<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/ X / Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended June 30, 1997
OR
/ / Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number 0-21379
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 EMILY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices)
(617) 576-1999
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / X / No / /
As of July 27, 1997, there were 10,551,391 shares outstanding of the
Company's common stock, $0.001 per value per share.
- ------------------------------------------------------------------------------
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX
Item Page
Number Number
- ------ ------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of June 30, 1997
and December 31, 1996..................................... 3
Condensed Statements of Operations for the three months ended
June 30, 1997 and 1996 and for the six months
ended June 30, 1997 and 1996.............................. 4
Condensed Statements of Cash Flows for the six months
ended June 30, 1997 and 1996.............................. 5
Notes to the Unaudited Condensed Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 9
Signature.................................................... 10
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $3,465,111 $19,329,353
Short-term investments....................... 7,641,449 --
Accounts receivable.......................... 321,767 505,267
Prepaid expenses and other current assets.... 964,729 286,642
---------- ----------
Total current assets......................... 12,393,056 20,121,262
Property and equipment......................... 5,776,781 4,898,538
Less: Accumulated depreciation and
amortization............................... (2,198,992) (1,741,152)
--------- ---------
Property and equipment, net.................. 3,577,789 3,157,386
Long-term investments.......................... 3,620,843 --
Other assets................................... 183,798 173,799
----------- -----------
Total assets............................... $19,775,486 $23,452,447
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $665,306 $ 741,409
Accrued expenses............................... 430,568 484,732
Deferred Revenue............................... 42,300 126,900
Current portion of long-term debt.............. 199,632 188,062
Current portion of capital lease obligations... 526,169 559,767
----------- ----------
Total current liabilities.................... 1,863,975 2,100,870
Long-term debt, net of current portion........... 187,975 291,683
Long-term capital lease obligation, net of
current portion................................ 1,190,500 761,284
----------- ---------
Total liabilities............................ 3,242,450 3,153,837
----------- -----------
Commitments
Stockholders' Equity:
Common Stock--$.001 par value;
authorized:25,000,000 shares, 1997 and 1996;
issued: 9,567,211, 1997 and 9,544,373 shares,
1996.......................................... 9,567 9,544
Additional paid-in capital....................... 36,045,132 36,019,608
Accumulated deficit..............................(19,521,663) (15,730,542)
----------- ----------
Total stockholders' equity................... 16,533,036 20,298,610
----------- ----------
Total liabilities and stockholders' equity...$19,775,486 $23,452,447
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------- ---------- ---------- ----------
Sponsored research revenues............. $844,000 $1,992,986 $1,678,600 $2,046,653
Operating expenses:
Research and development.............. 2,292,887 1,659,350 4,304,160 3,182,609
General and administrative............ 933,868 496,921 1,579,337 873,586
--------- ---------- ---------- ----------
Total operating expenses............ 3,226,755 2,156,271 5,883,497 4,056,195
Interest income......................... 246,978 18,188 533,757 43,232
Interest expense........................ (63,970) (54,889) (119,981) (106,903)
--------- --------- --------- ---------
Net loss................................ ($2,199,747) ($199,986) ($3,791,121) ($2,073,213)
----------- -------- ---------- -----------
----------- -------- ---------- -----------
Net loss per common share............... ($.23) ($.14) ($.40) ($1.51)
----------- -------- ---------- -----------
----------- -------- ---------- -----------
Weighted average number of
common shares......................... 9,561,005 1,469,966 9,553,919 1,377,147
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
<S> <C> <C>
1997 1996
----------- -----------
Cash Flows from operating activities:
Net loss................................................. $(3,791,121) $(2,073,213)
Adjustments to reconcile net loss to net cash
provided by/(used in)
operating activities:
Depreciation and amortization ......................... 486,469 311,674
Changes in assets and liabilities:
Accounts receivable................................... 183,500 (927,000)
Prepaid expenses and other current assets............. (678,087) (667,090)
Other assets.......................................... (9,999) (12,690)
Accounts payable and accrued expenses................. (130,267) 867,360
Deferred revenue...................................... (84,600) 550,000
----------- ------------
Total adjustments................................... (232,984) 122,254
----------- ------------
Net cash provided by/(used in) operating activities....... (4,024,105) (1,950,949)
Cash flows from investing activities:
Purchase of fixed assets................................ (783,765) (276,742)
Leasehold improvements.................................. (94,478) (4,361)
Purchase of short-term investments...................... (7,641,449) --
Redemption of short-term investments.................... -- 1,006,569
Purchase of long-term investments....................... (3,620,843) --
---------- ---------
Net cash provided by/(used in) investing activities....... (12,140,535) 725,466
Cash flows from financing activities:
Issuance of stock....................................... (3,082) 3,968,651
Repayments of debt...................................... (92,138) (81,767)
Proceeds from capital lease financing................... 701,105 229,216
Principal payments of capital lease obligations......... (305,487) (207,889)
---------- ----------
Net cash provided by/(used in) financing activities....... 300,398 3,908,211
---------- ----------
Net increase (decrease) in cash and cash equivalents...... (15,864,242) 2,682,718
Cash and cash equivalents, beginning of period............ 19,329,353 2,049,555
---------- ----------
Cash and cash equivalents, end of period.................. $3,465,111 $4,732,273
---------- ---------
---------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................... $119,981 $106,903
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note A. Nature of Business
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is engaged in the research,
development and commercialization of novel classes of antiinfective drugs to
treat infectious diseases caused by bacteria and fungi, primarily those
resistant to existing antiinfective drugs. Cubist has established multiple
technology licenses and collaborations and has established a network of advisors
and collaborators. The Company is located in Cambridge, Massachusetts.
Note B. Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are necessary,
in the opinion of management, for a fair presentation of the results of the
interim periods presented. Interim results are not necessarily indicative of
results for a full year. These unaudited condensed financial statements do
not include all information and footnote disclosures required by generally
accepted accounting principles and therefore should be read in conjunction
with the Company's audited financial statements and related footnotes for the
year ended December 31, 1996 which are included in the Company's Annual
Report on Form 10-K. Such Annual Report on Form 10-K was filed by the Company
with the Securities and Exchange Commission (the "Commission") on March 31,
1997.
Net Loss Per Common Share
The net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period
prior to the filing with the Commission of the registration statement
relating to the Company's initial public offering, even when anti-dilutive,
have been included in the calculation as if they were outstanding for all
periods, using the treasury stock method and the initial public offering
price of $6.00 per share.
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
Note C. Collaborative Agreement
On June 20, 1997, the collaborative agreement between the Company and
Pfizer, Inc. ("Pfizer") expired pursuant to its own terms. In accordance with
the terms of that collaborative agreement, the Company selected and licensed
from Pfizer one of the chemical compounds that was identified and
characterized during the Company's collaboration with Pfizer. Pursuant to
6
<PAGE>
the terms of that license, the Company may develop and commercialize such
licensed compound without further obligation to Pfizer.
In May 1997, the Company entered into a collaborative research agreement
with Novalon Pharmaceutical Corporation ("Novalon"). Under the terms of the
collaborative research agreement, the Company will make research support
payments to Novalon and pay royalties to Novalon on sales of products
developed using the Novalon technology. At the time it entered into the
collaborative research agreement, the Company also acquired 333,333 shares of
Series B Convertible Preferred Stock of Novalon, together with an option to
purchase all of the capital stock of Novalon for a purchase price of $10.0
million payable in shares of common stock, $0.001 par value per share, of the
Company (the "Common Stock"). The aggregate purchase price payable by the
Company to Novalon for such shares and such option was $1.0 million. The
Company has allocated all of the $1.0 million aggregate purchase price to the
option, based on management's estimates of the relative fair values of the
option and the shares of Series B Convertible Preferred Stock acquired. The
option, which is included within "Prepaid and Other Current Assets" is being
amortized over the option period of six months.
Note D. Subsequent Event
PIPE Financing
On July 18, 1997, the Company completed a private equity financing in
which the Company raised $6 million by issuing 979,594 shares of Common Stock
at $6.125 per share. These additional funds together with existing cash
resources will be used to fund the Company's operations and capital
requirements through 1998.
7
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Except for the historical information contained herein, this quarterly
report on Form 10-Q may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, but not limited to, (i)
statements about the adequacy of the Company's cash, cash equivalents, other
capital resources, interest income and future revenues due under the
Company's collaborative agreements to fund its operating expenses and capital
requirements as currently planned through 1998 and (ii) certain statements
identified or qualified by words such as "likely", "will", "suggests", "may",
"would", "could", "should", "expects", "anticipates", "estimates", "plans",
"projects", "believes", or similar expressions (and variants of such words or
expressions). Investors are cautioned that forward-looking statements are
inherently uncertain. Actual performance and results of operations may differ
materially from those projected or suggested in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, the risks and uncertainties described or discussed in the section "Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. The forward-looking statements contained herein
represent the Company's judgment as of the date of this quarterly report on
Form 10-Q, and the Company cautions readers not to place undue reliance on
such statements.
Overview
Since its incorporation on May 1, 1992 and commencement of operations in
February 1993, Cubist has been engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The Company has a limited history of operations and
has experienced significant operating losses since inception. The Company
expects to incur significant additional operating losses over the next
several years and expects cumulative losses to increase substantially due to
expanded research and development efforts, pre-clinical and clinical trials
and development of manufacturing, marketing and sales capabilities.
A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. The Company is a party to collaborative agreements based
specifically on its aminoacyl-tRNA synthetase program with Bristol-Myers
Squibb Company ("Bristol-Myers Squibb") and Merck & Co., Inc. ("Merck").
Under these collaborative agreements, the Company is entitled to receive
research support payments and, if certain drug development milestones are
achieved, milestone payments. In addition, the Company will be entitled to
receive royalties on worldwide sales of any drug developed and commercialized
from these collaborations.
On June 20, 1997, the Company's collaborative agreement with Pfizer
expired pursuant to its own terms. Prior to such expiration, the Company had
received all of the research support payments and technology licensing fees
that the Company was entitled to receive under that collaborative agreement.
In accordance with the terms of that collaborative agreement, the Company
selected and licensed from Pfizer one of the chemical compounds that was
identified and characterized during the Company's collaboration with Pfizer.
Pursuant to the terms of that license, the Company may develop and
commercialize such licensed compound without further obligation to Pfizer.
Results of Operations
Three Months Ended June 30, 1997 and 1996
Revenues. Total revenues in the three months ended June 30, 1997 were
$844,000 compared to $1,993,000 in the three months ended June 30, 1996, a
decrease of $1,149,000 or 57.7%. The revenues earned in the three months
ended June 30, 1997 consisted of research support funding from the
Bristol-Myers Squibb, Merck and Pfizer collaborations. In the three months
ended June 30, 1996, revenues consisted of research support funding from
Bristol-Myers Squibb, Merck and Pfizer, technology license fees from Merck,
and SBIR funding. The decrease in revenues was primarily due to the absence
of any significant amount of nonrecurring revenue for the three months ended
June 30, 1997 as compared to the three months ended June 30, 1996 during
which the Company received a one-time technology license fee from Merck in
the amount of $1.5 million.
8
<PAGE>
Research and Development Expenses. Total research and development
expenses in the three months ended June 30, 1997 were $2,293,000 compared to
$1,659,000 in the three months ended June 30, 1996, an increase of $634,000
or 38.2%. The increase was largely due to (i) amortization expenses
associated with the Company's investment in Novalon, (ii) increased costs
related to ten additional employees hired by the Company in connection with
its research and development programs and (iii) purchases of laboratory
research supplies that are required by such additional personnel.
General and Administrative Expenses. General and administrative expenses
in the three months ended June 30, 1997 were $934,000 compared to $497,000 in
the three months ended June 30, 1996, an increase of $437,000 or 87.9%. The
increase was largely due to (i) increased costs related to additional
personnel and recruiting, (ii) the cost of premiums for directors' and
officers' insurance, (iii) costs associated with the Company's investor and
public relations program, which did not exist prior to the Company's initial
public offering and (iv) increased legal expenses.
Interest Income and Expense. Interest income in the three months ended
June 30, 1997 was $247,000 compared to $18,000 in three months ended June 30,
1996, an increase of $229,000 or 1,272.2%. The increase in interest income
was due primarily to a higher average cash, cash equivalent and investment
balance during the three months ended June 30, 1997 as compared to the three
months ended June 30, 1996. Interest expense in the three months ended June
30, 1997 was $64,000 as compared to $55,000 during the three months ended
June 30, 1996.
Net Loss. The net loss during the three months ended June 30, 1997 was
$2,200,000 compared to $200,000 during the three months ended June 30, 1996,
an increase of $2,000,000 or 1,000.0%. The increase was primarily due to (i)
a decrease in revenues during the three months ended June 30, 1997, (ii) an
increase in expenses incurred by the Company to support the advancement of
the Company's internal research programs, (iii) amortization expense incurred
by the Company in connection with the Company's investment in Novalon, and
(iv) costs associated with the Company's investor and public relations
program.
Six Months Ended June 30, 1997 and 1996
Revenues. Total revenues in the six months ended June 30, 1997 were
$1,679,000 compared to $2,047,000 in the six months ended June 30, 1996, a
decrease of $368,000 or 18.0%. The revenue recognized in the six months ended
June 30, 1997 consisted of research support payments from Bristol-Myers
Squibb, Merck and Pfizer, and a milestone payment from Bristol-Myers Squibb.
In the six months ended June 30, 1996, revenues consisted of research support
payments from Bristol-Myers Squibb, Merck and Pfizer, technology license fee
revenues from Merck and SBIR grant funding. The decrease in revenues was
primarily due to the absence of any significant amount of nonrecurring
revenue for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996 during which the Company received a one-time technology
license fee from Merck in the amount of $1.5 million.
Research and Development Expenses. Total research and development
expenses in the six months ended June 30, 1997 were $4,304,000 compared to
$3,183,000 in the six months ended June 30, 1996, an increase of $1,121,000
or 35.2%. The increase was largely due to (i) amortization expenses
associated with the Company's equity investment in Novalon, which equity
investment is being amortized over the six month period in which the Company
has an option to acquire Novalon, (ii) increased costs related to ten
additional employees hired by the Company in connection with its research and
development programs and (iii) purchases of laboratory research supplies that
are required by such additional personnel.
General and Administrative Expenses. General and administrative expenses
in the six months ended June 30, 1997 were $1,579,000 compared to $874,000 in
the six months ended June 30, 1996, an increase of $705,000 or 80.7%. The
increase was primarily due to (i) increased costs related to additional
personnel and recruiting, (ii) the cost of premiums for directors' and
officers' insurance, (iii) costs associated with the Company's investor and
public relations program, which did not exist prior to the Company's initial
public offering and (iv) increased legal expenses.
Interest Income and Expense. Interest income in the six months ended
June 30, 1997 was $534,000 compared to $43,000 in the six months ended June
30, 1996, an increase of $491,000 or 1,141.9%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balance during the six months ended June 30, 1997 as compared to
the six months ended June 30, 1996. Interest expense in the six months ended
June 30, 1997 was $120,000 as compared to $107,000 during the six months
ended June 30, 1996.
9
<PAGE>
Net Loss. The net loss during the six months ended June 30, 1997 was
$3,791,000 compared to $2,073,000, an increase of $1,718,000 or 82.9%. The
increase was primarily due to (i) a decrease in revenues during the six
months ended June 30, 1997, (ii) an increase in expenses incurred by the
Company to support the advancement of the Company's internal research
programs, (iii) amortization expense incurred by the Company during the
second quarter of fiscal 1997 in connection with the Company's equity
investment in Novalon, and (iv) costs associated with the Company's investor
and public relations program.
Liquidity and Capital Resources
Since inception, the Company has financed its operations through the sale
of equity securities, equipment financing, sponsored research revenues,
license revenues and interest earned on invested capital. The Company's total
cash, cash equivalent and investments balance at June 30, 1997 was
$14,727,000 compared to $19,329,000 at December 31, 1996. For the three
months ended June 30, 1997, the Company received $1,027,000 in sponsored
research payments.
Through June 30, 1997, the Company's collaborative partners have provided
the Company with $6.8 million of research support payments and technology
licensing fees, and $4.0 million in an equity investment. On June 20, 1997,
the Company's collaborative agreement with Pfizer expired pursuant to its own
terms. Prior to such expiration, the Company had received all of the research
support payments and technology licensing fees that the Company was entitled
to receive under that collaborative agreement, consisting of an aggregate of
$1,250,000 in research support payments and $500,000 in technology licensing
fees. There can be no assurance that the Company will receive any additional
funding from any of the Company's collaborative partners.
As of June 30, 1997, the Company had invested an aggregate of $5,777,000
(of which $560,000 was invested during the three months then ended) in
property and equipment, primarily in facility renovations and laboratory
equipment under capital leases. The obligations under capital leases at June
30, 1997 were $1,717,000. Minimum annual principal payments due under capital
leases total $823,000 in 1997. Principal payments decline each year
thereafter until expiration in 2001. The Company made principal payments
under its capital lease obligations of $305,000 in the six months ended on
June 30, 1997. The Company expects its capital expenditures in 1997 to be
approximately $1,000,000, consisting of laboratory and other equipment
purchases.
In May 1997, the Company entered into a collaborative research agreement
with Novalon. Under the terms of the collaborative research agreement, the
Company will make research support payments to Novalon and pay royalties to
Novalon on sales of products developed using the Novalon technology. At the
time it entered into the collaborative research agreement, the Company also
acquired 333,333 shares of Series B Convertible Preferred Stock of Novalon,
together with an option to purchase all of the capital stock of Novalon for a
purchase price of $10.0 million payable in shares of Common Stock of the
Company. The aggregate purchase price payable by the Company to Novalon for
such shares and such option was $1.0 million.
On July 18, 1997, the Company completed a private equity financing in
which the Company raised $6.0 million by issuing 979,594 shares of Common
Stock at $6.125 per share. The Company believes that its existing cash, cash
equivalents, other capital resources, interest income and future revenues due
under the Bristol-Myers Squibb and Merck collaborative agreements will be
sufficient to fund its operating expenses and capital requirements as
currently planned through 1998.
Earnings Per Share
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
10
<PAGE>
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1--Incentive Stock Option Agreement, dated as of May 19, 1997,
between the Company and Mark Carthy
10.2--Letter agreement, dated as of May 19, 1997, between the Company
and Mark Carthy
10.3--Secured Promissory Note, dated May 19, 1997, made by Mark Carthy
in favor of the Company in the principal amount of $80,000
10.4--Stock Pledge Agreement, dated May 19, 1997, between Mark Carthy
and the Company
11 --Statement of Computation of Earnings Per Share
27 --Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
11
<PAGE>
SIGNATURE
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.
CUBIST PHARMACEUTICALS, INC.
August 13, 1997 By: /s/ Thomas A. Shea
-------------------
Thomas A. Shea,
Director of Finance
& Administration and Treasurer
(Authorized Officer and Principal
Finance and Accounting Officer)
12
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This INCENTIVE STOCK OPTION AGREEMENT, dated as of May 19, 1997 (this
"Agreement"), is between CUBIST PHARMACEUTICALS, INC., a Delaware corporation
(the "Company"), and Mark P. Carthy (the "Optionee").
1. Grant of Option. Pursuant to the Company's Amended and Restated 1993
Stock Option Plan, a copy of which is attached hereto as Exhibit A (the "Plan"),
the Company grants to the Optionee an option (the "Option") to purchase from the
Company all or any part of a total of 200,000 shares (the "Optioned Shares") of
the Company's common stock, $.001 par value (the "Stock"), at a price of $8.00
per share. This Option is granted as of May 19, 1997 (the "Grant Date").
2. Character of Option. This Option is intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
3. Duration of Option. Unless subject to earlier expiration or termination
pursuant to the terms of the Plan, this Option shall expire on May 18, 2007.
4. Exercise of Option. Until its expiration, this Option may be exercised,
in the manner specified in Sections 7.4 and 9 of the Plan, in those amounts of
the Optioned Shares identified in the table below, in full or in part, within
the exercise period set opposite each such amount; provided, however, that,
after termination of the Optionee's employment with the Company, this Option
shall, until its expiration, be exercisable only to the extent exercisable
immediately prior to such termination:
CUMULATIVE OPTIONED EXERCISE PERIOD FOR
SHARES EXERCISABLE OPTIONED SHARES
------------------- -------------------
10,000 05/19/97-07/10/97
21,875 07/11/97-10/10/97
33,750 10/11/97-01/10/98
45,625 01/11/98-04/10/98
57,500 04/11/98-07/10/98
<PAGE>
CUMULATIVE OPTIONED EXERCISE PERIOD FOR
SHARES EXERCISABLE OPTIONED SHARES
(Continued) (Continued)
------------------- -------------------
69,375 07/11/98-10/08/98
81,250 10/11/98-01/10/99
93,125 01/11/99-04/10/99
105,000 04/11/99-07/10/99
116,875 07/11/99-10/10/99
128,750 10/11/99-01/10/00
140,625 01/11/00-04/10/00
152,500 04/11/00-07/10/00
164,375 07/11/00-10/10/00
172,250 10/11/00-01/10/01
188,125 01/11/01-04/10/01
200,000 04/11/01-05/18/07
5. Transfer of Options. This Option may not be transferred except by will
or the laws of decent and distribution and, during the lifetime of the
Optionee, may be exercised only by the Optionee. Notwithstanding the
foregoing, in the event that this Option ceases to qualify as an "incentive
stock option" within the meaning of Section 422 of the Code for any reason
other than a transfer or exercise of this Option in violation of the
provisions set forth in the first sentence of this Section 5, then this
Option may be transferred to a third party subject to, and in accordance
with, the provisions of Section 14 of the Plan. The restrictions on
transferability set forth in this Section 5 shall in no way preclude the
Holder (as defined in Section 1.14 of the Plan) of this Option from effecting
"cashless" exercises of this Option pursuant to, and in accordance with,
Section 9(b) of the Plan.
6. Incorporation of Plan Terms. This Option is granted subject to all of
the applicable terms and provisions of the Plan, including, but not limited
to, the limitations on the Company's obligation to deliver Optioned Shares
upon exercise set forth in Section 10 (Restrictions on Issue of Shares),
Section 11 (Purchase for Investment; Subsequent Registration) and Section 12
(Withholding; Notice of Disposition of Stock Prior to Expiration of Specified
Holding Period).
7. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts and shall be
binding upon and inure to the benefit of any successor or assign of the
Company and any executor, administrator, trustee, guardian, or other legal
representative of the Optionee.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
CUBIST PHARMACEUTICALS, INC. OPTIONEE
By: /s/ Scott M. Rocklage /s/ Mark P. Carthy
------------------------- ------------------------------
Scott M. Rocklage Mark P. Carthy
President and CEO 21 Stone Road
Belmont, MA 02178
3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
24 Emily Street
Cambridge, MA 02139
May 19, 1997
Mr. Mark P. Carthy
21 Stone Road
Belmont, Massachusetts 02178
Dear Mark:
Reference is hereby made to that certain Incentive Stock Option
Agreement, dated as of May 19, 1997 (the "Stock Option Agreement"), between
you and Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
which Stock Option Agreement evidences your option (the "Option") to purchase
200,000 shares (the "Optioned Shares") of the Company's common stock, $.001
par value per share, at an exercise price of $8.00 per share.
You and the Company hereby agree as follows:
1. Exercise of Option. You hereby elect to exercise 10,000 of the
Optioned Shares (the "Exercised Shares"). Subject to the terms and provisions
of this letter agreement, the Company hereby sells and issues to you, and you
hereby purchase from the Company, the Exercised Shares at a purchase price of
$8.00 per share.
2. Payment of Purchase Price. You hereby make payment of the aggregate
purchase price for all of the Exercised Shares by executing and delivering to
the Company a Secured Promissory Note, substantially in the form of Exhibit A
attached hereto, in the principal amount of $80,000 (the "Note"). Your
obligation to pay any and all amounts due under the Note will be secured by a
Stock Pledge Agreement, substantially in the form of Exhibit B attached
hereto (the "Pledge Agreement"), which Pledge Agreement is being executed
contemporaneously herewith.
3. Forgiveness of Principal of Note. On each of the dates set forth in
Exhibit C hereto, the Company shall forgive that portion of the
<PAGE>
Mr. Mark P. Carthy
May 19, 1997
Page 2
original principal amount under the Note equal to the product of (i) such
original principal amount and (ii) the percentage set forth opposite to such
date on Exhibit C hereto, provided that your employment with the Company
shall not have been terminated on or prior to such date. Notwithstanding
anything in the foregoing provisions of this Section 3 or in Exhibit C hereto
to the contrary, the Company's obligation to forgive any portion of the
original principal amount of the Note shall terminate on the effective date
of termination of your employment with the Company (the "Employment
Termination Date"). From and after the Employment Termination Date, you shall
remain liable for all amounts then still owing under the Note or that
otherwise become due and payable under the Note, all subject to and upon the
terms and conditions of the Note.
4. Forgiveness of Interest. On the first anniversary of the Note,
the Company will forgive that portion of the interest accruing under the Note
that has become due and payable on such date, provided that your employment
with the Company shall not have been terminated on or prior to such date.
5. Tax Consequences.
(a) You understand that the issuance and sale of the Exercised Shares
upon exercise of the Option as well as the Company's forgiveness, pursuant to
this letter agreement, of any principal and/or interest due and payable under
the Note (each a "Potentially Taxable Event") may be deemed compensatory in
purpose and in effect and that, as a result, the Company may be obligated to
pay withholding taxes in respect thereof at the time you become subject to
Federal income taxation with respect to any Potentially Taxable Event. In the
event that at the time the above-said withholding tax obligations arise (i)
you are no longer in the employ of the Company or are no longer otherwise
providing services to the Company, as the case may be, or (ii) your other
cash compensation from the Company is not sufficient to meet the aforesaid
withholding tax obligation, you hereby agree to reimburse the Company for all
withholding taxes required to be paid in respect of such Potentially Taxable
Event within thirty (30) days after written request therefor is made to you.
Such request shall be made at or about the time the Company is required to
pay such withholding taxes. In the event the Company determines that it is
not obligated to withhold taxes payable by you with respect to any
Potentially Taxable Event but that it is later held liable due to any
non-payment of taxes on your part, you agree on your behalf, and on behalf of
your heirs, executors, administrators, legal
<PAGE>
Mr. Mark P. Carthy
May 19, 1997
Page 3
representatives and assigns, to indemnify the Company in the amount of any
payment made by the Company in respect of such liability.
(b) You hereby agree to deliver to the Company a signed copy of any
instrument, letter or other document you may execute and file with the
Internal Revenue Service evidencing your election under Section 83(b)(2) of
the Internal Revenue Code of 1986, as amended, to treat your receipt of the
Exercised Shares as includable in your gross income in the year of receipt.
You shall deliver a copy of any such instrument of election to the Company
within five (5) days after the date on which any such election is required to
be made in accordance with the appropriate provisions of the Internal Revenue
Code or applicable Regulations thereunder.
6. Restrictions on Transfer of Shares.
(a) Securities Laws Restrictions. You acknowledge and agree that you
shall have no right at any time to sell, assign, pledge, transfer, or
otherwise dispose of or encumber the Exercised Shares (except by will or by
the laws of descent and distribution) unless such sale, assignment, pledge,
transfer, or other disposition is either registered under the Securities Act
of 1933, as amended (the "Act"), or is exempt from registration under the Act
and any applicable state securities laws.
(b) Restrictive Legends. You acknowledge that the stock certificate for
the Exercised Shares will bear restrictive legends which may refer to the
restrictions on transfer referred to in this Section 6.
7. Miscellaneous. This letter agreement shall be governed by the internal
substantive laws of the Commonwealth of Massachusetts and shall be binding
upon the heirs, personal representatives, executors, administrators,
successors and permitted assigns of the parties. The rights and obligations
of either party under this letter agreement may only be assigned with the
prior written consent of the other party hereto. This letter agreement
supersedes all prior written and oral agreements and understandings between
the parties and represents the entire agreement between the parties with
respect to the subject matter hereof and may only be modified or amended
pursuant to a written instrument signed by both parties. The Company is not
by reason of this letter agreement obligated to continue your employment.
<PAGE>
Mr. Mark P. Carthy
May 19, 1997
Page 4
If the foregoing accurately reflects our understanding, please so
acknowledge by countersigning this letter agreement in the space provided for
your signature below.
Very truly yours,
CUBIST PHARMACEUTICALS, INC.
By: /s/ Scott M. Rocklage
------------------------
Scott M. Rocklage, Ph.D.
President and CEO
Agreed and Accepted
as of this 19th day of
May, 1997:
/s/ Mark P. Carthy
- ------------------
Mark P. Carthy
21 Stone Road
Belmont, MA 02178
<PAGE>
EXHIBIT C
DATE PERCENTAGE
------ ---------------
April 11, 1998............................................... 33.33%
April 11, 1999............................................... 33.33%
April 11, 2000............................................... 33.34%
<PAGE>
SECURED PROMISSORY NOTE
$80,000 Boston, Massachusetts
May 19, 1997
FOR VALUE RECEIVED, the undersigned, Mark P. Carthy (the "Maker"), by
this Secured Promissory Note (this "Note"), absolutely and unconditionally
promises to pay to the order of CUBIST PHARMACEUTICALS, INC., a Delaware
corporation (the "Payee"), the aggregate principal amount of Eighty Thousand
Dollars ($80,000) on May 18, 2000 (the "Maturity Date"), and to pay interest
on the principal amount outstanding from time to time hereunder, from the
date hereof through and including the date on which such principal amount is
paid in full, at a rate of four percent (4%) per annum simple interest.
Interest hereunder shall be due and payable on the first anniversary hereof
and on the Maturity Date or any accelerated maturity hereof.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium
or prepayment penalty, provided that there is paid with each such principal
prepayment all accrued and unpaid interest to the date of prepayment
(calculated on the basis of a 365-day year for the actual number of days for
which the same is due).
All payments of interest and principal hereunder shall be made at the
principal residence or business address of the holder hereof. All payments
hereunder shall be applied first to any unpaid accrued interest, second to
payment of all, if any, other amounts except principal due under or in
respect of this Note, and third to repayment of principal.
This Note is made and delivered by the Maker to the Payee pursuant to
that certain letter agreement, dated as of the date hereof, among the Payee
and the Maker, and is secured pursuant to the provisions of a certain Stock
Pledge Agreement, dated of even date herewith, between the Maker and the
Payee.
Anything implied herein to the contrary notwithstanding, in the event
that (1) the Maker shall fail to pay when due all or any portion of the
principal of or interest on this Note, (2) the Maker shall make an assignment
of the whole or a substantial part of his assets for the benefit of
creditors, or (3) there shall be commenced by or against the Maker any
proceeding under any bankruptcy, insolvency, readjustment of debt or similar
law of any jurisdiction, (each event referred to in clauses (1) through (3)
above being hereinafter referred to herein as an "Event of Default") then
without notice to or demand upon the Maker the entire unpaid principal of
this Note, and all interest accrued thereon, shall (if not already due and
payable) immediately become and be due and payable to the order of the holder
hereof.
<PAGE>
-2-
The Maker hereby, to the fullest extent permitted by applicable law: (a)
waives presentment, demand, notice, protest, and all other demands and
notices in connection with delivery, acceptance, performance, default,
acceleration or enforcement of or under this Note; (b) assents to any
extension or postponement of the time of payment or any other indulgence, and
to any substitution, exchange or release of collateral; and (c) agrees to pay
to the holder, on demand, all costs and expenses of collection, including,
without limitation, reasonable attorneys' fees and legal expenses, incurred
by the holder in enforcing this Note, whether or not litigation is commenced.
No failure by the holder to exercise, or delay by the holder in
exercising, any right or remedy hereunder shall operate as a waiver thereof,
or of any other right or remedy, and no single or partial exercise of any
right or remedy shall preclude any other or further exercise thereof or of
any other right or remedy. Acceptance by the holder of any payment after the
maturity of this Note has been accelerated shall not constitute a waiver of
such acceleration.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the law of The Commonwealth of
Massachusetts.
/s/ Mark P. Carthy
--------------------------------------
Mark P. Carthy
21 Stone Road
Belmont, MA 02178
<PAGE>
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT (this "Agreement") is made as of this 19th
day of May, 1997 by and between Mark P. Carthy (the "Pledgor"), and Cubist
Pharmaceuticals, Inc. a Delaware corporation (the "Company").
WHEREAS, the Company has granted the Pledgor an Incentive Stock Option to
purchase 200,000 shares of the Company's Common Stock, $.001 par value per
share (the "Common Stock") at an exercise price of $8.00 per share.
WHEREAS, the Pledgor wishes to exercise the Option for purposes of
purchasing from the Company 10,000 shares (the "Shares") of Common Stock,
such purchase to be upon the terms and conditions set forth in that certain
letter agreement, dated as of the date hereof, by and between the Company and
the Pledgor (the "Letter Agreement");
WHEREAS, the Company has agreed to sell the Shares to the Pledgor
pursuant to the terms of the Letter Agreement;
WHEREAS, the Letter Agreement provides that the Pledgor shall make
payment of the aggregate purchase price for the Shares by delivering to the
Company a promissory note, the principal amount of which shall be equal to
such aggregate purchase price (the "Note"); and
WHEREAS, it is a condition precedent to the Company's obligation to
consummate the sale of the Shares to the Pledgor that the Pledgor shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Pledge of Stock, etc. The Pledgor hereby pledges, assigns, grants a
security interest in, and delivers to the Company, to secure the Obligations
(as defined below), all of his right, title and interest in and to the Shares
to be held by the Company subject to the terms and conditions hereinafter set
forth. The certificates for such Shares, accompanied by stock powers or other
appropriate instruments of assignment thereof duly executed in blank by the
Pledgor, are being delivered to the Company contemporaneously herewith. The
Pledgor also hereby pledges, assigns, grants a security interest in, and
delivers to the Company, to secure the Obligations, all of his right, title
and interest in and to any and all sums or other property (including, without
limitation, any additional shares of the capital stock of the Company and any
shares of the capital stock of any issuer) paid or distributed upon or with
respect to any of the shares of the capital stock of the Company or any other
issuer pledged hereunder from time to time, regardless of whether any such
sums or other property are paid or distributed by dividend or redemption,
upon liquidation or dissolution, or otherwise.
<PAGE>
2. Definitions. The following terms shall have the following meanings:
Event of Default shall have the meaning ascribed to such term in the
Note.
Stock. The Shares, together with any additional shares of capital
stock of any issuer pledged to the Company from time to time pursuant to
Section1 hereof.
Stock Collateral. The property at any time pledged to the Company
hereunder (whether described herein or not) and all income therefrom,
increases therein and proceeds thereof, but excluding from the definition
of "Stock Collateral" any income, increases or proceeds received by the
Pledgor to the extent expressly permitted by Section6.
3. Security for Obligations. This Agreement and the security interest in
and pledge of the Stock Collateral hereunder are made with and granted to the
Company as security for the payment and performance in full of all of the
obligations of the Pledgor under the Note (all of such obligations being
collectively referred to herein as the "Obligations").
4. Liquidation, Recapitalization, etc. Any sums or other property
(including, without limitation, any shares of the capital stock of any
issuer, including the Company, or any securities exchangeable for or
convertible into shares of such capital stock) paid or distributed upon or
with respect to any of the Stock, whether by dividend or redemption or upon
the liquidation or dissolution of the issuer thereof or otherwise, shall,
except to the limited extent provided in Section6, be paid over and delivered
to the Company to be held by the Company, pursuant to the terms of this
Agreement, as security for the payment and performance in full of all of the
Obligations. In the event that, pursuant to the recapitalization or
reclassification of the capital of the issuer thereof or pursuant to the
reorganization thereof, any distribution of capital shall be made on or in
respect of any of the Stock or any property shall be distributed upon or with
respect to any of the Stock, the property so distributed shall be delivered
to the Company to be held by it as security for the Obligations. Except to
the limited extent provided in Section6, all sums of money and property paid
or distributed in respect of the Stock, whether as a dividend or upon such a
liquidation, dissolution, recapitalization or reclassification or otherwise,
that are received by the Pledgor shall, until paid or delivered to the
Company, be held in trust for the Company as security for the payment and
performance in full of all of the Obligations.
5. Warranty of Title; Authority. The Pledgor hereby represents and
warrants that: (a) the Pledgor has good and marketable title to the Shares,
subject to no pledges, liens, security interests, charges, options,
restrictions or other encumbrances except the pledge and security interest
created by this Agreement, and except for any restrictions imposed by the
Securities Act of 1933, as amended (the "Securities Act"), (b) the Pledgor
has full power, authority and legal right to execute, deliver and perform its
obligations under this Agreement and to pledge and grant a security interest
in all of the Stock Collateral pursuant to this Agreement, and (c) the
execution, delivery and performance of this Agreement by the Pledgor and the
pledge of and grant of a security interest in the Stock Collateral hereunder
do not contravene any law, rule or
<PAGE>
regulation or any provision of the charter or by-laws of the issuer or
issuers thereof or of any judgment, decree or order of any tribunal or of any
agreement or instrument to which the Pledgor is a party or by which he or any
of his property is bound or affected or constitute a default thereunder. The
Pledgor further warrants that he will have good and marketable title to any
and all Stock Collateral hereafter pledged to the Company hereunder, subject
to no pledges, liens, security interests, charges, options, restrictions or
other encumbrances except the pledge and security interest created by this
Agreement, and except for any restrictions imposed by the Securities Act. The
Pledgor covenants that he shall defend the Company's rights and security
interest in such Stock Collateral against the claims and demands of any and
all third parties. The Pledgor further covenants that he shall not enter into
any agreement that conflicts with this Agreement.
6. Dividends, Voting, etc., Prior to Maturity. So long as no Event of
Default shall have occurred and be continuing, the Pledgor shall be entitled
to receive all cash dividends paid in respect of the Stock, to vote the Stock
and to give consents, waivers and ratifications in respect of the Stock;
provided, however, that no vote shall be cast or consent, waiver or
ratification given by the Pledgor if the effect thereof would impair any of
the Stock Collateral. All such rights of the Pledgor to receive cash
dividends shall cease in case an Event of Default shall have occurred and be
continuing. All such rights of the Pledgor to vote and give consents, waivers
and ratifications with respect to the Stock shall, at the Company's option,
as evidenced by the Company's notifying the Pledgor of such election, cease
in case an Event of Default shall have occurred and be continuing.
7. Remedies.
7.1. In General. If an Event of Default shall have occurred and be
continuing, the Company shall thereafter have the following rights and
remedies (to the extent permitted by applicable law) in addition to the
rights and remedies of a secured party under the Uniform Commercial Code
of Massachusetts, all such rights and remedies being cumulative, not
exclusive, and enforceable alternatively, successively or concurrently,
at such time or times as the Company deems expedient:
(a) if the Company so elects and gives notice of such election
to the Pledgor, the Company may vote any or all shares of the Stock
(whether or not the same shall have been transferred into its name or
the name of its nominee or nominees) for any lawful purpose,
including, without limitation, if the Company so elects, for the
liquidation of the assets of the issuer thereof, and give all
consents, waivers and ratifications in respect of the Stock and
otherwise act with respect thereto as though it were the outright
owner thereof (the Pledgor hereby irrevocably constituting and
appointing the Company as his proxy and attorney-in-fact, with full
power of substitution, to do so);
<PAGE>
(b) the Company may demand, sue for, collect or make any
compromise or settlement the Company deems suitable in respect of any
Stock Collateral;
(c) the Company may sell, resell, assign and deliver, or
otherwise dispose of, any or all of the Stock Collateral, for cash or
credit or both and upon such terms, at such place or places, at such
time or times and to such entities or other persons as the Company
thinks expedient, all without demand for performance by the Pledgor
or any notice or advertisement whatsoever except as expressly
provided herein or as may otherwise be required by law; and
(d) the Company may cause all or any part of the Stock held by
it to be transferred into its name or the name of its nominee or
nominees.
7.2. Sale of Stock Collateral. In the event of any disposition of
the Stock Collateral as provided in clause (c) of Section7.1, the Company
shall give to the Pledgor at least five business days' prior written
notice of the time and place of any public sale of the Stock Collateral
or of the time after which any private sale or any other intended
disposition is to be made. The Pledgor hereby acknowledges that five
business days prior written notice of such sale or sales shall be
reasonable notice. The Company may enforce its rights hereafter without
any other notice and without compliance with any other condition
precedent now or hereunder imposed by statute, rule of law or otherwise
(all of which are hereby expressly waived by the Pledgor, to the fullest
extent permitted by law). The Company may buy any part or all of the
Stock Collateral at any public sale and if any part or all of the Stock
Collateral is of a type customarily sold in a recognized market or is of
the type which is the subject of widely-distributed standard price
quotations, the Company may buy at private sale and may make payments
thereof by any means. The Company may apply the cash proceeds actually
received from any sale or other disposition to the reasonable expenses of
retaking, holding, preparing for sale, selling and the like, to
reasonable attorneys' fees, travel and all other expenses which may be
incurred by the Company in attempting to collect the Obligations or to
enforce this Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Agreement, and then to
the Obligations in such order or preference as the Company may determine
after proper allowance for Obligations not then due. Only after such
applications, and after payment by the Company of any amount required by
Section9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of
Massachusetts, need the Company account to the Pledgor for any surplus.
7.3. The Pledgor's Agreements, etc. The Pledgor further agrees to
do or cause to be done all such other acts and things as may be
reasonably necessary to make any sales of any portion or all of the Stock
pursuant to this Section7 valid and binding and in compliance with any
and all applicable laws (including, without limitation, the Securities
Act, the Securities Exchange Act of 1934, as amended, the rules and
regulations of the
<PAGE>
Securities and Exchange Commission applicable thereto and all applicable
state securities or "Blue Sky" laws), regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction
over any such sale or sales, all at the Pledgor's expense. The Pledgor
further agrees that a breach of any of the covenants contained in this
Section7 will cause irreparable injury to the Company, that the Company
has no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this
Section7 shall be specifically enforceable against the Pledgor and the
Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants.
8. Marshalling. The Company shall not be required to marshal any present
or future security for (including, but not limited to, this Agreement and the
Stock Collateral pledged hereunder), or guaranties of, the Obligations or any
of them, or to resort to such security or guaranties in any particular order;
and all of its rights hereunder and in respect to such security and
guaranties shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that he lawfully may, the Pledgor hereby
agrees that he will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the
Company's rights under this Agreement, and, to the extent that he lawfully
may, the Pledgor hereby irrevocably waives the benefits of all such laws.
9. Pledgor's Obligations Not Affected. To the extent permitted by law,
the obligations of the Pledgor hereunder shall remain in full force and
effect without regard to, and shall not be impaired by (a) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition,
liquidation or the like of the Pledgor; (b) any exercise or nonexercise, or
any waiver, by the Company of any right, remedy, power or privilege under or
in respect of any of the Obligations or any security therefor (including this
Agreement); (c) any amendment to or modification of any of the Obligations;
(d) any amendment to or modification of any instrument (other than this
Agreement) securing any of the Obligations; or (e) the taking of additional
security for, or any guaranty of, any of the Obligations or the release or
discharge or termination of any security or guaranty for any of the
Obligations; whether or not the Pledgor shall have notice or knowledge of any
of the foregoing.
10. Transfer, etc., by the Pledgor. Without the prior written consent of
the Company, the Pledgor will not sell, assign, transfer or otherwise dispose
of, grant any option with respect to, or pledge or grant any security
interest in or otherwise encumber or restrict any of the Stock Collateral or
any interest therein, except for the pledge thereof and security interest
therein provided for in this Agreement.
11. Further Assurances. The Pledgor will do all such acts, and will
furnish to the Company all such financing statements, certificates, legal
opinions and other documents and will obtain all such governmental consents
and corporate approvals and will do or cause to be done all such other things
as the Company may reasonably request from time to time in order to give
<PAGE>
full effect to this Agreement and to secure the rights of the Company
hereunder, all without any cost or expense to the Company. If the Company so
elects, a photocopy of this Agreement may at any time and from time to time
be filed by the Company as a financing statement in any recording office in
any jurisdiction.
12. Company's Exoneration. Under no circumstances shall the Company be
deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Stock Collateral of any nature or kind or any matter
or proceedings arising out of or relating thereto, other than (a) to exercise
reasonable care in the physical custody of the Stock Collateral and (b) after
an Event of Default shall have occurred and be continuing to act in a
commercially reasonable manner. The Company shall not be required to take any
action of any kind to collect, preserve or protect its or the Pledgor's
rights in the Stock Collateral or against other parties thereto. The
Company's prior recourse to any part or all of the Stock Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of any of the Obligations.
13. Overdue Amounts. Until paid, all amounts due and payable by the
Pledgor hereunder shall be a debt secured by the Stock Collateral and shall
bear, whether before or after judgment, interest at the rate of interest set
forth in the Note.
14. No Waiver, etc. No act, failure or delay by the Company shall
constitute a waiver of its rights and remedies hereunder or otherwise. No
single or partial waiver by the Company of any default or right or remedy
that it may have shall operate as a waiver of any other default, right or
remedy or of the same default, right or remedy on a future occasion. The
Pledgor hereby waives presentment, notice of dishonor and protest of all
instruments, included in or evidencing any of the Obligations or the Stock
Collateral, and any and all other notices and demands whatsoever (except as
expressly provided herein).
15. Notices, etc. Any communication to be made hereunder shall (a) be
made in writing, but unless otherwise stated, may be made by telex, facsimile
transmission or letter, and (b) be made or delivered to the address of the
party receiving notice which is identified with its signature below (unless
such party has by five (5) days' written notice specified another address),
and shall be deemed made or delivered, when dispatched, left at that address,
or five (5) days after being mailed, postage prepaid, to such address.
16. Termination. Upon final payment and performance in full of the
Obligations, this Agreement shall terminate and the Company shall, at the
Pledgor's request and expense, return such Stock Collateral in the possession
or control of the Company as has not theretofore been disposed of pursuant to
the provisions hereof, together with any moneys and other property at the
time held by the Company hereunder.
<PAGE>
17. Amendment. Neither this Agreement nor any term hereof may be amended,
modified, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so amended,
modified, waived, discharged or terminated, and executed by the party to be
charged.
18. Successors and Assigns. This Agreement and all obligations of the
Pledgor hereunder shall be binding upon the heirs, successors and assigns of
the Pledgor, and shall, together with the rights and remedies of the Company
hereunder, inure to the benefit of the Company, its successors in title and
assigns.
19. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. To the
fullest extent permitted by law, the Pledgor hereby absolutely and
irrevocably consents and submits to the jurisdiction of the courts of the
Commonwealth of Massachusetts and of any Federal court located in the said
Commonwealth in connection with any actions or proceedings brought against
the Pledgor by the Company arising out of or relating to this Agreement or
any of the agreements or transactions contemplated hereby and hereby
irrevocably agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such court. The Pledgor hereby
waives any objection that it may now or hereafter have to the venue of any
such suit or any such court or that such suit is brought in an inconvenient
court.
20. Waiver of Jury Trial. THE PLEDGOR WAIVES HIS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE
OF ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Pledgor
waives any right which he may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages.
21. Headings. The descriptive section headings have been inserted for
convenience of reference only and do not define or limit the provisions
hereof.
22. Severability, etc. If any term of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity of all other terms hereof
shall be in no way affected thereby, and this Agreement shall be construed
and be enforceable as if such invalid, illegal or unenforceable term had not
been included herein. The Pledgor acknowledges receipt of a copy of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the Pledgor and the
Company have caused this Agreement to be executed as of the date first above
written.
CUBIST PHARMACEUTICALS, INC.
By: /s/ Scott M. Rocklage
_____________________________
Scott M. Rocklage, Ph.D.
President and CEO
Address: 24 Emily Street
Cambridge, MA 02139
PLEDGOR
/s/ Mark P. Carthy
_________________________________
Mark P. Carthy
Address: 21 Stone Road
Belmont, MA 02178
<PAGE>
EXHIBIT 11
Calculation of Net Loss per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
<S> <C> <C>
1997 1996
------------- ----------
Beginning Balance March 31............................................................ 9,554,759 1,010,844
Issuance/Repurchase of Common Stock................................................... 6,246 (1,534)
Issuance of Cheap Stock............................................................... -- 460,656
------------- ----------
Weighted Average Shares at June 30................................................... 9,561,005 1,469,996
Net Loss Second Quarter.............................................................. $ (2,199,747) $ (199,986)
Net Loss per Share................................................................... $ (0.23) $ (0.14)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Beginning Balance January 1......................................................... 9,544,373 1,016,662
Issuance/Repurchase of Common Stock................................................. 9,546 (5,756)
Issuance of Cheap Stock............................................................. -- 366,245
------------- -------------
Weighted Average Shares at June 30................................................. 9,553,919 1,377,147
Net Loss........................................................................... $ (3,791,121) $ (2,073,213)
Net Loss per Share................................................................. $ (0.40) $ (1.51)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912183
<NAME> CUBIST PHARMACEUTICALS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,465,111
<SECURITIES> 11,262,292
<RECEIVABLES> 321,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,393,056
<PP&E> 5,776,781
<DEPRECIATION> (2,198,992)
<TOTAL-ASSETS> 19,775,486
<CURRENT-LIABILITIES> 1,863,975
<BONDS> 0
0
0
<COMMON> 9,567
<OTHER-SE> 16,523,469
<TOTAL-LIABILITY-AND-EQUITY> 19,775,486
<SALES> 0
<TOTAL-REVENUES> 1,678,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,883,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (413,776)
<INCOME-PRETAX> (3,791,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,791,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,791,121)
<EPS-PRIMARY> $(.40)
<EPS-DILUTED> $(.40)
</TABLE>
