-----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, Gi+5cCXNX1tP9PXlZvT4jYkm/SwIB2Bi4pi5wFJfhilIUQPyNPNetlQPeNeodypC C0VLnelE8fdZCNxjQ6d33g== 0000950135-97-002427.txt : 19970515 0000950135-97-002427.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950135-97-002427 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97604861 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 FORM 10-Q 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, 1997 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 7, 1997, the registrant had 33,028,588 shares of common stock outstanding. 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 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 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES
2 3 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 ----------- ----------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 22,085,881 $ 38,248,988 Marketable securities 24,061,228 11,826,266 Accounts receivable 1,624,571 1,454,696 Inventory 1,395,385 1,341,914 Prepaid expenses and other 443,013 208,886 ------------- ------------- Total current assets 49,610,078 53,080,750 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT - net 16,236,770 16,224,376 ------------- ------------- OTHER ASSETS: Note receivable - officer 350,000 350,000 Patents and licensed technology - net 393,855 401,629 Deferred patent application costs - net 3,678,080 3,471,169 Deposits and other 191,166 290,950 ------------- ------------- Total other assets 4,613,101 4,513,748 ------------- ------------- TOTAL $ 70,459,949 $ 73,818,874 LIABILITIES AND STOCKHOLDERS' EQUITY ============= ============= CURRENT LIABILITIES: Lease obligations - current portion $ 55,279 $ 53,532 Accounts payable 1,946,439 2,830,356 Accrued liabilities 498,159 561,562 Accrued compensation 1,177,115 1,460,856 Deferred contract revenue 1,079,765 ------------- ------------- Total current liabilities 4,756,757 4,906,306 ------------- ------------- LEASE OBLIGATIONS 1,637,002 1,651,493 ------------- ------------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued Common stock, $.01 par value, 50,000,000 shares authorized, 32,972,893 shares and 32,769,553 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively 329,729 327,696 Additional paid-in capital 138,923,426 138,371,802 Accumulated deficit (75,186,965) (71,438,423) ------------- ------------- Total stockholders' equity 64,066,190 67,261,075 ------------- ------------- TOTAL $ 70,459,949 $ 73,818,874 ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, -------------------------------- 1997 1996 ---- ---- (unaudited) REVENUE: Research and development contracts $ 2,751,473 $ 1,055,704 Manufacturing contracts 232,239 612,065 License fees and royalties 101,584 Interest and other 663,225 270,441 ------------ ------------ Total revenues 3,646,937 2,039,794 ------------ ------------ COSTS AND EXPENSES: Research and development 5,579,053 3,832,752 Manufacturing contracts 161,038 477,533 General and administrative 1,602,916 1,115,563 Interest 52,472 54,802 ------------ ------------ Total costs and expenses 7,395,479 5,480,650 ------------ ------------ NET LOSS $ (3,748,542) $ (3,440,856) ============ ============ NET LOSS PER COMMON SHARE $(.11) $(.12) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 32,853,617 29,027,234 ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, -------------------------------- 1997 1996 ---- ---- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,748,542) $ (3,440,856) ------------ ------------ Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 490,639 607,405 Compensation expense 29,750 Increase (decrease) in cash from: Accounts receivable (169,875) (77,554) Inventory and prepaid expenses (287,598) (197,441) Accounts payable and accrued liabilities (1,231,061) 1,043,348 Deferred contract revenue 1,079,765 ------------ ------------ Total adjustments (118,130) 1,405,508 ------------ ------------ Net cash used for operating activities (3,866,672) (2,035,348) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (12,552,675) (540,313) Sales of marketable securities 317,712 5,430,790 Expenditures for property, plant and equipment (420,497) (435,190) Expenditures for patents (281,672) (212,550) Decrease (increase) in deposits and other 99,784 (200,000) ------------ ------------ Net cash provided by (used for) investing activities (12,837,348) 4,042,737 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of equity: Common stock - other 553,657 409,133 Repayments of obligations under capital leases (12,744) (11,892) ------------ ------------ Net cash provided by financing activities 540,913 397,241 ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,163,107) 2,404,630 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,248,988 11,917,779 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,085,881 $ 14,322,409 ============ ============
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, 1997 and the results of operations and cash flows for the three month periods ended March 31, 1997 and 1996. The financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1996. 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. Earnings Per Share - In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 128 "Earnings per Share" ("SFAS 128") which changes the method of calculating earnings per share ("EPS"). SFAS 128 requires the presentation of "basic" EPS and "diluted" EPS on the face of the income statement. Basic EPS is computed by dividing the net income available to common stockholders by the weighted average shares of common stock. The calculation of diluted EPS is similar to basic EPS except that the denominator includes dilutive common stock equivalents such as stock options and warrants. The statement is effective for financial statements in the fourth quarter of 1997. The Company will adopt SFAS 128 in the fourth quarter of 1997, as early adoption is not permitted, and will restate at that time EPS data for prior periods. If SFAS 128 had been in effect during the current and prior period, basic EPS and diluted EPS would not have been significantly different than primary EPS reported. 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. Beginning in January 1995, a significant portion of the Company's revenues also were derived from contract manufacturing. The Company anticipates that over the next several years its revenues will be derived primarily from such collaborative agreements. 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 major research collaborations with Stryker Corporation ("Stryker") to develop products for orthopedic reconstruction and with Biogen, Inc. ("Biogen") to develop products for the treatment of renal disorders. Under the research portion of the collaboration with Stryker, the Company supplies an OP-1 product to Stryker for clinical trials and other uses, 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. In December 1996, the Company signed a Research Collaboration and License Agreement with Biogen (the "Biogen Research Agreement"). Under the research collaboration, the Company performs research work pursuant to work plans established periodically by the two companies and supplies OP-1 to Biogen for preclinical and clinical uses. 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 and at the Company's research facility in Hopkinton, Massachusetts. The Company is presently a party to a manufacturing contract with Biogen (the "Manufacturing Contract") 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. The companies have agreed that the supply of OP-1 to Biogen pursuant to the Biogen Research Agreement during 1997 will satisfy Biogen's 1997 obligations under the Manufacturing Contract. The companies also agreed to extend the Manufacturing Contract for two years through 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two years. 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996. The Company's total revenues for the three month periods ended March 31, 1997 and 1996 were $3,647,000 and $2,040,000, respectively. Research and 7 8 development contract revenues increased 161% to $2,751,000 for the three month period ended March 31, 1997 from $1,056,000 for the three month period ended March 31, 1996. This increase is primarily a result of the research activity under the research collaboration with Biogen. The Company anticipates that research and development contract revenues for each of the remaining quarters of 1997 will continue at amounts higher than the prior year primarily as a result of the research activity under the research collaboration with Biogen. Manufacturing contract revenues for the three month period ended March 31, 1997 reflect manufacturing for Biogen, on a pilot scale, conducted at the Company's research facility in Hopkinton, Massachusetts. The Company anticipates completing current pilot manufacturing for Biogen in the second quarter of 1997. Manufacturing contract revenues for the three month period ended March 31, 1996 reflect manufacturing for Biogen conducted at the Company's manufacturing facility in Lebanon, New Hampshire. The Company anticipates using the manufacturing facility for the production of OP-1 for Stryker, Biogen and the Company's own uses for a substantial portion of 1997. Therefore, the Company does not anticipate significant contract manufacturing revenues for each of the remaining quarters of 1997. License fees and royalties revenues of $102,000 for the three month period ended March 31, 1996 resulted from licensing patent rights and know-how associated with certain protein technology which is not central to the Company's business. Interest revenues increased 146% to $663,000 for the three month period ended March 31, 1997 from $270,000 for the three month period ended March 31, 1996. The increase is due to an increase in average funds available for investment. In December 1996, under the Biogen Research Agreement and a Restricted Stock Purchase Agreement, more fully discussed below, Biogen paid to the Company a $10,000,000 license fee and made an $18,000,000 equity investment in common stock. The Company's total costs and expenses, consisting primarily of research and development expenses, increased 35% to $7,395,000 for the three month period ended March 31, 1997 from $5,481,000 for the three month period ended March 31, 1996. Research and development expenses increased 46% to $5,579,000 for the three month period ended March 31, 1997 from $3,833,000 for the three month period ended March 31, 1996. The Company used the manufacturing facility in Lebanon, New Hampshire for the three month period ended March 31, 1997 for the production of OP-1 for Stryker, Biogen and the Company's own uses. Costs associated with the production of OP-1 for Stryker, Biogen and the Company's own uses are reported as research and development expenses. Also contributing to the increase were staff increases and a corresponding increase in purchases of laboratory supplies, services, recruiting and relocation expenses. The Company anticipates that research and development expenses for each of the remaining quarters of 1997 will continue at amounts higher than the prior year primarily as a result of the research activity under the research collaboration with Biogen. Cost of manufacturing contracts for the three month period ended March 31, 1997 includes the costs associated with the manufacturing for Biogen, on a pilot scale, conducted at the Company's research facility in Hopkinton, Massachusetts. The Company anticipates completing current pilot manufacturing for Biogen in the second quarter of 1997. Cost of manufacturing contracts for the three month period ended March 31, 1996 includes the costs associated with the manufacturing for Biogen conducted at the Company's manufacturing facility in Lebanon, New Hampshire. The Company anticipates using the manufacturing facility for the production of OP-1 for Stryker, Biogen and the Company's own uses for a substantial portion of 1997. Costs associated with the production of OP-1 for Stryker, Biogen and the Company's own uses will be reported as research and development expenses. General and administrative expenses increased 44% to $1,603,000 for the three month period ended March 31, 1997 from $1,116,000 for the three month period ended March 31, 1996. The increase was due to increases in executive staff and recruiting and relocation costs. The Company anticipates that general and administrative expenses for each of the remaining quarters of 1997 will continue at amounts higher than the prior year. Interest expense decreased 5% to $52,000 for the three month period ended March 31, 1997 from $55,000 for the three month period ended March 31, 1996. The decrease was due to the repayment of obligations under capital leases. 8 9 As a result of the foregoing, the Company incurred a net loss of $3,749,000 for the three month period ended March 31, 1997 compared to a net loss of $3,441,000 for the three month period ended March 31, 1996. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company's principal sources of liquidity consisted of cash and cash equivalents of $22,086,000, marketable securities of $24,061,000 and a $15,000,000 unsecured line of credit from Biogen, as discussed further below. The Company increased its investment in property, plant and equipment to $28,879,000 at March 31, 1997 from $28,458,000 at December 31, 1996. The Company currently plans to spend approximately $4,500,000 in the year ended December 31, 1997 in leasehold improvements, equipment purchases and validation expenses required to obtain FDA approval of the manufacturing facility and to expand the Company's research, development and manufacturing capabilities. In addition, as part of the Manufacturing Contract, Biogen financed the construction of leasehold improvements to the Company's manufacturing facility at an estimated total cost of $2,900,000 and is installing and financing certain equipment with an estimated total cost of $2,400,000 for the Company, 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 $12,000,000 of revenue to the Company over the two year period. In December 1996, the Company signed the Biogen Research Agreement to collaborate on the development of the Company's morphogenic protein, OP-1, for the treatment of renal disorders. Under the agreement, the Company granted to Biogen exclusive worldwide rights to manufacture, market and sell OP-1 for the treatment of renal disease. Biogen paid a $10,000,000 license fee in 1996 and made an $18,000,000 equity investment in common stock at a premium over the then-current market price per share. Biogen has guaranteed $10,500,000 in research funding over the next three years, will pay up to an additional $69,000,000 upon the attainment of certain milestones and make available a $15,000,000 line of credit. The Biogen Research Agreement further provides for the payment of royalties to the Company based on product sales. The Company may draw upon the $15,000,000 line of credit over the next three years to fund the research and development of small molecule products based on OP-1. Advances are limited to $5,000,000 per year. Biogen received an exclusive option to obtain an exclusive, worldwide license to OP-1 based small molecule products for the treatment of renal disorders. In the event Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or the principal amount outstanding under the line of credit. The remaining principal, together with all accrued and unpaid interest is due and payable five years from the date of the first advance and may be repaid, at the Company's option, in either cash, common stock or reduction of royalties due the Company from Biogen. In September 1994, the Company signed the 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. As part of the research collaboration, the two companies agreed to extend the Manufacturing Contract for two years through December 31, 1999, with Biogen having the option, but not the obligation, to use the manufacturing facility for a mutually agreeable number of months in one of the two extension years. To enable the Company to meet its obligations under the Manufacturing Contract, Biogen financed the construction of a 7,000 square foot addition to the present facility for cGMP production using bacterial fermentation at an estimated total cost of $2,900,000. The Company agreed to reimburse Biogen for the construction costs and leasehold improvements at the end of the contract term, including the extension, at an amount equal to Biogen's construction costs less $300,000 and less all accumulated depreciation. The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen also agreed to lease equipment 9 10 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 $2,400,000, as provided in an equipment lease agreement. The Company has the option to purchase the equipment at the end of the extended lease term for an amount equal to its then fair market value or for such other amount as is negotiated by the two parties. Biogen currently plans to complete the installation of the equipment and prepare the bacterial facility for operation in 1997. The Company anticipates that its existing capital resources should enable it to maintain its current and planned operations through 1999. 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 1999 is dependent upon its ability to generate sufficient cash flow from collaborative arrangements and manufacturing contracts, and in the future, royalties on sales of the Company's products by the Company's collaborative partners, and to obtain additional funds through equity or debt financings, or from other sources of financing, as may be required. The Company is seeking additional collaborative arrangements and also expects to raise funds through one or more financing transactions, as conditions permit. In addition, the Company 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 several applications of its products, which are controlled by 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 In December 1994 and January 1995, the Company isssued warrants to purchase 1,130,000 shares of the Company's common stock. In February and March 1997, the Company issued a total of 159,611 shares of common stock, pursuant to the exercise of such warrants at an exercise price of $2.385 per share, with an aggregate purchase price for such warrant shares of $380,672. The Company issued these securities without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, since no public offering was involved. No underwriters were involved in the offer and sale of the securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit Number Description ------ ----------- 10.50 Employment Agreement, dated January 13, 1997, between Cheryl K. Lawton and the Registrant. 10.51 Employment Agreement, dated February 18, 1997, between Steven L. Basta and the Registrant 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the three month period ended March 31, 1997. 11 12 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, 1997. 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 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 10.50 Employment Agreement, dated January 13, 1997, between Cheryl K. Lawton and the Registrant. 10.51 Employment Agreement, dated February 18, 1997, between Steven L. Basta and the Registrant 27 Financial Data Schedule EX-10.50 2 EMPLOYMENT AGREEMENT 1/13/97 BETWEEN CHERYL LAWTON 1 December 23, 1996 Ms. Cheryl K. Lawton 51 Sherbrooke Road Newton, MA 02158 Dear Cheryl, It is with pleasure that I extend to you an offer to join Creative BioMolecules, Inc. The terms of this offer are summarized below. Title and Duties: Vice President and General Counsel, reporting to the President of the Company. Your duties will be determined by the President, consistent with your position. Term: Commencing on January 13, 1997, and continuing thereafter until terminated by either you or the Company under the provisions of this letter agreement. Salary: Base salary of $12,500.00 per month, payable in accordance with the Company's standard payroll Practices. Salary amount to be reviewed annually. Sign-on Bonus: You will be eligible for a $10,000 sign-on bonus, payable after the completion of 30 days starting with your commencement of employment ("Commencement Date"). Bonus: You will be eligible for a first year bonus up to 20% of your base salary. The payment of a bonus will reflect substantial completion of reasonable goals and objectives which we will mutually determine. A bonus will not be paid even if objectives have been achieved, if the Company decides not to pay Company bonuses in a given year. Future bonus arrangements will be determined on an annual basis by mutual agreement. 2 Ms. Cheryl K. Lawton December 23, 1996 Page Two Equity Participation: Subject to the approval of the Board of Directors, you will be granted stock options under the Company's 1987 Stock Plan to purchase an aggregate of 70,000 shares of Common Stock, with the exercise price to be the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. The options will vest annually over a four year period and will be subject to the other terms and conditions of the option agreement(s) to be entered into between you and the Company. Such agreement(s) will include a provision permitting exercise of the options with payment made by you through a loan from the Company. The agreement(s) will also include a provision for acceleration of the vesting of the options, substantially as follows: "In case of (i) any consolidation or merger of the Company with or into any other corporation or corporations (other than a merger with a wholly-owned subsidiary or a merger in which stockholders of the Company have beneficial ownership of more than 50% of the share capital of the surviving company, (ii) a sale of all or substantially all of the assets of the Company or (iii) the acquisition by a third party (together with its affiliates or persons acting in concert with) of beneficial ownership of more than fifty percent (50%) of the share capital of the Company, then immediately prior to the consummation of any such transaction this option shall become fully exercisable." Benefits: Benefits to include: -group health and dental insurance -group life and AD&D insurance -group short and long term disability insurance -401(k) savings plan -3 weeks vacation, under the Company's standard policy 3 Ms. Cheryl K. Lawton December 23, 1996 Page Three The Company will also reimburse you for any reasonable out-of-pocket business expenses you incur in the course of your employment, subject to documentation in accordance with Company policies. Severance Package: If your employment with the Company is terminated at any time during the 12-month period after the Commencement Date, for any reason other than your resignation or termination by the Company for "cause" (as defined below), the company will continue to pay your base salary and provide you with health, dental, and life insurance benefits for 6 months after the effective date of such employment termination. As used in this letter agreement, "cause" shall mean (i) illegal, dishonest or negligent conduct which constitutes a breach of your obligations under this agreement, or which involves an improper use of the funds or assets of the Company, or (ii) any conduct which is likely to have a material adverse impact on the goodwill, reputation or business of the Company. Confidentiality and Inventions Assignment: You agree to be bound by the terms of the Company's confidentiality and inventions assignment provisions, pursuant to a separate agreement to be signed by the Company prior to the Commencement Date. You also hereby represent and warrant that you have no commitments or obligations inconsistent with this agreement, including such confidentiality and inventions assignment provisions, and you hereby agree to indemnify and hold the Company harmless against any claim based upon circumstances alleged to be inconsistent with such representation and warranty. 4 Ms. Cheryl K. Lawton December 23, 1996 Page Four Governing Law and Miscellaneous Provisions: This agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts, without application of the conflicts of law provisions thereof. This agreement, including the above-referenced stock option agreement and the confidentiality and inventions assignment agreement, embodies the entire agreement and understanding between you and the Company regarding the subject matter hereof. This agreement shall not be modified or amended except by an instrument in writing signed by you and the Company. The Company may assign its rights and obligations under this agreement to any person or entity who succeeds to all of the Company's business or that aspect of the Company's business in which you are principally involved. your rights and obligations under this agreement may not be assigned without the prior written consent of the Company. Subject to the foregoing, this agreement shall be binding upon and inure of the benefit of the Company and any parent, subsidiary or other affiliate, and their respective successors and assigns and shall be binding upon and inure to the benefit of you and your heirs, executors, administrators and assigns. This agreement may be executed in one or more counterparts each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Should you wish to discuss any aspect of this employment offer, please feel free to contact me. If the terms of employment are acceptable, please sign this letter (a copy for your files is enclosed) and return it to me. We believe that Creative BioMolecules will provide an exciting and stimulating work environment, and look forward to your arrival. Sincerely, Agreed to: /s/ Michael M. Tarnow - --------------------- Michael M. Tarnow /s/ Cheryl K. Lawton President & Ceo ------------------------- Cheryl K. Lawton Enclosure EX-10.51 3 EMPLOYMENT AGREEMENT 2/18/97 BETWEEN STEVEN BASTA 1 January 22, 1997 Mr. Steven L. Basta 1117 Marquette Ave., #1501 Minneapolis, MN 55403 Dear Steven, It is with pleasure that I extend to you an offer to join Creative BioMolecules, Inc. The terms of this offer are summarized below. Title and Duties: Vice President, Corporate Development reporting to the President of the Company. Your duties will be determined by the President, consistent with your position. Term: Commencing on February 18, and continuing thereafter until terminated by either you or the Company under the provisions of this letter agreement. Salary: Base salary of $10,417.00 per month, payable in accordance with the Company's standard payroll practices. Salary amount to be reviewed annually. Bonus: You will be eligible for a first year bonus up to 20% of your base salary. The payment of a bonus will reflect substantial completion of reasonable goals and objectives which we will mutually determine. A bonus will not be paid even if objectives have been achieved, if the Company decides not to pay Company bonuses in a given year. Future bonus arrangements will be determined on an annual basis by mutual agreement. 2 Mr. Steven Basta January 22, 1997 Page Two Equity Participation: Subject to the approval of the Board of Directors, you will be granted stock options under the Company's 1987 Stock Plan to purchase an aggregate of 50,000 shares of Common Stock, with the exercise price to be the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. The options will vest annually over a four year period and will be subject to the other terms and conditions of the option agreement(s) to be entered into between you and the Company. Such agreement(s) will include a provision permitting exercise of the options with payment made by you through a loan from the Company. The agreement(s) will also include a provision for acceleration of the vesting of the options, substantially as follows: "In case of (i) any consolidation or merger of the Company with or into any other corporation or corporations (other than a merger with a wholly-owned subsidiary or a merger in which stockholders of the Company have beneficial ownership of more than 50% of the share capital of the surviving company, (ii) a sale of all or substantially all of the assets of the Company or (iii) the acquisition by a third party (together with its affiliates or persons acting in concert with) of beneficial ownership of more than fifty percent (50%) of the share capital of the Company, then immediately prior to the consummation of any such transaction this option shall become fully exercisable." Benefits: Benefits to include: -group health and dental insurance -group life and AD&D insurance -group short and long term disability insurance -401(k) savings plan -3 weeks vacation, under the Company's standard policy 3 Mr. Steven Basta January 22, 1997 Page Three The Company will also reimburse you for any reasonable out-of-pocket business expenses you incur in the course of your employment, subject to documentation in accordance with Company policies. Relocation: The Company will reimburse you for moving expenses, including travel to Massachusetts and transporting your household goods and effects in accordance with the Company's standard policy. Severance Package: If your employment with the Company is terminated at any time during the 12-month period after the Commencement Date, for any reason other than your resignation or termination by the company for "cause" (as defined below), the Company will continue to pay your base salary and provide you with health, dental, and life insurance benefits for 3 months after the effective date of such employment termination. As used in this letter agreement, "cause" shall mean (i) illegal, dishonest or negligent conduct which constitutes a breach of your obligations under this agreement, or which involves an improper use of the funds or assets of the Company, or (ii) any conduct which is likely to have a material adverse impact on the goodwill, reputation or business of the Company. Confidentiality and Inventions Assignment: You agree to be bound by the terms of the Company's confidentiality and inventions assignment provisions, pursuant to a separate agreement to be signed by the Company prior to the Commencement Date. You also hereby represent and warrant that you have no commitments or obligations inconsistent with this agreement, including such confidentiality and inventions assignment provisions, and you hereby agree to indemnify and hold the Company harmless against any claim based upon circumstances alleged to be inconsistent with such representation and warranty. 4 Mr. Steven Basta January 22, 1997 Page Four Governing Law and Miscellaneous Provisions: This agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts, without application of the conflicts of law provisions thereof. This agreement, including the above-referenced stock option agreement and the confidentiality and inventions assignment agreement, embodies the entire agreement and understanding between you and the Company regarding the subject matter hereof. This agreement shall not be modified or amended except by an instrument in writing signed by you and the Company. The Company may assign its rights and obligations under this agreement to any person or entity who succeeds to all of the Company's business or that aspect of the Company's business in which you are principally involved. Your rights and obligations under this agreement may not be assigned without the prior written consent of the Company. Subject to the foregoing, this agreement shall be binding upon and inure of the benefit of the Company and any parent, subsidiary or other affiliate, and their respective successors and assigns and shall be binding upon and inure to the benefit of you and your heirs, executors, administrators and assigns. This agreement may be executed in one or more counterparts each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Should you wish to discuss any aspect of this employment offer, please feel free to contact me. If the terms of employment are acceptable, please sign this letter (a copy for your files is enclosed) and return it to me. We believe that Creative Biomolecules will provide an exciting and stimulating work environment, and look forward to your arrival. Sincerely, Agreed To: /s/ Michael M. Tarnow - --------------------- Michael M. Tarnow /s/ Steven Basta President & CEO -------------------- Steven L. Basta Enclosure EX-27 4 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 U.S. DOLLARS 3-MO DEC-31-1997 JAN-01-1997 MAR-31-1997 1 22,085,881 24,061,228 1,624,571 0 1,395,385 49,610,078 16,236,770 0 70,459,949 4,756,757 1,637,002 0 0 329,729 63,736,461 70,459,949 0 3,646,937 0 161,038 5,579,053 0 52,472 (3,748,542) 0 (3,748,542) 0 0 0 (3,748,542) (0.11) (0.11)
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