-----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, TJedOxgpDPlX7YEi6faBqj3wCys7H71e5Tk5KcRuOK7lNEhHNQuHVfx5bUsGhFak 0q5zWAO6x5ZqzQpkrZ1zXg== 0000950123-06-013838.txt : 20061109 0000950123-06-013838.hdr.sgml : 20061109 20061109143609 ACCESSION NUMBER: 0000950123-06-013838 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061109 DATE AS OF CHANGE: 20061109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBREX CORP CENTRAL INDEX KEY: 0000820081 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222476135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10638 FILM NUMBER: 061201346 BUSINESS ADDRESS: STREET 1: ONE MEADOWLANDS PLZ CITY: E RUTHERFORD STATE: NJ ZIP: 07073 BUSINESS PHONE: 2018043000 MAIL ADDRESS: STREET 1: ONE MEADOWLANDS PLAZA CITY: E. RUTHERFORD STATE: NJ ZIP: 07073 10-Q 1 y26920e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2006 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 1-10638 CAMBREX CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-2476135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073 (Address of principal executive offices) (201) 804-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]. No [X]. As of October 31, 2006, there were 29,204,719 shares outstanding of the registrant's Common Stock, $.10 par value. CAMBREX CORPORATION AND SUBSIDIARIES FORM 10-Q For The Quarter Ended September 30, 2006 Table of Contents
Page No. -------- Part I Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 2 Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 4 Notes to Unaudited Consolidated Financial Statements 5 - 23 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 - 32 Item 3. Quantitative and Qualitative Disclosures about Market Risk 32 Item 4. Controls and Procedures 32 - 33 Part II Other Information Item 1. Legal Proceedings 34 Item 1A. Risk Factors 34 Item 6. Exhibits 34 Signatures 35
Part I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data)
SEPTEMBER 30, DECEMBER 31, 2006 2005 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 34,458 $ 45,932 Trade receivables, net 66,910 74,425 Inventories, net 110,840 93,617 Prepaid expenses and other current assets 16,750 15,552 -------- -------- Total current assets 228,958 229,526 Property, plant and equipment, net 239,812 229,410 Goodwill 96,695 96,368 Other intangible assets, net 50,232 51,183 Other assets 6,414 5,985 -------- -------- Total assets $622,111 $612,472 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 36,617 $ 38,813 Accrued expense and other current liabilities 57,680 53,333 -------- -------- Total current liabilities 94,297 92,146 Long-term debt 181,723 186,819 Deferred tax liabilities 29,131 28,543 Other non-current liabilities 63,978 61,713 -------- -------- Total liabilities 369,129 369,221 Stockholders' equity: Common stock, $.10 par value; authorized 100,000,000, issued 29,200,366 and 29,118,141 shares at respective dates 2,920 2,912 Additional paid-in capital 221,233 219,236 Retained earnings 55,030 62,170 Treasury stock, at cost, 2,446,585 and 2,443,313 shares at respective dates (20,873) (20,768) Deferred compensation -- (2,131) Accumulated other comprehensive loss (5,328) (18,168) -------- -------- Total stockholders' equity 252,982 243,251 -------- -------- Total liabilities and stockholders' equity $622,111 $612,472 ======== ========
See accompanying notes to unaudited consolidated financial statements. 2 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per-share data)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2006 2005 2006 2005 -------- -------- -------- -------- Gross sales $113,205 $104,500 $356,389 $331,133 Allowances and rebates 459 1,031 1,632 3,696 -------- -------- -------- -------- Net sales 112,746 103,469 354,757 327,437 Other revenues 1,253 1,116 3,398 5,827 -------- -------- -------- -------- Net revenues 113,999 104,585 358,155 333,264 Cost of goods sold 74,797 67,763 231,260 212,910 -------- -------- -------- -------- Gross profit 39,202 36,822 126,895 120,354 Operating expenses: Selling, general and administrative expenses 29,102 25,825 86,407 77,640 Research and development expenses 5,115 4,862 16,608 16,601 Goodwill impairment 2,092 -- 2,092 -- -------- -------- -------- -------- Total operating expenses 36,309 30,687 105,107 94,241 Operating profit 2,893 6,135 21,788 26,113 Other expenses: Interest expense, net 2,540 2,801 12,188 8,282 Other (income)/expenses, net (9) (25) 107 72 -------- -------- -------- -------- Income before income taxes 362 3,359 9,493 17,759 Provision for income taxes 4,666 3,407 13,998 6,637 -------- -------- -------- -------- (Loss)/income before cumulative effect of a change in accounting principle $ (4,304) $ (48) $ (4,505) $ 11,122 Cumulative effect of a change in accounting principle -- -- (228) -- -------- -------- -------- -------- Net (loss)/income $ (4,304) $ (48) $ (4,733) $ 11,122 ======== ======== ======== ======== Basic earnings per share: (Loss)/income before cumulative effect of a change in accounting principle $ (0.16) $ (0.00) $ (0.17) $ 0.42 Cumulative effect of a change in accounting principle -- -- (0.01) -- -------- -------- -------- -------- Net (loss)/income $ (0.16) $ (0.00) $ (0.18) $ 0.42 Diluted earnings per share: (Loss)/income before cumulative effect of a change in accounting principle $ (0.16) $ (0.00) $ (0.17) $ 0.42 Cumulative effect of a change in accounting principle -- -- (0.01) -- -------- -------- -------- -------- Net (loss)/income $ (0.16) $ (0.00) $ (0.18) $ 0.42 Weighted average shares outstanding: Basic 26,752 26,418 26,718 26,389 Effect of dilutive stock based compensation -- -- -- 161 -------- -------- -------- -------- Diluted 26,752 26,418 26,718 26,550 Cash dividends paid per share $ 0.03 $ 0.03 $ 0.09 $ 0.09 ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements. 3 CAMBREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2006 2005 --------- --------- Cash flows from operating activities: Adjustments to reconcile net (loss)/income to cash flows: Net (loss)/income $ (4,733) $ 11,122 Goodwill impairment charge 2,092 -- Cumulative effect of a change in accounting principle 228 -- Depreciation and amortization 26,571 29,312 Acquired in-process research and development 1,445 -- Write-off of debt origination fees 463 -- Stock based compensation 1,140 25 Deferred income taxes (349) -- Allowance for doubtful accounts 541 870 Inventory reserve 4,717 4,719 Loss on disposal of property, plant and equipment 204 -- Other (19) -- Changes in assets and liabilities: Receivables 9,476 (1,336) Inventories (18,092) (22,733) Prepaid expenses and other current assets (576) (3,789) Accounts payable and other current liabilities 183 1,139 Other non-current assets and liabilities (1,735) 1,018 --------- --------- Net cash provided by operating activities 21,556 20,347 --------- --------- Cash flows from investing activities: Capital expenditures (26,461) (27,987) Acquired in-process research and development (1,392) -- Other investing activities (99) 1,303 --------- --------- Net cash used in investing activities (27,952) (26,684) --------- --------- Cash flows from financing activities: Dividends paid (2,407) (2,376) Net increase in short-term debt 294 636 Long-term debt activity (including current portion): Borrowings 200,500 124,129 Repayments (207,629) (166,958) Proceeds from stock options exercised 1,618 1,521 Other financing activities (113) (75) --------- --------- Net cash used in financing activities (7,737) (43,123) --------- --------- Effect of exchange rate changes on cash and cash equivalents 2,659 (9,312) --------- --------- Net decrease in cash and cash equivalents (11,474) (58,772) Cash and cash equivalents at beginning of period 45,932 91,532 --------- --------- Cash and cash equivalents at end of period $ 34,458 $ 32,760 ========= =========
See accompanying notes to unaudited consolidated financial statements. 4 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share data) (1) BASIS OF PRESENTATION Unless otherwise indicated by the context, "Cambrex" or the "Company" means Cambrex Corporation and subsidiaries. The accompanying unaudited consolidated financial statements have been prepared from the records of the Company. In the opinion of management, the financial statements include all adjustments which are of a normal and recurring nature, except as otherwise described herein, and are necessary for a fair statement of financial position and results of operations in conformity with generally accepted accounting principles ("GAAP"). These interim financial statements should be read in conjunction with the financial statements for the year ended December 31, 2005. The results of operations for the three and nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year. (2) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Accounting for Uncertainty in Income Taxes In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 ("FIN 48"), which clarifies the accounting for uncertainty in income tax positions. This Interpretation requires that the Company recognize in the consolidated financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The provisions of FIN 48 will be effective for Cambrex at the beginning of the Company's 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the consolidated financial statements. Fair Value Measurements In September 2006, the FASB issued FASB Statement No. 157 "Fair Value Measurements" ("FAS 157"). This statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This statement will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of this statement. Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans In September 2006, the FASB issued FASB Statement No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("FAS 158") which is effective for fiscal years ending after December 15, 2006. FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement does not impact the amounts recognized in the income statement. FAS 158 will also require an employer to measure the funded status of a plan as of the date of the fiscal year end balance sheet. This measurement requirement is effective for fiscal years ending after December 15, 2008. 5 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (2) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) Based on the Company's funded status of plan obligations disclosed in Notes 14 and 15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005, the estimated impact of adopting FAS 158 would have been a reduction to December 31, 2005 comprehensive income of approximately $5,910, with no impact to the Company's consolidated statements of operations or cash flows. It is not expected that there will be any affect on the Company's financing agreements as none of the current debt covenants will be impacted. As the actual impact of adopting FAS 158 will be dependent upon the fair value of plan assets and the amount of projected benefit obligations measured as of December 31, 2006, the above estimated amounts may not be reflective of the actual impact of the adoption at December 31, 2006. (3) ACQUISITIONS On February 2, 2006, the Company acquired Cutanogen Corporation ("Cutanogen") for a purchase price of $1,445 which was paid at closing with additional purchase price payments of up to $4,800 subject to the achievement of certain regulatory and commercial milestones. Cutanogen, formally a biotechnology company, focuses on products used to treat patients with severe burns. Cutanogen's product, PermaDerm(TM) cultured skin, is the first multi-layered product that combines autologous epidermal and dermal layers of the skin in a product for severe burns that is pliable and grows with the patient, a particular advantage when a burn patient is a child. The Company expensed the purchase price payment and will continue to expense all additional payments prior to regulatory approval of the product as in-process research and development. At acquisition, Cutanogen was a development stage company, as it had no long-lived assets, revenues or employees. The results are reported as part of the Bioproducts segment. (4) STOCK-BASED COMPENSATION The Company adopted FAS 123(R) "Share-Based Payment," effective January 1, 2006 using the modified prospective transition method. Prior to January 1, 2006, the company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation cost associated with stock options was recognized in the financial results for the three and nine months ended September 30, 2005, as all the options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The first nine months of 2006 do not include compensation cost for options granted prior to January 1, 2006 as all options outstanding prior to January 1, 2006 were fully vested as of December 31, 2005. On September 30, 2006, the Company had seven active stock-based employee compensation plans. The Company also had outstanding at September 30, 2006 Stock Appreciation Rights ("SARs") and restricted stock as described below. Beginning January 1, 2006, the Company began recognizing compensation costs for stock option awards to employees based on their grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value per share for the stock options granted to employees during the three and nine months ended September 30, 2006 was $8.04 and $7.99, respectively. Stock option values were estimated using a 0.55% to 0.56% dividend yield, expected volatility of 36.49% to 38.28% and a risk-free interest rate of 4.42% to 4.96%. The Company's stock options are not publicly traded; therefore, expected volatilities are based on historical volatility of the Company's stock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whose maturity period approximates the 6 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (4) STOCK-BASED COMPENSATION (CONTINUED) option's expected term. The expected term of 3.75 to 4.75 years was utilized based on the "simplified" method for determining the expected term of stock options in Staff Accounting Bulletin No. 107, "Share-Based Payment." Assumptions used in estimating the fair value of stock options granted in the first nine months of 2006 are consistent with the assumptions used prior to the adoption of FAS 123(R) with the exception of the expected life. As a result of using the "simplified" method, the expected life was shortened by 1.25 years. FAS 123(R) requires companies to estimate the expected forfeitures for all unvested awards and record compensation costs only for those awards that are expected to vest. As of September 30, 2006, the total compensation cost related to unvested stock option awards granted to employees but not yet recognized was $1,786. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 3.6 years. The amount of stock-based compensation costs related to stock options recorded in the three and nine months ended September 30, 2006 were $120 and $278, respectively. Diluted earnings per share changed by $0.00 and $0.01 for the three and nine months ended September 30, 2006 as a result of adopting FAS 123(R) on January 1, 2006. Cambrex senior executives participate in a long-term incentive plan which rewards achievement of long-term strategic goals with restricted stock units. Awards are made annually to key executives and vest in one-third increments on the first, second and third anniversaries of the grant. On the third anniversary of the grant, restrictions on sale or transfer are removed and shares are issued to executives. In the event of termination of employment or retirement, the participant is entitled to the vested portion of the restricted stock units and forfeits the remaining amount; the three-year sale and transfer restriction remains in place. In the event of death or permanent disability, all shares vest and the deferred sales restriction lapses. These awards are classified as equity awards as defined in FAS 123(R). Historically, only senior executives participated in this plan. As of January 1, 2006, certain other employees are eligible to receive restricted stock as part of a redesigned stock-based compensation plan. These awards cliff vest on the third anniversary of the grant date. For the three and nine months ended September 30, 2006, the Company recorded $335 and $721, respectively, in compensation expense for this plan. For the three and nine months ended September 30, 2005, the Company recorded $320 and $1,195, respectively, in compensation expense for this plan. As of September 30, 2006, the total compensation cost related to unvested restricted stock granted but not yet recognized was $2,919. The cost will be amortized on a straight-line basis over the remaining vesting period. At September 30, 2006, the Company had outstanding 150,000 fully-vested cash-settled incentive SARs at a price of $19.30. These SARs are classified as liability awards and, as such, will be recorded at fair value until the rights are exercised or expire with the amount being recorded as compensation expense or benefit in the applicable period. Fair market value was estimated using a 0.58% dividend yield, expected volatility of 38.38% and a risk-free rate of 4.89%. For the three and nine months ended September 30, 2006 the Company recorded, at fair market value, ($123) and $141, respectively, in compensation expense. For the three and nine months ended September 30, 2005 the Company recorded, at intrinsic value, $0 and $1,170, respectively, in compensation benefit. Under FAS 123(R), the Company is required to measure the SARs at fair market value. Prior to adopting FAS 123(R), the SARs were measured at the intrinsic value. The Company recorded $228 in compensation expense as a cumulative effect of a change in accounting principle in accordance with FAS 123(R). 7 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (4) STOCK-BASED COMPENSATION (CONTINUED) The following table is a summary of the Company's stock option activity issued to employees and related information:
WEIGHTED- WEIGHTED- AVERAGE AVERAGE REMAINING NUMBER OF EXERCISE CONTRACTUAL OPTIONS SHARES PRICE TERM - --------------------------------- ---------- --------- ----------- Outstanding at January 1, 2006 4,021,247 $26.60 4.63 Granted 2,250 $21.71 Exercised (79,600) $14.48 Forfeited or expired (59,533) $22.96 --------- Outstanding at March 31, 2006 3,884,364 $26.90 4.41 --------- Granted 1,000 $20.28 Exercised (26,438) $15.17 Forfeited or expired (206,362) $32.15 --------- Outstanding at June 30, 2006 3,652,564 $26.68 4.24 --------- Granted 245,917 $21.39 Exercised (3,838) $19.36 Forfeited or expired (124,210) $25.73 --------- Outstanding at September 30, 2006 3,770,433 $26.38 3.97 ========= Exercisable at September 30, 2006 3,532,251 $26.71 3.78
The aggregate intrinsic value for all stock options exercised for the three and nine months ended September 30, 2006 were $8 and $572, respectively. The aggregate intrinsic value for all stock options exercised for the three and nine months ended September 30, 2005 were $643 and $727, respectively. A summary of the Company's nonvested restricted stock as of September 30, 2006 and changes during the three and nine months ended September 30, 2006 is presented below:
WEIGHTED- NUMBER OF AVERAGE GRANT- NONVESTED RESTRICTED STOCK SHARES DATE FAIR VALUE - ------------------------------- --------- --------------- Nonvested at January 1, 2006 69,756 $24.30 Granted 63,005 $21.71 Vested during period (30,306) $24.64 Forfeited (5,462) $21.71 ------- Nonvested at March 31, 2006 96,993 $22.66 ------- Granted 340 $20.28 Vested during period -- -- Forfeited (2,658) $22.67 ------- Nonvested at June 30, 2006 94,675 $22.65 ------- Granted 90,413 $21.39 Vested during period -- -- Forfeited (18,728) $22.17 ------- Nonvested at September 30, 2006 166,360 $22.02 =======
8 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (4) STOCK-BASED COMPENSATION (CONTINUED) The following table illustrates the effect on net (loss)/income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 as amended by FAS 148 "Accounting for Stock-Based Compensation," to stock-based employee compensation for the three and nine months ended September 30, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option-pricing model and amortized ratably to expense over the option's vesting periods.
Three months ended Nine months ended September 30, September 30, 2005 2005 ------------------ ----------------- Net (loss)/income, as reported $ (48) $11,122 Add: stock-based compensation expense included in reported net income 320 25 Deduct: stock-based compensation expenses determined using fair value method 853 16,859 ------- ------- Pro forma net loss $ (581) $(5,712) Earnings per share: Basic - as reported $(0.00) $ 0.42 Basic - pro forma $(0.02) $ (0.22) Diluted - as reported $(0.00) $ 0.42 Diluted - pro forma $(0.02) $ (0.22)
(5) GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the nine months ended September 30, 2006, are as follows:
Bioproducts Biopharma Human Health Segment Segment Segment Total ----------- --------- ------------ ---------- Balance as of January 1, 2006 $56,642 $8,863 $30,863 $96,368 Goodwill impairment -- (2,092) (2,092) Translation effect 608 -- 1,811 2,419 ------- ------ ------- ------- Balance as of September 30, 2006 $57,250 $8,863 $30,582 $96,695 ======= ====== ======= =======
The Company recorded a goodwill impairment charge of $2,092 during the third quarter of 2006 to write-off the remaining goodwill for a reporting unit within the Human Health segment. This charge resulted from lower cash flow projections to compute the implied fair value of goodwill as a result of current market conditions. The facility for which the impairment was recorded was divested in October 2006 as described in Note 14. 9 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (5) GOODWILL AND INTANGIBLE ASSETS (CONTINUED) Other intangible assets that are not subject to amortization consist of the following:
September 30, December 31, 2006 2005 ------------- ------------ Trademarks $33,898 $33,898 Proprietary process 2,052 2,052 ------- ------- Total $35,950 $35,950 ======= =======
Other intangible assets, which will continue to be amortized, consist of the following:
September 30, 2006 -------------------------------------------- Gross Carrying Accumulated Net Carrying Amount Amortization Amount -------------- ------------ ------------ Product technology $12,884 $ (5,047) $ 7,837 Patents 5,958 (2,440) 3,518 Supply agreements 2,110 (1,488) 622 License agreement 2,005 (540) 1,465 Other 2,142 (1,302) 840 ------- -------- ------- Total $25,099 $(10,817) $14,282 ======= ======== =======
December 31, 2005 -------------------------------------------- Gross Carrying Accumulated Net Carrying Amount Amortization Amount -------------- ------------ ------------ Product technology $12,326 $(4,257) $ 8,069 Patents 5,685 (2,097) 3,588 Supply agreements 2,110 (1,152) 958 License agreement 2,005 (401) 1,604 Other 1,974 (960) 1,014 ------- -------- ------- Total $24,100 $(8,867) $15,233 ======= ======== =======
Amortization expense for the three and nine months ended September 30, 2006 was $681 and $1,655, respectively. The expected amortization expense related to intangible assets in the future is as follows: For the year ended December 31, 2006................................... $2,012 For the year ended December 31, 2007................................... $1,978 For the year ended December 31, 2008................................... $1,861 For the year ended December 31, 2009................................... $1,552 For the year ended December 31, 2010................................... $1,360
10 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (6) INCOME TAXES The effective tax rate for the three months ended September 30, 2006 and 2005 was 1,289.0% and 101.4%, respectively. The tax provision for the three months ended September 30, 2006 increased to $4,666 compared to $3,407 in the three months ended September 30, 2005. The effective tax rate for the nine months ended September 30, 2006 and 2005 was 147.5% and 37.4%, respectively. The tax provision in the first nine months ended September 30, 2006 increased to $13,998 compared to $6,637 in the first nine months of 2005. The three and nine months of 2006 include $1,696 of income tax expense related to the true-up of the 2005 foreign tax provision and tax returns currently under audit. The tax rate for the nine months ended September 30, 2005 includes the favorable settlement of a tax matter in Sweden of $3,329. Additionally, the operating results for the three and nine months ended September 30, 2006 include larger losses domestically and within certain foreign jurisdictions where the Company is unable to recognize a tax benefit related to these losses within its tax provision. The Company maintains a full valuation allowance against its domestic, and certain foreign, net deferred tax assets and will continue to do so until an appropriate level of profitability is sustained or tax strategies can be developed that would enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized. As such, improvements in domestic, and certain foreign, pre-tax income in the future may result in these tax benefits ultimately being realized. However, there is no assurance that such improvements will be achieved. (7) NET INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Net inventories at September 30, 2006 and December 31, 2005 consist of the following:
September 30, December 31, 2006 2005 ------------- ------------ Finished goods $ 51,203 $46,134 Work in process 30,717 24,615 Raw materials 25,544 18,159 Supplies 3,376 4,709 -------- ------- Total $110,840 $93,617 ======== =======
(8) LONG-TERM DEBT Long-term debt at September 30, 2006 and December 31, 2005 consists of the following:
September 30, December 31, 2006 2005 ------------- ------------ Bank credit facilities $177,998 $ 81,943 Senior notes -- 100,000 Capitalized leases 4,945 6,056 Notes payable 232 291 -------- -------- Subtotal $183,175 $188,290 Less: current portion 1,452 1,471 -------- -------- Total $181,723 $186,819 ======== ========
11 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (8) LONG-TERM DEBT (CONTINUED) In January 2006, the Company elected to prepay the senior notes with funds provided by borrowing under the 5-Year Syndicated Senior Revolving Credit Facility. An expense of $5,272 was recorded related to a make-whole payment of $4,809 paid to the senior note holders concurrent with the January 2006 payment, and the related acceleration of $463 of unamortized origination fees. (9) COMPREHENSIVE INCOME The following table shows the components of comprehensive (loss)/income for the three and nine months ended September 30, 2006 and 2005:
Three months Nine months ended ended September 30, September 30, --------------- ------------------ 2006 2005 2006 2005 ------- ----- ------- -------- Net (loss)/income $(4,304) $ (48) $(4,733) $ 11,122 Foreign currency translation (235) 82 13,101 (34,815) Unrealized (loss)/gain on hedging contracts (212) (628) 162 (1,368) Unrealized (loss)/gain on available for sale securities (252) 38 (423) (97) ------- ----- ------- -------- Total $(5,003) $(556) $ 8,107 $(25,158) ======= ===== ======= ========
(10) RETIREMENT PLANS Domestic Pension Plans The Company maintains two U.S. defined-benefit pension plans which cover all eligible employees: the Nepera Hourly Pension Plan which covers the union employees at the previously owned Harriman, New York plant, and the Cambrex Pension Plan which covers all other eligible employees. The components of net periodic pension cost for the Company's domestic plans for the three and nine months ended September 30, 2006 and 2005 are as follows:
Three Three Nine Nine months months months months ended ended ended ended September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 729 $ 688 $ 2,187 $ 2,064 Interest cost 858 791 2,574 2,373 Expected return on plan assets (746) (735) (2,238) (2,205) Amortization of prior service costs 11 11 33 33 Recognized actuarial loss 180 113 540 339 ------ ----- ------- ------- Net periodic benefit cost $1,032 $ 868 $ 3,096 $ 2,604 ====== ===== ======= =======
12 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (10) RETIREMENT PLANS (CONTINUED) The Company has two Supplemental Executive Retirement Plans ("SERP") for key executives. These plans are non-qualified and unfunded. The components of net periodic benefit cost for the Company's SERP Plans for the three and nine months ended September 30, 2006 and 2005 are as follows:
Three Three Nine Nine months months months months ended ended ended ended September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 55 $ 56 $165 $168 Interest cost 113 108 339 324 Amortization of unrecognized transition obligation 26 25 78 75 Amortization of prior service cost 1 1 3 3 Recognized actuarial loss 18 10 54 30 ---- ---- ---- ---- Net periodic benefit cost $213 $200 $639 $600 ==== ==== ==== ====
International Pension Plans Certain foreign subsidiaries of the Company maintain pension plans for their employees that conform to the common practice in their respective countries. Based on local laws and customs, some of those plans are not funded. For those plans that are funded, the amount in the trust supporting the plan is actuarially determined, and where applicable, in compliance with local statutes. The components of net periodic pension cost for the Company's international plans for the three and nine months ended September 30, 2006 and 2005 are as follows:
Three Three Nine Nine months months months months ended ended ended ended September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 344 $302 $1,032 $ 906 Interest cost 260 282 780 846 Expected return on plan assets (102) (92) (306) (276) Amortization of unrecognized net obligation (8) (13) (24) (39) Recognized actuarial loss 17 59 51 177 Amortization of prior service cost 33 (2) 99 (6) ----- ---- ------ ------ Net periodic benefit cost $ 544 $536 $1,632 $1,608 ===== ==== ====== ======
13 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (11) OTHER POSTRETIREMENT BENEFITS Cambrex provides post-retirement health and life insurance benefits ("post-retirement benefits") to all eligible retired employees. Employees who retire at or after age 55 with fifteen years of service are eligible to participate in the postretirement benefit plans. Certain subsidiaries and all employees hired after December 31, 2002 (excluding those covered by collective bargaining) are not eligible for these benefits. The Company's responsibility for such premiums for each plan participant is based upon years of service. Such plans are self-insured and are not funded. Effective January 1, 2006, the Cambrex Retiree Medical Plan no longer provides prescription coverage to retirees or dependents age 65 or older. The components of net periodic postretirement benefit cost for the three and nine months ended September 30, 2006 and 2005 are as follows:
Three Three Nine Nine months months months months ended ended ended ended September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost of benefits earned $ 16 $ 15 $ 48 $ 45 Interest cost 34 38 102 114 Actuarial loss recognized 33 29 99 87 Amortization of unrecognized prior service cost (45) (38) (135) (114) ---- ---- ----- ----- Total periodic postretirement benefit cost $ 38 $ 44 $ 114 $ 132 ==== ==== ===== =====
(12) SEGMENT INFORMATION The Company classifies its business units into three reportable segments: Bioproducts, consisting of research products and services and therapeutic applications, Biopharma, consisting of biopharmaceutical process development and manufacturing services and Human Health, consisting of active pharmaceutical ingredients and pharmaceutical intermediates produced under Food and Drug Administration cGMP for use in the production of prescription and over-the-counter drug products and other fine custom chemicals derived from organic chemistry. Information as to the operations of the Company in each of its business segments is set forth below based on the nature of the products and services offered. Cambrex evaluates performance based on gross profit and operating profit. Inter-segment sales are not material. The Company allocates certain corporate expenses to each of the segments. One customer accounts for 10% of consolidated gross sales in the three months ended September 30, 2005. There are no individual customers accounting for more than 10% of consolidated gross sales in the three and nine months ended September 30, 2006 and nine months ended September 30, 2005. 14 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) SEGMENT INFORMATION (CONTINUED) The Company currently has a long-term sales contract that accounts for more than 10% of Human Health segment sales for the three and nine months ended September 30, 2006 and 2005 that is scheduled to expire at the end of 2008. There is no guarantee that this contract will be renewed. The Company is currently in negotiations to extend this contract to 2013 which, if the Company elects to do so, will result in significantly lower profitability in 2007 and 2008 than under the existing contract. During the second quarter 2006 there was a change in allocation methodology which reflects certain employee medical benefit expenses that were reclassified from segment cost of goods sold and operating expenses to Corporate operating expenses to better reflect actual costs reported in the operating segments. Prior period amounts have not been recast to reflect this change in allocation methodology. As a result of the change in allocation methodology, cost of goods sold decreased $1,321 with an increase to operating expense for the nine months ended September 30, 2006. At the segment level, cost of goods sold decreased $540, $505 and $276 for Bioproducts, Biopharma and Human Health, respectively. The decrease in segment operating expenses was $322, $48 and $135 for Bioproducts, Biopharma and Human Health, respectively, offset by an increase in Corporate operating expense of $1,826. Consolidated operating profit was not effected. The following is a summary of business segment information:
Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 -------- -------- -------- -------- Gross Sales: Bioproducts $ 39,326 $ 35,729 $121,740 $113,638 Biopharma 11,615 8,385 35,429 27,747 Human Health 62,264 60,386 199,220 189,748 -------- -------- -------- -------- $113,205 $104,500 $356,389 $331,133 ======== ======== ======== ======== Gross Profit: Bioproducts $ 19,363 $ 18,481 $ 63,491 $ 59,952 Biopharma (165) (2,137) (783) (4,800) Human Health 20,004 20,478 64,187 65,202 -------- -------- -------- -------- $ 39,202 $ 36,822 $126,895 $120,354 ======== ======== ======== ======== Operating Profit: Bioproducts $ 6,242 $ 5,024 $ 21,276 $ 20,499 Biopharma (2,422) (4,368) (7,782) (12,545) Human Health 7,804 11,343 32,413 34,373 Corporate (8,731) (5,864) (24,119) (16,214) -------- -------- -------- -------- $ 2,893 $ 6,135 $ 21,788 $ 26,113 ======== ======== ======== ========
15 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (12) SEGMENT INFORMATION (CONTINUED)
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 2006 2005 2006 2005 ------ ------ ------- ------- Capital Expenditures: Bioproducts $1,285 $2,365 $ 6,443 $ 7,946 Biopharma 1,092 1,531 3,344 3,721 Human Health 6,440 5,977 16,606 15,228 Corporate 11 37 68 1,092 ------ ------ ------- ------- $8,828 $9,910 $26,461 $27,987 ====== ====== ======= ======= Depreciation: Bioproducts $1,618 $1,467 $ 4,969 $ 4,448 Biopharma 939 1,250 2,751 3,419 Human Health 5,682 6,114 16,529 18,836 Corporate 171 84 667 891 ------ ------ ------- ------- $8,410 $8,915 $24,916 $27,594 ====== ====== ======= ======= Amortization: Bioproducts $ 607 $ 413 $ 1,431 $ 875 Biopharma 64 88 195 813 Human Health 10 10 29 30 ------ ------ ------- ------- $ 681 $ 511 $ 1,655 $ 1,718 ====== ====== ======= =======
September 30, December 31, 2006 2005 ------------- ------------ Total Assets: Bioproducts $236,984 $231,965 Biopharma 56,474 58,652 Human Health 310,122 301,771 Corporate 18,531 20,084 -------- -------- $622,111 $612,472 ======== ========
(13) CONTINGENCIES The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. The Company continually assesses all known facts and circumstances as they pertain to all legal and environmental matters and evaluates the need for reserves and disclosures as deemed necessary based on these facts and circumstances and as such facts and circumstances develop. 16 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) Environmental In connection with laws and regulations pertaining to the protection of the environment, the Company and/or its subsidiaries is a party to several environmental proceedings and remediation investigations and cleanups and, along with other companies, has been named a potentially responsible party ("PRP") for certain waste disposal sites ("Superfund sites"). Additionally, as discussed in the "Sale of Rutherford Chemicals" section of this Note, the Company has retained the liability for certain environmental proceedings, associated with the Rutherford Chemicals business. Each of these matters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The resolution of such matters often spans several years and frequently involves regulatory oversight or adjudication. Additionally, many remediation requirements are not fixed and are likely to be affected by future technological, site, and regulatory developments. Consequently, the ultimate extent of liabilities with respect to such matters, as well as the timing of cash disbursements cannot be determined with certainty. In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costs associated with the study and remediation of Superfund sites not owned by the Company and the Company's current and former operating sites. These accruals were $7,522 and $6,413 at September 30, 2006 and December 31, 2005, respectively. The increase in the accrual is primarily due to an increase in the reserve for the Clifton, NJ site and the Bayonne, NJ site of $425 and $235, respectively, an increase in the reserve at a Company subsidiary with an offsetting receivable recorded in Other Assets of $887 and currency fluctuation of $253, partially offset by payments of $753. Based upon currently available information and analysis, the Company's current accrual represents management's best estimate of the probable and estimable costs associated with environmental proceedings including amounts for legal and investigation fees where remediation costs may not be estimable at the reporting date. As a result of the sale of the Bayonne, New Jersey facility (see "Sale of Rutherford Chemicals" section of this Note), an obligation to investigate site conditions and conduct required remediation under the New Jersey Industrial Site Recovery Act was triggered and the Company has retained the responsibility for such obligation. The Company completed a preliminary assessment of the site and submitted the preliminary assessment to the New Jersey Department of Environmental Protection ("NJDEP"). The preliminary assessment identified potential areas of concern based on historical operations and sampling of such areas commenced. The Company has completed a second phase of sampling and determined that a third phase of sampling is necessary to determine the extent of contamination and any necessary remediation. The results of the completed and proposed sampling, and any additional sampling deemed necessary, will be used to develop an estimate of the Company's future liability for remediation costs, if required. The Company submitted its plan for the third phase of sampling to the NJDEP during the fourth quarter of 2005. The sampling will commence in the next few months. During 2006 the Company increased reserves to cover currently anticipated investigation and minimum remediation costs related to the site. In March 2000, the Company completed the acquisition of the Cambrex Profarmaco Landen facility in Belgium. At the time of acquisition, Cambrex was aware of certain site contamination and recorded a reserve for the estimated costs of remediation. This property has been the subject of an extensive on-going environmental investigation and health risk assessment. The investigation had been considered complete but the Company recently determined that an additional small area required further sampling to fully identify the 17 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) contamination. The results of the entire investigation and the final risk assessment, both of which are nearing completion, will determine the ultimate remedial actions to be performed at the site. The Company is proceeding with finalization of the delineation and risk assessment. The reserve established in this matter is adequate based on current information. As discussed in Note 14, in October 2006, the Company announced the sale of the Landen facility. This obligation related to the remediation of this site transferred to the new owner with the sale. The Company's Cosan subsidiary conducted manufacturing operations in Clifton, New Jersey from 1968 until 1979. Prior to the acquisition by the Company, the operations were moved to another location and thereafter Cambrex purchased the business. In 1997, Cosan entered into an Administrative Consent Order with the NJDEP. Under the Administrative Consent Order, Cosan was required to complete an investigation of the extent of the contamination related to the Clifton site and conduct remediation as may be necessary. During the third quarter of 2005, the Company completed the investigation related to the Clifton site, which extends to adjacent properties. The results of the investigation caused the Company to increase its related reserves by $1,300 in 2005 based on the proposed remedial action plan. The Company submitted the results of the investigation and proposed remedial action plan to the NJDEP. In February 2005, the New Jersey Federal District Court ruled that a lawsuit claiming property damages against Cosan by the owners of contaminated property adjacent to the Clifton location could be placed on the active calendar. To avoid the expense and uncertainty of trial, the parties have reached agreement to settle this matter. A reserve of $425 was recorded in March 2006. In July 2006, under the settlement, Cosan paid the property owner $425 and this matter is considered concluded. In mid-2004 the United States Environmental Protection Agency ("USEPA") conducted a hazardous waste inspection of the Company's Charles City facility. Thereafter, the USEPA notified the facility of several alleged violations of the hazardous waste laws related to management of hazardous waste and requested additional information related to the alleged violations. The Company responded and provided information which questioned the conclusion that the violations occurred. Nevertheless, the USEPA concluded that several violations existed at the time of the inspection, and in October 2005 issued the facility an order and penalty assessment in the amount of $189. In October 2005, the Company filed a request for a hearing and an informal conference to discuss settlement. In July 2006, the USEPA and the Company have reached agreement under which the Company neither admits, nor denies the USEPA's factual allegations or conclusions of law. The Company has paid a mitigated penalty in the amount of $15 and will complete a Supplemental Environmental Project designed to minimize the potential for pollution associated with certain activities at the site. This matter is considered concluded. In March 2006, the Company received notice from the USEPA that two former operating subsidiaries are considered PRPs at the Berry's Creek Superfund Site, Bergen County, New Jersey. The operating companies are among many other PRPs that were listed in the notice. Pursuant to the notice, the PRPs have been asked to perform a remedial investigation and feasibility study of the Berry's Creek Site. The Company has met with the other PRPs. Both operating companies joined the groups of PRPs and filed a joint response to the USEPA agreeing to jointly negotiate to conduct or fund (along with other PRPs) an appropriate remedial investigation and feasibility study of the Berry's Creek Site. At this time it is too early to predict the extent of any liabilities. However, in the second quarter 2006, the Company established a minimum reserve to cover anticipated initial costs related to the site. 18 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) The Company is involved in other matters where the range of liability is not reasonably estimable at this time and it is not determinable when information will become available to provide a basis for recording an accrual, should an accrual ultimately be required. If any of the Company's environmental matters develop in a more unfavorable manner than presently estimated, these matters either individually or in the aggregate, could have a material adverse effect on the Company's financial condition, operating results and cash flows in a future reporting period. Litigation and Other Matters Mylan Laboratories In 1998 the Company and its subsidiary Profarmaco S.r.l. (currently known as Cambrex Profarmaco Milano S.r.l.") ("Profarmaco") were named as defendants (along with Mylan Laboratories, Inc. ("Mylan") and Gyma Laboratories of America, Inc., Profarmaco's distributor in the United States) in a proceeding instituted by the Federal Trade Commission ("FTC") in the United States District Court for the District of Columbia (the "District Court"). Suits were also commenced by several State Attorneys' General. The suits alleged violations of the Federal Trade Commission Act arising from exclusive license agreements between Profarmaco and Mylan covering two APIs. The FTC and Attorneys' General suits were settled in February 2001, with Mylan (on its own behalf and on behalf of Profarmaco and Cambrex) agreeing to pay over $140,000 and with Mylan, Profarmaco and Cambrex agreeing to monitor certain future conduct. The same parties including the Company and Profarmaco have also been named in purported class action complaints brought by private plaintiffs in various state courts on behalf of purchasers of the APIs in generic form, making allegations similar to those raised in the FTC's complaint and seeking various forms of relief including treble damages. In April 2003, Cambrex reached an agreement with Mylan under which Cambrex would contribute $12,415 to the settlement of litigation brought by a class of direct purchasers. In exchange, Cambrex and Profarmaco received from Mylan a release and full indemnity against future costs or liabilities in related litigation brought by purchasers, as well as potential future claims related to this matter. Cambrex recorded an $11,342 charge (discounted to the present value due to the five year pay-out) in the first quarter of 2003 as a result of this settlement. In accordance with the agreement $9,215 has been paid through September 30, 2006, with the remaining $3,200 to be paid over the next two years. As of September 30, 2006 the outstanding balance for this liability was $3,048. Vitamin B-3 In May 1998, the Company's subsidiary, Nepera, which formerly operated the Harriman facility and manufactured and sold niacinamide ("Vitamin B-3"), received a Federal Grand Jury subpoena for the production of documents relating to the pricing and possible customer allocation with regard to that product. In 2000, Nepera reached agreement with the Government as to its alleged role in Vitamin B-3 violations from 1992 to 1995. The Canadian government claimed similar violations. All government suits in the U.S. and Canada have been concluded. Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalf of alleged purchasers of Vitamin B-3. The actions seek injunctive relief and unspecified but substantial damages. All cases have been settled within established reserve amounts. 19 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) Settlement documents will be finalized and payments will be made during the next several months. The balance of the reserves recorded within accrued liabilities related to this matter was $1,585 as of September 30, 2006. Sale of Rutherford Chemicals The Company completed the sale of its Rutherford Chemicals business in November 2003. Under the agreement for the sale ("Purchase Agreement"), the Company provided standard representations and warranties and included various covenants concerning the business, operations, liabilities and financial condition of the Rutherford Chemicals business ("Rutherford Business"). Most of such representations and warranties survived for a period of thirty days after the preparation of the audited financial statements for year-end 2004 by the purchasers of the Rutherford Business ("Buyers"). Therefore, claims for breaches of such representations had to be brought during such time frame. Certain specified representations, warranties and covenants, such as those relating to employee benefit matters and certain environmental matters, survive for longer periods and claims under such representations, warranties and covenants could be brought during such longer periods. Under the Purchase Agreement, the Company has indemnified the Buyer for breaches of representations, warranties and covenants. Indemnifications for certain but not all representations and warranties are subject to a deductible of $750 and a cap at 25 percent of the purchase price. Under the Purchase Agreement, the Company has retained the liabilities associated with existing general litigation matters related to Rutherford Chemicals. With respect to certain pre-closing environmental matters, the Company retains the responsibility for: (i) certain existing matters including violations, environmental testing for the New York facility incinerator and off-site liabilities; and (ii) completing the on-going remediation at the New York facility. Further, as a result of the sale of the Bayonne, New Jersey facility within Rutherford Chemicals, and as discussed in the Environmental Section above, the obligation to investigate site conditions and conduct required remediation under the provisions of the New Jersey Industrial Site Recovery Act was triggered; and the Company has retained the responsibility for completion of any such investigation and remediation. With respect to all other pre-closing environmental liabilities, whether known or unknown, the Buyer is responsible for the management of potential future matters; however, the Buyer and the Company may share the costs of associated remediation with respect to such potential future matters, subject to certain limitations defined in the agreement for sale. The Company has accrued for exposures which are deemed probable and estimable. In March 2005, the Company received a claim from the Buyers claiming breach of certain representations, warranties and covenants contained in the Purchase Agreement. In April 2005, the Company responded rejecting the claim. Thereafter, the Buyers submitted an amended claim. The amended claim alleges breaches of representations, warranties and covenants covering each of the five operating sites sold pursuant to the Purchase Agreement and are related primarily to facility structures, utilities and equipment and alleges damages of $26,407. To the extent the alleged damages arise from breaches of representations and warranties, the claim would be subject to a cap of between approximately $14,000 and $16,250, depending on whether certain contingent payments are made, and is subject to the deductible of $750 which is the responsibility of the Buyers. In May 2005, the Company responded to the Buyers and rejected the claim entirely. In September 2005, the Company received a request for indemnity ("September Notice") from the Buyers related to an arbitration claim filed by a Rutherford Business customer ("Customer"). The arbitration claim arises from a claimed breach of a supply agreement that was assigned to and assumed by 20 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) the Buyers pursuant to the Purchase Agreement. Thereafter, the Company was also served with an arbitration claim by the Customer related to the same matter. In the arbitration claim, the Customer claims $30,000 in damages arising from Buyers' breach of the supply agreement. The Buyers claim that the September Notice amends the earlier claims that they filed in March and April 2005, as discussed above, and that the Customer's claimed breach of the supply agreement should be treated as part of a breach of a representation, warranty or covenant set forth in the earlier notices. The supply agreement was assigned to and assumed by the Buyers, and the Company has now been dismissed from the Customer's arbitration claim. In October 2005, the Company rejected the Buyers' claim for indemnity under the September Notice in its entirety. In October 2005, the Company received a notice from the Buyers ("October Notice") that summarized the claims previously received in March and April 2005, and included the Buyers' response to the Company's April and May rejection of the earlier notices. The October Notice also set forth additional claims for environmental matters related to the Rutherford Business that relate to environmental matters at each of the five operating sites sold pursuant to the Purchase Agreement. In December 2005, the Buyers added two additional environmental claims related to the former operating sites ("December Notices"). The Company has now responded to the October and December Notices disputing the environmental claims on various grounds, including that the Company believes most claims relate to Buyers' obligations under the Purchase Agreement. The Company also requested additional information because some environmental claims may be covered by sections of the Purchase Agreement where the parties share liability concerning such matters. In April 2006, the Company received a summons and complaint (the "Complaint") from the Buyers, which was filed in the Supreme Court of the State of New York, County of New York. The Complaint seeks indemnification, declaratory and injunctive relief for alleged (i) breaches of representations, warranties and covenants covering each of the former operating sites related to facility structures, utilities and equipment included in the March, April and October Notices mentioned above and the allegedly related breach of the Customer Supply Agreement arising from a breach of warranty at the Harriman facility included in the September Notice mentioned above (collectively "Equipment Matters"); and (ii) claims related to environmental matters at each of the five operating locations, most of which related to the former Harriman location included in the October Notice and December Notices mentioned above (collectively "Environmental Matters"). The Company continues its evaluation of Buyers' allegations and intends to defend itself against these claims vigorously. The Company continues to believe that the Equipment Matters are without merit. Further, the Company continues to believe that based on current information the majority of the Environmental Matters are either the Buyers' responsibility or without merit and the remaining are otherwise not reasonably estimable at this time. As such, the Company has recorded no reserves for this matter. Class Action Matter In October 2003, the Company was notified of a securities class action lawsuit filed against Cambrex and five former and current Company officers. Five class action suits were filed with the New Jersey Federal District Court (the "Court"). Discovery in this matter is proceeding. In January 2004, the Court consolidated the cases, designated the lead plaintiff and selected counsel to represent the class. An amended complaint was filed in March 2004. The lawsuit has been brought as a class action in the names of 21 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) purchasers of the Company's common stock from October 21, 1998 through July 25, 2003. The complaint alleges that the Company failed to disclose in a timely fashion the January 2003 accounting restatement and subsequent SEC investigation, as well as the loss of a significant contract at the Baltimore facility. The Company filed a Motion to Dismiss in May 2004. Thereafter, the plaintiff filed a reply brief. In October 2005, the Court denied the Company's Motion to Dismiss against the Company and two current Company officers. The Company has reached its deductible under its insurance policy and further costs, expenses and any settlement is expected to be paid by the Company's insurers. The Company continues to believe that the complaints are without merit and will vigorously defend against them. As such, the Company has recorded no reserves related to this matter. Securities and Exchange Commission The SEC is currently conducting an investigation into the Company's inter-company accounting procedures from the period 1997 through 2001. The investigation began in the first half of 2003 after the Company voluntarily disclosed certain matters related to inter-company accounts for the five-year period ending December 31, 2001 that resulted in the restatement of the Company's financial statements for those years. To the Company's knowledge, the investigation is limited to this inter-company accounting matter, and the Company does not expect further revisions to its historical financial statements relating to these issues. The Company is fully cooperating with the SEC. Baltimore Litigation In 2001, the Company acquired the biopharmaceutical manufacturing business in Baltimore (the "Baltimore Business"). The sellers of the Baltimore Business filed suit against the Company alleging that the Company made false representations during the negotiations on which the sellers relied in deciding to sell the business and that the Company breached its obligation to pay additional consideration as provided in the purchase agreement which was contingent on the performance of the Baltimore Business. Management believes the matter to be without merit and continues its defense of this matter. Other The Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiary obligations to the Company's lenders related to financial assurance obligations under certain environmental laws for remediation, closure and/or third party liability requirements of certain of its subsidiaries and a former operating location; contract provisions for indemnification protecting its customers and suppliers against third party liability for manufacture and sale of Company products that fail to meet product warranties and contract provisions for indemnification protecting licensees against intellectual property infringement related to licensed Company technology or processes. Additionally, as permitted under Delaware law, the Company has agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that covers a portion of any potential exposure. 22 CAMBREX CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (dollars in thousands, except share data) (13) CONTINGENCIES (CONTINUED) The Company currently believes the estimated fair value of its indemnification agreements is not significant based on currently available information, and as such, the Company has no liabilities recorded for these agreements as of September 30, 2006. In addition to the matters identified above, Cambrex's subsidiaries are party to a number of other proceedings. The Company's litigation matters, if resolved in an unfavorable manner, could have a material effect on the operating results and cash flows when resolved in a future reporting period. (14) SUBSEQUENT EVENTS On October 20, 2006, the Company signed a definitive stock purchase agreement to sell two facilities within the Human Health segment to a holding company controlled by International Chemical Investors II S.A. for nominal consideration. The sale closed on October 27, 2006. As a result of this transaction, the Company expects to report a non-cash charge of approximately $30,000 in the fourth quarter of 2006. Gross sales for these two facilities for the three months and nine months ended September 30, 2006 were $8,764 and $28,571, respectively. On October 24, 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) for total cash consideration of $460,000. The Company expects to realize net proceeds after tax and transaction fees of approximately $450,000. This sale is subject to the Company's stockholders approval as well as customary regulatory approvals and is expected to close in the first quarter of 2007. The Bioproducts and Biopharma segments had combined gross sales of $50,941 and $157,169 for the three and nine months ended September 30, 2006, respectively. 23 CAMBREX CORPORATION AND SUBSIDIARIES (dollars in thousands, except share data) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE OVERVIEW The Company's business consists of three segments - Bioproducts, Biopharma and Human Health. The Bioproducts segment consists of research products and services and therapeutic applications. The Biopharma segment consists of the Company's biopharmaceutical process development and manufacturing business. The Human Health segment is primarily comprised of active pharmaceutical ingredients derived from organic chemistry and pharmaceutical intermediates. The following significant events occurred during the third quarter 2006 which affected reported operating profit: - A charge of approximately $1,700 recorded within administrative expenses for the costs related to the evaluation of strategic alternatives to enhance shareholder value. - A $2,092 goodwill impairment charge recorded within operating expenses for the write-off of goodwill for a reporting unit within the Human Health segment. Subsequent to the third quarter 2006 the Company signed a definitive stock purchase agreement to sell two facilities within the Human Health segment to a holding company controlled by International Chemical Investors II S.A. This transaction closed on October 27, 2006. In addition, in October 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of the businesses that comprise the Bioproducts and Biopharma segments. RESULTS OF OPERATIONS COMPARISON OF THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005 The following tables show the gross sales of the Company's three segments, in dollars and as a percentage of the Company's total gross sales, for the three months ended September 30, 2006 and 2005.
2006 2005 ---------------- ---------------- $ % $ % -------- ----- -------- ----- Bioproducts $ 39,326 34.7% $ 35,729 34.2% Biopharma 11,615 10.3 8,385 8.0 Human Health 62,264 55.0 60,386 57.8 -------- ----- -------- ----- Total gross sales $113,205 100.0% $104,500 100.0% ======== ===== ======== =====
The following table shows the gross profit of the Company's three segments for the three months ended September 30, 2006 and 2005.
2006 2005 ------------------- ------------------- Gross Gross Gross Gross Profit $ Profit % Profit $ Profit % -------- -------- -------- -------- Bioproducts $19,363 49.2% $18,481 51.7% Biopharma (165) (1.4) (2,137) (25.5) Human Health 20,004 32.1 20,478 33.9 ------- ------- Total $39,202 34.6% $36,822 35.2% ======= =======
24 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005 (CONTINUED) Gross sales in the third quarter 2006 increased 8.3% to $113,205 from $104,500 in the third quarter 2005 due to stronger sales in all segments. Gross sales were favorably impacted 2.2% due to exchange rates reflecting a weaker U.S. dollar in the third quarter of 2006 versus 2005. Gross profit in the third quarter of 2006 was $39,202 compared to $36,822 in 2005. Gross margin percentage decreased to 34.6% from 35.2% in the third quarter of 2005 as a result of product mix and higher production costs. Additionally, the Company reclassified certain employee medical benefit expenses from segment cost of goods sold and operating expense to Corporate operating expenses to better reflect actual costs incurred within the operating segments. The 2006 results include this reclassification. If the Company had applied this new methodology to the third quarter of 2005, gross margins would have been 35.6%. The following table shows sales by geographic area for the three months ended September 30, 2006 and 2005:
2006 2005 -------- -------- North America $ 52,729 $ 46,157 Europe 52,658 50,738 Asia 5,098 5,419 Other 2,720 2,186 -------- -------- Total Gross Sales $113,205 $104,500 ======== ========
Bioproducts gross sales in the third quarter 2006 of $39,326 were $3,597 or 10.1% above the third quarter 2005. The Bioproducts segment gross sales were favorably impacted 1.9% due to exchange rates reflecting a weaker U.S. dollar in the third quarter of 2006 versus 2005. Within the Bioproducts segment, research products gross sales of $18,726 were $429 or 2.3% above the third quarter 2005 due primarily to increased sales of cell biology products as a result of higher pricing. Therapeutic applications gross sales of $20,600 were $3,168 or 18.2% above the third quarter 2005 due primarily to increased sales in cell therapy services as a result of the timing of shipments and addition of new customers. Sales of rapid microbial detection ("RMD") products and biotherapeutic media also increased. Bioproducts gross margins decreased to 49.2% in the third quarter 2006 from 51.7% in the third quarter 2005. If the Company had applied the new medical allocation methodology to the third quarter 2005, gross margins would have been 52.2%. The decrease in margins is primarily due to higher production costs and product mix partially offset by price increases and a favorable impact due to foreign currency. Biopharma gross sales in the third quarter 2006 of $11,615 were $3,230 or 38.5% above the third quarter of 2005 reflecting higher fees for suites and process development revenue partially offset by lower labor fees and reimbursed materials. Foreign currency had no impact on the Biopharma segment. Biopharma gross margins increased to (1.4%) in the third quarter 2006 from (25.5%) in the third quarter 2005. If the Company had applied the new medical allocation methodology to the third quarter 2005, gross margins would have been (23.6%). This increase primarily reflects higher revenue partially offset by higher production costs. Human Health gross sales in the third quarter 2006 of $62,264 were $1,878 or 3.1% above the third quarter 2005. The Human Health segment gross sales were favorably impacted 2.7% due to foreign exchange in the third quarter of 2006 versus 2005. 25 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005 (CONTINUED) Within the Human Health segment, sales of active pharmaceutical ingredients ("APIs") of $50,007 were $3,792 or 8.2% above the third quarter 2005 primarily due to higher generics sales volume partially offset by lower pricing. Sales of pharmaceutical intermediates of $5,081 were $3,305 or 39.4% below the third quarter 2005 primarily due to weaker demand for custom development products and an intermediate used for treatment of end-stage kidney disease. Sales of other Human Health products of $7,176 were $1,391 or 24.0% above the third quarter 2005 primarily due to stronger demand for x-ray media and crop protection partially offset by lower sales of feed additives. Human Health gross margins decreased to 32.1% in the third quarter 2006 from 33.9% in the third quarter 2005. If the Company had applied the new medical allocation methodology to the third quarter 2005, gross margins would have been 34.1%. This decline is due to unfavorable product mix partially offset by a favorable impact of foreign currency exchange. Selling, general and administrative expenses ("SG&A") of $29,102 or 25.7% of gross sales in the third quarter 2006 increased from $25,825, or 24.7% in the third quarter 2005. If the Company had applied the new medical allocation methodology to the third quarter 2005, SG&A expenses would have been 25.1% of sales. The increase in expense is due primarily to higher administration expenses related to costs associated with the strategic alternative process and higher legal and audit fees. The impact of foreign currency exchange was negligible. Research and development expenses of $5,115 were 4.5% of gross sales in the third quarter 2006, compared to $4,862 or 4.7% of gross sales in the third quarter 2005. The increase in expense primarily reflects Cutanogen Corporation ("Cutanogen"), acquired in February 2006, related costs. The impact of foreign currency exchange was negligible. The Company recorded a goodwill impairment charge of $2,092 during the third quarter of 2006 to write-off the remaining goodwill for a reporting unit within the Human Health segment. This charge resulted from lower cash flow projections to compute the implied fair value of goodwill as a result of current market conditions. The facility for which the impairment was recorded was divested in October 2006 as described in Note 14. Operating profit in the third quarter 2006 was $2,893 compared to $6,135 in the third quarter of 2005. The results reflect higher operating expenses partially offset by higher gross margins as discussed above. Net interest expense of $2,540 in the third quarter 2006 decreased $261 from the third quarter 2005 primarily reflecting lower average debt partially offset by higher interest rates. The average interest rate was 6.1% in the third quarter of 2006 versus 5.8% in the third quarter of 2005. The effective tax rate for the third quarter 2006 was 1,289.0% compared to 101.4% in the third quarter 2005. The tax provision in the third quarter 2006 increased to $4,666 compared to $3,407 in the third quarter of 2005. The third quarter of 2006 includes $1,696 of income tax expense related to the true-up of the 2005 foreign tax provision and tax returns currently under audit. Additionally, the results for the third quarter 2006 include larger losses domestically and within certain foreign jurisdictions where the Company is unable to recognize a tax benefit related to these losses within its tax provision. The Company maintains a full valuation allowance against its domestic, and certain foreign, net deferred tax assets and will continue to do so until an appropriate level of profitability is sustained or tax strategies can be developed that would 26 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005 (CONTINUED) enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized. As such, improvements in domestic, and certain foreign, pre-tax income in the future may result in these tax benefits ultimately being realized. However, there is no assurance that such improvements will be achieved. Net loss in the third quarter of 2006 was $4,304, or $0.16, per diluted share versus $48, or $0.00 per diluted share in the same period a year ago. COMPARISON OF FIRST NINE MONTHS 2006 VERSUS FIRST NINE MONTHS 2005 The following tables show the gross sales of the Company's three segments, in dollars and as a percentage of the Company's total gross sales, for the nine months ended September 30, 2006 and 2005.
2006 2005 ---------------- ---------------- $ % $ % -------- ----- -------- ----- Bioproducts $121,740 34.2% $113,638 34.3% Biopharma 35,429 9.9 27,747 8.4 Human Health 199,220 55.9 189,748 57.3 -------- ----- -------- ----- Total gross sales $356,389 100.0% $331,133 100.0% ======== ===== ======== =====
The following table shows the gross profit of the Company's three segments for the nine months ended September 30, 2006 and 2005.
2006 2005 ------------------- ------------------- Gross Gross Gross Gross Profit $ Profit % Profit $ Profit % -------- -------- -------- -------- Bioproducts $ 63,491 52.2% $ 59,952 52.8% Biopharma (783) (2.2) (4,800) (17.3) Human Health 64,187 32.2 65,202 34.4 -------- -------- Total gross profit $126,895 35.6% $120,354 36.3% ======== ========
Gross sales for the first nine months of 2006 increased 7.6% to $356,389 from $331,133 in the first nine months of 2005. Sales increased in all segments. Gross sales were unfavorably impacted 1.0% due to exchange rates reflecting a stronger U.S. dollar in the first nine months of 2006 versus 2005. Gross profit in the first nine months of 2006 was $126,895 compared to $120,354 in the first nine months of 2005. Gross margin percentage decreased to 35.6% from 36.3% in the first nine months of 2005. During the second quarter of 2006 the Company reclassified certain employee medical benefit expenses from segment cost of goods sold and operating expense to Corporate operating expenses to better reflect actual costs incurred within the operating segments. The 2006 results include this reclassification. If the Company had applied this new methodology to the first nine months of 2005, gross margins would have been 36.7%. The reduced gross margin percentage reflects lower margins in the Human Health and Bioproducts segments. 27 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF FIRST NINE MONTHS 2006 VERSUS FIRST NINE MONTHS 2005 (CONTINUED) During the third quarter of 2006, the Company recorded adjustments related to prior periods, primarily within the Human Health segment, with a net effect of decreasing pre-tax income by $85. The adjustments included $835 of expense (principally inventory reserves) related to 2005 and prior and $750 of increased revenues related to the first six months of 2006. The following table shows sales by geographic area for the nine months ended September 30, 2006 and 2005:
2006 2005 -------- -------- North America $166,351 $150,587 Europe 168,493 158,731 Asia 13,737 14,879 Other 7,808 6,936 -------- -------- Total Gross Sales $356,389 $331,133 ======== ========
Bioproducts gross sales in the first nine months of 2006 of $121,740 were $8,102 or 7.1% above the first nine months of 2005. Sales were unfavorably impacted 0.7% due to exchange rates reflecting a stronger U.S. dollar in the first nine months of 2006 versus 2005. Within the Bioproducts segment, research products gross sales of $59,765 were $2,371 or 4.1% above the first nine months of 2005 due primarily to increased sales of cell biology and molecular biology products as a result of stronger demand, higher pricing and timing of shipments. Therapeutic applications gross sales of $61,975 were $5,731 or 10.2% above the first nine months of 2005 due primarily to increased sales in cell therapy services as a result of the timing of shipments and the addition of new customers. Sales of RMD products also increased due to strong demand and favorable pricing. Bioproducts gross margins decreased to 52.2% in the first nine months of 2006 from 52.8% in the first nine months of 2005. If the Company had applied the new medical allocation methodology to the first nine months of 2005, gross margins would have been 53.2%. The decrease in margins is primarily due to higher production costs partially offset by increased prices and a favorable impact due to foreign currency. Biopharma gross sales in the first nine months of 2006 of $35,429 were $7,682 or 27.7% above the first nine months of 2005 reflecting higher fees from suites, primarily resulting from the shipments, in the first quarter of 2006, of all remaining inventories to a client that terminated their project due to their unfavorable regulatory developments during clinical trials in the fourth quarter of 2005 and the addition of new clients, reimbursed materials and process development, partially offset by lower labor fees. Foreign currency had no impact on the Biopharma segment. Biopharma gross margins were (2.2%) in the first nine months of 2006 compared to (17.3%) in the first nine months of 2005. If the Company had applied the new methodology to the first nine months of 2005, gross margins would have been (15.5%). The increase in margins is primarily due to higher revenues partially offset by higher production costs. Human Health gross sales for the first nine months of 2006 of $199,220 were $9,472 or 5.0% above the first nine months of 2005. Human Health sales were unfavorably impacted 1.3% due to foreign exchange in the first nine months 2006 versus 2005. 28 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF FIRST NINE MONTHS 2006 VERSUS FIRST NINE MONTHS 2005 (CONTINUED) Within the Human Health segment, sales of APIs of $155,070 were $8,789 or 6.0% above the first nine months of 2005 primarily due to higher sales volume partially offset by continued price erosion. Sales of pharmaceutical intermediates of $20,859 were $2,273 or 9.8% below the first nine months of 2005 primarily due to weaker demand for custom development products and an intermediate used for treatment of end-stage kidney disease. Sales of other Human Health products of $23,291 were $2,956 or 14.5% above the first nine months of 2005 primarily due to stronger demand for x-ray media partially offset by weaker sales of feed additives. Human Health gross margins decreased to 32.2% in the first nine months of 2006 from 34.4% in the first nine months 2005. If the Company had applied the new medical allocation methodology to the first nine months of 2005, gross margins would have been 34.5%. The decrease in margins is due to continued pricing pressures on APIs and unfavorable impact of foreign currency translation partially offset by higher sales volume. Selling, general and administrative expenses of $86,407 or 24.2% of gross sales in the first nine months of 2006 increased from $77,640 or 23.4% in the first nine months of 2005. If the Company had applied the new medical allocation methodology to the first nine months of 2005, SG&A expenses would have been 23.8% of sales. The increase in expense is due primarily to higher administrative expenses related to costs associated with the strategic alternative process and higher legal fees partially offset by the impact of foreign currency exchange. Research and development expenses of $16,608 were 4.7% of gross sales in the first nine months of 2006, compared to $16,601 or 5.0% of gross sales in the first nine months of 2005. The expense primarily reflects Cutanogen in process research and development costs partially offset by a reduction of corporate personnel, lower labor costs and the impact of foreign currency. The Company recorded a goodwill impairment charge of $2,092 during the third quarter of 2006 to write-off the remaining goodwill for a reporting unit within the Human Health segment. This charge resulted from lower cash flow projections to compute the implied fair value of goodwill as a result of current market conditions. The facility for which the impairment was recorded was divested in October 2006 as described in Note 14. Operating profit in the first nine months of 2006 was $21,788 compared to $26,113 in the first nine months of 2005. Net interest expense of $12,188 in the first nine months of 2006 increased $3,906 from the first nine months of 2005. The Company incurred costs of $5,272 associated with the prepayment of Senior Notes. Excluding this charge, net interest expense decreased $1,366 primarily reflecting lower average debt partially offset by higher interest rates. The average interest rate was 5.7% in the first nine months of 2006 versus 5.5% in the first nine months of 2005. The effective tax rate for the first nine months of 2006 was 147.5% compared to 37.4% in the first nine months of 2005. The tax provision in the first nine months of 2006 increased to $13,998 compared to $6,637 in the first nine months of 2005. The first nine months of 2006 includes $1,696 of income tax expense related to the true-up of the 2005 foreign tax provision and tax returns currently under audit. The tax rate for the first nine months of 2005 includes the favorable settlement of a tax matter in Sweden of $3,329. Additionally, the results for the first nine months of 2006 include larger losses domestically and within certain foreign jurisdictions where the Company is unable to recognize a tax benefit related to these losses within its tax provision. The Company maintains a full valuation allowance against its domestic and certain foreign, net deferred tax assets and will continue to do so until an appropriate level of profitability is 29 RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF FIRST NINE MONTHS 2006 VERSUS FIRST NINE MONTHS 2005 (CONTINUED) sustained or tax strategies can be developed that would enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized. As such, improvements in domestic, and certain foreign, pre-tax income in the future may result in these tax benefits ultimately being realized. However, there is no assurance that such improvements will be achieved. Net loss in the first nine months of 2006 was $4,733, or $0.18, per diluted share versus net income of $11,122, or $0.42 per diluted share in the same period a year ago. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109 ("FIN 48"), which clarifies the accounting for uncertainty in income tax positions. This Interpretation requires that the Company recognize in the consolidated financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The provisions of FIN 48 will be effective for Cambrex at the beginning of the Company's 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the consolidated financial statements. In September 2006, the FASB issued FASB Statement No. 157 "Fair Value Measurements" ("FAS 157"). This statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This statement will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of this statement. In September 2006, the FASB issued FASB Statement No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("FAS 158") which is effective for fiscal years ending after December 15, 2006. FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement does not impact the amounts recognized in the income statement. FAS 158 will also require an employer to measure the funded status of a plan as of the date of the year end balance sheet. This measurement requirement is effective for fiscal years ending after December 15, 2008. Based on the Company's funded status of plan obligations disclosed in Notes 14 and 15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005, the estimated impact of adopting FAS 158 would have been a reduction to December 31, 2005 comprehensive income of approximately $5,910, with no impact to the Company's consolidated statements of operations or cash flows. It is not expected that there will be any affect on the Company's financing agreements as none of the current debt covenants will be impacted. As the actual impact of adopting FAS 158 will be dependent upon the fair value of plan assets and the amount of projected benefit obligations measured as of December 31, 2006, the above estimated amounts may not be reflective of the actual impact of the adoption at December 31, 2006. 30 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased $11,474 in the first nine months of 2006. During the nine months ended September 30, 2006, the Company generated cash flows from operations totaling $21,556, an increase of $1,209 versus the same period a year ago. The increase in cash flows generated from operations in the first nine months of 2006 versus the first nine months of 2005 is due primarily to improved collections of accounts receivable and timing of sales volume. Reduced build up of custom development inventory within the Human Health segment and reduced serum inventory within the Bioproducts segment also contributed to the increase in cash flows from operations partially offset by a decrease in net income. Capital expenditures from continuing operations were $26,461 in the first nine months of 2006 as compared to $27,987 in 2005. Part of the funds in 2006 were used for cell therapy manufacturing capabilities at the Bioproducts facility in Walkersville, MD, a new warehouse and API purification and finishing facility in Milan, Italy and capital improvements to existing facilities. Cash flows used in financing activities in the first nine months of 2006 of $7,737 include net pay down of debt of $6,835 and dividends paid of $2,407 partially offset by proceeds from stock options exercised of $1,618. In the first nine months of 2005 financing activities include a net pay down of debt of $42,193, dividends paid of $2,376 partially offset by proceeds from stock options exercised of $1,521. During the first nine months of 2006 and 2005, the Company paid cash dividends of $0.09 per share. Management believes that existing sources of capital, together with cash flows from operations, will be sufficient to meet foreseeable cash flow requirements. On October 24, 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of the businesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) for total cash consideration of $460,000. The sale of these businesses, which is subject to Cambrex stockholder and customary regulatory approvals, is expected to close during the first quarter of 2007. The Company anticipates repaying outstanding debt and assuming the arrangement of new lines of credit of $125,000 to $150,000 on favorable terms and plans to pay stockholders a special dividend of approximately $13.50 to $14.50 per share. Upon, or shortly after, the closing of the sale of the Bioproducts and Biopharma business units, approximately $20,000 of expense is expected to be incurred related to certain retention and performance bonus plans and the triggering of change of control employment agreements with certain individuals. FORWARD-LOOKING STATEMENTS This document may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under The Securities Exchange Act of 1934, including, without limitation, statements regarding expected performance, especially expectations with respect to sales, research and development expenditures, earnings per share, capital expenditures, acquisitions, divestitures, collaborations, or other expansion opportunities. These statements may be identified by the fact that they use words such as "expects," "anticipates," "intends," "estimates," "believes" or similar expressions in connection with any discussion of future financial and operating performance. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Form 10-Q. The forward-looking statements contained herein are based on current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from current expectations including, but not limited to, global economic trends, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and/or regulations (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, changes in foreign exchange rates, performance of minority investments, uncollectable receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, lack of suitable raw materials or packaging materials, the possibility that the value of the acquisition of PermaDerm cultured skin may not be realized or that our plans to obtain a Humanitarian Device 31 FORWARD-LOOKING STATEMENTS (CONTINUED) Exemption, completion of clinical trials and commercialization of PermaDerm cultured skin in the United States may not be successful, the Company's ability to receive regulatory approvals for its products, the outcome of the evaluation of strategic alternatives, the satisfaction of conditions to closing set forth in the stock purchase agreement with Lonza and the availability of financing on favorable terms in order to fund the portion of the special dividend that is not being funded from proceeds of the sale. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For further details and a discussion of these and other risks and uncertainties, investors are cautioned to review the Cambrex 2005 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the U.S. Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no significant change in our exposure to market risk during the first nine months of 2006. For a discussion of the Company's exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in the Company's Annual Report on Form 10-K for the period ended December 31, 2005. ITEM 4. CONTROLS AND PROCEDURES The Company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls include components of internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. As reported in its annual report on Form 10-K for the year ended December 31, 2005, the Company's management identified a material weakness in its internal control over accounting for income taxes. Specifically, the Company did not have a sufficient level of experienced personnel to enable the Company to properly consider and apply generally accepted accounting principles to the accounting for income taxes. Additionally, the Company did not maintain effective controls to determine the completeness and accuracy of the components of the income tax provision calculations and the related deferred income taxes and income taxes payable, including the monitoring of the differences between the tax basis and the financial reporting basis of assets and liabilities to effectively reconcile the deferred taxes balances. As a result of this material weakness, management concluded in its 2005 annual report on Form 10-K that the Company's internal controls over financial reporting was not effective as of December 31, 2005. During the nine months ended September 30, 2006, the Company has added experienced personnel and implemented additional controls and procedures in order to remediate the material weakness discussed above, and it is continuing to assess the need for additional controls, procedures and resources that may be 32 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES (CONTINUED) required to remediate the material weakness. The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2006, pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) (the "Exchange Act"). As part of its evaluation, management has evaluated whether the material weakness in internal control over financial reporting continues to exist. The Company continues to consider or implement additional controls, procedures and resources impacting its accounting for income taxes. The Company has not completed its remediation activities and testing of the changes in controls and procedures which it believes are necessary to conclude that the material weaknesses have been remediated. As a result, the Company's management has concluded that it cannot assert that the material weakness has been effectively remediated as of September 30, 2006. Based upon this conclusion, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2006. The Company believes that the actions it has taken to date, including the changes outlined below, are sufficient, such that the information contained in this quarterly report fairly states, in all material respects, the financial condition and results of operations of the Company for the periods presented. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. During the nine months ended September 30, 2006, management has taken the following actions listed below to remediate the material weakness described in the Company's annual report on Form 10-K for the year ended December 31, 2005: - Strengthened procedures whereby the current income tax payable account and deferred income tax asset and liability accounts are reconciled on a regular and timely basis. - Increased level of review and discussion of significant tax matters and supporting documentation with senior finance management. - Hired a Senior Director and Director of Tax. - Identified interim personnel to augment existing corporate tax staff to ensure there are adequate resources to reconcile all tax-related accounts for each reporting period. The Company continues to identify other controls, procedures, and resources to improve both the preparation and review of accounting for income taxes. We expect to complete this process and implement additional procedures to address this material weakness during the fourth quarter of 2006. We believe that, once fully implemented, these remediation steps will be sufficient to eliminate the material weakness described above. There have been changes, as indicated above, in the Company's internal control over financial reporting during the Company's most recently completed quarter that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting. 33 PART II - OTHER INFORMATION CAMBREX CORPORATION AND SUBSIDIARIES ITEM 1 LEGAL PROCEEDINGS See the discussion under Part I, Item 1, Note 13 to the Consolidated Financial Statements. ITEM 1A RISK FACTORS There have been no material changes to our risk factors and uncertainties during the first nine months of 2006. For a discussion of the Risk Factors, refer to Part I, Item 1A, "Risk Factors," contained in the Company's Annual Report on Form 10-K for the period ended December 31, 2005. ITEM 6. EXHIBITS Exhibits 1. Exhibit 10.20.1 - Form of Amendment to Employment Agreement between the registrant and its executive officers named in the Revised Schedule of Parties to the Employment Agreement both as filed as an Exhibit to the Annual Report on Form 10-K for the period ended December 31, 2005. 2. Exhibit 10.43 - Stock Purchase Agreement, dated October 19, 2006, and the Transition Services Agreement, dated October 27, 2006, between Cambrex AB and International Chemical Investors II S.A. 3. Exhibit 31.1 - CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 4. Exhibit 31.2 - CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 5. Exhibit 32.1 - CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 6. Exhibit 32.2 - CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBREX CORPORATION By /s/ Luke M. Beshar ------------------------------------- Luke M. Beshar Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as the Registrant's Principal Financial Officer) Dated: November 9, 2006 35 EX-10.20.1 2 y26920exv10w20w1.txt EX-10.20.1: FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10.20.1 AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN CAMBREX CORPORATION AND ---------- WHEREAS, Cambrex Corporation, a Delaware corporation (the "Company"), and _______________ (the "Employee") have previously entered into an Employment Agreement dated as of February 6, 2006 (the "Employment Agreement" herein), which Employment Agreement will become effective upon the occurrence of any one of the several enumerated events specified therein; and WHEREAS, the Company has determined that the terms of the Employment Agreement as currently in effect do not adequately protect the interests of the Employee in all circumstances if one or more of such enumerated events should occur; and WHEREAS, the Company desires that the Employee continue in its employ after the date hereof; and WHEREAS, to induce the Employee to remain in its employ, the Company is willing to amend the Employment Agreement in the manner hereinafter set forth. NOW, THEREFORE, the Employment Agreement is amended in the manner set forth below. 1. Section 4(b)(ii) of the Employment Agreement is deleted and replaced with the following language: (ii) Annual Bonus. In addition to Base Salary, the Employee shall be eligible (but not entitled) to receive, for each fiscal year during the Employment Period, an annual bonus (an "Annual Bonus") (either pursuant to any incentive bonus plan maintained by the Company or otherwise) in cash, restricted stock, restricted stock units or other forms of remuneration on the same basis as with respect to the fiscal year immediately preceding the fiscal year in which the Effective Date occurs. 2 2. Section 6(d)(i)(B) of the Employment Agreement is deleted and replaced with the following language: B. the product of (x) the highest Annual Bonus earned by the Employee during the three fiscal years immediately preceding the Date of Termination and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is three hundred sixty-five (365); and 3. Section 6(d)(i)(F)(i) of the Employment Agreement is deleted and replaced with the following language: F. a lump-sum payment equal to the excess of (a) the actuarial equivalent of the benefit under the retirement plan of the Company or a subsidiary of the Company in which the Employee is a participant at the date hereof or any successor retirement plan (the "Retirement Plan") (and the supplemental and/or excess retirement plan, if any) the Employee would receive if he remained employed by the Company at the compensation level provided for in Section 6(d)(i) of this Agreement through the end of the Employment Period, assuming Employee was fully vested under such plan(s), over (b) the actuarial equivalent of the actual benefit, if any, the Employee is to receive under the Retirement Plan (and the supplemental and/or excess retirement plan), utilizing, in each case, the payment option available under the Retirement Plan (and the supplemental and/or excess retirement plan) which will produce the greatest lump-sum benefit to the Employee. The actuarial equivalent for determining the lump sum payment will use GAR94 Unisex Mortality Table at a 7% interest rate; and 4. Section 6(d)(i)(F)(ii) of the Employment Agreement is deleted and replaced with the following language: (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them as if the Employee's employment had not been terminated, in accordance with the most favorable employee benefit plans) of the Company and its subsidiaries (including health insurance and life insurance) during the ninety-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families, and for purposes of eligibility for retiree benefits pursuant to such employee welfare benefit plans, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and 3 5. This Amendment to the Employment Agreement shall be effective as of the date hereof. The Employment Agreement shall continue in full force and effect and, except as otherwise expressly amended hereby, is reaffirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of November 1, 2006. DATED: CAMBREX CORPORATION November 1, 2006 By: ------------------------------------ ------------------------------------ Chairman, President and Chief Executive Officer DATED: EMPLOYEE November 1, 2006 ---------------------------------------- EX-10.43 3 y26920exv10w43.txt EX-10.43: STOCK PURCHASE AGREEMENT Exhibit 10.43 SHARE PURCHASE AGREEMENT dated __ October 2006 BETWEEN: (1) CAMBREX AB of S-691, 85 Karlskoga, Sweden (the SELLER) (2) INTERNATIONAL CHEMICAL INVESTORS II S.A. of 26, rue Philippe II, L-2340 Luxembourg (the PURCHASER) (together the PARTIES) Words and expressions used in this Agreement shall be interpreted in accordance with Schedule 6. IT IS AGREED: 1. SALE AND PURCHASE 1.1 The Seller shall sell (or procure the sale of), and the Purchaser shall purchase the Shares with effect from the Closing on terms that the same covenants shall be deemed to be given by the Seller on Closing in relation to the Shares as are implied under Part 1 of the Law of Property Miscellaneous Provisions Act 1994 where a disposition is expressed to be made with full title guarantee and with all rights then attaching to them including the right to receive all distributions and dividends declared, paid or made in respect of the relevant Shares after Closing. The sale and purchase of the Shares shall be on the terms set out in this Agreement. 1.2 The consideration for the purchase of the Shares shall be the payment of the sum of E1.00 payable by the Purchaser at Closing, subject to adjustment in accordance with Clause 3 below. 2. PRE-CLOSING SELLER UNDERTAKINGS AND CLOSING 2.1 From the date of this Agreement until Closing, the Seller shall comply with the obligations set out in Schedule 4. 2.2 Closing shall be conditional on Landen having consulted with the Belgian employee works council in relation to the Proposed Transaction, unless such Condition is waived in accordance with Clause 2.4 of this Agreement. 2.3 The Seller shall, at its own cost, use all reasonable endeavours to ensure that the Condition set out in Clause 2.2 is fulfilled as soon as possible after the date of this agreement to the satisfaction of the Purchaser. 2.4 The Purchaser shall be entitled in its absolute discretion, by written notice to the Seller, to waive the Condition either in whole or in part. 2.5 Subject to the Condition being satisfied, Closing shall take place at the Brussels offices of the Seller's lawyers on the date of 31 October 2006 or such other date agreed between the parties. 2.6 At Closing, the Seller and the Purchaser shall deliver or perform (or ensure that there is delivered or performed) all those documents, items and actions respectively listed in relation to that party or any of its Affiliates (as the case may be) in Schedule 6. Neither the Seller nor the Purchaser shall be obliged to proceed to Closing unless the other party complies in full with its obligations in Schedule 6. 2.7 The Seller shall procure that at Closing every member of the Seller Group who is owed amounts in respect of Inter-Company Debt shall enter into legal and equitable assignments of such Inter-Company Debt and the Seller shall indemnify the Purchaser for all Costs incurred by it or any Company for breach of this Clause 2.7. 3. WORKING CAPITAL ADJUSTMENT 3.1 The parties agree that the provisions of Schedule 7 shall have effect. 3.2 On the date of, and immediately prior to, the Closing, in relation to all Cash belonging to the Companies, whether in the Seller Group's accounts attributable to the Cambrex Cork group and/or Landen or in the accounts of the Cambrex Cork group and/or Landen, the Seller shall cause the combined Cash balance in the Companies to equal the Cash Threshold. Prior to Closing, in the event that the combined Cash balance in the Companies is in excess of the Cash Threshold, the Seller may procure that the amount of the excess (which is for the benefit of the Seller) will be paid by the relevant Company (whether by way of dividend, repayment of existing indebtedness or other lawful payment) to the Seller or any other member of the Seller Group prior to Closing. 3.3 When the Net Working Capital Schedule has been finally agreed or determined in accordance with Schedule 7, the following payments shall be made: (a) (i) In the event that the combined Net Working Capital of the Companies as set forth in the Net Working Capital Schedule is less than the Working Capital Threshold the Seller shall within five (5) Business Days after the determination of the Net Working Capital pay or cause to be paid to the Companies, as directed by the Purchaser, an amount equal to the difference between the Working Capital Threshold and the combined Net Working Capital of the Companies as set forth in the Net Working Capital Schedule (the WORKING CAPITAL DEFICIT); and (ii) the Purchaser shall within five (5) Business Days after the determination of the Net Working Capital issue a Note equal to the lesser of 50% of the Working Capital Deficit or E250,000 and such amount shall be payable to the Seller in full within 24 months after the determination of the Net Working Capital. (b) In the event that the combined Net Working Capital of the Companies as set forth in the Net Working Capital Schedule exceeds the Working Capital Threshold (the WORKING CAPITAL EXCESS), the Purchaser shall sign a Note for an amount equal to the Working Capital Excess and such amount shall be payable to the Seller in full within 90 days after the determination of the Net Working Capital. If the amounts owed to the Seller by the Purchaser under this Clause have not been paid within the 90 day period referred to above, the period for payment will be automatically extended for a further 60 days. Any payments under this Clause 3.3 shall be made to the Seller in accordance with clause 16.1 or as the Seller may direct. 4. SELLER WARRANTIES 4.1 The Seller warrants to the Purchaser as at the date of this Agreement in the terms of the Warranties as set forth in Schedule 1. Page 2 4.2 The Seller warrants that the Warranties (other than the Tax Dispute Warranty) will continue to be true and accurate in all respects and not misleading up to Closing as if repeated immediately before Closing by reference to the facts and circumstances subsisting at that date on the basis that any reference in the Warranties (other than the Tax Dispute Warranty), whether express or implied, to the date of this Agreement is substituted by a reference to the date of Closing. 4.3 The Warranties are given subject to the limitations set out in clause 4.4 and Schedule 2. None of the limitations set out in Schedule 2 shall apply to any Claim which arises (or to the extent that it is increased) as a consequence of fraud or fraudulent misrepresentation by any director or officer of any member of the Seller Group. 4.4 The Purchaser shall not be entitled to claim that any fact, matter, event or circumstance causes any of the Warranties to be breached in respect of the Warranties as given at the date of this Agreement, if it is disclosed or deemed to be disclosed in, or pursuant to, the Disclosure Letter. 5. PURCHASER WARRANTIES The Purchaser warrants to the Seller as at the date of this Agreement in the terms of the Warranties set out in Schedule 3. The Purchaser warrants that such Warranties will continue to be true and accurate in all respects and not misleading up to Closing as if repeated immediately before Closing by reference to the facts and circumstances subsisting at that date on the basis that any reference in the such Warranties, whether express or implied, to the date of this Agreement is substituted by a reference to the date of Closing. 6. CONDUCT OF PURCHASER CLAIMS If the Purchaser becomes aware of any claim or potential claim by a third party (a THIRD PARTY CLAIM) which might result in a claim being made, the Purchaser shall: (a) promptly (and in any event within 10 Business Days of becoming aware of it) give notice of the Third Party Claim or other matter or circumstance involving any person or party to the Seller providing that failure to give such notice within 10 Business Days of so becoming aware shall not prevent the Purchaser from making a claim (but the Seller shall not be liable for any Costs suffered as a result of any delay in giving notice of a claim); (b) ensure that the Seller and its representatives are given all reasonable information and facilities to investigate the Third Party Claim, to the extent such information and facilities are available to the Purchaser; (c) ensure that it and each member of the Purchaser Group shall: (i) not admit liability or make any agreement or compromise in relation to the Third Party Claim without prior written approval of the Seller; (ii) take such action as the Seller may reasonably request to avoid, resist, dispute, appeal, compromise or defend the Third Party Claim; (iii) allow the Seller (if it elects to do so) to take over the conduct of all proceedings and/or negotiations arising in connection with the Third Party Claim; and Page 3 (iv) provide such information and assistance as the Seller may reasonably require in connection with the preparation for and conduct of any proceedings and/or negotiations relating to the Third Party Claim, provided that in each case the Purchaser and each member of the Purchaser Group is indemnified and secured to the Purchaser's reasonable satisfaction by the Seller against all Costs incurred or suffered by any of them as a consequence of the Third Party Claim to the extent that the Purchaser is not liable for such Third Party Claim. 7. NO RIGHTS OF RESCISSION OR TERMINATION Save as expressly set out in the Agreement, the Purchaser shall not be entitled to rescind or terminate this Agreement in any circumstances whatsoever whether before or after Closing. This shall not exclude any liability for (or remedy in respect of) fraudulent misrepresentation. 8. TRANSITION SERVICES The Seller shall provide transition services to the Companies (the TRANSITION SERVICES) from the date of Closing and at Closing the parties shall enter into the Transition Services Agreement, in the Agreed Form, which shall set out the rates and charges and terms and conditions governing the Transition Services. 9. FORMER VENDOR DISPUTE 9.1 The Seller shall retain the liability and responsibility for and agrees to indemnify the Purchaser on a continuing basis in respect of all Costs incurred or suffered by it or any Company arising from the Dispute after Closing. 9.2 If and whenever the Purchaser becomes aware of any claim or potential claim in relation to the Former Vendor Dispute (FORMER VENDOR CLAIM) which might result in a claim being made against any Company or the Purchaser, the Purchaser shall: (a) promptly (and in any event within 10 Business Days of becoming aware of it) give notice of the Former Vendor Claim or other matter or circumstance involving any person or party to the Seller providing that failure to give such notice within 10 Business Days of so becoming aware shall not prevent the Purchaser from making a claim under this clause 9; and Seller shall be obligated to take over the conduct of the Former Vendor Claim; (b) provided the Seller is not in material breach of Clause 9.1, ensure that it and each member of the Purchaser Group shall: (i) not admit liability or make any agreement or compromise in relation to the Former Vendor Claim without prior written approval of the Seller; and (ii) take such action as the Seller may reasonably request to avoid, resist, dispute, appeal, compromise or defend the Former Vendor Claim. 9.3 The Purchaser also agrees to provide the required support and access to key personnel and records to assist the Seller in any future litigation with Former Vendor and the Seller agrees to reimburse the Purchaser the reasonable Costs of such support and access. Page 4 9.4 The Purchaser acknowledges and agrees that any information relating to the Former Vendor Dispute (including the identity of the Seller or any Company) shall be "Confidential Information" for the purposes of Clause 18. 10. HEALTH, SAFETY AND ENVIRONMENTAL The Purchaser shall assume and discharge in relation to the Cambrex Cork group and Landen the Seller's liabilities in respect of health, safety and environmental matters and compliance with environmental health and safety laws and regulations; including without limitation any obligations of the Companies related to the Integrated pollution prevention and control (IPPC), the directive related to the limitation of volatile organic compounds emissions; all permits, licenses, authorisations and registration related to the Companies' Business; all claims related to any health safety and environmental matters; the upgrade, replacement or improvement of any plant, equipment or infrastructure; including without limitation ventilation improvements at the Companies, the investigation monitoring and remediation works undertaken either voluntarily or pursuant to requirements under any environmental health and safety matters, in respect of any hazardous substances that is present in, on or under or migrating to or from the Companies properties (currently or formerly owned, occupied or used by any Company, excluding any property which was transferred from either of the Companies to any other member of the Seller Group) and all other requirements to be implemented related to conditions regardless of whether they are known or discoverable at the time of Closing or as a result of subsequent requirements including the pending IPPC applications of the Companies provided that the Purchaser shall not be so liable to the extent the liability arises from a breach by the Seller of its obligation set out in paragraph 2 of Schedule 4. 11. EMPLOYMENT 11.1 The parties acknowledge that at Closing all Employees shall remain employed by the relevant Company. The Seller agrees to pay (or procure to the payment) to Cork an amount equal to all retention bonuses payable by Cork to any one or more of Messrs. Paudie Burke, Gary Collins and Vincent O'Brien pursuant to the Special Incentive Programme as described in the documents in Exhibit 4 together with any Tax payable by Cork in relation to such retention bonuses, whether on behalf of the relevant Employees or otherwise. 11.2 Purchaser shall assume all responsibility and liability for the The Cambrex Cork Ltd. Pension Plan. 11.3 The Purchaser acknowledges and agrees that Cork is required to pay the accrued bonuses (including any social costs) to the employees as set out in Schedule 5 and that it will procure Cork to comply with its obligations in relation to the payment of those bonuses. 12. INSURANCE 12.1 Seller will use commercially reasonable efforts to (i) maintain in full force and effect until Closing substantially the same levels of coverage as the insurance afforded in relation to the Companies, their Businesses and assets as of the date of this Agreement and (ii) cause any and all benefits under such insurance paid or payable (whether before or after the date of Closing but only for insured events arising before Closing) in relation to the Companies to be paid to the Companies without delay. 12.2 Upon Closing, all insurance coverage arranged in relation to any of the Companies by the Seller Group (whether under policies maintained with third party insurers or other members of the Seller Group) shall cease (other than in relation to insured events taking place Page 5 before Closing) and no member of the Purchaser Group shall make any claim under any such policies in relation to insured events arising after Closing. The Seller shall be entitled to make arrangements with its insurers to reflect this clause 12. 13. GUARANTEES AND OTHER THIRD PARTY ASSURANCES 13.1 The Purchaser shall use its reasonable efforts to ensure that, as soon as reasonably practicable after becoming aware of any other Third Party Assurance in respect of any obligations of any Company, each member of the Seller Group is released to that extent from such Third Party Assurance. Pending release of any Third Party Assurance referred to in this clause 13.1, the Purchaser shall indemnify the Seller and each of its Affiliates against any and all Costs arising after Closing under or by reason of that Third Party Assurance. 13.2 The Seller shall use its reasonable efforts to ensure that, as soon as reasonably practicable after becoming aware of any Third Party Assurance in respect of any obligations of any member of the Seller Group, each Company is released to that extent from such Third Party Assurance. Pending release of any Third Party Assurance referred to in this clause 13.2, the Seller shall indemnify the Purchaser and each of its Affiliates against any and all Costs arising after Closing under or by reason of that Third Party Assurance. 14. CHANGES OF NAME The Purchaser shall procure that: (a) as soon as reasonably practicable after the date of the Closing and in any event within 40 Business Days afterwards, the name of any Company which consists of or incorporates the word "Cambrex" and/or "Profarmaco" in relation to the Cambrex Cork group companies and Landen is changed to a name which does not include that word or any name which, in the reasonable opinion of the Seller, is substantially or confusingly similar; and (b) as soon as reasonably practicable after the date of the Closing and in any event within 40 Business Days afterwards, the Companies shall cease to use or display any trade or service name or mark, business name, logo or domain name used or held by any member of the Seller Group or any mark, name or logo which, in the reasonable opinion of the Seller, is substantially or confusingly similar to any of them provided following the expiry of the 40 Business Day period the Companies may continue to use any such mark, name or label on then existing product inventory if they also state on such product inventory the new name of the Company selling such inventory. 15. TAX 15.1 For any taxable period of any Company that ends on or before the date of Closing, the Seller shall timely prepare and the Purchaser or the Seller, as appropriate, shall timely file with the appropriate authorities all Tax Returns required to be filed. All such Tax Returns shall be prepared on a basis consistent with past practice, except as required by applicable law. The Purchaser shall furnish any tax work papers to the Seller upon request in accordance with the Seller's past custom and practice. 15.2 Any such Tax Returns to be filed by the Purchaser pursuant to clause 15.1 above shall be furnished by the Seller to the Purchaser for signature and filing at least five (5) Business Days prior to the due date for filing such Tax Return and the Purchaser shall promptly sign and timely file any such Tax Return. The Seller shall pay all Taxes due with respect to the Page 6 Tax Returns referred to in clause 15.1 above less any reserves for such Taxes which are taken into account as a liability in the calculation of the Net Working Capital. 15.3 For any Straddle Period, the Purchaser shall timely prepare and file with the appropriate authorities all Tax Returns required to be filed and shall pay all Taxes due with respect to such Tax Returns; provided that the Seller shall reimburse the Purchaser for any amount owed by the Seller with respect to the taxable periods covered by such Tax Returns as set out in clause 15.4 below. 15.4 The portion of any Tax relating to the Straddle Period that shall be reimbursed by the Seller shall be: (a) in the case of Taxes that are either (i) based upon or related to income or receipts; or (ii) imposed in connection with any sale or other transfer or assignment of property (whether tangible, intangible, real or personal) other than any Taxes, duties, fees, interest or penalties referred to in Clause 21.2, deemed equal to the amount which would be payable if the taxable period ended on the date of Closing, provided, however, that in the event that the total amount of the relevant Taxes for the entire Straddle Period is equal to zero, then the Seller shall have no reimbursement obligation under this Agreement with respect to such Taxes; (b) in the case of Taxes that are imposed on a periodic basis with respect to assets, or otherwise measured by the level of any item, shall be deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the date of Closing and the denominator of which is the number of calendar days in the entire Straddle Period; and (c) the amount to be reimbursed shall be reduced by any amounts reserved for such Taxes which are taken into account as a liability in the calculation of the Net Working Capital. 15.5 For the avoidance of doubt, the Seller's liability for Tax under this clause 15 shall not apply to any Tax liability arising in respect of, by reference to or in consequence of, any income, profits, or gains earned, accrued or received after Closing (whether or not as a result of an event which occurred on or before Closing), or any event occurring or deemed to occur after Closing or arising due to a transaction, action or omission carried out or effected by the Purchaser, the Companies or any other person connected with any of them after Closing or arising as a result of any changes after Closing in the accounting year end or accounting policy of a Company or in the rate or basis of Tax applying to a Company). 15.6 All such Tax Returns as are referred to in clause 15.3 above shall be prepared on a basis consistent with past practice, except as required by applicable law. No later than 30 Business Days prior to the filing of any Tax Return of or with respect to any Company relating to a Straddle Period required to be filed by the Purchaser, the Purchaser shall deliver a draft of such Tax Return to the Seller for the Seller's review and approval, together with a statement setting forth the amount owed by the Seller with respect to such Tax Return under this clause 15. Subject to the immediately following sentences, within the later of (i) 30 Business Days after receipt of the draft of such Tax Return and (ii) five Business Days before such payment is due with respect to such Tax Return, the Seller shall remit to the Purchaser the amount shown on such statement as being due from the Seller. If the Seller in good faith disagrees with the Purchaser's determination of such amount, the Purchaser and the Seller shall meet and work together in good faith to agree upon such amount and if no such agreement is reached within 15 Business Days of receipt by the Seller of the Purchaser's Page 7 determination, the matter shall be dealt with in accordance with clause 15.11. No later than 30 Business Days after filing any such Tax Return of or with respect to any Company, the Purchaser shall deliver a copy of such Tax Return to the Seller. 15.7 The Purchaser shall be liable for and pay (or cause to be paid), and agree to indemnify and hold the Seller harmless against, any and all Taxes levied or imposed on, or in respect of, the Companies that accrue for, or otherwise relate to, any taxable year or period (or portion thereof) beginning or deemed to begin after Closing other than any such Taxes for which the Seller is liable under clauses 15.2, 15.3 or 15.4. 15.8 The Purchaser shall promptly pay to the Seller an amount equal to any refund, credit, rebate, reduction in Taxes or similar payment (including any interest paid or credited with respect thereto) received by the Companies or the Purchaser (i) relating to taxable periods ending on or before Closing or (ii) allocable to the portion of a Straddle Period ending on or before Closing in accordance with the method employed in clause 15.4(b), or (iii) attributable to Taxes previously indemnified against by the Seller under clauses 15.2, 15.3 or 15.4. The Purchaser shall, if requested by the Seller and at the Seller's expense, cause the relevant entity to file for and obtain any refund or credit which would give rise to a payment under this clause 15.8. The Purchaser shall permit the Seller to control at the Seller's expense the prosecution of any such refund claim, and shall cause the relevant entity to authorise by appropriate power of attorney such person as the Seller shall designate to represent such entity with respect to such refund claim. If a Tax Authority subsequently disallows any refund or credit of Taxes with respect to which the Seller had received a payment pursuant to this clause 15.8, the Seller shall promptly pay to Purchaser the full amount of such refund or credit. 15.9 The Seller shall be responsible for preparing any amended, group, consolidated, or combined Tax Returns for taxable periods ending on or prior to the date of Closing. For those jurisdictions in which separate returns are filed by the Companies, any required amended Tax Returns shall be prepared by the Seller and furnished to the Purchaser or the relevant Company, as the case may be, for signature and filing no less than twenty (20) Business Days prior to the due date for taxable periods ending on or prior to the date of Closing and the Purchaser or the relevant Company shall sign and timely file any such amended Tax Return. All such amended Tax Returns shall be prepared on a basis consistent with past practice, except as required by applicable law. 15.10 The Purchaser shall, and shall cause each Company to provide information to the Seller necessary for the preparation of all Tax Returns required to be prepared or filed by the Seller or any of its Affiliates. The Seller and the Purchaser agree (a) to allow (and the Purchaser shall cause the Companies to allow) each other and their agents and representatives, at times and dates mutually acceptable to the parties, to inspect, review and make copies of such tax records so needed and to make available the appropriate personnel with knowledge of such tax records to help answer questions, such activities to be conducted during normal business hours and with the requesting party paying out of pocket expenses only and (b) to offer the other parties such tax records so needed before destroying such tax records. 15.11 Where a Purchaser's determination is not agreed within the time limit and as specified by clause 15.6 the parties shall endeavour to appoint within 5 Business Days a member of an internationally recognised accounting firm (the EXPERT). The Expert shall be appointed whether by agreement between the parties or (if they do not agree within 7 Business Days of the party wishing to make the reference notifying the other of the proposed reference) on the application of either the Seller or the Purchaser to the President for the time being of the Chartered Institute of Taxation or where relevant such other person holding Page 8 equivalent standing in the relevant jurisdiction. The Expert shall decide the matter in question as an expert (and not as an arbitrator) and his decision shall be final, except in the case of manifest error. Both the Seller and the Purchaser shall make all relevant information available to the Expert. The costs of the Expert shall be borne by the parties in equal proportions or as otherwise determined by the Expert. 15.12 For the purposes of this clause: (a) ACCOUNTS shall have the meaning given to that term in paragraph 3.1 of Schedule 1 to this Agreement; (b) STRADDLE PERIOD shall mean any taxable period that includes but does not end on the date of Closing; (c) TAX or TAXES shall mean all taxes, assessments, duties or similar charges of any kind whatsoever, including corporation tax, corporation profits tax, advance corporation tax (ACT), capital gains tax, development land tax, capital transfer tax, inheritance tax, gift tax, capital acquisitions tax, residential property tax, value added tax, income tax, dividend withholding tax, pay related social insurance, national insurance contributions, amounts due under the PAYE or PRSI system, income or other levies, customs and excise duties any other import or export duties, stamp duty, stamp duty reserve tax, companies capital duty (but excluding any rates, water rates and any other utility costs) and including all interest, penalties and additions imposed with respect to such amounts, and all amounts payable pursuant to any agreement or arrangement with respect to Taxes; (d) TAX RETURN shall mean all returns, declarations, reports, estimates, information returns and statements with respect to Taxes; and (e) TAXATION AUTHORITY shall mean any taxing or other authority competent to impose any Tax liability. 16. PAYMENTS 16.1 Any payment to be made pursuant to this Agreement by the Purchaser (or any member of the Purchaser Group) shall be made to the Seller's Bank Account. The Seller agrees to pay each member of the Seller Group that part of each payment to which it is entitled. 16.2 Any payment to be made pursuant to this Agreement by the Seller (or any member of the Seller Group) shall be made to the Purchaser's Bank Account. The Purchaser agrees to pay each member of the Purchaser Group that part of each payment to which it is entitled. 16.3 Payments under clause 16.1 and 16.2 shall be in immediately available funds by electronic transfer on the due date for payment. Receipt of the amount due shall be an effective discharge of the relevant payment obligation. 16.4 If any sum due for payment in accordance with this Agreement is not paid on the due date for payment, the person in default shall pay Default Interest on that sum from but excluding the due date to and including the date of actual payment calculated on a daily basis. Page 9 17. ANNOUNCEMENTS 17.1 Subject to clause 17.2, neither the Seller nor the Purchaser (nor any of their respective Affiliates) shall make any announcement or issue any circular in connection with the existence or subject matter of this Agreement (or any other Transaction Document) without the prior written approval of the other (such approval not to be unreasonably withheld or delayed). 17.2 The restriction in clause 17.1 shall not apply to the extent that the announcement or circular is required by law, by any stock exchange or any regulatory or other supervisory body or authority of competent jurisdiction, whether or not the requirement has the force of law. If this exception applies, the party making the announcement or issuing the circular shall to the extent practicable use its reasonable efforts to consult with the other party in advance as to its form, content and timing. 18. CONFIDENTIALITY 18.1 For the purposes of this clause 18: (a) CONFIDENTIAL INFORMATION means: (i) (in relation to the obligations of the Purchaser) any information received or held by the Purchaser (or any of its Representatives) or the Companies relating to the Seller Group or, prior to Closing, any of the Companies and all information relating to the Former Vendor Dispute whether held prior to or after Closing; or (ii) (in relation to the obligations of the Seller) any information received or held by the Seller (or any of its Representatives) relating to the Purchaser Group or, following Closing, any of the Companies; and (iii) information relating to the provisions of, and negotiations leading to, this Agreement and the other Transaction Documents and includes written information and information transferred or obtained orally, visually, electronically or by any other means; (b) REPRESENTATIVES means, in relation to a party, its respective Affiliates and the directors, officers, employees, agents, advisers, accountants and consultants of that party and/or of its respective Affiliates. 18.2 Each of the Seller and the Purchaser shall (and shall ensure that each of its Representatives shall) maintain Confidential Information in confidence and not disclose Confidential Information to any person except (i) as this clause 18 permits or (ii) as the other party approves in writing. 18.3 Clause 18.2 shall not prevent disclosure by a party or its Representatives to the extent it can demonstrate that: (a) disclosure is required by law or by any stock exchange or any regulatory, governmental or antitrust body (including any tax authority) having applicable jurisdiction (provided that the disclosing party shall where lawful and to the extent practicable first inform the other party of its intention to disclose such information and take into account the reasonable comments of the other party); Page 10 (b) disclosure is of Confidential Information which was lawfully in the possession of that party or any of its Representatives (in either case as evidenced by written records) without any obligation of secrecy prior to its being received or held; (c) disclosure is of Confidential Information which has previously become publicly available other than through that party's fault (or that of its Representatives); (d) disclosure is required for the purpose of any arbitral or judicial proceedings arising out of this Agreement (or any other Transaction Document). 18.4 Each of the Seller and the Purchaser undertakes that it (and its Affiliates) shall only disclose Confidential Information to Representatives if it is reasonably required for purposes connected with this Agreement and only if the Representatives are informed of the confidential nature of the Confidential Information. 18.5 If this Agreement terminates, the Purchaser shall as soon as practicable on request by the Seller (and the Purchaser shall provide a certificate verifying same): (a) return to the Seller or destroy all written documents and other materials relating to the Seller, any Company or this Agreement (including any Confidential Information) which the Seller (or its Representatives) have provided to the Purchaser (or its Representatives) without keeping any copies thereof; (b) destroy all information or other documents derived from such Confidential Information; and (c) so far as it is practicable to do so, expunge such Confidential Information from any computer, word processor or other device. 19. ASSIGNMENT 19.1 Except as provided in this clause 19 or unless the Seller and the Purchaser specifically agree in writing, no person shall assign, transfer, charge or otherwise deal with all or any of its rights under this Agreement nor grant, declare, create or dispose of any right or interest in it. Any purported assignment in contravention of this clause 19 shall be void. 19.2 Provided that the parties obligations hereunder shall not increase or expand as a result of any assignment: (a) the Seller can assign, transfer, sell its rights and obligations under this Agreement to a purchaser of all or substantially all of the shares or assets of its Parent Company or any of its respective Affiliates; and (b) the Purchaser can assign, transfer, sell its rights and obligations under this Agreement to any of their respective Affiliates provided that if any such assignee subsequently ceases to be a member of the Purchaser Group, the Purchaser shall procure that before it ceases it shall re assign that benefit to the Purchaser or to another continuing member of the Purchaser Group. 20. FURTHER ASSURANCES 20.1 Each of the Seller and the Purchaser shall execute (or procure the execution of) such further documents as may be required by law or be necessary to implement and give effect to this Agreement. Page 11 20.2 To the extent not covered by Clause 15, the Seller shall (at its expense) reasonably co-operate with the Purchaser or the Companies (as the Purchaser may reasonably request) to review its own Taxation records to assist the Purchaser in its efforts to determine its liability to Taxation or relief from Taxation which would arise from a disposal or realisation of the assets of the Companies. This obligation only applies to the extent the Companies do not have the abovementioned records. 20.3 Each of the Seller and the Purchaser shall procure that its Affiliates comply with all obligations under this Agreement which are expressed to apply to any such Affiliates. 21. COSTS 21.1 Subject to clause 21.2 and except as otherwise provided in this Agreement (or any other Transaction Document), the Seller and the Purchaser shall each be responsible for its own costs, charges and other expenses (including those of its Affiliates) incurred in connection with the Proposed Transaction. 21.2 The Purchaser or its Affiliates shall bear all stamp duty, notarisation fees or other documentary transfer or transaction duties, and all stamp duty reserve tax, stamp duty land tax and any other transfer taxes including in each case any related interest or penalties arising as a result of this Agreement or of any of the other Transaction Documents. 21.3 The Seller shall bear all third party costs, charges and other expenses incurred by any of the Companies prior to Closing in connection with the Proposed Transaction. 22. NOTICES 22.1 Any notice in connection with this Agreement shall be in writing in English and delivered by hand, fax, registered post or courier using an internationally recognised courier company. A notice shall be effective upon receipt and shall be deemed to have been received (i) at the time of delivery, if delivered by hand, registered post or courier or (ii) at the time of transmission if delivered by fax provided that in either case, where delivery occurs outside Working Hours, notice shall be deemed to have been received at the start of Working Hours on the next following Business Day. 22.2 The addresses and fax numbers of the parties for the purpose of clause 22.1 are: SELLER Address: Fax: For the attention of: One Meadowlands Plaza 201 804 9851 Mary Fletcher East Rutherford Assistant General Counsel New Jersey 07073 c/o Cambrex Corporation PURCHASER Address: For the attention of: 26, rue Philippe II, L-2340 Luxembourg The Managing Director 23. CONFLICT WITH OTHER AGREEMENTS If there is any conflict between the terms of this Agreement and any other agreement, this Agreement shall prevail (as between the parties to this Agreement and as between any members of the Seller Group and any members of the Purchaser Group) unless (i) such other agreement expressly states that it overrides this Agreement in the relevant respect and (ii) the Page 12 Seller and the Purchaser are either also parties to that other agreement or otherwise expressly agree in writing that such other agreement shall override this Agreement in that respect. 24. WHOLE AGREEMENT 24.1 In this clause 24 the RELEVANT PARTIES shall mean the Seller and the Purchaser and each of them shall be a RELEVANT PARTY. 24.2 This Agreement and the other Transaction Documents together set out the whole agreement between the Relevant Parties in respect of the sale and purchase of the Shares and supersede any prior agreement (whether oral or written) relating to the Proposed Transaction. It is agreed that: (a) no Relevant Party shall have any claim or remedy in respect of any statement, representation, warranty or undertaking made by or on behalf of any other Relevant Party (or any of its Connected Persons) in relation to the Proposed Transaction which is not expressly set out in this Agreement or any other Transaction Document; (b) any terms or conditions implied by law in any jurisdiction in relation to the Proposed Transaction are excluded to the fullest extent permitted by law or, if incapable of exclusion, any right, or remedies in relation to them are irrevocably waived; (c) the only right or remedy of a Relevant Party in relation to any provision of this Agreement or any other Transaction Document shall be for breach of this Agreement or the relevant Transaction Document; and (d) except for any liability in respect of a breach of this Agreement or any other Transaction Document, no Relevant Party (or any of its Connected Persons) shall owe any duty of care or have any liability in tort or otherwise to the other Relevant Party (or its respective Connected Persons) in relation to the Proposed Transaction provided that this clause shall not exclude any liability for (or remedy in respect of) fraud or fraudulent misrepresentation. Each Relevant Party agrees to the terms of this clause 24 on its own behalf and as agent for each of its Connected Persons. For the purpose of this clause, CONNECTED PERSONS means (in relation to a Relevant Party) the officers, employees, agents and advisers of that Relevant Party or any of its Affiliates. 25. GENERAL 25.1 Except as expressly provided in this Agreement, no failure or delay by any party in exercising any right or remedy relating to this Agreement or any of the Transaction Documents shall affect or operate as a waiver or variation of that right or remedy or preclude its exercise at any subsequent time. No single or partial exercise of any such right or remedy shall preclude any further exercise of it or the exercise of any other remedy. 25.2 This Agreement may be executed in any number of separate counterparts, each of which is an original but all of which taken together shall constitute one and the same instrument. 25.3 No amendment of this Agreement (or of any other Transaction Document) shall be valid unless it is in writing and duly executed by or on behalf of all of the parties to it. 25.4 Each of the provisions of this Agreement and the other Transaction Documents is severable. If any such provision is held to be or becomes invalid or unenforceable in any Page 13 respect under the law of any jurisdiction, it shall have no effect in that respect and the parties shall use all reasonable efforts to replace it in that respect with a valid and enforceable substitute provision the effect of which is as close to its intended effect as possible. 25.5 The Connected Persons specified in clause 24 (Whole Agreement) shall have the right to enforce the relevant terms of that clause by reason of the Contracts (Rights of Third Parties) Act 1999. This right is subject to (i) the rights of the parties to amend or vary this Agreement without the consent of any Connected Person and (ii) the other terms and conditions of this Agreement. 25.6 Except as provided in clause 25.5, a person who is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms. 26. GOVERNING LAW AND JURISDICTION 26.1 This Agreement shall be governed by, and interpreted in accordance with, English law. 26.2 Except as expressly provided otherwise in this Agreement, the courts of England are to have exclusive jurisdiction to settle any disputes which may arise in connection with this Agreement. For such purposes each party irrevocably submits to the jurisdiction of the English courts, waives any objections to the jurisdiction of those courts and irrevocably agrees that a judgment or order of the English courts in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction. 26.3 The Seller shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Agreement. Such agent shall be Radcliffes of 5 Great College Street, Westminster, London, SW1P 3SJ and any claim form, judgment or other notice of legal process shall be sufficiently served on the Seller if delivered to such agent at its address for the time being. The Seller irrevocably undertakes not to revoke the authority of this agent and if, for any reason, the Purchaser requests the Seller to do so it shall promptly appoint another such agent with an address in England and advise the Purchaser. If, following such a request, the Seller fails to appoint another agent, the Purchaser shall be entitled to appoint one on behalf of the Seller at the Seller's expense. Page 14 SCHEDULE 1 SELLER WARRANTIES 1. THE SELLER GROUP AND THE SHARES 1.1 Authorisations, valid obligations, filings and consents. (a) The Seller has obtained all authorisations required to empower it to enter into and perform its obligations under this Agreement. (b) This Agreement will, when executed, constitute valid and binding obligations of the Seller. (c) Entry into and performance by the Seller of this Agreement will not violate or conflict with the provisions of its constitutional documents or of any law, regulation, agreement, instrument or any order, judgment or decree or arbitral award by which the Seller is bound. 1.2 The Seller Group, the Shares and the Companies. (a) The Seller and the Companies are validly incorporated, in existence and duly registered under the laws of its jurisdiction of incorporation. Each of the Companies has full power to conduct its Business as conducted at the date of this Agreement. A copy of the constitutional documents of each of the Companies shall be annexed to the Disclosure Letter, (b) The Cork Shares and the Landen Shares constitute the whole of the issued share capital of Cork and Landen respectively. All the Shares are fully paid or properly credited as fully paid and the Seller is (or will be at Closing) (i) the sole legal and beneficial owner of the Shares free from all Third Party Rights and (ii) entitled to transfer or procure the transfer of the Shares on the terms of this Agreement. No person has the right (exercisable now or in the future and whether contingent or not) to call for the issue or transfer of any share or loan capital in any Company. (c) The information on the Companies set out in Exhibit 2 is (or will be at Closing) accurate and complete in all material respects. All the issued shares in each of Russinsky Limited, Lauteral Limited and Irotec Laboratories (Sales) Limited are held by Cork. 1.3 Other interests. No Company owns or has any interest of any nature in any shares, debentures or other securities issued by any undertaking (other than another Company). 2. TAXATION 2.1 The Companies have within the last six years made all material returns, given all material notices and supplied all other material information required to be supplied to the relevant tax authorities and such returns, notices and information are correct and accurate in all material respects. 2.2 No Company is involved in any material current dispute with any Taxation Authority or is or has in the last six years been the subject of any investigation, enquiry, audit or non routine visit by any Taxation Authority nor, as far as the Seller is aware, is any such dispute Page 15 or investigation pending or threatened against any Company, except as may be disclosed in the Disclosure Letter. 2.3 The last statutory accounts of the Companies contain (a) such accruals for Taxes due relating to operations conducted prior to Closing (for the time period associated with such accounts) and (b) make full provision or reserve in respect of deferred Taxation in each case in accordance with generally accepted accounting principles as applicable in the jurisdiction of incorporation of each such Company. 2.4 Each Company has duly and punctually paid all Tax to the extent that the same ought to have been paid and is not liable nor has any Company within three years prior to the date hereof been liable to pay any penalty or interest in connection therewith. 2.5 Each Company is and has always been resident in the territory in which it was incorporated and has never been resident in any other territory or treated as so resident for the purposes of any double Tax agreement. 2.6 Each Company has retained such records as are required by law to be maintained in support of information which has been provided or which is yet to be provided in returns required to be made by the Companies for Tax purposes in respect of the period beginning with the date seven years prior to the date of Closing and ending with the date of Closing. 3. ACCOUNTS 3.1 The accounts set out in Exhibit 3 (the ACCOUNTS) constitute the true and complete copies of the unaudited combined balance sheets of the Companies as of December 31, 2005 (the ACCOUNTS DATE) and the related unaudited combined statements of income as of the ACCOUNTS DATE. Except as set forth in the notes thereto and as disclosed in the Disclosure Letter, all the line items in the Accounts (other than those relating to Tax) were prepared in material respects in accordance with US GAAP on a basis consistent with the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005 of Cambrex Corporation, the Seller's Parent Company. The books and records of the Companies have been, and are being, maintained in all material respects in accordance with applicable legal and accounting requirements, and all such financial statements are consistent in all material respects with such books and records. 3.2 Since the Accounts Date (except as may be stated in the Disclosure Letter or as permitted by this Agreement): (a) the operation of each Company has been carried on in the ordinary and usual course, and no Company has made or agreed to make any payment other than in the ordinary and usual course of trading; (b) no dividend or other distribution (whether in cash, stock or in kind) has been declared, authorised, paid or made, nor has there been any reduction of paid-up share capital, by any Company (except for any dividends provided for in the Accounts); (c) the Companies have not dismissed any Key Manager of the Business or modified the conditions of employment of any Employees except for salary increases in the ordinary course of business and consistent with past practice; and (d) all transactions undertaken by each Company have been carried out on arms length terms and in accordance with all applicable laws and regulations. Page 16 3.3 Save for assets the aggregate value of which does not exceed E100,000, each of the assets included in the Accounts of each Company is the absolute property of the relevant Company and is free from all Third Party Rights and any other rights exercisable by third parties except for Permitted Encumbrances. Page 17 SCHEDULE 2 LIMITATIONS ON LIABILITY 1. Time Limits. The Seller shall not be liable for any Claim unless the Seller receives from the Purchaser written notice containing reasonably specific details of the Claim including the Purchaser's estimate (on a without prejudice basis) of the amount of the Claim within 15 months after the date of this Agreement. The Purchaser's written notice shall be given within 30 days of the Purchaser becoming aware of such Claim, provided failure to provide such notice within the 30 day period shall not preclude the Purchaser from bringing a Claim. 2. Thresholds for Claims. The Seller shall not be liable for any single Claim: (a) unless the amount of the liability pursuant to that single Claim exceeds E50,000 (in which case the Purchaser shall be entitled to claim the whole amount of any Claim and not the excess only); and (b) unless the aggregate amount of the liability of the Seller for all Claims not excluded by sub-Clause (a) exceeds E250,000 (in which case the Purchaser shall be entitled to claim the whole amount of any Claim and not the excess only). 3. Maximum limit for all Claims. The aggregate amount of the liability of the Seller for all Claims shall not exceed E1,000,000. 4. Claim to be withdrawn unless litigation commenced. Any Claim shall (if it has not been previously satisfied, settled or withdrawn) be deemed to have been withdrawn 6 months after the notice is given pursuant to paragraph 1 of this Schedule or, in the case of a contingent liability, 6 months after that liability becomes an actual liability, unless legal proceedings in respect of it have been commenced by being both issued and served. 5. Limitations. For avoidance of doubt, the parties acknowledge and agree that the Purchaser has conducted limited due diligence. The Seller does not make any warranty, express or implied, except as specifically set forth in Schedule 1 and Purchaser takes the Business, assets, liabilities etc., as is where is, except as specifically stated in this Agreement. The Purchaser makes no warranties, express or implied, except as specifically set forth in Schedule 3. 6. Contingent liabilities. If any Claim is based upon a liability which is contingent only, the Seller shall not be liable to pay unless and until such contingent liability gives rise to an obligation to make a payment (but the Purchaser has the right under Clause 1 of this Schedule 2 to give notice of that Claim before such time). 7. No liability for Claims arising from acts or omissions of Purchaser. The Seller shall not be liable for any Claim to the extent that it would not have arisen but for, or has been increased or not reduced as a result of, any voluntary act, omission or transaction carried out: (a) after Closing by the Purchaser or any member of the Purchaser Group (or its respective directors, employees or agents or successors in title) outside the ordinary and usual course of business of a Company as at Closing; or (b) before Closing by any member of the Seller Group or any Company at the written direction or request of the Purchaser or any member of the Purchaser Group. Page 18 8. Purchaser's duty to mitigate. The Purchaser shall procure that all reasonable steps are taken to avoid or mitigate any loss or damage which it may suffer in consequence of any breach by the Seller of the terms of this Agreement or any fact, matter, event or circumstance likely to give rise to a Claim. 9. Insured Claims. The Seller shall not be liable in respect of any Claim to the extent that the amount of such Claim is covered by a policy of insurance or would have been so covered if the policies of insurance effected by or for the benefit of the Companies had been maintained after Closing on no less favourable terms than those existing at the date of this Agreement. 10. Recovery from third party after payment from Seller. Where the Seller has made a payment to the Purchaser in relation to any Claim and the Purchaser or any member of the Purchaser Group recovers (provided that Purchaser is required to seek recovery) (whether by insurance, payment, discount, credit, relief or otherwise) from a third party a sum which indemnifies or compensates the Purchaser or any member of the Purchaser Group (in whole or in part) in respect of the liability or loss which is the subject of a Claim, the Purchaser or relevant member of the Purchaser Group shall (i) promptly notify the Seller of the fact and provide such information as the Seller may reasonably require (ii) take all reasonable steps or proceedings as the Seller may require to enforce such right and (iii) pay to the Seller as soon as practicable after receipt an amount equal to the amount recovered from the third party (net of taxation and less any reasonable costs of recovery). 11. No liability for legislation or changes in rates of Tax. The Seller shall not be liable for any Claim if and to the extent it is attributable to, or the amount of such Claim is increased as a result of, any (i) legislation not in force at Closing, (ii) change of law (or any change in interpretation on the basis of case law), regulation, directive, requirement or administrative practice or (iii) change in the rates of taxation in force at Closing. 12. No double recovery. The Purchaser shall not be entitled to recover damages or obtain payment, reimbursement, restitution or indemnity more than once in respect of any one liability, loss, cost, shortfall, damage, deficiency, breach or other set of circumstances which gives rise to more than one Claim. 13. Purchaser's knowledge. The Seller shall not be liable for any Claim for breach of the Warranties if and to the extent that Patrick Schnitzer, Achim Riemann or Christophe Sprenger is aware at the date of this Agreement (i) of the fact, matter, event or circumstance which is the subject matter of the Claim and (ii) that the fact, matter, event or circumstance could reasonably be expected to amount to a Claim. 14. Seller to have opportunity to remedy breaches. If a breach of the Warranties is capable of remedy, the Purchaser shall only be entitled to compensation if it gives the Seller written notice of the breach and a plan to remedy such breach has not been committed to by the Seller within 60 days after the date on which such notice is served on the Seller. Without prejudice to its duty to mitigate any loss, the Purchaser shall (or shall procure that any relevant member of the Purchaser Group shall) provide all reasonable assistance to the Seller to remedy any such breach at Seller's Cost. 15. Matters disclosed. The Seller shall not be liable for any Claim if and to the extent that the fact, matter, event or circumstance giving rise to such Claim is fairly disclosed by this Agreement or any other Transaction Document or the Disclosure Letter or the Supplemental Disclosure Letter. Page 19 16. Matters provided for or taken into account in adjustments. The Seller shall not be liable for any Claim if and to the extent that the fact, matter, event or circumstance giving rise to the Claim is fairly disclosed, provided or reserved for in the Accounts or is provided for or otherwise taken into account in the Net Working Capital Schedule. Page 20 SCHEDULE 3 PURCHASER WARRANTIES 1. The Purchaser has obtained all authorisations required to empower it to enter into and perform its obligations under this Agreement. 2. The Purchaser has available cash which it will provide in immediately available funds the necessary cash resources to pay the purchase price of E1. The Purchaser expects that the implementation of its business plan in respect of the Companies will result in sufficient funds being available for the repayment of the Note and fulfilment of all its obligations under this Agreement. 3. The Purchaser is not aware of any facts or circumstances which could reasonably be expected to result in a Claim being made against the Seller or any misrepresentation by or on behalf of the Seller in connection with the Proposed Transaction. Page 21 SCHEDULE 4 PRE-CLOSING CONDUCT 1. From the date of this Agreement until the Closing, the Seller shall (unless otherwise required or permitted by the terms of any Transaction Document or any Intra-group Reorganisation or distribution or payment under clause 3.1 or as may be approved by the Purchaser, such approval not to be unreasonably withheld or delayed) procure that the Business of the Companies is conducted in the ordinary and usual course of business and without limitation, the Seller shall procure that: (a) the Companies do not issue or agree to issue or allot any share capital (except to another Company); (b) all transactions between Cambrex Cork group or Landen and any member of the Seller Group take place on arms length terms and in a manner and on terms consistent with previous practice in the 6 months prior to the date of this Agreement; (c) no contracts shall be entered into by the Companies which are outside the ordinary course of business or on arm's length terms. (d) the Companies do not create any Third Party Right over any of their assets other than a Permitted Encumbrance and the Seller does not create any Third Party Right over the Shares; (e) the Companies do not transfer any of the fixed operating assets of the Business to any person; (f) the Companies shall continue to take reasonable steps to ensure the operation of their Businesses complies with customers' requirements, and applicable laws and regulations; (g) the Companies do not purchase any operating asset exceeding a value of E100,000 except in relation to materials currently used in Business operations; (h) the Companies do not issue, or commit to issuing, any guarantee, letter of credit and/or any off balance sheet commitment; (i) the Companies shall not dismiss (except for wilful misconduct or gross negligence) any Key Manager of the Business or modify the conditions of employment of any Employees except for salary increases in the ordinary course of business and consistent with past practice; (j) the Companies do not enter any new banking facility or vary existing banking facilities; (k) the Companies do not change the insurance coverage of the Business; and (l) the Seller shall consult with the Purchaser on any issue the Seller regards as material to the Business. Page 22 2. Where it is permitted to do so, the Seller shall (and shall procure that its Affiliates shall) take all necessary actions to effect the transfer to the Purchaser of all (a) regulatory permits and licences and (b) contracts and licenses, required for the Business (provided such regulatory permits and licences and licences and licences may be transferred to the Purchaser or the Companies) including Federal Drug Administration and other regulatory licenses not currently held by the Companies but by another entity within the Seller Group, and which are required within the normal course of business but excluding software licenses, contracts or licences relating to banking and insurance matters or the services to be provided pursuant to the Transition Services Agreement. The obligation set out in this paragraph shall survive Closing of the Agreement. 3. In relation to the software licences which relate exclusively or predominantly to the Business but which are held by another entity within the Seller Group (other than the Companies): (a) the Seller shall, at Closing, transfer to the relevant Company the software licenses which it is permitted to transfer, pursuant to the terms of the relevant licences. Where transfer fees or costs are payable in respect of the transfer of the software licenses, such fees or costs shall be borne by the Purchaser (or as the Purchaser may direct). For the avoidance of doubt, the Seller are not obliged to transfer to the Purchaser, any licences which terms do not permit a transfer. This includes but is not limited to, Ross Renaissance System and Sparta Trackwise Systems; and (b) where the Seller transfers a software licence to the relevant Company pursuant to paragraph 3 of this Schedule, the Seller shall make available to such Company, any improvements to the software which the Seller own or are permitted to distribute to third parties. 4. The Purchaser shall not exercise any of its rights pursuant to this Schedule 4 (including the right to refuse to approve any particular transaction or action) in such a manner as to unreasonably interfere with the operations of any Company. 5. The parties shall negotiate in good faith the documents required to comply with their obligations set out in Schedule 6 prior to Closing. Page 23 SCHEDULE 6 DEFINITIONS AND INTERPRETATION 1 Definitions. In this Agreement, the following words and expressions shall have the following meanings: ACCOUNTING PRINCIPLES has the meaning given in Schedule 7; ACCOUNTS has the meaning given in clause 15; ACCOUNTS DATE has the meaning given in Schedule 1; AFFILIATE means, in relation to any party, any Subsidiary or Parent Company of that party and any Subsidiary of any such Parent Company, in each case from time to time; AGREED FORM means, in relation to a document, the form of that document which has been initialled on the date of this Agreement for the purpose of identification by or on behalf of the Seller and the Purchaser (in each case with such amendments as may be agreed in writing by or on behalf of the Seller and the Purchaser); BUSINESS means the businesses conducted by each of the Companies, as the context requires, as at the date of this Agreement; BUSINESS DAY means a day other than a Saturday or Sunday or public holiday in England and Wales on which banks are open in London for general non-automated commercial business; CAMBREX BAHAMAS PAYABLE means the amount owed by Landen to Cambrex Bahamas Limited and related to the Former Vendor Loan; CAMBREX CORK GROUP means Cork and its Subsidiaries being Russinsky Limited, Lauteral Limited and Irotec Laboratories (Sales) Limited; CASH means, in relation to each Company, the aggregate of its cash (whether in hand or credited to any account with any banking, financial, acceptance credit, lending or other similar institution or organisation) and its cash equivalents, including all interest accrued thereon, as at Closing, as shown by the books of that Company prepared in accordance with US GAAP as applied on a consistent basis with the Accounts; CLAIM means any claim under or for breach of the Warranties set out in paragraphs 2 and 3 of Schedule 1; CASH THRESHOLD means E500,000; CLOSING means the date and time at which the Shares are transferred to Purchaser and all other obligations are fulfilled in accordance with Schedule 6; COMPANIES means Cambrex Cork group and Cambrex Profarmaco Landen NV; and COMPANY means any of them as the context requires; CONDITION means the condition set out in clause 2.2 of this Agreement; CONFIDENTIAL INFORMATION has the meaning given in clause 18.1; Page 24 CONNECTED PERSONS has the meaning given to that term in clause 24; CORK means Cambrex Cork Limited; CORK SHARES means the shares comprising the entire issued share capital of Cambrex Cork Limited; COSTS means losses, damages, costs (including reasonable legal costs) and expenses (including taxation), in each case of any nature whatsoever; CURRENT ASSETS means, in relation to each Company, the Cash, trade accounts receivables, other receivables, inventories, prepaids, and other current assets (excluding taxes and Inter-Company Trading Debt, as recorded) and maintained in accordance with US GAAP as applied on a consistent basis with the Accounts; CURRENT LIABILITIES means, in relation to each Company, External Debt, trade payables and accrued liabilities (excluding taxes, Inter-Company Trading Debt, any amounts owing by Landen in connection with the Former Vendor Dispute to the extent indemnified under Clause 9) and maintained in accordance with US GAAP as applied on a consistent basis with the Accounts; DEFAULT INTEREST means interest at LIBOR plus 3 per cent; DISCLOSURE LETTER means the letter from the Seller to the Purchaser executed and delivered immediately before the signing of this Agreement; EMPLOYEES means the employees of the Companies immediately prior to Closing; EXCHANGE RATE means, with respect to a particular currency for a particular day, the spot rate of exchange (the closing mid point) for that currency into euro on such date as published in the London edition of the Financial Times first published thereafter or, where no such rate is published in respect of that currency for such date, at the rate quoted by Barclays Bank as at the close of business in London on such date; EXHIBITS means exhibits 1 to 6 to this Agreement, and EXHIBIT shall be construed accordingly; EXTERNAL DEBT means, in relation to each Company, the aggregate of the borrowings and indebtedness in the nature of borrowing owed by that Company (as shown by the books of that Company) as at Closing (together with any accrued interest) to any banking, financial, acceptance credit, lending or other similar institution or organisation which, in each case, is not a member of the Seller Group; FORMER VENDOR means Former Vendor or its subsidiary involved in the Former Vendor Dispute and includes its successors and assigns; FORMER VENDOR CLAIM has the meaning given in clause 9; FORMER VENDOR DISPUTE means any claim pursuant to (a) the Cambrex Bahamas Payable, (b) the Former Vendor Invoices for raw materials in the amount of E557,789 and (c) the Former Vendor Loan, in each case plus interest together with any claim or claims brought or asserted by Former Vendor related to invoices for raw materials arising from substantially the same problem or during substantially the same time frame as the Former Vendor Invoices; Page 25 FORMER VENDOR INVOICES means the unpaid amounts of Invoices 3090377 and 3090399, dated December 1993, Invoice 4090043 dated March 3, 1994, Invoice 406007 dated February 15, 1994, Invoice 4060012 dated March 16, 1994, Invoice 4090022 dated May 18, 1994, Invoice 4060036 dated August 23, 1994 and Invoice 4060053 dated December 15, 1994; FORMER VENDOR LOAN means the loan Former Vendor made to the purchaser of Landen prior to Seller in the amount of $1,000,000 and which remains unpaid; KEY MANAGER means Vince O'Brien, Johnny Claesen and Paudie Burke; INDEPENDENT FIRM has the meaning given in Schedule 7; INTER-COMPANY TRADING DEBT means all amounts owed, outstanding or accrued in the ordinary course of trading, including any VAT chargeable on supplies for which such amounts are the consideration, as between any member of the Seller Group and any Company as at Closing in respect of inter-company trading activity and the provision of services, facilities and benefits between them; INTER-COMPANY DEBT means all amounts owing by any of the Companies to any member of the Seller Group as at Closing excluding the Cambrex Bahamas Payable but including all amounts due in respect of Inter-Company Trading Debt; INTRA-GROUP REORGANISATION means for the period between signing and Closing: (a) any dividend distributed or declared or paid by Russinsky Limited to Cambrex Cork Limited; (b) any shares issued by Landen or Cork to their respective shareholders; and (c) any amounts paid or received by any of the Companies in relation to any amounts owed by or to any Company (including any Inter-Company Debt or Inter-Company Trading Debt), by or to any member of the Seller Group or any other Company, in each case effected in accordance with applicable law; LANDEN means Cambrex Profarmaco Landen NV; LANDEN SHARES means the shares comprising the entire issued share capital of Landen; LIBOR means the display rate per annum of the offered quotation for deposits in euro for a period of ninety days which appears on the appropriate page of the Reuters Screen (or such other page as the parties may agree) at or about 11.00 a.m. London time on the date on which payment of the sum under this Agreement was due but not paid; NET WORKING CAPITAL means in relation to each Company, Current Assets less all Current Liabilities as at Closing calculated in conformance with US GAAP and on a basis consistent with prior periods and comprising each of the line items set out in Exhibit 5 and no others; NET WORKING CAPITAL SCHEDULE has the meaning given in Schedule 7; NOTE means an unsecured promissory note to be given by the Purchaser in relation to its payment obligations under clause 3; Page 26 PARENT COMPANY means any company which holds a majority of the voting rights in another company, or which is a member of another company and has the right to appoint or remove a majority of its board of directors, or which is a member of another company and controls a majority of the voting rights in it under an agreement with other members, in each case whether directly or indirectly through one or more companies; PERMITTED ENCUMBRANCES means: (a) any hire or lease agreement in the ordinary course of business involving expenditure of less than E50,000 per annum (where the aggregate expenditure under all such agreements is less than E100,000 per annum); (b) title retention provisions in respect of goods and materials supplied to a Company in the ordinary course of the Business; (c) liens arising in the ordinary course of the Business by operation of law; PROPOSED TRANSACTION means the transaction contemplated by the Transaction Documents; PURCHASER'S BANK ACCOUNT means such bank account as may be notified by the Purchaser to the Seller; PURCHASER GROUP means the Purchaser and its Affiliates from time to time; REVIEW has the meaning given in Schedule 7; SELLER'S BANK ACCOUNT means the Seller's bank account at JP Morgan Chase Bank; account name: Cambrex AB; account number: 77019801; sort code: CHASBG2L (and/or such other account(s) as the Seller and the Purchaser may agree in writing); SELLER GROUP means the Seller and its Affiliates from time to time but excludes the Companies; SHARES means the Cork Shares and Landen Shares; SPECIFIC ACCOUNTING TREATMENTS has the meaning given in Schedule 7; STRADDLE PERIOD has the meaning given in clause 15; SUBSIDIARY and SUBSIDIARIES means any company in relation to which another company is its Parent Company; TAX or TAXES has the meaning given in clause 15; TAX DISPUTE WARRANTY means the warranty given in paragraph 2.2 of Schedule 1; TAX RETURN has the meaning given in clause 15; TAXATION AUTHORITY has the meaning given in clause 15; THIRD PARTY ASSURANCES means all guarantees, indemnities, counter-indemnities and letters of comfort of any nature given (i) to a third party by a Company in respect of any obligation of a member of the Seller Group; and/or (as the context may require) (ii) to a third party by a member of the Seller Group in respect of any obligation of a Company; Page 27 THIRD PARTY CLAIM has the meaning given to that term in clause 6; THIRD PARTY RIGHT means any interest or equity of any person (including any right to acquire, option or right of pre-emption or conversion) or any mortgage, charge, pledge, lien, assignment, hypothecation, security interest, title retention or any other security agreement or arrangement, or any agreement to create any of the above; TRANSACTION DOCUMENTS means this Agreement and any other documents in Agreed Form; TRANSITION SERVICES has the meaning given in clause 8; TRANSITION SERVICES AGREEMENT means the agreement to be entered into between the Seller and the Purchaser on or about the date of Closing in the form set out in Exhibit 1; US GAAP means generally accepted accounting principles in the United States; WARRANTIES means the warranties given pursuant to clause 4 and 5 and set out in Schedule 1 and 3; WORKING CAPITAL DEFICIT has the meaning given in clause 3; WORKING CAPITAL EXCESS has the meaning given in clause 3; and WORKING CAPITAL THRESHOLD shall mean E9,000,000. 2. Interpretation. In this Agreement, unless the context otherwise requires: (d) headings do not affect the interpretation of this Agreement; the singular shall include the plural and vice versa; and references to one gender include all genders; (e) references to any English legal term or concept shall, in respect of any jurisdiction other than England, be construed as references to the term or concept which most nearly corresponds to it in that jurisdiction; (f) for the purposes of applying a reference to a monetary sum expressed in euro, an amount in a different currency shall be deemed to be an amount in euro translated at the Exchange Rate at the relevant date (which in relation to a Claim, shall be the date of the receipt of notice of that Claim under Schedule 2); (g) any statement in this Agreement qualified by the expression SO FAR AS THE SELLER IS aware or TO THE BEST OF THE SELLER'S KNOWLEDGE or any similar expression shall be deemed only to be made on the basis of the actual knowledge, at the date of this Agreement, of the following persons and in each case in respect only of the Warranties identified below against their respective names and shall carry no requirement to make enquiries of any other person: NAME WARRANTIES Vince O'Brien and Johnny Claesen Tax (Warranty 2) (h) any phrase introduced by the terms INCLUDING, INCLUDE, IN PARTICULAR or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms. Page 28 3. Schedules and Exhibits. The Schedules and Exhibits comprise schedules and exhibits to this Agreement and form part of this Agreement. 4. Inconsistencies. Where there is any inconsistency between the definitions set out in this Schedule and the definitions set out in any clause or any other Schedule, then, for the purposes of construing such clause or Schedule, the definitions set out in such clause or Schedule shall prevail. Page 29 SIGNATURE This Agreement is signed by duly authorised representatives of the parties: SIGNED ) SIGNATURE: /s/ Peter E. Thauer for and on behalf of ) ------------------------- CAMBREX AB ) NAME: Peter E. Thauer SIGNED ) SIGNATURE: /s/ Patrick Schnitzer for and on behalf of ) ------------------------- INTERNATIONAL CHEMICAL ) INVESTORS II S.A. ) NAME: Patrick Schnitzer FORM OF TRANSITION SERVICES AGREEMENT This TRANSITION SERVICES AGREEMENT (this "Agreement") is made on 27 October, 2006, by and between Cambrex AB of S-691, 85 Karlskoga, Sweden ("Cambrex AB") and International Chemical Investors II S.A., of 26, rue Philippe II, L-2340 Luxembourg (the "Purchaser") for itself and on behalf of each of the Companies (as defined below); WITNESSETH: WHEREAS, pursuant to that certain Stock Purchase Agreement, dated on or about 17 October, 2006 (the "Stock Purchase Agreement"; capitalized terms used herein and not otherwise defined herein have the meanings given to such terms in the Stock Purchase Agreement), by and among Cambrex AB and Purchaser, Cambrex AB has agreed to sell and Purchaser has agreed to purchase all of the issued and outstanding capital stock of the Companies; and WHEREAS, pursuant to the Stock Purchase Agreement, Cambrex AB has agreed to provide certain transition services to Purchaser and the Companies following the Closing Date on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Cambrex AB and Purchaser agree as follows: 1. Transition Services. During the term of this Agreement as set forth in Section 4 below (the "Term"), Cambrex AB shall assist and cooperate with Purchaser to create an orderly transition of the Companies' business in the areas described in Schedule A by providing, or causing its Affiliates to provide, to Purchaser and its Affiliates (but only to the extent such Affiliates operate the Companies' business) the services set forth in Schedule A attached hereto (the "Transition Services"), at the Cost set forth in Schedule A, from the date of this Agreement and for the period of time described in Schedule A attached hereto with respect to each of the Transition Services, in the manner and at a relative level of service consistent in all material respects with, but in no event materially higher or lower than, the typical level of service provided by Cambrex AB or its Affiliates to the Companies' business immediately prior to the date hereof. Cambrex AB shall not be obligated to provide any services to Purchaser other than the Transition Services; provided that (i) if any service that Cambrex AB (or an Affiliate) provided to either of the Companies in the ordinary course of business immediately prior to the date hereof and that is of a transitional nature is inadvertently omitted from the list of Transition Services or (ii) if Purchaser requires additional services of a transitional nature, then Cambrex AB (or an Affiliate) and Purchaser agree to negotiate in good faith to amend this Agreement to include such services in Schedule A at a cost to be determined in good faith, using the same methodology as Cambrex AB and its Affiliates used to determine the costs set forth in Schedule A. Nothing in this Agreement shall require Cambrex AB and its Affiliates to provide priority to Purchaser with respect to the Transition Services over Cambrex AB's businesses or those of any of its Affiliates, Subsidiaries or divisions. 2. Billing and Payment. Cambrex AB or the Affiliate performing the Transition Service shall issue to the Purchaser, or as the Purchaser may direct, invoices for the Transition Services at the beginning of each month during the Term. Purchaser shall promptly pay (or procure payment of) any bills and invoices that it receives from Cambrex AB or its Affiliates for the Transition Services as set forth in such invoices. Purchaser shall pay interest on any amount overdue under this Agreement at the Prime Rate as published in the Wall Street Journal, Eastern Edition in effect from time to time during the term of this Agreement plus two percent (2%) from the date due until payment, or, if lower, the highest interest rate permitted by Law. Except as otherwise set forth in Schedule A, all invoices shall be paid by wire transfer in accordance with the instructions provided by Cambrex AB or its Affiliate (in writing to 1 Purchaser) not later than ten (10) days following receipt by Purchaser of Cambrex AB's or its Affiliate invoice, unless such invoice is disputed in good faith within ten (10) days after receipt of such invoice. In the event that Purchaser fails to make payment to Cambrex AB or the applicable Affiliate within forty-five (45) days following receipt by Purchaser of Cambrex AB's or its Affiliate invoice (other than any invoice that was timely disputed in good faith), Cambrex AB may terminate this Agreement upon notice to Purchaser. Purchaser shall not offset any amounts owing to it by Cambrex AB or any of Cambrex AB's Affiliates against amounts payable by Purchaser hereunder. 3. General Intent. Cambrex AB or its Affiliates shall use its reasonable commercial efforts to provide the Transition Services at the price set forth in Schedule A during the Term and such other transition assistance as the parties may otherwise agree. Purchaser agrees to use its reasonable commercial efforts to end its need to use such assistance as soon as reasonably practicable and in all events to end such need with respect to each Transition Service not later than the termination of this Agreement pursuant to Section 4. 4. Term of Agreement. The term of this Agreement shall commence on the date hereof and shall continue (unless sooner terminated pursuant to the terms hereof) for a period not to exceed three (3) months (the "Initial Period"), except as stated in Schedule A. Purchaser may request an extension of the term of any Transition Service set forth in Schedule A by submitting a written request to Cambrex AB to extend the term of such service (the "Extension Period") thirty (30) days prior to the end of any such service term. Cambrex AB may continue to provide such Transition Service to Purchaser at the price set forth in Schedule A during the Extension Period, and Cambrex AB's consent to continue providing such service shall not be unreasonably withheld. Notwithstanding anything herein to the contrary, this Agreement and the obligations of Cambrex AB to provide any services hereunder shall automatically terminate one (1) year after the date hereof. 5. Partial Termination. Any and all of the Transition Services provided by Cambrex AB and its Affiliates are only terminable earlier than the period specified in Schedule A attached hereto by Purchaser on thirty (30) days' prior written notice to Cambrex AB. As soon as reasonably practicable following receipt of any such notice, Cambrex AB shall advise Purchaser as to whether termination of such Transition Service will require the termination or partial termination of, or otherwise affect the provision of, certain other Transition Services. If such is the case, Purchaser may withdraw its termination notice. Otherwise, such termination shall be final. All periodic fees or charges under this Agreement are to be computed on a calendar month basis and, in the event that any Transition Services are terminated pursuant to this Section, the fees or charges shall be prorated on a per diem basis for any partial month. Notwithstanding the foregoing, during any Extension Period the fees and charges shall not be prorated for any partial period for any reason. 6. Non-Solicitation of Employee. For a period of one (1) year following the date hereof, neither Purchaser nor any of its Affiliates will directly or indirect solicit the employment of any officer or employee of Cambrex AB or any of its Affiliates so long as they are employed by Cambrex AB or any of its Affiliates, without obtaining the prior written consent of Cambrex AB, provided that the foregoing shall not prohibit any general solicitation or advertising activities not targeted to any such officer or employee nor apply to any individual whose employment is terminated by Cambrex AB or any Affiliate of Cambrex AB. 7. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by any of the parties without the prior written consent of the other party; provided that such consent shall not be required (i) in the event Cambrex AB assigns any or all of its rights, interests and obligations hereunder to a person with whom Cambrex AB merges or to whom Cambrex AB sells all or substantially all of its assets and (ii) in the event the 2 Purchaser assigns any or all of its rights, interests and obligations hereunder to a person with whom the Purchaser merges or to whom the Purchaser sells all or substantially all of its assets (including the Companies or the Companies' businesses). Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns. Any purported assignment not permitted under this Section shall be null and void. 8. Confidentiality. Each of the parties agrees that all confidential or competitively sensitive information received in connection with the provision of the Transition Services shall be "Confidential Information" for the purposes of clause 18 of the Stock Purchase Agreement 9. Limitation of Liability. Neither party shall be liable to the other party or any third party for any special, punitive, consequential, incidental or exemplary damages (including lost or anticipated revenues or profits relating to the same) arising from any claim relating to this Agreement or any of the services provided hereunder, whether such claim is based on warranty, contract, tort (including negligence or strict liability) or otherwise, even if an authorized representative of such party is advised of the possibility or likelihood of the same. In addition, neither party shall be liable to the other party or any third party for any direct damages from any claim arising or allegedly arising from providing or failing to provide the Transition Services or any other services, except to the extent, but only to the extent, that any such claims arise from the gross negligence, reckless or willful breach or other misconduct or fraud. 10. Notices. All notices, reports, and receipts shall be in writing and shall be deemed duly given on (i) the date of personal or courier delivery, (ii) the date of transmission by facsimile or other electronic transmission service, provided a confirmation copy is also sent no later than the next business day by postage paid, return receipt requested first-class mail or (iii) three (3) business days after the date of deposit in the United States mails, by postage paid, return receipt requested first-class mail, addressed as follows: if to Purchaser, to: International Chemical Investors II S.A. 26, rue Philippe II L-2340 Luxembourg Attention: The Managing Director if to Cambrex AB or its Affiliate, to: C/o Cambrex Corporation One Meadowlands Plaza East Rutherford, New Jersey 07073 Attention: Mary E. Fletcher, Assistant General Counsel Either party may change its address by written notice to the other party in accordance with this Section 10. 11. Modification; Nonwaiver. No alleged waiver, modification or amendment to this Agreement or to Schedule A attached hereto shall be effective against either party hereto, unless in writing, signed by the party against which such waiver, modification or amendment is asserted, and referring specifically to the provision hereof alleged to be waived, modified or amended. The failure or 3 delay of either party to insist upon the other party's strict performance of the provisions in this Agreement or to exercise in any respect any right, power, privilege, or remedy provided for under this Agreement shall not operate as a waiver or relinquishment thereof, nor shall any single or partial exercise of any right, power, privilege, or remedy preclude other or further exercise thereof, or the exercise of any other right, power, privilege, or remedy; provided, however, that the obligations and duties of either party with respect to the performance of any term or condition in this Agreement shall continue in full force and effect. 12. Relationship of Parties. Except as specifically provided herein, neither party shall act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations. Nothing contained in this Agreement shall be construed as creating a partnership, joint venture, agency, trust or other association of any kind, each party being individually responsible only for its obligations as set forth in this Agreement. All activities by Cambrex AB under the terms of this Agreement shall be carried on by Cambrex AB as an independent contractor and not as an agent for Purchaser. Employees of Cambrex AB performing services hereunder shall remain Cambrex AB's employees and shall not be deemed to be employees of Purchaser. Except as set forth in Schedule A, and except for direct out-of-pocket costs incurred with the prior agreement of the Purchaser, Cambrex AB shall pay for all personnel expenses (including, without limitation, wages, benefits, payroll, taxes and worker's compensation insurance) of its employees performing services under this Agreement. 13. Force Majeure. If either party is prevented from complying, either totally or in part, with any of the terms or provisions of this Agreement by reason of fire, flood, storm, strike, lockout or other labor trouble, any Law, demand or other requirement of any Governmental Authority, riot, war, rebellion, acts of terrorism, acts of the public enemy or other causes beyond the reasonable control of such party or other acts of God, then upon written notice to the other party, the affected provisions and/or other requirements of this Agreement shall be suspended during the period of such disability (the "Disability Period") and the affected party shall have no liability to the other party or any other party in connection therewith; provided that this Section 13 shall not apply to any payment to Cambrex AB required by this Agreement to the extent Cambrex AB or its Affiliates have provided the services for which payment is sought in accordance with the terms of this Agreement. The affected party shall make all reasonable efforts to remove such disability within thirty (30) days after giving notice of such disability (provided that such efforts shall not include settling any labor disputes). At the request of Purchaser, the Term shall be extended for a time period equal to any Disability Period. 14. Interpretation. The headings and captions contained in this Agreement and in Schedule A attached hereto are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The use of the word "including" herein shall mean "including without limitation". 15. Counterparts. This Agreement may be executed in one or more counterparts (including by means of signature pages via facsimile), all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. 16. Entire Agreement. This Agreement and the Stock Purchase Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter. 4 17. Representation by Counsel; Interpretation. Cambrex AB and Purchaser acknowledge that each of them has been represented by counsel in connection with this Agreement and the transactions contemplated hereby. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. 18. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be valid and effective under applicable Law, but if any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. 19. Governing Law. This Agreement shall be governed by, and interpreted in accordance with, English law, without regard to principles of conflict of Laws that would require the application of the Laws of another jurisdiction. Further, except as expressly provided otherwise in this Agreement, the courts of England are to have exclusive jurisdiction to settle any disputes which may arise in connection with this Agreement. For such purposes each party irrevocably submits to the jurisdiction of the English courts, waives any objections to the jurisdiction of those courts and irrevocably agrees that a judgment or order of the English courts in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction. Further, the Purchaser shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Agreement as set forth and in accordance with Clause 25.3 of the Stock Purchase Agreement. 20. Survival. The provisions of Sections 2, 4, 7-12 and 14-21 shall survive any termination of this Agreement. 21. Schedule A. Schedule A attached hereto and referred to herein is hereby incorporated in and made a part of this Agreement as if set forth in full herein. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. Cambrex AB By: /s/ Peter E. Thauer ------------------------------------ Name: Peter E. Thauer Title: Director International Chemical Investors II S.A. By: /s/ Robert Langmantel ------------------------------------ Name: Robert Langmantel Title: --------------------------------- 6 SCHEDULE A Transition Services A. Information Technology
TRANSITION SERVICE(1) FIRST EXTENSION SECOND EXTENSION [TO BE PROVIDED BY AND BILLED BY INITIAL PERIOD PERIOD PERIOD(2) CAMBREX CORPORATION, AN AFFILIATE] (Months 1-3) (Months 4-6) (Months 7-9) - ---------------------------------- ------------------- ------------------- ------------------- Wide Area Network Usage and USD$ 5,000 / month USD$ 5,500 / month USD$ 10,000 / month Management Shared IT Infrastructure USD$ 27,000 / month USD$ 29,500 / month USD$ 40,000 / month Renaissance ERP Support and USD$ 23,500 / month USD$ 26,000 / month USD$ 35,000 / month Trackwise CAPA System Support TOTAL CHARGE USD$55,500 / MONTH USD$61,000 / MONTH USD$85,000 / MONTH
The parties agree that no amounts shall be payable by the Purchaser or its Affiliates in respect of the Transition Services provided by the Seller pursuant to this Part A of Schedule A in the first month following Closing. - ---------- (1) Other IT services may be required including electronic data extracts and functional resources needed to validate them in order to rebuild independent systems from existing corporate ones. These services are not within the scope of this Agreement and solely at the discretion of Cambrex management may be undertaken after approval by the Purchaser of the scope of work and the price to be paid to Cambrex. (2) Extension Period subject to pre-approval by Cambrex and Purchaser. In the event that Cambrex agrees to the Extension Period, no additional extensions will be offered. After the Initial Quarter, Additional Period or Extension Period, as the case may be, it is Purchaser's sole responsibility to insure it has appropriate replacement systems to maintain the functionality of the business. 7 B. Cambrex Pharma Sales Support 1. Cambrex Charles City, Inc., an Affiliate will transfer relationships over to Companies for the following products/customers either with a joint visit or by joint written communications: a. Benzphetamine HCl b. Bisoprolol base (Generic - Hisamitsu, Japan) c. Gatifloxacin (Generic) d. Cyclazine (Waymade) e. Flupirtine Maleate (Strathmann) f. LRDA (S-P) g. M6G (CeNes) 2. Cambrex Charles City, Inc. will provide incidental telephonic support for the six (6) months following Closing, at no charge. 3. If visits to Companies and/or customers are agreed to be performed; the charge to Purchaser for each such visit shall be out of pocket costs plus $2000.00 per man day. 4. All fees charged are due within twenty (20) calendar days of invoice. C. Generic Sales Support 1. At or immediately following Closing, Cambrex Profarmaco Milano S.r.l. (Milano), an Affiliate, and Purchaser will send a joint letter to all generic accounts formerly serviced by Milano. Such letters will disclose the transaction and plans for servicing customers. Milano and Purchaser will visit up to ten (10) key accounts, if desired, to assist in clarifying the transaction and services. 2. Milano will provide introductory support to Landen's branded customers for memantine and Nitazoxanide and will provide continuing sales support for nine (9) months from Closing unless Purchaser cancels such support with thirty (30) days prior written notice. For such sales support, Purchaser shall pay Milano a service fee of 1.5% of the net sales of memantine and Nitazoxanide that are committed to during the term of the service. 3. Milano will supply continuing sales support to Purchaser on all generic business, formerly serviced by Milano, consistent with support levels existing prior to Closing and Purchaser will pay Milano a service fee of 1.5% of the net sales of such generic products that are committed to during the term of this service for such products. Purchaser may terminate this sales support, in whole or in part by country, at any time with thirty (30) days prior written notice. The service fee shall continue for all non-terminated products and countries. Purchaser shall be solely responsible for any agent or distributor commissions in addition to the service fee paid to Milano. 4. All fees are due within twenty (20) calendar days from the end of each month and must be accompanied by documentation on showing actual net sales. The parties shall previously agree to the documentation to be sent with the invoice. 5. Unless earlier terminated by Purchaser providing thirty (30) day prior written notice, all Milano sales support under this Agreement shall terminate ninety (90) days from the Closing. 8 EX-31.1 4 y26920exv31w1.txt EX-31.1: CERTIFICATION EXHIBIT 31.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, James A. Mack, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ James A. Mack ---------------------------------------- James A. Mack Chairman of the Board of Directors, President and Chief Executive Officer Dated: November 9, 2006 36 EX-31.2 5 y26920exv31w2.txt EX-31.2: CERTIFICATION EXHIBIT 31.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Luke M. Beshar, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Luke M. Beshar ---------------------------------------- Luke M. Beshar Executive Vice President and Chief Financial Officer Dated: November 9, 2006 37 EX-32.1 6 y26920exv32w1.txt EX-32.1: CERTIFICATION EXHIBIT 32.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Cambrex Corporation (the "Company") on form 10-Q for the period ending September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Mack, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that: 1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 9, 2006 /s/ James A. Mack ---------------------------------------- James A. Mack Chairman of the Board of Directors, President and Chief Executive Officer 38 EX-32.2 7 y26920exv32w2.txt EX-32.2: CERTIFICATION EXHIBIT 32.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Cambrex Corporation (the "Company") on form 10-Q for the period ending September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Luke M. Beshar, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that: 1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 9, 2006 /s/ Luke M. Beshar ---------------------------------------- Luke M. Beshar Executive Vice President and Chief Financial Officer 39 -----END PRIVACY-ENHANCED MESSAGE-----