using the Company's OraSolv technology. In 1998, another over-the-counter product for a second partner was launched using the OraSolv technology. In the second quarter this year, AstraZeneca received regulatory approval from the Swedish regulatory authority for the OraSolv fast-dissolving version of its Zomig-Registered Trademark- antimigraine medication. Sweden is also the rapporteur country for European Union approval. Based on this approval, the Company anticipates that the first prescription pharmaceutical product using the OraSolv technology will be launched by AstraZeneca, later in 1999. Prior to emerging as a drug delivery company, the Company's revenues had been from sales using the Company's AutoLution (a liquid effervescent) technology, license fees paid by corporate partners in consideration of the transfer of rights under collaborative agreements, and product development fees paid by corporate partners to fund the Company's research efforts for products developed under such agreements. Approximately 38% of the Company's lifetime revenues through June 30, 1999 have been generated from development work and sales of AutoLution products. It is expected that this figure will be less than 33% by the end of calendar year 1999, as the Company does not anticipate that it will manufacture liquid effervescent products, and has not recognized any revenue from such products since 1995. Since 1995, approximately $18,527,000 of revenue has been generated primarily from three major sources: product development fees (approximately 45% of the total) for work primarily related to OraSolv and DuraSolv products, and to a lesser extent sales (approximately 28%) related to OraSolv products and licenses and milestone fees (approximately 25%) related to OraSolv and DuraSolv products. In addition to revenue 7 from the above sources, 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 June 30, 1999 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 and DuraSolv products, and products based on such new technologies to be marketed by these corporate partners. The Company is highly dependent upon the efforts of the corporate partners to successfully market OraSolv and DuraSolv products. Although the Company believes these partners have and will have an economic motivation to market these products vigorously, the amount and timing of resources to be devoted to marketing are not within the control of the Company. These partners independently could make material marketing and other commercialization decisions which could adversely affect the Company's future revenues. Moreover, certain of the Company's products are seasonal in nature and the Company's revenues could vary materially from quarter to quarter depending on which of such products, if any, are then being marketed. The Company expects that losses will continue through at least 1999. These losses will continue to decrease for the balance of the year. It is anticipated that sales will continue to increase as it is expected that two of the Company's partners will be launching their products in the OraSolv dosage form. AstraZeneca is expected to launch a fast-dissolving version of Zomig in European countries, and Novartis will launch Triaminic-Registered Trademark- Softchews-Registered Trademark- utilizing the OraSolv dosage form. It is also expected that other revenues for the second half of 1999 will meet or exceed the figures generated in the first half of the year. As the Company has geared up production for the previously mentioned upcoming launches for its partners the Company has hired additional personnel to meet their initial orders. Manufacturing infrastructure fixed costs should not need to increase materially as there is production capacity to meet short-term production needs. Research and development expenses are expected to show a minimal increase as the Company continues investigating new coating and drug delivery technologies, including the possibilities of utilizing sublingual systems, and to support our partners' development projects. At June 30, 1999, the Company had accumulated net losses of approximately $45,900,000. 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 that its risks relating to Year 2000 issues in its systems to be very low, as its IT systems are relatively small and predominately new and its software consists entirely of "off the shelf" packages for which Year 2000 compliant up-grades are available and have already been implemented. There is however additional testing that is currently underway to ensure that there are no Year 2000 issues with the embedded systems in the Company's production equipment. The initial testing has indicated that there are not any issues that can not be resolved with a minimum amount of expenditure. This testing is anticipated to be completed by the end of the third quarter 1999. If there were unanticipated issues that were to arise relating to Year 2000, it could have a negative effect to the Company's ability to achieve the desired level of production requested by its partners. The Company has designated an individual to oversee Year 2000 compliance. It was their responsibility, by the end of the first half of 1999, to ensure that all software packages have been converted or replaced, if necessary, to be free of Year 2000 problems. This task has been completed, except for, as 8 noted above, the embedded systems in production operations. The Company has spent, to date, approximately $22,000 on software upgrades and expects the total upgrades to be less than $50,000. The Company is substantially complete in replacing or reallocating hardware that may present Year 2000 concerns, and estimates the total cost of any such replacement to be less than $20,000. A review performed by an outside consultant has indicated that the risks related to the Company's internal systems is immaterial as far as Year 2000 compliance is concerned. The Company is still in the process of determining if its major suppliers and corporate partners have appropriate plans to remediate Year 2000 issues. To date, none of the parties have indicated significant concerns about their ability to do so. However, a substantial negative impact of Year 2000 on one of the Company's few large major suppliers or corporate partners that would affect their ability to do business could have a material adverse effect on the operations and financial condition of the Company. RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 The Company's results of operations for the three- and six-month periods ended June 30, 1999 reflect the continued emphasis of developing OraSolv products for our corporate partners and progressing them into commercial projects. Total revenues increased to $3,137,000 and $4,816,000 in the three- and six-month periods ended June 30, 1999, respectively, from $1,336,000 and $2,476,000 in the three- and six-month periods ended June 30, 1998. Sales were $1,399,000 for the three-month period ended June 30, 1999, as compared to zero for the same period in 1998. The majority of these sales represent the sales to Novartis Consumer Health, Inc. for their anticipated national launch of Triaminic-Registered Trademark- Softchews-Registered Trademark- in the OraSolv dosage form. Sales were $1,434,000 for the six-month period ended June 30, 1999, as compared to $158,000, for the same period in 1998. Other revenues, which consist primarily of product development fees and licensing and milestone revenues, increased to $1,738,000 and $3,383,000 in the three- and six-month periods ended June 30, 1999, respectively, from $1,336,000 and $2,318,000 in the three- and six-month periods ended June 30, 1998. In 1999, the majority of these revenues were generated by two prescription product collaborations, one each with AstraZeneca and Organon, and the Novartis over-the-counter cough, cold product, Triaminic Softchews. Revenues have increased in 1999, as the projects continue to progress, and the financial results include milestone payments received related to this progress. These revenues reflect the signing of license option and development agreements with multinational pharmaceutical companies that provide for licensing fees, milestone payments, royalties and manufacturing fees. So long as the Company has relatively few agreements with corporate partners, license revenues and product development fees will tend to fluctuate on a quarter-to-quarter basis. Cost of goods sold increased to $1,866,000 and $2,300,000 in the three- and six-month periods ended June 30, 1999, respectively, from $297,000 and $638,000 in the three- and six-month periods ended June 30, 1998. The increase in 1999 costs is primarily attributable to increased production. The manufacturing facility is not running at full capacity, therefore resulting in cost of sales exceeding sales due to the under-absorbed overhead. Research and development expenses were $873,000 for the three-months ended June 30, 1999, as compared to $869,000 for the same period in 1998. For the six-month period ended June 30, 1999, research and development expenses were $2,270,000 compared to $2,348,000 for the same period ended June 30, 1998. Research and development expenses have remained fairly constant over these periods as efforts continue on the development programs for our partners, and internal efforts to develop new technologies. Selling, general and administrative expenses decreased to $790,000 and $1,475,000 in the three- and six- 9 month periods ended June 30, 1999, respectively, from $940,000 and $1,701,000 for the same periods in 1998, respectively. This decrease was primarily due to the reduction in legal expenses and outside consulting fees. Other income decreased to $23,000, and $44,000 in the three- and six-month periods ended June 30, 1999, respectively, from $34,000 and $93,000 for the same periods in 1998, respectively. Other income is comprised mainly of interest income which has decreased as it is dependent on the cash position of the Company. 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 supply agreements. Through June 30, 1999, the Company had received net offering proceeds from such private and public sales of approximately $57,300,000 and had net sales from manufacturing and supply agreements of approximately $18,910,000, and other revenues that include licensing revenue, product development and milestone fees of $16,924,000. Among other things, these funds were used to purchase approximately $16,500,000 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 and cash equivalents were approximately $719,000 at June 30, 1999, a decrease of $2,004,000 from $2,723,000 at the period ended December 31, 1998. The majority of the decrease can be attributable to the increase in the trade receivables of $461,000, and the $1,186,000 increase in inventory for the forthcoming production for our corporate partners, as well as research and development efforts. The Company's expects that its cash position will improve during the remainder of the year. It already has built satisfactory inventory levels to support the two anticipated product launches, later this year, by its corporate partners Novartis Consumer Health and AstraZeneca. The Company expects its cash flow from these sales, and continued product development and milestone fees, and licensing revenues to exceed expenditures for the remainder of the year, and into year 2000. To ensure that the Company would have enough cash during this phase, in July 1999, the Company secured a $2,000,000 line of credit to be available to provide financing, if necessary. 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, and the potential need to expand production capacity. As previously noted, the Company believes that its currently available funds together with revenues from operations, and a bank line of credit should be sufficient to meet its anticipated needs through 1999. Thereafter, if conditions make it necessary, the Company may need to raise additional funds for capital expansion needs through public or private financings, including equity financing which may be dilutive to shareholders and/or through research and development relationships with suitable potential corporate partners. There can be no assurance that the Company will be able to raise additional funds if its capital resources are exhausted, or that funds will be available on terms attractive to the Company. The Company has not generated taxable income through June 30, 1999. At December 31, 1998, the net operating losses available to offset taxable income were approximately $45,700,000. 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. 10 BUSINESS RISKS The Company began commercial production of its first product in the Company's OraSolv dosage form in 1997 and must be evaluated in light of the uncertainties and complications present for any company that has just recently begun to derive product revenues and, in particular, a company in the pharmaceutical industry. The Company has accumulated net losses of $45,900,000 from inception through June 30, 1999. Losses have resulted principally from costs incurred in research and development of the Company's technologies, supporting the manufacturing facility, and from general and administrative costs. These costs have exceeded the Company's revenues. The Company expects to continue to incur additional losses at least through the remainder of 1999. There can be no assurance that the Company will ever generate substantial revenue or achieve profitability. The Company believes that its currently available funds, together with the line of credit, product development and milestone fees, license and sales revenue anticipated to be received in the future, should be sufficient to meet its needs through 1999. After 1999, the Company may need to raise additional funds to expand production capacity to meet corporate partners anticipated needs. The Company is considering numerous types of financing. These include public or private financing, including equity financing which may be dilutive to shareholders, debt or equity financing with a potential or present corporate partners and/or expanding the current line of credit. There can be no assurance that the Company will be able to raise additional funds if its capital resources are exhausted, or that funds will be available on terms attractive to the Company. The Company is dependent upon its ability to enter into and perform under collaborative arrangements with pharmaceutical companies for the development and commercialization of its products and technologies. 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 Company's technologies as an alternative to conventional oral dosage forms. The Company expects that products using its technologies will be priced slightly higher than conventional swallow or chewable tablets. Although the Company believes that its consumer research, and the launch of some fast-dissolve products has been encouraging, there can be no assurance that market acceptance for the Company's OraSolv products and/or its new drug delivery technologies will ever develop or be sustained. The Company began manufacturing OraSolv products in commercial quantities in February 1997. Commercial sales have been made and revenue has been recognized from sales of OraSolv products. The Company expects that two of its partners will launch their products in the OraSolv dosage form later in 1999. The Company has sufficient capacity to meet these demands. However, to achieve future desired levels of production, the Company may 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 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 Company intends to increase its research and development expenditures to enhance its current technologies, and to pursue internal proprietary drug delivery technologies. Even if these technologies appear promising during various stages of development, they may not reach the commercialization stage for a number of reasons. Such reasons include the possibilities of not finding a partner to market the technology in their product, of being difficult to manufacture on a large scale or of being uneconomical to market. The fast-dissolve drug delivery field is fairly new and rapidly evolving. Within the past fifteen months the Company's two major competitors (Fuisz Technologies Ltd., and RP Scherer Corporation) have been acquired by two larger companies. It is unclear how these acquisitions will impact the Company, but the competitors most likely have additional resources to develop their technologies. It can be expected that the fast-dissolve drug delivery field will 11 continue to undergo improvements and changes, and the Company may be at a competitive disadvantage to react to these changes as many of its competitors, or any new competitors will have greater financial resources. There can be no assurance that these competitors will not succeed in developing technologies and products that are more effective than any which are developed by the Company or which could render the Company's technologies 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 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's operations are not currently subject to market risks for interest rates, foreign currency exchange rates, commodity prices or other market price risks of a material nature. 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, 1998. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On June 2, 1999, the Company held its annual meeting of stockholders, at which meeting the stockholders took the following actions: (i) elected John M. Siebert, Ph.D., Terrence W. Glarner, Steven B. Ratoff and Joseph R. Robinson, Ph.D., to serve as directors of the Company for the ensuing year and until their successors are elected; (ii) approved the amendment and restatement of the Company's Equity Incentive Plan to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 250,000 shares to 2,650,000; and (iii) ratified the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 1999. Such actions were taken by the following votes:
VOTES VOTES FOR WITHHELD --------- -------- Election of Directors: John M. Siebert, Ph.D. 9,049,187 18,975 Terrence W. Glarner 9,049,187 18,975 Steven B. Ratoff 9,049,187 18,975 Joseph R. Robinson, Ph.D. 9,049,187 18,975
VOTES FOR VOTES AGAINST ABSTENTIONS --------- ------------- ----------- Amendment of Stock Plan 5,319,723 3,739,439 9,000 Ratification of Auditors 9,056,887 5,500 5,775
13 ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS
Item Description ---- ----------- 3.2 Third Restated Bylaws of the Company. 10.6 Equity Incentive Plan, as amended and restated. 10.17 License Agreement dated May 28, 1999, between IPR Pharmaceticals, Inc. and the Company. 27 Financial Data Schedule.
14 CIMA LABS INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. CIMA LABS INC. Date: August 16, 1999 By: /s/ John M. Siebert ------------------- --------------------------- John M. Siebert President and Chief Executive Officer Date: August 16, 1999 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 - -------------- ----------- 3.2 Third Restated Bylaws of the Company. 10.6 Equity Incentive Plan, as amended and restated. 10.17 License Agreement dated May 28, 1999, between IPR Pharmaceuticals, Inc. and the Company. 27 Financial Data Schedule.
16 EX-3.2 2 EXHIBIT 3.2 THIRD RESTATED BYLAWS OF CIMA LABS INC. ARTICLE I. OFFICES. Section 1. OFFICES. The corporation shall have a registered office, a principal office and such other offices as the Board of Directors (the "Board") may determine. The Board is granted full power and authority to change any of said offices at any time. ARTICLE II. STOCKHOLDERS. Section I. PLACE OF MEETINGS. Meetings of stockholders shall be held either at the principal office of the corporation or at any other place within or without the State of Delaware which may be designated by the Board. Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be held on such date and at such time as may be fixed by the Board. At such meetings, directors shall be elected and any other proper business may be transacted. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the Board, the Chairman of the Board, the Chief Executive Officer or the President. Upon request in writing to the Chairman of the Board, the Chief Executive Officer, the President, any Vice President or the Secretary by any person (other than the Board) entitled to call a special meeting of stockholders, the officer forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the persons entitled to call the meeting may give the notice. Section 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Written notice of each annual or special meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Notice of a stockholders' meeting shall be given either personally or by mail or by other means of written communication, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States' mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Section 5. NOTICE OF BUSINESS. At any regular or special meeting of stockholders of the corporation, only such business (other than the nomination and election of directors, which shall be subject to 17 Article II Section 6 of these Bylaws) may be conducted as shall be appropriate for consideration at the meeting of stockholders and as shall have been brought before the meeting (i) by or at the direction of the Board, or (ii) by any stockholder of the corporation entitled to vote at the meeting who complies with the notice procedures set forth in this Section 5. (a) TIMING OF NOTICE. For such business to be properly brought before any regular or special meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice of any such business to be conducted at an annual meeting must be delivered to the Secretary of the corporation, or mailed and received at the principal executive office of the corporation, not less than 90 days before the first anniversary of the date of the preceding year's annual meeting of stockholders. If, however, the date of the annual meeting of stockholders is more than 30 days before or after such anniversary date, notice by a stockholder shall be timely only if so delivered or so mailed and received not less than 90 days before such annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting. If a special meeting of stockholders of the corporation is called in accordance with Article II Section 3 of these Bylaws for any purpose other than electing directors to the Board or if a regular meeting other than an annual meeting is held, for a stockholder's notice of any such business to be timely it must be delivered to the Secretary of the corporation, or mailed and received at the principal executive office of the corporation, not less than 90 days before such special meeting or such regular meeting or, if later, within 10 days after the first public announcement of the date of such special meeting or such regular meeting. Except to the extent otherwise required by law, the adjournment of a regular or special meeting of stockholders shall not commence a new time period for the giving of a stockholder's notice as required above. (b) CONTENT OF NOTICE. A stockholder's notice to the corporation shall set forth as to each matter the stockholder proposes to bring before the regular or special meeting (w) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (x) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (y) the class or series (if any) and number of shares of the corporation that arc beneficially owned by the stockholder, and (z) any material interest of the stockholder in such business. (c) CONSEQUENCES OF FAILURE TO GIVE TIMELY NOTICE. Notwithstanding anything in these Bylaws to the contrary, no business (other than the nomination and election of directors) shall be conducted at any regular or special meeting except in accordance with the procedures set forth in this Section 5 and, as an additional limitation, the business transacted at any special meeting shall be limited to the purposes stated in the notice of the special meeting pursuant to Article II Sections 3 and 4 of these Bylaws. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 5 and, if the Chairman should so determine, the Chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Nothing in this Section 5 shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting in accordance with these Bylaws. (d) PUBLIC ANNOUNCEMENT. For purposes of this Article II Sections 5 and 6 of these Bylaws, "public announcement" means disclosure (i) when made in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service, (ii) when filed in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or (iii) when mailed as the notice of the meeting pursuant to Article II Sections 3 and 4 of these Bylaws. 18 Section 6. NOTICE OF NOMINATIONS OF DIRECTIONS. Only persons who are nominated in accordance with the procedures set forth in this Section 6 shall be eligible for election as directors at stockholder meetings. Nominations of persons for election to the Board may be made at a meeting of stockholders (i) by or at the direction of the Board or (ii) by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6. (a) TIMING OF NOTICE. Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice of nominations to be made at an annual meeting of stockholders must be delivered to the Secretary of the corporation, or mailed and received at the principal executive office of the corporation, not less than 90 days before the first anniversary of the date of the preceding year's annual meeting of stockholders. If, however, the date of the annual meeting of stockholders is more than 30 days before or after such anniversary date, notice by a stockholder shall be timely only if so delivered or so mailed and received not less than 90 days before such annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting. If a special meeting of stockholders of the corporation is called in accordance with Article II Section 3 of these Bylaws for the purpose of electing one or more directors to the Board of Directors or if a regular meeting other than an annual meeting is held, for a stockholder's notice of nominations to be timely it must be delivered to the Secretary of the corporation, or mailed and received at the principal executive office of the corporation, not less than 90 days before such special meeting or such regular meeting or, if later, within 10 days after the first public announcement of the date of such special meeting or such regular meeting. Except to the extent otherwise required by law, the adjournment of a regular or special meeting of stockholders shall not commence a new time period for the giving of a stockholder's notice as described above. (b) CONTENT OF NOTICE. A stockholder's notice of nomination for a regular or special meeting of stockholders shall set forth (x) as to each person whom the stockholder proposes to nominate for election or re-election as a director: (i) such person's name, (ii) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including Rule 14a-11 thereof, or any successor thereto, and (iii) such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (y) as to the stockholder giving the notice: (i) the name and address, as they appear on the corporation's books, of such stockholder, (ii) the class or series (if any) and number of shares of the corporation that are beneficially owned by such stockholder and (iii) a representation that the stockholder is a holder of record of shares of the corporation entitled to vote for the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. At the request of the Board, any person nominated by the Board for election as a director shall furnish to the Secretary of the corporation the information required to be set forth in a stockholder's notice of nomination that pertains to a nominee. (c) CONSEQUENCES OF FAILURE TO GIVE TIMELY NOTICE. Notwithstanding anything in these Bylaws to the contrary, no person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 6. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed in this Section 6 and, if the Chairman should so determine, the Chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Section 7. QUORUM AND ADJOURNMENT. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a 19 quorum for holding all meetings of stockholders, except as otherwise provided by applicable law or by the Certificate of Incorporation; PROVIDED, HOWEVER, that the stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. If it shall appear that such quorum is not present or represented at any meeting of stockholders, the Chairman of the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The Chairman of the meeting may determine that a quorum is present based upon any reasonable evidence of the presence in person or by proxy of stockholders holding a majority of the outstanding votes, including without limitation, evidence from any record of stockholders who have signed a register indicating their presence at the meeting. Section 8. VOTNG. In all matters, when a quorum is present at any meeting, the vote of the holders of a majority of the capital stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of applicable law or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Such vote may be viva voce or by written ballot; PROVIDED, HOWEVER, that the Board may, in its discretion, require a written ballot for any vote, and further provided that all elections for directors must be by written ballot upon demand made by a stockholder at any election and before the voting begins. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder. Section 9. RECORD DATE. The Board may fix, in advance, a record date for the determination of the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution, or any allotment of rights, or to exercise rights in respect of any other lawful actions. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action. Section 10. CONSENT OF ABSENTEES; WAIVER OF NOTICE. The transactions of any meeting of stockholders, however called and noticed, and wherever held, are as valid as though had a meeting been duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of stockholders need be specified in any written waiver of notice. Section 11. PROXIES. Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a written proxy executed by such stockholder and filed with the Secretary. Any proxy duly executed is not revoked and continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting; PROVIDED, 20 HOWEVER, that no proxy shall be valid after expiration of three (3) years from the date of its execution unless otherwise provided in the proxy. Section 12. JUDGES OF ELECTION. The Board may appoint a Judge or Judges of Election for any meeting of stockholders. Such Judges shall decide upon the qualification of the voters and report the number of shares represented at the meeting and entitled to vote, shall conduct the voting and accept the votes and when the voting is completed shall ascertain and report the number of shares voted respectively for and against each position upon which a vote is taken by ballot. The Judges need not be stockholders, and any officer of the corporation may be a Judge on any position other than a vote for or against a proposal in which such person shall have a material interest. Section 13. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or at the place of the meeting, and the list shall also be available at the meeting during the whole time thereof, and may be inspected by any stockholder who is present. ARTICLE III. DIRECTORS. Section 1. POWERS. Subject to the limitations of the Certificate of Incorporation or these Bylaws or the Delaware General Corporation Law relating to actions required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may delegate the management of the day-to-day operation of the business of the corporation to management or other persons provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 2. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be fixed from time to time by resolution adopted by the Board. Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected at the annual meeting of stockholders and each director shall hold office until his successor is elected and qualified or until his death, retirement, earlier resignation or removal. Section 4. VACANCIES. Any director may resign effective upon giving written notice to the Chairman of the Board, the Chief Executive Officer, the President, Secretary or the Board, unless the notice specifies a later time for the effectiveness of such resignation. Any vacancy in the Board or increase in the authorized number of directors may be filled for the unexpired term by a majority of the directors then in office. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office may fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective. Section 5. PLACE OF MEETING. Regular or special meetings of the Board shall be held at any place designated from time to time by the Board. In the absence of such designation, regular meetings shall be held at the principal office of the corporation. 21 Section 6. REGULAR MEETINGS. Regular meetings of the Board shall be held without call at such dates, times and places as the Board may establish from time to time. Call and notice of all regular meetings of the Board are hereby dispensed with. Section 7. SPECIAL MEETINGS. Special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary or by any two (2) directors. Special meetings of the Board shall be held upon four (4) days' written notice or forty-eight (48) hours' notice given personally or by telephone, facsimile transmission or other similar means of communication. Any such notice shall be addressed or delivered to each director at such director's address as it is shown upon the records of the corporation or as may have been given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 8. QUORUM. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, PROVIDED, HOWEVER, that such majority shall constitute at least one-third of the whole Board. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number be required by law or by the Certificate of Incorporation. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action is approved by at least a majority of the required quorum for such meeting. Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Section 10. WAIVER OF NOTICE. The transactions of any meeting of the Board, however called and noticed, and wherever held, are as valid as though a meeting had been duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 11. ADJOURNMENT. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 22 Section 12. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board. Section 13. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Board or committee thereof may be taken without a meeting if all members of the Board or committee shall individually or collectively consent in writing to such action. Such consent or consents shall have the same effect as a unanimous vote of the Board or committee and shall be filed with the minutes of the proceedings of the Board or committee. Section 14. COMMITTEES. The Board may appoint one (1) or more committees, each consisting of two (2) or more directors, and delegate to such committees any of the authority of the Board as the Board may lawfully delegate pursuant to the Delaware General Corporation Law. Any such committee must be appointed by resolution adopted by a majority of the whole board of directors and may be designated an Executive Committee or by such other name as the Board shall specify. The Board shall have the power to prescribe the manner in which the proceedings of any such committee shall be conducted. In the absence of any such prescription, such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board or such committee shall otherwise provide, the regular and special meetings and other actions of any such committee shall be governed by the provisions of this Article applicable to meetings and actions of the Board. Minutes shall be kept of each meeting of each committee. Section 15. RIGHTS OF INSPECTION. Every director shall have the absolute right at any reasonable time to inspect and copy all the books, records and documents of every kind and to inspect physical properties of the corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts. ARTICLE IV. OFFICERS. Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Secretary and a Chief Financial Officer; PROVIDED, HOWEVER, that in its discretion the Board may determine not to appoint any one or more of such officers. The corporation may also have, at the discretion of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Financial Officers, and such other officers as may be elected or appointed in accordance with the provisions of Section 2 of this Article. Section 2. APPOINTMENT OF OFFICERS. The officers of the corporation shall be appointed by the Board of Directors or the Chairman of the Board. Each of these officers shall hold office for such period and shall have such authority and perform such duties as are prescribed by these Bylaws or determined from time to time by the Board of Directors or the Chairman of the Board. Section 3. REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause, by the Board of Directors at any time or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any such removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer. 23 Any officer may resign at any time by giving written notice to the corporation, but without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to such office. Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the stockholders and at all meetings of the Board and shall have such other powers and duties as may from time to time be assigned by the Board. Section 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, subject to the control of the Board, the committees of the Board and the Chairman of the Board, is the general manager of the corporation. The Chief Executive Officer shall have supervising authority over and may exercise general executive power concerning the supervision, direction and control of the business and officers of the corporation, with the authority from time to time to delegate to the President and other officers such executive powers and duties as the Chief Executive Officer may deem advisable. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the Board and the stockholders. Section 7. PRESIDENT. The President is the chief operating officer of the corporation and, subject to the control of the Board, the committees of the Board, the Chairman of the Board and the Chief Executive Officer, has supervisory authority over and may exercise general executive powers concerning the operations, business and subordinate officers of the corporation, with the authority from time to time to delegate to other officers such executive powers and duties as the President may deem advisable. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at all meetings of the stockholders and at all meetings of the Board. The President has the general powers and duties of management usually vested in the office of President of a corporation and such other powers and duties as may be prescribed by the Board. Section 8. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board or, if not ranked, the Vice President designated by the Board, shall perform all duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board. Section 9. SECRETARY. The Secretary shall keep or cause to be kept, at the principal office and such other place as the Board may order, a book of minutes of all meetings of stockholders, the Board and its committees, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Board and committee meetings, and the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the corporation at the principal office or business office. The Secretary shall keep, or cause to be kept, at the principal office a share register, or a duplicate share register, showing the name of the stockholders and their addresses, the number and classes of 24 shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board and of any committees thereof required by these Bylaws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The books of account shall at all times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board. The Financial Officer or Officers, who are subordinate to the Chief Financial Officer, if any, shall, in the absence or disability of the Chief Financial Officer, or at his request, or if a vacancy shall exist perform his duties and exercise his powers and authority, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. CONTROLLER. The Controller is the Chief Accounting Officer of the corporation. The Controller shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and surplus shares. The Controller is responsible for the formulation of the corporation's accounting policies, procedures and practices, and the preparation of the corporation's financial reports. The Controller shall establish and administer a plan for the financial control of the corporation and compare performance with that plan. The Controller shall have such other powers and duties as the Board of Directors may from time to tine prescribe. ARTICLE V. STOCK. Section 1. FORM OF STOCK CERTIFICATE. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer or a subordinate Financial Officer, or the Secretary or an Assistant Secretary certifying the number of shares owned in the corporation. Any or all of the signatures on the certificate may be a facsimile signature. If any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of the issuance. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such 25 preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock. Except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. TRANSFERS OF STOCK. Upon surrender of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board may direct a new certificate or certificates be issued in place of any certificate theretofore issued alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board may, in its discretion and as a condition precedent to the issuance, require the owner of such certificate or certificates, or such person's legal representative, to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the lost, stolen or destroyed certificate. Section 4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock of the corporation as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by applicable law. ARTICLE VI. OTHER PROVISIONS. Section 1. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, conveyance or other instrument in writing and any assignment or endorsements thereof executed or entered into between the corporation and any other person, when signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President and the Secretary, any Assistant Secretary, the Chief Financial Officer or any Assistant Chief Financial Officer of the corporation shall be valid and binding on the corporation in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the Board, and, unless so authorized by the Board, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount. Section 2. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the Chief Executive Officer, the President, any Vice President, Secretary or any other officer or officers authorized by the Board or the Chairman of the Board are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer or by any other person authorized so to do by proxy or power of attorney duly executed by said officer. 26 Section 3. SEAL. The corporation shall have no corporate seal. Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board. Section 5. DIVIDENDS. Dividends on the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law, and may be paid in cash, in property or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall determine to be in the best interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VII. INDEMNIFICATION. The corporation shall indemnify such persons for such liabilities in such manner under such circumstances and to such extent as permitted by the Delaware General Corporation Law, as now enacted or hereafter amended. The Board may authorize the purchase and maintenance of insurance and/or the execution of individual agreements for the purpose of such indemnification, and the corporation shall advance all reasonable costs and expenses (including attorneys' fees) incurred in defending any action, suit or proceeding to all persons entitled to indemnification under this Article, all in the manner, under the circumstances and to the extent permitted by the Delaware General Corporation Law, as now enacted or hereafter amended. ARTICLE VIII. AMENDMENTS. These Bylaws may be amended or repealed in accordance with the Certificate of Incorporation. 27 EX-10.6 3 EXHIBIT 10.6 CIMA LABS INC. EQUITY INCENTIVE PLAN AMENDED AND RESTATED MARCH 25, 1996 FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996 AMENDED AND RESTATED, EFFECTIVE JUNE 2, 1999 INTRODUCTION. In 1987, the Board of Directors adopted the CIMA LABS, INC. Stock Option and Stock Award Plan, which was later amended and restated. On March 25, 1996, the Board of Directors adopted a subsequent amendment and restatement and retitled this the Equity Incentive Plan. On February 23, 1998, the Board of Directors amended and restated the Equity Incentive Plan to increase the number of shares of Common Stock available for issuance pursuant to the grant of awards hereunder. And, again on March 8, 1999, the Board of Directors amended and restated the Equity Incentive Plan to increase the number of common stock available for issuance pursuant to the grant of awards hereunder. 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v) stock appreciation rights, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock appreciation rights granted pursuant to Section 8 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. 28 (e) "COMPANY" means CIMA LABS INC., a Delaware corporation. (f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a right granted pursuant to subsection 8(b)(2) of the Plan. (g) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (i) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (j) "DIRECTOR" means a member of the Board. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of the common stock of the Company determined as follows: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on the Nasdaq Stock Market (but not on the National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. 29 (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a right granted pursuant to subsection 8(b)(3) of the Plan. (p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933 ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (r) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (s) "OPTION" means a stock option granted pursuant to the Plan. (t) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. 30 (v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (w) "PLAN" means this CIMA LABS INC. Equity Incentive Plan. (x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company when discretion is being exercised with respect to the Plan. (y) "STOCK APPRECIATION RIGHT" means any of the various types of rights which may be granted under Section 8 of the Plan. (z) "STOCK AWARD" means any right granted under the Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right. (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right granted pursuant to subsection 8(b)(1) of the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, a Stock Appreciation Right, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which a Stock Award shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 13. 31 (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, at any time the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to avoid the application of Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Two Million Six Hundred Fifty Thousand (2,650,000) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. Shares subject to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan shall not be available for subsequent issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Stock Awards other than Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees, Directors or Consultants. (b) No person shall be eligible for the grant of an Incentive Stock Option or an award to purchase restricted stock if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options and Stock Appreciation Rights covering more than five hundred thousand (500,000) shares of the Company's common stock in any three (3) calendar year period. 32 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of each Nonstatutory Stock Option shall be determined by the Board. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence or determined by the Board if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable, except by the Optionee upon such terms and conditions as are set forth in the Option Agreement for such Nonstatutory Stock Option, as the Board or the Committee shall determine in its discretion. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem 33 appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. (g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not 34 exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. 7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) PURCHASE PRICE. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such agreement. Notwithstanding the foregoing, the Board or the Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (b) TRANSFERABILITY. No rights under a stock bonus or restricted stock purchase agreement shall be transferable except by will or the laws of descent and distribution so long as stock awarded under such agreement remains subject to the terms of the agreement, except as specifically provided in the applicable stock bonus or restricted stock purchase agreement. (c) CONSIDERATION. The purchase price of stock acquired pursuant to a restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (d) VESTING. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. (e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire, subject to the limitations described in subsection 7(d), any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 8. STOCK APPRECIATION RIGHTS. (a) The Board or Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights under the Plan to Employees or Directors of or Consultants to, the Company or its Affiliates. To exercise any outstanding Stock Appreciation Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such right. Except as provided in subsection 5(c), no limitation shall exist on the aggregate amount of cash payments the Company may make under the Plan in connection with the exercise of a Stock Appreciation Rights. 35 (b) Three types of Stock Appreciation Rights shall be authorized for issuance under the Plan: (1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. Tandem Stock Appreciation Rights will require the holder to elect between the exercise of the underlying Option for shares of stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the number of shares of stock covered by that portion of the surrendered Option in which the Optionee is vested over (B) the aggregate exercise price payable for such vested shares. (2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of stock subject to the underlying Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of stock to which the Concurrent Right pertains. The appreciation distribution payable on an exercised Concurrent Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Concurrent Right) in an amount equal to such portion as shall be determined by the Board or the Committee at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares. (3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will be granted independently of any Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to Nonstatutory Stock Options as set forth in Section 6. They shall be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (B) the aggregate Fair Market Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Independent Right. 9. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any 36 liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 11. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Employee, Director or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause the right of the Company's Board of Directors and/or the Company's shareholders to remove any Director pursuant to the terms of the Company's By-Laws and the provisions of the Delaware General Corporation Law, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems 37 necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person during any three (3) calendar year period pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then to the extent permitted by applicable law: (i) any surviving or acquiring corporation or an Affiliate of such surviving or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards (including a stock award resulting in the acquisition of the same consideration paid to the stockholders in the transaction described in this subsection 12(b)) for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving or acquiring corporation or its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar Stock Awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised after such acceleration and at or prior to such event. 38 13. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for Stock Awards under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) The Board may in its sole discretion submit any other amendment to the Plan for s tockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Directors or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on May 31, 2004, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 39 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 40 EX-10.17 4 EXHIBIT 10.17 LICENSE AGREEMENT This License Agreement (this "AGREEMENT"), is made and entered into as of May 28, 1999, by and between CIMA LABS, INC., a Delaware corporation ("CIMA") and IPR Pharmaceuticals, Inc., a Puerto Rico corporation ("IPR"). WHEREAS, CIMA owns or has rights to certain oral drug-delivery technology marketed under the trademark OraSolv-Registered Trademark- and related know-how; and WHEREAS, IPR has an exclusive license to make, have made, use and sell products containing the pharmaceutical drug "zolmitriptan" on a worldwide basis and has access to substantial expertise in the development, commercialization and marketing of human pharmaceutical products; and WHEREAS, CIMA and IPR have entered into a Development and License Option Agreement, dated as of September 10, 1997 (the "DEVELOPMENT AGREEMENT"), under which CIMA is developing a pharmaceutical product formulation incorporating zolmitriptan and the OraSolv-Registered Trademark- Technology (as defined below); and WHEREAS, CIMA granted to IPR under the Development Agreement an option to license from CIMA the OraSolv-Registered Trademark- Technology; and WHEREAS, IPR desires to exercise the option granted to IPR by CIMA under the Development Agreement such that CIMA will enter into a license agreement with IPR to allow IPR or IPR Affiliates (as defined below) to utilize the OraSolv-Registered Trademark- Technology for the development, marketing, distribution and sale of a product incorporating zolmitriptan and the OraSolv-Registered Trademark- Technology and CIMA desires to enter into such an agreement with IPR; and WHEREAS, CIMA and Zeneca Limited., an Affiliate of IPR, will enter into a Supply Agreement (the "SUPPLY AGREEMENT") under which CIMA will supply to such Affiliate all of IPR's requirements for the Product (as defined below) under this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms have the following meanings: 1.1. "AFFILIATE" means, with respect to each party, any corporation or other business entity that (a) directly or indirectly controls, is owned by or is under common ownership with a party to this Agreement to the extent of at least fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign organization in a particular jurisdiction) having the power to vote or direct the affairs of such entity, or (b) directly or indirectly controls, is controlled by or is under common control with such party. As used herein, the term "control" means possession of the power to direct, or cause the direction of, the management and policies of a corporation or other entity, whether through the ownership of voting securities, by contract or otherwise. 41 1.2. "COMMERCIAL LAUNCH" has the meaning contained in Section 5.1. 1.3. "FIELD" means [...***...]. 1.4. "MAJOR COUNTRIES" means [...***...]. 1.5. "NET SALES" means the amount billed or invoiced by IPR, its Affiliates, or sublicensee(s) for sales of the Product, less the following deductions: (a) an amount equal to [...***...], for transportation and delivery charges, including insurance premiums; (b) taxes, duties and other governmental charges imposed upon the production, importation, use or sale of the Product and paid by the selling party (other than franchise or income taxes on the income of the selling party); (c) trade, quantity and cash discounts allowed and taken, in amounts as are customary in the trade; and (d) credits or allowances given or made on account of rejections, returns or retroactive price adjustments. Net Sales does not include sales or transfers of the Product among IPR, its Affiliates or sublicensee(s) unless the receiving party is the consumer or user of the Product. The subsequent resale or transfer of the finished product to a third party is included in Net Sales. Net Sales does not include supply of the Product for clinical trials or sampling purposes. For purposes of this definition, the term "sublicensees" does not include third-party distributors that purchase the Product from IPR or from an IPR Affiliate to re-sell such Product for their own account. 1.6. "ORASOLV-Registered Trademark- TECHNOLOGY" means CIMA's effervescent, fast-dissolving, oral drug-delivery tablet technology, including (i) the inventions disclosed in patents and patent applications owned, controlled or licensed (with the right to sublicense) by CIMA during the term of this Agreement and listed on Exhibit A hereto (the "PATENTS"), (ii) all know-how, technology, trade secrets, data, processes and methods, or other information owned, controlled or licensed (with the right to sublicense) by CIMA during the term of this Agreement relating to the technology marketed under the trade name OraSolv-Registered Trademark-, including use with either a taste masked or an untreated substance and (iii) [...***...]. OraSolv-Registered Trademark- Technology includes only technology relating to tablets that disintegrate or dissolve in the mouth in 30 seconds or less by either placing on the tongue or by chewing, such disintegration or dissolution time measured in accordance with the in vitro test specification set out in Exhibit B hereto. [...***...]. 1.7. "PRODUCT" means the pharmaceutical dosage form which is formulated using the OraSolv-Registered Trademark- Technology and contains zolmitriptan as its active ingredient, [...***...]. 1.8. "SCALE-UP AND VALIDATION PLAN" means a scale-up and validation plan to be agreed between the parties. 1.9. "U.S. FDA" means the United States Food and Drug Administration. 42 ARTICLE II GRANT OF LICENSE 2.1 TECHNOLOGY LICENSE. CIMA hereby grants to IPR and its Affiliates [...***...] license under the OraSolv-Registered Trademark- Technology in the Field, during the term of this Agreement, to use, sell, import or otherwise distribute, or to make, have made, or make for others solely under IPR's right to self-supply contained in Section 2.4 of the Supply Agreement, [...***...](including, without limitation, the Product). 2.2. RIGHT TO SUBLICENSE. IPR and its Affiliates have the right to sublicense the rights granted to them herein upon the prior written approval of CIMA, which approval will not be unreasonably withheld or delayed. ARTICLE III LICENSE FEE AND ROYALTIES 3.1. LICENSE FEE. The parties acknowledge that, in partial consideration of the license granted by CIMA to IPR and its Affiliates hereunder, IPR has paid to CIMA a license fee of [...***...]. 3.2. MILESTONE PAYMENTS. The parties acknowledge that IPR has paid to CIMA [...***...]. As further consideration for the license granted by CIMA to IPR and its Affiliates hereunder, IPR will pay to CIMA the following amounts within ten days after IPR or an IPR Affiliate or sublicensee has achieved the corresponding milestones: [...***...] 3.3. ROYALTY RATES. (a) As further consideration for the license granted by CIMA to IPR and its Affiliates hereunder, IPR will pay to CIMA royalties on worldwide annual Net Sales of the Product as follows:
ANNUAL NET SALES RATE ---------------- ---- (i) Up to [...***...] ("TRIGGER POINT I") [...***...] (ii) Above [...***...] but less than $120 million [...***...] ("TRIGGER POINT II") (iii) Above [...***...] [...***...]
The royalty rates shown above are applicable to marginal annual Net Sales; that is, the rate of [...***...] applies to all annual Net Sales up to [...***...], the rate...of [...***...] applies only to that amount of annual Net Sales in excess of [...***...] but less than [...***...], and so forth. The Net Sales amounts set forth above are subject to annual increases as provided below. Within ninety (90) days after the end of each calendar year in which IPR or an IPR Affiliate or sublicensee sells the Product under this Agreement, IPR will report to CIMA the percentages of worldwide Net Sales of the Product during that calendar year resulting from the sale of the Product (i) within the United States and (ii) outside the United States. 43 (b) The sales levels of Trigger Point I and Trigger Point II will increase as follows for the purpose of calculating royalties payable to CIMA during the following calendar year: [...***...] (c) In no event will Trigger Point I decrease below [...***...] or will Trigger Point II decrease below [...***...]. (d) The currency conversion from local currencies into U.S. dollars for the purposes of this Agreement will be carried out by IPR in accordance with its current accounting policies or such other policies as may in the future be applied by IPR and approved by its independent auditors. IPR will pay all royalty payments to CIMA within forty-five (45) days after the end of each calendar quarter. IPR will include with each payment a certificate of a financial officer of IPR detailing the basis for the calculation of the payment. 3.4. ADJUSTMENTS. (a) If IPR or an IPR Affiliate must pay a license fee to any third party, based upon a claim of patent infringement made by the third party arising solely from the OraSolv-Registered Trademark- Technology, in order to enable IPR or its Affiliate or sublicensee to continue to use the OraSolv-Registered Trademark- Technology, then [...***...]. IPR may not take as a credit an amount in excess of 50% of the royalties due in any royalty payment period, and any excess credit will be carried over to the next royalty payment period until all such credit is exhausted. If the license granted to IPR in that country has become non-exclusive under this Agreement, then CIMA, IPR and any other licensee(s) of CIMA for the Product in that country shall share equally the cost of any fees to be paid to any such third party, and IPR may offset the amount payable by it against royalties due to CIMA, as described above. (b) The royalty rates on Net Sales used to determine royalty payments due by IPR to CIMA under this Agreement may also be adjusted in accordance with Section 7.5 ("Infringement") below. (c) IPR will deduct from the quarterly royalty payment to be made to CIMA any taxes required to be paid to any governmental authority in respect of royalty payments paid by IPR to CIMA in the corresponding calendar quarter and will remit such tax payments to such governmental authority on a timely basis. IPR will remit to CIMA official documentation of such payments or withholdings as may be required by CIMA for its tax records on or before the date on which such payment is due to CIMA under this Agreement. 3.5. RECORDS. IPR will keep, or will cause its Affiliate(s) or sublicensees to keep, as appropriate, accurate and complete records in sufficient detail to enable royalties payable to CIMA hereunder to be verified by CIMA. IPR will permit CIMA to inspect such records once per year upon written notice by CIMA. Such inspection may be made, at CIMA's expense, during normal business hours by certified public accountants chosen by CIMA and reasonably acceptable to IPR. Three years after furnishing the certificate referred to in paragraph (d) of Section 3.3, IPR may destroy the records which formed the basis for such certificate, and the certificate will thereafter be presumed to be correct and accurate unless CIMA has notified IPR of a discrepancy therein. 3.6. TERM OF ROYALTY OBLIGATION. IPR's royalty payment obligations will expire or terminate upon the expiration or termination of this Agreement under Article IX below, and subject to the terms of Article IX. 44 ARTICLE IV SCALE-UP AND VALIDATION 4.1 SCALE-UP AND VALIDATION OBLIGATIONS. CIMA will conduct the Scale-Up and Validation activities set forth on the Scale-Up and Validation Plan in consideration for payment by IPR of the amounts set forth on such Scale-Up and Validation Plan. The parties may amend the Scale-Up and Validation Plan from time to time during the term of this Agreement by written agreement. 4.2. SCALE-UP AND VALIDATION PAYMENTS. In consideration for CIMA's scale-up and validation activities in accordance with this Agreement, IPR has made a non-refundable payment to CIMA in the amount of [...***...], and shall make an additional non-refundable payment of [...***...] to CIMA within thirty (30) days after completion of the Scale-Up and Validation Plan. ARTICLE V REGULATORY APPROVALS AND COMMERCIALIZATION 5.1. REGULATORY AND COMMERCIALIZATION DILIGENCE. IPR or an IPR Affiliate will file for U.S. FDA approval to market the Product in the United States and for comparable approval in one of the other Major Countries within [...***...] after final stability data for the Product reasonably acceptable to IPR are made available to IPR, if the regulatory authorities in the relevant countries will approve the Product (a) on the basis of a successful bioequivalence study only, (b) without requiring an efficacy study and (c) on the basis of the following stability data: 12 months' data on one laboratory batch, 6 months' data on three pilot batches, and 3 months' data on one full-scale batch. If clinical efficacy data or additional stability data is required, IPR or an IPR Affiliate will obtain and file, at its sole expense, such data within [...***...] after the last required data becomes available to IPR or an IPR Affiliate. IPR or an IPR Affiliate will use commercially reasonable efforts to launch the Product on a commercial scale and on a national scale ("COMMERCIAL LAUNCH") in each Major Country in which it receives regulatory and pricing approval reasonably acceptable to IPR to market the Product within [...***...], after receiving such regulatory and pricing approval. 5.2. FAILURE TO MEET REGULATORY AND COMMERCIALIZATION OBLIGATIONS. If IPR or an IPR Affiliate fails to meet the timetable set out in Section 5.1 above in any Major Country, CIMA may, at its sole election, [...***...]. 5.3. REGULATORY ASSISTANCE. After the submission of applications for approval to market the Product in any country, CIMA will provide assistance to IPR or its Affiliates in connection with such applications to the extent that such assistance may be reasonably necessary to IPR or its Affiliates in obtaining such approval. CIMA will provide a total of fifteen (15) man-days of such assistance per year at CIMA's expense for all such applications, and any further assistance will be provided only at IPR's expense at a rate of [...***...]. Assistance provided by CIMA to remedy any inadequacies in data generated by CIMA shall be provided at CIMA's expense and shall not be counted as part of the fifteen (15) man-days of assistance referred to above. 45 5.4. MARKETING DILIGENCE. IPR will use commercially reasonable efforts to market the Product worldwide consistent with its usual practice in commercializing and marketing products of similar market potential. 5.5. MINIMUM SALES REQUIREMENTS. Beginning on the first anniversary of the later of (i) Commercial Launch by IPR, an IPR Affiliate or sublicensee of the Product in the United States or (ii) Commercial Launch by IPR, an IPR Affiliate or sublicensee of the Product in a Major Country other than the United States, IPR will meet an annual minimum sales obligation of [...***...] of the projected sales for the Product set forth in Exhibit C hereto. Exhibit C may be amended only as provided in Section 11.3 below and, in any case, is not subject to amendment by virtue of the forecasting and ordering procedures set out in the Supply Agreement. If IPR fails to obtain marketing or price approval for the Product in one or more Major Countries or fails to launch the Product in any Major Country in accordance with Section 5.1 above, the parties will meet to agree to a fair and reasonable adjustment to the projected sales for the Product set forth on Exhibit C in order to adjust for such non-approval. 5.6. FAILURE TO MEET MINIMUM SALES REQUIREMENTS. (a) If IPR fails to meet the minimum sales target set forth in Section 5.5 above in any year in which such minimum sales target applies, then CIMA may, at its option, convert the license granted to IPR and its Affiliates hereunder into a non-exclusive license, and CIMA may, at its option, license the OraSolv-Registered Trademark- Technology in the Field to third parties. CIMA will have no financial or accounting obligations to IPR as a result of any license granted by CIMA in the OraSolv-Registered Trademark- Technology to any third party under this Section 5.6. (b) Prior to exercising its rights under Section 5.6(a), CIMA will provide to IPR the opportunity to pay the difference between the royalty amount due on the minimum sales of IPR or its Affiliates under Section 5.5 above for the appropriate year and the royalties actually paid under Section 3.3 above, in order to make up for the shortfall in sales. If IPR makes such payment to CIMA, then this Agreement will continue in full force and effect on an exclusive basis as if the shortfall in sales had not occurred. 5.7. EXPORT CONTROL. IPR will, and will cause its Affiliates and sublicensee(s) to, adhere to the U.S. Export Administration Laws and Regulations in performing under this Agreement, and will not export or re-export any technical data or products received from CIMA, or the direct product of such technical data, to any proscribed country listed in the U.S. Export Administration Regulations unless properly authorized by the U.S. Government. ARTICLE VI CONFIDENTIALITY; USE LIMITATIONS 6.1. CONFIDENTIAL INFORMATION. "Confidential Information" means any information disclosed by a party (the "DISCLOSING PARTY") to the other party (the "RECIPIENT") in performing under this Agreement, the Development Agreement or the Supply Agreement, including, but not limited to, information related to zolmitriptan, any patent application or drawing or pending or potential patent claim the subject matter of which is directly or indirectly derived from information disclosed by the Disclosing Party, any trade secret, information, invention, idea, physical, chemical or biological development, samples, process, method, procedures, formulations, engineering, manufacturing, regulatory, marketing, servicing, financing or personnel matter relating to the Disclosing Party, its present or future products, sales, suppliers, clients, customers, employees, investors or business. The material terms of this Agreement are Confidential Information of both parties. 46 6.2. EXCLUSIONS. Confidential Information does not include information which is (i) in the public domain without fault of the Recipient, (ii) known to the Recipient before receipt from the Disclosing Party, (iii) is disclosed to the Recipient by a third party without restriction, or (iv) is independently developed by the Recipient without breach of this Agreement. 6.3. CONFIDENTIAL TREATMENT. (a) During the term of this Agreement and for a period of five (5) years after its termination (but ten (10) years after its termination with respect to information pertaining to manufacturing processes and know-how), the Recipient will maintain all Confidential Information of the Disclosing Party in trust and confidence, will not use such Confidential Information for any unauthorized purpose and, except as set forth below, will not disclose such Confidential Information to any third party. Title to all Confidential Information provided to the Recipient by the Disclosing Party will remain vested in the Disclosing Party. (b) The Recipient will use and disclose to its Affiliates the Confidential Information of the Disclosing Party only to the extent required to accomplish the purposes of this Agreement. The Recipient will advise its employees, agents, consultants and potential sublicensees who might have access to Confidential Information of the Disclosing Party or to whom such information is disclosed under the terms of this Agreement, of the confidential nature thereof and will obtain the agreement of such third parties to hold such information in confidence and not make use of such information for any purpose other than those permitted by this Agreement. The Recipient will promptly notify the Disclosing Party upon discovery of any unauthorized use or disclosure of the Confidential Information of the Disclosing Party. 6.4. AUTHORIZED DISCLOSURE. Notwithstanding the foregoing, the Recipient may disclose the Confidential Information of the Disclosing Party if such disclosure: (a) is in response to a valid order of a court or other governmental body of any country or any political subdivision thereof; (b) is otherwise required by law; or (c) is otherwise, and to the extent which it is, necessary to file or prosecute patent applications, prosecute or defend litigation or comply with applicable governmental regulations or otherwise establish rights or enforce obligations under this Agreement; provided, however, that the Recipient will first give notice to the Disclosing Party and will make a reasonable effort to obtain a protective order requiring that the Confidential Information so disclosed be used only for the purposes for which the disclosure was required. 6.5. PUBLICITY. Any public disclosure of the existence of this Agreement or the terms hereof, including but not limited to press releases and other than the authorized disclosure set forth in Section 6.4 above, will be reviewed and consented to by each party prior to such disclosure. Neither party will unreasonably withhold or delay such consent. The parties hereby consent to the press release attached hereto as Exhibit D announcing execution of this Agreement. IPR may disclose the existence of this Agreement and the terms hereof to bona fide potential sublicensees under this Agreement, and both parties may disclose the existence of this Agreement and the terms hereof to any potential acquirer, merger partner or other bona fide potential financial partner or investment banking firm in connection with financing efforts, subject to the provisions of paragraph (b) of Section 6.3 above. 6.6. LIMITATIONS ON USE. (a) IPR will use the Product and the Confidential Information of CIMA solely for the purposes specified in this Agreement and for no other purpose. IPR will not use the 47 Confidential Information of CIMA for any research or commercial activities other than those that relate directly to the purposes specified herein, nor will it perform any reverse-engineering or other research on the Product not contemplated by this Agreement. IPR's use of the Product will be in compliance with all applicable laws and regulations. Upon expiration or termination of the Agreement, IPR will return or destroy, as directed by CIMA, all copies of any and all information, data and results obtained from conduct of evaluations under this Agreement, all of which constitute part of CIMA's Confidential Information and will be treated by IPR in accordance with Section 6.3 above. (b) CIMA will use the Confidential Information of IPR solely for the purposes specified in this Agreement and for no other purpose. CIMA will not use the Confidential Information of IPR for any research or commercial activities other than those that relate directly to the purposes specified herein. Upon expiration or termination of the Agreement, CIMA will return or destroy, as directed by IPR, all copies of any and all information, data and results obtained from conduct of evaluations under this Agreement, all of which constitute part of IPR's Confidential Information and will be treated by CIMA in accordance with Section 6.3 above. ARTICLE VII PATENTS AND OTHER INTELLECTUAL PROPERTY 7.1. OWNERSHIP. Title and ownership rights in the OraSolv-Registered Trademark- Technology and other Confidential Information of CIMA will remain at all times with CIMA, and IPR will acquire no title thereto as a result of this Agreement. Title and ownership rights in IPR's Confidential Information will remain at all times with IPR, and CIMA will acquire no title thereto as a result of this Agreement. Nothing in this Agreement confers on either party an expressed or implied license or option to license any disclosed Confidential Information, technology, or any patent or patent application except as expressly provided herein. 7.2 INVENTIONS AND DEVELOPMENTS. CIMA will solely own all right, title and interest in and to any technology invented and developments made or conceived by it or its Affiliates during the term of this Agreement, whether patentable or not, that relate to the OraSolv-Registered Trademark- Technology or that is necessary or useful to the manufacture or distribution of the Product ("NEW TECHNOLOGY"). Any New Technology developed before December 31, 2010 will be included in the OraSolv-Registered Trademark- Technology (except to the extent that such New Technology would otherwise be excluded from the definition of OraSolv-Registered Trademark- Technology), and as such will be subject to the terms of this Agreement. CIMA may, in its sole discretion and at its sole expense, file and prosecute patent applications on New Technology and obtain and enforce patents issuing from such applications. CIMA will solely own all such patent applications and patents. [...***...]. IPR will execute such documents and render such assistance, other than financial assistance, to CIMA as may be necessary or appropriate to enable CIMA to obtain and maintain title to any New Technology and to any patent application or patent on New Technology, and to enforce any such patents. [...***...]. 7.3. PROSECUTION OF PATENTS. CIMA may prosecute all patents or patent applications encompassed by the OraSolv-Registered Trademark- Technology and the New Technology. [...***...]. 7.4. MARKING. IPR will mark the Product with the proper legend concerning patent coverage in accordance with the laws of each country where patent marking is required. 7.5. INFRINGEMENT. (a) If either party becomes aware of any infringement or threatened infringement of any Patents, the party having such knowledge will promptly notify the other party thereof, giving all available details. If CIMA determines that any rights under any Patents are being infringed by an unlicensed third 48 party, CIMA has the right to initiate patent infringement litigation in its own name, or in the name of IPR if necessary, as reasonably necessary against such third party. Such litigation will be under the sole direction of CIMA and at CIMA's expense, but IPR agrees to perform all actions that CIMA's legal counsel determines to be reasonably necessary in the conduct of the litigation. IPR may join such proceeding at its own election and own expense (including the expense of legal counsel). CIMA will receive any relief obtained by such litigation, including all monetary awards. CIMA will keep IPR informed of the progress of such litigation and related matters. (b) [...***...]. (c) If any third party brings, or threatens to bring, an action against CIMA, IPR or IPR's Affiliates, sublicensees or distributors for patent infringement involving the manufacture, use, sale, distribution or marketing of the Product, which action relates solely to the OraSolv-Registered Trademark-Technology, then the party sued will notify the other party to this Agreement of such action, in writing. CIMA will indemnify, defend and hold harmless IPR and its directors, officers, employees, agents, Affiliates, and third parties performing services for IPR, from and against any such claim, provided that it is given full and complete authority, information and reasonable assistance in the defense of such claim. IPR may join such proceeding at its own expense (including the expense of legal counsel) with the prior written consent of CIMA, which consent will not be unreasonably withheld. If IPR or an IPR Affiliate or sublicensee are obligated to pay royalties or make further payments to such third party in order to make, have made, make for others, use, import, offer for sale, sell or otherwise distribute the Product as a result of such action, such payments will be creditable against the amount of royalties payable to CIMA with respect to that country in accordance with Section 3.4(a) above. (d) If any third party brings, or threatens to bring, an action against CIMA, IPR or IPR's Affiliates, sublicensees or distributors for patent infringement involving the manufacture, use, sale, distribution or marketing of the Product, which action relates to zolmitriptan, then the party sued will notify other party to this Agreement of such action, in writing. IPR will indemnify, defend and hold harmless CIMA and its directors, officers, employees, agents, Affiliates, and third parties performing services for CIMA, from and against any such claim, provided that it is given full and complete authority, information and reasonable assistance in the defense of such claim. CIMA may, in its sole discretion, require that IPR, or the appropriate IPR Affiliate or sublicensee, cease commercialization of the Product in any country in which such a claim has arisen. (e) If the manufacture, use, sale, offer for sale or import of the Product in a Major Country would, but for the license granted to IPR under this Agreement, infringe a Patent included in the OraSolv-Registered Trademark-Technology, and if all claims of such Patents in such country subsequently become invalid, [...***...]. (f) To the extent permitted by applicable law, CIMA has the right to terminate the license granted hereunder with respect to any country if IPR, its Affiliates or any individual or entity acting on their behalf attempts to challenge the validity of any of the Patents. 49 ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.1. REPRESENTATIONS AND WARRANTIES OF CIMA. CIMA hereby represents and warrants to IPR that: (a) CIMA is duly organized and validly existing under the laws of the state of Delaware and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; (b) CIMA is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder; (c) This Agreement is a legal and valid obligation binding upon CIMA and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by CIMA does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor does it violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it, (d) CIMA is the owner of the entire right, title and interest in the OraSolv-Registered Trademark- Technology and it has full right and power to grant the rights set forth in this Agreement; and (e) There is no pending or, to CIMA's knowledge, threatened litigation by or against CIMA relating to the OraSolv-Registered Trademark- Technology other than an interference proceeding requested by CIMA regarding CIMA's U.S. Patent Application Serial No. 08/468,913 and U.S. Patent No. 5,464,632 of a French company, Laboratories Prographarm. CIMA is also one of several parties who have filed oppositions with respect to Prographarm's European Patent EP 548356. 8.2. REPRESENTATIONS AND WARRANTIES OF IPR. IPR hereby represents and warrants to CIMA that: (a) IPR is duly organized and validly existing under the laws of Puerto Rico and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; (b) IPR is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder; and (c) This Agreement is a legal and valid obligation binding upon IPR and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by IPR does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor does it violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. 8.3. NO WARRANTY ON PATENTS. Nothing in this Agreement will be construed as a warranty that the Patents are valid or enforceable or that the OraSolv-Registered Trademark- Technology is free from the rightful claim of any third party, by way of infringement or the like, of any patent or proprietary rights of such party. CIMA hereby represents to IPR that CIMA has not sought to determine whether any patent or item of prior art, other than the patents and other items of prior art disclosed to IPR heretofore by CIMA, renders any of the Patents invalid. CIMA further represents to IPR that CIMA has not sought to determine whether the Product would infringe any patent other than the Patents disclosed to IPR heretofore by CIMA. IPR acknowledges 50 that it has received copies of the prosecution histories of the Patents and enters into this Agreement with full knowledge of the contents thereof. ARTICLE IX TERM AND TERMINATION 9.1. TERM. This Agreement will be effective as of the date hereof and will expire on a country by country basis, upon the later date of (a) ten (10) years after the date of first commercial sale of the Product in the country, or (b) the expiration of the last Patent covering the Product filed in that country. The parties will jointly consider ways to extend the term of the license granted under this Agreement to the extent permitted by applicable law or regulation and may so extend the term in a writing signed by both parties. [...***...]. 9.2. TERMINATION. (a) IPR may terminate this Agreement in its entirety or with respect to use of the rights licensed hereunder in any country or countries, [...***...]. Such termination will not relieve IPR of any obligation to make payments to CIMA for royalties accrued prior to the effective date of such termination. IPR may sell, transfer or otherwise dispose of for payment any of the Product that is not sold prior to the effective date of such termination, so long as such sale, transfer or disposal occurs within three (3) months of the effective date of termination of this Agreement. IPR will pay to CIMA royalties on such sales as set out in Article III hereof. IPR will continue to provide CIMA with the certificate referred to in Section 3.3(d) above with respect to sales made during such three-month period. (b) Either party may terminate this Agreement prior to its expiration by giving written notice to the other party, if the other party materially fails or neglects to perform its obligations under this Agreement and the same is not cured or being cured to the non-breaching party's reasonable satisfaction within [...***...] after the non-breaching party gives written notice specifying the nature and extent of such material breach; provided, however, that CIMA may not assert a material payment default by IPR on invoiced amounts disputed in good faith by IPR if IPR provides a written description of the disputed amounts to CIMA. Cure of a material payment default by IPR will be made by remitting to CIMA the amount of the overdue payment with accrued interest thereon, calculated using a major U.S. commercial bank rate selected by CIMA, during the [...***...] period. (c) Either party may terminate this Agreement immediately and without notice in the event that an application is made by the other party for the appointment of a receiver, trustee or custodian for any of the other party's assets; a petition under any section or chapter of the federal Bankruptcy Code or any similar law or regulation of the United States or Puerto Rico is filed by or against the other party is not dismissed within sixty (60) days; the other party makes an assignment for the benefit of its creditors; or the other party becomes insolvent or fails generally to pay its debts when they come due. (d) If IPR terminates this Agreement other than under Sections 9.2(b) or (c), or if CIMA terminates this Agreement under Section 9.2(b), then [...***...]. (e) The parties acknowledge that there are many technologies competing with the OraSolv-Registered Trademark- Technology in the world marketplace for drug dosage forms and that IPR is not a competitor of CIMA in the field of drug dosage forms. The parties hereby agree that, in order for CIMA to provide IPR with the exclusive rights granted to IPR under this Agreement, IPR must commit to provide adequate resources toward 51 commercialization of the Product, and to that end IPR agrees that CIMA may terminate this Agreement upon thirty (30) days' notice in the event that IPR or its Affiliates [...***...]. 9.3. ADDITIONAL REMEDIES. Termination of this Agreement for any reason will be without prejudice to, and will 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 that it may otherwise have. 9.4. SURVIVAL. The provisions of Article VI relating to confidentiality, Section 9.1 and Articles X and XI will survive expiration or termination of this Agreement. ARTICLE X INDEMNIFICATION 10.1. INDEMNIFICATION BY CIMA. CIMA will indemnify and hold IPR and its Affiliates harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) that IPR or its Affiliates may incur, arising out of any third party's claim of property damage or personal injury or death arising from CIMA's application of the OraSolv-Registered Trademark- Technology to zolmitriptan or CIMA's negligent or willful misconduct in its performance of this Agreement or any breach of a representation or warranty given herein by CIMA. However, CIMA will in no event be liable for any such claims, damages, losses, costs or expenses to the extent they arise out of or result from materials supplied by IPR to CIMA, or from IPR's negligence or willful misconduct. 10.2. INDEMNIFICATION BY IPR. IPR will indemnify and hold CIMA and its Affiliates harmless from and against all claims, suits and proceedings, and all damages, losses, costs, recoveries and expenses, including reasonable legal expenses and costs (including attorneys' fees) that CIMA or its Affiliates may incur, arising out of any third party's claim of property damage or personal injury or death arising from use of the Product to the extent that such liability results from IPR's negligent or willful misconduct in its performance of this Agreement or any breach of a representation or warranty given herein by IPR. However, IPR will in no event be liable for any such claims, damages, losses, costs or expenses to the extent they arise out of or result from materials supplied by CIMA to IPR or its Affiliates, or from CIMA's negligence or willful misconduct. 10.3. DEFENSE OF CLAIMS. In the event any third party asserts a claim covered by Sections 10.1 or 10.2, the indemnified party will give prompt notice to the indemnifying party, who may, at its election, handle and control the defense or settlement of the claim at its own expense by giving prompt notice to the indemnified party. However, the indemnifying party will not settle any such claim without the indemnified party's prior written consent, which will not be unreasonably withheld. If the indemnifying party does not give such notice and does not proceed diligently to defend the claim within [...***...] days after receipt of notice, the indemnifying party will be bound by any defense or settlement that the indemnified party may make as to that claim and will reimburse the indemnified party for any expenses related to the defense or settlement of the claim. The parties will cooperate in defending against any asserted third-party claims. Indemnification of the indemnified party will also cover the indemnified party's directors, officers, employees, agents, Affiliates, and third parties performing services for the indemnified party. 52 ARTICLE XI MISCELLANEOUS 11.1. ASSIGNMENT. Except as otherwise provided herein, neither this Agreement nor any interest hereunder will be assignable in whole or in part by either party without the prior written consent of the other. Either party may assign this Agreement without such consent to any of its Affiliates or to any successor by merger or sale of substantially all of its stock or of its assets to which this Agreement relates, or the sale or transfer of substantially all of the rights relating to the Product. This Agreement will be binding upon the successors and permitted assigns of the parties. Any assignment that is not in accordance with the terms of this Section 11.1 will be void. 11.2. SUBCONTRACTING. CIMA acknowledges that IPR and Zeneca Limited have entered into certain agreements regarding the performance of scale-up and validation activities relevant to IPR's obligations under this Agreement, and that IPR may subcontract certain scale-up and validation activities set out in the Scale-Up and Validation Plan to Zeneca Limited under such agreements upon prior notice of such subcontracting to CIMA. 11.3. AMENDMENT. This Agreement, including the Exhibits hereto, may only be amended by a writing signed by both parties hereto. 11.4. NOTICES. Any notices or communications given to the parties under this Agreement must be in writing and will be deemed to be duly given by either party to the other on the date hand-delivered, sent by facsimile or mailed first class, postage pre-paid or by overnight delivery to the address of each party set forth below its name on the signature page hereof, or at such other address as a party may specify in writing. 11.5. GOVERNING LAW. This Agreement will be governed by, interpreted and enforced in accordance with the laws of the State of Delaware, without regard to its choice-of-law provisions. 11.6. WAIVER. A waiver by either party of any term or condition of this Agreement in any one instance will not be deemed or construed to be a waiver of such term or condition for any similar instance in the future or of any subsequent breach hereof. All rights, remedies, undertaking, obligations and agreements contained in this Agreement will be cumulative and none of them will be a limitation of any other remedy, right, undertaking, obligation or agreement. 11.7. FORCE MAJEURE. Any delay in performance by either party under this Agreement (other than IPR's failure to pay money to CIMA) will not be considered to be a breach of this Agreement if, and to the extent, caused by occurrences beyond the reasonable control of the party affected, including but not limited to acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, war, civil disorder, rebellion or sabotage. After the party suffering from such occurrence notifies the other party of the occurrence, any time for performance hereunder will be extended by the actual time of delay caused by the occurrence. 11.8. RELATIONSHIP OF THE PARTIES. The relationship hereby established between IPR and CIMA is solely that of independent contractors. This Agreement does not create an agency, partnership, joint venture or employer/employee relationship, and nothing hereunder shall be deemed to authorize either party to act for, represent or bind the other except as expressly provided in this Agreement. 11.9. DISPUTE RESOLUTION. The parties will use all reasonable efforts to resolve in an amicable fashion any dispute, claim or controversy that may arise relating to the terms or performance of this Agreement. If the parties are unable to resolve such dispute within thirty (30) days after initial notice, either 53 party may, by notice to the other, have such dispute referred to a senior officer of each company. Such officers shall attempt to resolve the dispute by good faith negotiation within thirty (30) days after receipt of such notice. If the designated officers are not able to resolve such dispute within ninety (90) days after receipt of such notice, the parties will submit the dispute to arbitration by a single arbitrator in Minneapolis, Minnesota, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The arbitrator must be a retired judge of a state or federal court of the United States or a licensed lawyer with at least ten (10) years of intellectual property law experience from a law firm with at least ten (10) attorneys and at least an AV rating by Martindale Hubbell. A list of ten (10) potential arbitrators shall be obtained from the AAA. Each party to the dispute will rank the potential arbitrators from one to ten with one being the most desirable. The arbitrator who receives the least points shall be the arbitrator for such dispute. If there is a tie, a random drawing will be held and the first arbitrator chosen will be the arbitrator for the dispute. Judgment upon the arbitration award will be final, binding and conclusive and may be entered in any court having jurisdiction. The parties hereto further agree that the arbitrator is not authorized to award any punitive damages in connection with any controversy or claim settled by arbitration hereunder. 11.10. SEVERABILITY. If any provision of this Agreement is found by a proper authority to be unenforceable or invalid, that provision will be, to the extent possible, interpreted to achieve the intent of the parties to this Agreement. Otherwise, that provision will be severed and such severance will not effect the remainder of this Agreement, which will continue in full force and effect. 11.11. ENTIRE AGREEMENT. This Agreement and the Supply Agreement embody the complete and final understanding of the parties with respect to the subject matter hereof, and this Agreement supersedes all prior and contemporaneous negotiations, understandings and agreements between the parties with respect to the subject matter hereof other than the Supply Agreement. 11.12. COUNTERPARTS. This Agreement may be executed in one or more counterparts, which together constitute one original. 54 IN WITNESS WHEREOF, the parties have executed this Agreement by their respective duly authorized officers as of the date first hereinabove written. CIMA LABS INC. IPR PHARMACEUTICALS, INC. By: /s/ John M. Siebert By: /s/ B.J. Thorpe -------------------------------- --------------------------------- Name: John M. Siebert Name: B.J. Thorpe Title: President and CEO Title: Chairman 10000 Valley View Road P.O. Box 1967 Eden Prairie, MN 55344-9361 Carolina Tel: (612) 947-8700 Puerto Rico 00984 Fax: (612) 947-8770 Tel: (809) 750-5353 Fax: (809) 750-5332 55 EX-27 5 EXHIBIT 27
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 718,665 0 2,321,200 0 1,664,979 4,823,043 15,170,539 (6,160,622) 14,326,907 2,659,074 0 0 0 96,104 57,274,274 14,326,907 1,433,862 4,816,467 2,299,679 6,044,853 (1,558) 0 (42,869) (1,183,959) 0 0 0 0 0 (1,183,959) (.12) (.12)
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