-----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, GzliIMrIRqVilK50PanoUTyJkFQ4ZzWtdNgd636z7IWroxxfETj8u6tjozyRcIVl 8eTltRpD17BhZ1UzxQjKUw== 0000950135-96-002101.txt : 19960515 0000950135-96-002101.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950135-96-002101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE BIOMOLECULES INC CENTRAL INDEX KEY: 0000857121 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 942786743 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19910 FILM NUMBER: 96564092 BUSINESS ADDRESS: STREET 1: 45 S STREET CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 5084359001 MAIL ADDRESS: STREET 1: 45 SOUTH ST CITY: HOPKINTON STATE: MA ZIP: 01748 10-Q 1 CREATIVE BIOMOLECULES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-19910 CREATIVE BIOMOLECULES, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2786743 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 45 SOUTH STREET, HOPKINTON, MA 01748 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 435-9001 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 2, 1995, the registrant had 29,071,505 shares of common stock outstanding. 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3 Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES
2 3 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1996 1995 ---------- ------------ (unaudited) ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 14,322,409 $ 11,917,779 Marketable securities 3,193,792 8,084,269 Accounts receivable 2,896,172 2,818,618 Inventory 580,968 562,290 Prepaid expenses and other 327,868 149,105 ------------ ------------ Total current assets 21,321,209 23,532,061 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT - net 14,594,490 14,736,306 ------------ ------------ OTHER ASSETS: Patents and licensed technology - net 376,137 382,703 Deferred patent application costs - net 2,620,015 2,431,298 Deposits and other 458,473 258,473 ------------ ------------ Total other assets 3,454,625 3,072,474 ------------ ------------ TOTAL $ 39,370,324 $ 41,340,841 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Lease obligations - current portion $ 47,149 $ 42,567 Accounts payable 1,787,686 738,100 Accrued liabilities 483,733 512,446 Accrued compensation 560,358 495,633 ------------ ------------ Total current liabilities 2,878,926 1,788,746 ------------ ------------ LEASE OBLIGATIONS 1,694,436 1,710,910 ------------ ------------ DEFERRED COMPENSATION - Officers 12,500 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued Common stock, $.01 par value, 50,000,000 shares authorized, 29,069,505 shares and 28,894,996 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 290,695 288,950 Common stock payable 1,736,586 Additional paid-in capital 107,145,599 105,001,625 Accumulated deficit (72,639,332) (69,198,476) ------------ ------------ Total stockholders' equity 34,796,962 37,828,685 ------------ ------------ TOTAL $ 39,370,324 $ 41,340,841 ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, ---------------------------------- 1996 1995 ---- ---- (unaudited) REVENUE: Research and development contracts $ 1,055,704 $ 1,489,475 Manufacturing contracts 612,065 2,121,256 License fees and royalties 101,584 Interest and other 270,441 216,394 ----------- ----------- Total revenues 2,039,794 3,827,125 ----------- ----------- COSTS AND EXPENSES: Research and development 3,832,752 2,777,558 Manufacturing contracts 477,533 1,708,105 Marketing, general and administrative 1,115,563 921,035 Interest 54,802 50,589 ----------- ----------- Total costs and expenses $ 5,480,650 $ 5,457,287 =========== =========== NET LOSS $(3,440,856) $(1,630,162) =========== =========== NET LOSS PER COMMON SHARE ($ .12) ($ .08) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 29,027,234 19,777,519 =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, --------------------- 1996 1995 ---- ---- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,440,856) $(1,630,162) ----------- ----------- Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 607,405 615,216 Compensation expense 29,750 46,378 Increase (decrease) in cash from: Accounts receivable (77,554) (2,406,188) Inventory and prepaid expenses (197,441) (282,224) Accounts payable and accrued liabilities 1,043,348 (270,497) Deferred contract revenue 1,920 ------------ ----------- Total adjustments 1,405,508 (2,295,395) ------------ ----------- Net cash used for operating activities (2,035,348) (3,925,557) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (540,313) (6,059,238) Sales of marketable securities 5,430,790 Expenditures for property, plant and equipment (435,190) (239,283) Expenditures for patents (212,550) (257,370) Increase in deposits and other (200,000) (35,620) ------------ ----------- Net cash provided by (used for) investing activities 4,042,737 (6,591,511) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of equity: Series Preferred Stock 4,351,689 Common stock - other 409,133 1,400 Decrease in stockholders' notes receivable 1,833,306 Repayments of obligations under capital leases (11,892) (38,465) ------------ ----------- Net cash provided by financing activities 397,241 6,147,930 ------------ ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 2,404,630 (4,369,138) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,917,779 10,515,954 ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,322,409 $ 6,146,816 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 54,802 $ 50,589 ============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. OPINION OF MANAGEMENT - The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim periods. These statements are condensed and do not include all disclosures as required by generally accepted accounting principles. In the opinion of management, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary to present fairly the Company's financial position at March 31, 1996 and the results of operations and cash flows for the three month periods ended March 31, 1996 and 1995. The financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the transition period ended December 31, 1995. Interim results are not necessarily indicative of results for a full year and such results are subject to year-end adjustments and independent audit. 2. STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which is effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principles Board ("APB") Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share in the Company's audited consolidated financial statements for the year ended December 31, 1996. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL To date, most of the Company's revenues have been derived from research and development payments and license fees under agreements with collaborative partners and from contract manufacturing. The Company anticipates that over the next several years its revenues will continue to be derived primarily from such collaborative agreements and from contract manufacturing. The Company has been unprofitable since its inception and expects to incur additional operating losses over the next several years. The Company's research agreements with collaborative partners have typically provided for the partial or complete funding of research and development for specified projects and royalties payable to the Company in exchange for licenses to market the resulting products. The Company is presently a party to one major research collaboration with Stryker Corporation ("Stryker") to develop products for orthopedic reconstruction. Under the research portion of the collaboration with Stryker, the Company supplies an OP-1 product to Stryker for clinical trials and other uses and provides clinical support and performs research work pursuant to work plans established periodically by the two companies. The current work plan establishes research objectives and funding through April 1998. Although the Company is seeking and in the future may seek to enter into collaborative arrangements with respect to certain other projects, there can be no assurance that the Company will be able to obtain such agreements on acceptable terms or that the costs required to complete the projects will not exceed the funding available for such projects from the collaborative partners. The Company's manufacturing contracts provide for technical collaboration and manufacturing for third parties at the Company's manufacturing facility in Lebanon, New Hampshire. The Company is presently a party to a manufacturing contract with Biogen, Inc. ("Biogen") to produce several of Biogen's protein-based therapeutic candidates through December 1997 for use in Biogen's clinical trials. The Company agreed to provide Biogen with all available cell culture and bacterial fermentation capacity within the manufacturing facility, and Biogen agreed to pay the Company's costs associated with such capacity, for approximately six months in each of the three years beginning in January 1995. Although the Company is seeking additional manufacturing contracts for available cell culture and bacterial fermentation capacity, there can be no assurance that the Company will be able to obtain such contracts on acceptable terms. Revenue is earned and recognized based upon work performed, upon the sale or licensing of product rights, upon shipment of product for use in preclinical and clinical testing or upon attainment of benchmarks specified in collaborative agreements. The Company's results of operations vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of contract manufacturing activities and the timing of payments made by collaborative partners. The timing of the Company's contract revenues may not match the timing of the Company's associated product development expenses. As a result, research and development expenses may exceed contract revenues in any particular period. Furthermore, aggregate research and development contract revenues for any product may not offset all of the Company's development expenses for such product. 7 8 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995. The Company's total revenues for the three month periods ended March 31, 1996 and 1995 were $2,040,000 and $3,827,000, respectively. Research and development contract revenues decreased 29% to $1,056,000 for the three month period ended March 31, 1996 from $1,489,000 for the three month period ended March 31, 1995. This decrease is primarily due to fluctuations in research activities for Stryker. The Company anticipates that research and development contract revenues for each of the remaining quarters of 1996 will be higher than the three months ended March 31, 1996 due to greater revenues from Stryker beginning in May 1996, as discussed further below. Manufacturing contract revenues decreased 246% to $612,000 for the three month period ended March 31, 1996 from $2,121,000 for the three month period ended March 31, 1995. Manufacturing contract revenues reflect manufacturing principally for Biogen conducted at the Company's manufacturing facility in Lebanon, New Hampshire. The Company anticipates that manufacturing contract revenues for each of the remaining quarters of 1996 will be significantly higher than the three months ended March 31, 1996 due to the planned resumption of production for Biogen in May 1996. License fees and royalties include revenue from licensing patent rights and know-how associated with certain protein technology which is not central to the Company's business. Interest and other revenue increased 25% to $270,000 for the three month period ended March 31, 1996 from $216,000 for the three month period ended March 31, 1995. The increase is due to an increase in average funds available for investment resulting from a self-managed public offering in October 1995 of 3,000,000 shares of common stock at a price of $4.25 per share. The Company's total costs and expenses for the three month periods ended March 31, 1996 and 1995 were $5,481,000 and $5,457,000, respectively. Research and development expenses increased 38% to $3,833,000 for the three month period ended March 31, 1996 from $2,778,000 for the three month period ended March 31, 1995. In September 1995, the Company commenced a second pilot clinical trial to further evaluate an OP-1 product for dentin regeneration. The costs of such trial began to be incurred in September 1995 and are expected to continue through the nine months ending September 30, 1996. Also contributing to the increase in costs is an increase in research and development expenses at the Company's manufacturing facility in Lebanon, New Hampshire. For the three month period ended March 31, 1996 the facility was primarily used for development activities of the Company; therefore, facility operating costs related to development activities were reported as research and development expenses. For the three month period ended March 31, 1995, the facility was primarily used for contract manufacturing for Biogen; therefore, facility operating costs were reported as manufacturing contract expenses. The Company anticipates that research and development expenses at the Company's manufacturing facility in Lebanon, New Hampshire will decrease for each of the remaining quarters in 1996 and manufacturing contract expenses will increase. The Company expects the decrease in research and development expenses at the Company's manufacturing facility will be more than offset by an increase in research and development expenses at the Company's research facility. The Company plans to expand its research and development staff. Labor and laboratory supply and service costs will increase as additional personnel are hired. Furthermore, the Company plans to increase expenditures on academic collaborations and subcontracted research related to technology and product development. Manufacturing contract expenses includes the costs associated with third-party manufacturing conducted at the manufacturing facility in Lebanon, New Hampshire. Manufacturing contract expenses decreased 72% to $478,000 for the three month period ended March 31, 1996 from $1,708,000 for the three month period ended March 31, 1995. The decrease is primarily due to the reduction in contract manufacturing for Biogen. The Company manufactured for Biogen from January 1995 through December 1995 and plans to resume production for Biogen in May 1996. Marketing, general and administrative expenses increased 21% to $1,116,000 for the three month period ended March 31, 1996 from $921,000 for the three month period ended March 31, 1995. The increase is primarily due to increases in staffing and recruiting costs. The Company anticipates that marketing, general and administrative expenses will continue at amounts higher than the prior year. 8 9 As a result of the foregoing, the Company's net loss increased 111% to $3,440,000 for the three months ended March 31, 1996 compared to $1,630,000 for the three months ended March 31, 1995. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company's principal sources of liquidity consisted of cash and cash equivalents of $14,322,000 and marketable securities of $3,194,000. The Company increased its investment in property, plant and equipment to $25,115,000 at March 31, 1996 from $24,680,000 at December 31, 1995. The Company plans to spend approximately $3.2 million in the year ended December 31, 1996 in leasehold improvements and equipment purchases to increase the capacity and flexibility in operating the manufacturing facility and approximately $1 million in equipment purchases and leasehold improvements to expand the Company's research, development and manufacturing capabilities. In addition, as part of a manufacturing contract with Biogen, Biogen is financing the construction of leasehold improvements to the Company's manufacturing facility at an estimated total cost of $2.5 million and is installing and financing for the Company certain equipment with an estimated total cost of $1.5 million, as discussed further below. The Company's collaborative agreements with Stryker provide for research payments to the Company and royalty payments to the nonseller from sales of any OP-1 products. The Company also has the exclusive right to supply Stryker's worldwide commercial requirements for OP-1 products for use in orthopedic reconstruction. Under the research portion of the collaboration, the Company supplies OP-1 products to Stryker for clinical trials and other uses and provides clinical support and performs research work pursuant to work plans established periodically by the two companies. In May 1996, the Company and Stryker agreed to extend the research portion of the collaboration for two years through April 1998. The Company estimates that the contract extension will provide approximately $12 million of revenue to the Company over the two year period. In January 1996, Stryker completed target patient accrual in its pivotal clinical trial to evaluate the use of an OP-1 bone regeneration product candidate as a bone graft substitute. This pivotal clinical trial focused on regeneration of bone tissue in non-union fractures of the tibia. In October 1995, the FDA approved a supplemental treatment arm of the pivotal trial, allowing Stryker to expand the study to test the Company's OP-1 bone regeneration product candidate for the treatment of all long bone non-union fractures. In addition to the U.S. pivotal trial, Stryker initiated European clinical studies in several countries under physician sponsorship in acute fractures, talocalcaneal fractures, fibula defects and spinal fusions. Treatment in these European studies is expected to be completed in 1996. Stryker is expected to initiate further clinical testing of OP-1 bone regeneration products in a number of countries for an increasing array of orthopedic reconstruction indications. In September 1994, the Company signed a three-year manufacturing contract with Biogen to produce in the Company's manufacturing facility in Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates for use in Biogen's clinical trials. The contract covers the period from January 1995 through December 1997. The Company expects to realize up to $18 million in contract manufacturing revenue from Biogen during the three-year period, of which approximately $7.4 million had been recognized through March 1996. To enable the Company to meet its obligations under the manufacturing contract, Biogen is financing and constructing a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation at an estimated total cost of $2.5 million. The Company agreed to reimburse Biogen for the construction costs and leasehold improvements at the end of the lease term at an amount equal to Biogen's construction costs less $300,000 and less all accumulated depreciation. Biogen also agreed to lease equipment to the Company for the operation of such portion of the facility and for cGMP production using bacterial fermentation by the Company at an estimated total cost of $1.5 million, as provided in an equipment lease agreement. The Company has the option to purchase the equipment at the end of the lease term for an amount equal to its then fair market value. The Company anticipates that construction of the building addition and leasehold improvements will be completed by mid-1996. 9 10 The Company anticipates that its existing capital resources should enable it to maintain its current and planned operations through late 1997. The Company expects to incur substantial additional research and development and other costs, including costs related to preclinical studies and clinical trials. The Company's ability to continue funding its planned operations beyond late 1997 is dependent upon its ability to generate sufficient cash flow from collaborative arrangements and manufacturing contracts, and to obtain additional funds through equity or debt financings, or from other sources of financing, as may be required. The Company also is seeking additional collaborative arrangements. It also expects to raise funds through one or more financing transactions, as conditions permit, and is investigating the feasibility of raising capital through the sale/leaseback or debt financing of some of its capital assets. Over the longer term, because of the Company's significant long-term capital requirements, the Company intends to raise funds when conditions are favorable, even if it does not have an immediate need for additional capital at such time. If substantial additional funding is not available, the Company's business will be materially and adversely affected. CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements which are based on management's current expectations and which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. The Company cautions investors that there can be no assurance that the actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to the following: uncertainty as to timing of and the Company's ability to commercialize its products; the Company's reliance on its lead product candidate and the Company's lack of control over the clinical progress of one of its primary applications for such products, which is controlled by one of the Company's collaborative partners; the Company's reliance on current and prospective collaborative partners to supply funds for research and development and to commercialize its products; intense competition related to the research and development of morphogenic and other proteins for various applications and therapies and the possibility that others may discover or develop, and the Company may not be able to gain rights with respect to, the technology necessary to commercialize its products; the Company's lack of experience in commercial manufacturing and unproven ability to manufacture products on a large scale; the Company's lack of marketing and sales experience and the risk that any products that the Company develops may not be able to be marketed at acceptable prices or receive commercial acceptance in the markets that the Company expects to target; uncertainty as to whether there will exist adequate reimbursement for the Company's products from government, private health insurers and other organizations; and uncertainties as to the extent of future government regulation of the Company's business. As a result, the Company's future development efforts involve a high degree of risk. 10 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Stockholders of the Company was held on March 20, 1996. The following actions were voted upon by the stockholders at the Annual Meeting: 1. The following persons were elected as Directors of the Company and the record votes cast by the holders of shares of capital stock of the Company entitled to vote for, against or withheld, as well as the number of absentions and broker non-votes for each nominee for Director is set forth below:
Votes Votes Broker Name Votes For Against Withheld Abstentions Non-Votes - ---- --------- ------- -------- ----------- --------- Martyn D. Greenacre (term expiring in 1999) 19,399,089 132,778 0 0 0 Michael Rosenblatt, M.D. (term expiring in 1999) 19,400,089 131,778 0 0 0 James R. Tobin (term expiring in 1999) 19,400,089 131,778 0 0 0
The terms of office of the following persons as Directors of the Company continued after the meeting: Name - ---- Patrick Owen Burns (term expiring in 1997) Charles Cohen, Ph.D. (term expiring in 1997) Jeremy L. Curnock Cook (term expiring in 1997) Brian H. Dovey (term expiring in 1998) Arthur J. Hale, M.D. (term expiring in 1998) Michael M. Tarnow (term expiring in 1998) 2. The stockholders of the Company voted to amend the Company's 1992 Non-Employee Director Non-Qualified Stock Option Plan (the "Director Plan") (i) to increase the number of shares authorized for issuance under the Director Plan from 100,000 shares to 300,000 shares, (ii) to provide for the grant of an additional option (the "Additional Option") to purchase 10,000 shares of Common Stock to each Eligible Director, (iii) to increase the Initial Option from 10,000 shares of Common Stock to 20,000 shares of Common Stock, and (iv) following each annual meeting of stockholders (the "Annual Meeting"), to provide for the grant of an additional option (the "Annual Option") to purchase 5,000 shares of Common Stock to each Eligible Director (together the "Director Plan Amendments"). An Additional Option was granted, subject to stockholder approval, to each Eligible Director on January 24, 1996. Following the 1997 annual meeting of stockholders 11 12 and following each Annual Meeting thereafter, each Eligible Director who served as a director immediately prior to and continues to serve as a director following the Annual Meeting shall be granted, as of the date of such Annual Meeting, an option to purchase 5,000 shares of Common Stock. The record votes cast by the holders of shares of capital stock of the Company entitled to vote for, against or withheld, as well as the number of abstentions and broker non-votes for the amendments to the Company's Director Plan were as follows: 14,497,571 shares FOR, 2,981,034 shares AGAINST, 143,931 shares ABSTAINED and 1,909,331 representing BROKER NON-VOTES. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
Exhibit Number Description ------ ----------- *10.25 1992 Non-Employee Director Non-Qualified Stock Option Plan, as amended on March 20, 1996 * Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-Q.
(b) Reports on Form 8-K. Current Report on Form 8-K dated January 8, 1996, for the January 8, 1996 Event, relating to Registrant's Press Release announcing that its partner, Stryker Corporation, has completed target patient accrual in its pivotal trial for the treatment of non-union fractures using OP-1, a morphogenic protein discovered and developed by the Registrant. Current Report on Form 8-K, dated January 24, 1996, for the January 24, 1996 Event, relating to Registrant's change in its fiscal year end. The date of the new year end will be December 31. 12 13 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, in Hopkinton, Massachusetts, on May 14, 1996. CREATIVE BIOMOLECULES, INC. By: /s/Wayne E. Mayhew III ------------------------------------------ Wayne E. Mayhew III Vice President and Chief Financial Officer By: /s/Susan B. Blanton ------------------------------------------ Susan B. Blanton Controller 13 EX-10.25 2 1992 NON-EMPLOYEE DIR. N-Q STOCK OPTION PLAN 1 EXHIBIT 10.25 2 CREATIVE BIOMOLECULES, INC. 1992 NON-EMPLOYEE DIRECTOR NON-QUALIFIED STOCK OPTION PLAN (Amended as of March 20, 1996) 1. PURPOSE. The 1992 Non-Employee Director Non-Qualified Stock Option plan (the "Plan") is intended to promote the interests of Creative BioMolecules, Inc. (the "Corporation") by providing an inducement to obtain and retain the services of qualified persons who are not employees of the Corporation as members of the Board of Directors of the Corporation and to demonstrate the Corporation's appreciation for their service on the Board of Directors. 2. RIGHTS TO BE GRANTED. Under the Plan, options shall be granted that give an optionee the right for a specified time period to purchase a specified number of shares of Common Stock, par value $.01 per share, of the Corporation (the "Common Stock"). The option price shall be determined in each instance in accordance with the terms of this Plan. 3. AVAILABLE SHARES. The maximum aggregate number of shares of Common Stock reserved and available for distribution under the plan shall be three hundred thousand (300,000) shares, subject to adjustment in accordance with Section 13 hereof. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any options granted under this Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor shall revert to the option pool and continue to be available for grant under the Plan. 4. ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Corporation. The Board of Directors shall, subject to the provisions of the Plan and Section 17 hereof in particular, have the power to construe the Plan, to determine all questions thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. All decisions made by the Board of Directors pursuant to the provisions of the Plan shall be made in the Board of Directors' sole discretion and shall be binding on all persons, including the Corporation and Plan participants. The Plan is intended to comply with Rule 16b-3 and its successors promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") and as a "formula award" plan described in Rule 16b-3(c)(2)(ii) with respect to participants who are subject to Section 16 of the Exchange Act, and any provision in this Plan to the contrary shall be deemed null and void to the extent permissible by law and deemed appropriate by the Board of Directors. 5. OPTION AGREEMENT. Each option granted under the provisions of this Plan shall be evidenced by an Option Agreement, in such form as may be approved by the Board of Directors, which Option Agreement shall be duly executed and delivered on behalf of 3 the Corporation and by the optionee to whom such option is granted. The Option Agreement shall contain such terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Board of Directors; provided, however, if and in any event the Corporation registers any class of any equity pursuant to Section 12 of the Exchange Act, from the effective date of such registration (the "Effective Date") until six months after the termination of such registration (the "Termination Date"), the shares of Common Stock issued pursuant to an exercise of an option granted between the Effective Date and the Termination Date, inclusive, shall not be sold, pledged, assigned, hypothecated, transferred or disposed of for six (6) months after the date of grant of the option. No option agreement may provide for restrictions which would cause the Plan to not qualify as a "formula plan" meeting the requirements of Rule 16b-3(c)(2)(ii). 6. ELIGIBILITY AND LIMITATIONS. Options may be granted pursuant to the Plan only to non-employee members of the Board of Directors of the Corporation who are directors on the Commencement Date or are elected as directors, by the stockholders of the Corporation or the Board of Directors, at any date after the Commencement Date. As used herein "Commencement Date: shall mean the date which is seven (7) days after the date on which the Corporation issues and sells shares of Common Stock pursuant to a firmly underwritten public offering. 7. OPTION PRICE. The purchase price of the Common Stock covered by an option granted pursuant to the Plan shall be 100% of the fair market value of such Common Stock on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of Section 13 hereof. For purposes of the plan, if at any time an option is granted under the plan, the Corporation's Common Stock is publicly traded, "fair market value" shall be determined on the date such option is granted (or, if prices or quotes discussed in this sentence are unavailable on the date of grant, on the last business day for which such prices or quotes are available prior to the date such option is granted) and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange, or on the Nasdaq National Market System, if the Common Stock is not then traded on a national securities exchange; or (ii) the closing bid price (or average of bid prices) last quoted (on that day) by an established quotation service for over-the-counter securities, if the Common stock is not reported on the Nasdaq National Market System. If the Common Stock is neither listed on a national securities exchange nor reported on the Nasdaq National Market System nor traded on the over-the-counter market, "fair market value" shall mean such value as the Board, in good faith, shall determine. - 2 - 4 8. AUTOMATIC GRANT OF OPTIONS. Each person who is a director eligible to participate in the Plan on the Commencement Date, shall be granted as of such date, an option to purchase ten thousand (10,000) shares of Common Stock at the exercise price referenced in Section 7, which number of shares shall be subject to adjustment in accordance with Section 13 hereof. Each person who is elected as a director of the Corporation by the stockholders or the Board of Directors after the Commencement Date through and including the 1996 annual meeting of stockholders of the Corporation and who has not previously been a director of the Corporation and is not an employee of the Corporation shall be granted, as of the date such person shall become a director, an option to purchase ten thousand (10,000) shares of Common Stock at the exercise price referenced in Section 7, which number of shares shall be subject to adjustment in accordance with Section 13 hereof. Each person who served as a director immediately prior to and continues to serve as a director following the 1996 annual meeting of stockholders and is not an employee of the Corporation shall be granted, as of the date of the 1996 annual meeting of stockholders of the Corporation, an option to purchase ten thousand (10,000) shares of Common Stock at the exercise price referenced in Section 7, which number of shares shall be subject to adjustment in accordance with Section 13 hereof. Each person who is elected as a director of the Corporation by the stockholders or the Board of Directors after the 1996 annual meeting of stockholders of the Corporation and who has not previously been a director of the Corporation and is not an employee of the Corporation shall be granted, as of the date such person shall become a director, an option to purchase twenty thousand (20,000) shares of Common Stock at the exercise price referenced in Section 7, which number of shares shall be subject to adjustment in accordance with Section 13 hereof. Following the 1997 annual meeting of stockholders of the Corporation and following each annual meeting of the stockholders of the Corporation thereafter, each person who served as a director immediately prior to and continues to serve as a director following the annual meeting of stockholders and is not an employee of the Corporation shall be granted, as of the date such annual meeting of stockholders, an option to purchase five thousand (5,000) shares of Common Stock at the exercise price referenced in Section 7, which number of shares shall be subject to adjustment in accordance with Section 13 hereof. Options acquired through any grant shall become exercisable as to twenty-five percent (25%) of the shares subject thereto upon completion of a full twelve (12) months of service as a member of the Board of Directors after the grant and thereafter shall become exercisable, as to an additional twenty-five percent (25%) of the shares subject thereto, upon completion of each additional full twelve (12) months of service as a member of the Board of Directors, which rights shall be cumulative, but in no event shall an option be exercisable for more than the number of shares for which the option was granted, subject to adjustment in accordance with Section 13 hereof. - 3 - 5 In the event of a "Change of Control" of the Corporation (as defined below), the holder of the option shall be entitled to exercise the option, as the instant prior to the consummation of such Change of Control, for all of the then outstanding but unvested options, and such shares shall be in addition to previously vested options which such holder is entitled to exercise. A "Change of Control" shall be deemed to have occurred if there is a consummation of any of the following: (i) the sale of all or substantially all of the Corporation's assets; (ii) the sale to a third party (which shall include any affiliates of a person acting in concert with such third party) of beneficial ownership of more than fifty percent (50%) of all of the outstanding capital stock of the Corporation in a single or integrated transaction (treating all securities, which at such time are exercisable, convertible or exchangeable for Common Stock of the Corporation, as so exercised, converted or exchanged); or (iii) the sale of the Corporation through a consolidation or merger (other than a merger the Corporation with one or more of its wholly-owned subsidiaries) in which consolidation or merger of the Corporation is not the surviving corporation or the acquisition is as a result of a reverse triangular merger, provided in either case the stockholders of the Corporation immediately before such consolidation or merger own less than fifty percent (50%) of the outstanding capital stock of the surviving corporation immediately after such consolidation or merger; or (iv) the majority of the Board of Directors is changed as a result of a proxy contest. 9. PERIOD OF OPTION. The options granted hereunder shall expire on a date which is ten (10) years after the date of grant, and the plan shall terminate when all options granted hereunder have terminated and no more options may be granted hereunder. 10. EXERCISE OF OPTION. Subject to the terms and conditions of the Plan and the Option Agreement relating thereto, an option granted hereunder shall be exercisable in whole or in part by giving written notice to the Corporation by mail or in person addressed to the Secretary of the Corporation stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares in cash or by check. Upon notification from the Corporation, the Transfer Agent shall, on behalf of the Corporation, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the - 4 - 6 option, shall register the optionee as the owner of such shares on the books of the Corporation and shall cause the fully executed certificate(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in full for the shares being purchased. The holder of an option shall not have any rights of a shareholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him or his agent upon the due exercise of the option. 11. NON-TRANSFERABILITY OF OPTIONS. (a) The certificates representing the shares of Common Stock issuable upon exercise of the options shall carry such appropriate legend, and such written instructions shall be given to the Corporation's Transfer Agent, as may be deemed necessary or advisable by counsel to the Corporation in order to comply with the requirements of the Securities Act of 1933, as amended, or any state securities laws. (b) Any option granted pursuant to the Plan shall not be assignable or transferable other than by will or the laws of descent and distribution, and shall be exercisable during the optionee's lifetime only by him. 12. TERMINATION OF OPTION RIGHTS. (a) In the event an optionee ceases to be a member of the Board of Directors of the Corporation for any reason other than death or disability, any then unexercised options granted to such optionee may be exercised by the optionee within a period of ninety (90) days after the date the optionee so ceases to be a member of the Board of Directors, but in no event later than the expiration date of the option. (b) In the event that an optionee ceases to be a member of the Board of Directors of the Corporation by reason of his disability or death, any option granted hereunder to such optionee may be exercised by the optionee (or by the optionee's personal representative, heir or legatee, in the event of death) to the extent of the number of shares with respect to which it was exercisable on the date of death or termination by reason of disability, within a period of one hundred eighty (180) days after the date the optionee so ceases to be a member of the Board of Directors, but in no event later than the expiration date of the option. For purposes of this Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Internal Revenue Code of 1986 or successor statute. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. In the event that the outstanding shares of the Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the corporation or of another corporation by reason of any reorganization, merger, consolidation, recapitalization or reclassification, or in the event of a stock split, combination of shares or dividends payable in capital stock, - 5 - 7 automatic adjustment shall be made in the number and kind of shares as to which outstanding options or portions thereof then unexercised shall be exercisable and in the available shares set forth in Section 3 hereof, to the end that the proportionate interest of the option holder shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of such options and with a corresponding adjustment in the option price per share. If an option hereunder shall be assumed, or a new option substituted therefor, as a result of sale of the Corporation, whether by a corporate merger, consolidation or sale of property or stock, then membership on the Board of Directors of such assuming or substituting corporation or by a parent corporation or a subsidiary thereof shall be considered for purposes of an option to be membership on the Board of Directors of the Corporation. 14. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of Sections 8 and 10 hereof, the Corporation shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The shares with respect to which the option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and State securities laws as now in effect or hereafter amended; or (ii) Counsel for the Corporation shall have given an opinion that such shares are exempt from registration under Federal and State securities laws as now in effect or hereafter amended; and until the Corporation has complied with all applicable laws and regulations, including, without limitation, all regulations required by any stock exchange upon which the outstanding Common Stock is then listed. The Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense solely for the purpose of covering the issue of shares with respect to which any option may be exercised. 15. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. The Corporation shall require the optionee to deliver written warranties and representations upon exercise of the option that are necessary to comply with Federal and State securities laws, including, if necessary, those to the effect that a purchase of - 6 - 8 shares under the option is made for investment and not with a view to their distribution (as such term is used in the Securities Act of 1933, as amended). 16. APPROVAL OF STOCKHOLDERS. The effectiveness of this Plan and of the grant of all options hereunder is in all respects subject to approval of the Plan by the Corporation's stockholders. 17. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors of the Corporation may at any time terminate the Plan or make such modifications or amendments thereto as it deem advisable; provided, however, that termination or any modification or amendment of the Plan shall not, without consent of a participant, affect his rights under an option previously granted to him. In no event may any provision of the Plan with respect to the timing, price, or amount of awards be amended more than once every six months, other than to comport with changes in the Internal Revenue Code or the rules thereunder. In no event will any amendment be permitted if it causes the Plan to cease to be a "formula award" plan, as described in Rule 16b-3(c)(2)(ii). If the scope of any amendment is such as to require shareholder approval in order to comply with Rule 16b-3, then such amendment shall not be effective unless and until such shareholder approval is obtained. 18. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan and the instruments evidencing the options shall be governed by the laws of the State of Delaware. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. - 7 - EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 14,322,409 3,193,792 2,896,172 0 580,968 21,321,209 14,594,490 0 39,370,324 2,878,926 1,694,436 290,695 0 0 34,506,267 39,370,324 0 2,039,794 0 477,533 3,832,752 0 54,802 (3,440,856) 0 (3,440,856) 0 0 0 (3,440,856) (.12) (.12)
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