<PAGE>
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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, 1999
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 August 12, 1999, there were 17,569,657 shares outstanding of
Cubist's common stock, $0.001 par value per share.
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CUBIST PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of June 30, 1999
and December 31, 1998............................................................... 3
Condensed Statements of Operations for the three months ended June 30, 1999
and 1998 and for the six months ended June 30, 1999 and 1998........................ 4
Condensed Statements of Cash Flows for the six months ended
June 30, 1999 and 1998.............................................................. 5
Notes to the Unaudited Condensed Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders..................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
SIGNATURE............................................................................... 12
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31,
1998
----------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $8,423,702 $6,463,688
Short-term investments............................................ 3,341,248 8,692,514
Accounts receivable .............................................. 50,018 --
Prepaid expenses and other current assets......................... 648,285 231,409
----------------- ----------------
Total current assets.............................................. 12,463,253 15,387,611
Property and equipment ................................................ 8,009,927 7,727,821
Less: Accumulated depreciation and amortization.................. (4,514,364) (3,908,054)
----------------- ----------------
Property and equipment, net ...................................... 3,495,563 3,819,767
Long-term investments.................................................. 3,827,761 3,855,336
Other assets .......................................................... 57,801 74,238
----------------- ----------------
Total assets............................................. $19,844,378 $23,136,952
----------------- ----------------
----------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $448,076 $460,939
Accrued expenses.................................................. 1,613,924 572,562
Current portion of long-term debt................................. 58,806 83,957
Current portion of capital lease obligations ..................... 544,481 625,450
----------------- ----------------
Total current liabilities .............................. 2,665,287 1,742,908
Long-term debt, net of current portion................................. 787,694 16,109
Long-term capital lease obligation, net of current portion............. 1,042,876 1,292,165
----------------- ----------------
Total liabilities........................................ 4,495,857 3,051,182
----------------- ----------------
Commitments
Stockholders' Equity:
Common Stock - $.001 par value; authorized: 50,000,000 shares;
Issued and outstanding 1998 16,642,968 shares;
Issued and outstanding 1999 17,561,316 shares..................... 17,561 16,643
Additional paid-in capital............................................. 59,252,337 54,890,014
Accumulated deficit .................................................. (43,921,377) (34,820,887)
----------------- ----------------
Total stockholders' equity............................... 15,348,521 20,085,770
----------------- ----------------
Total liabilities and stockholders' equity............... $19,844,378 $23,136,952
----------------- ----------------
----------------- ----------------
</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,
----------------------------------------- -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Sponsored research revenues $862,500 $373,550 $1,466,875 $887,100
Operating expenses:
Research and development 4,699,640 2,705,375 8,926,372 5,268,893
General and administrative 974,658 817,255 1,954,361 1,675,332
----------------- ------------------ ------------------ -----------------
Total operating expenses 5,674,298 3,522,630 10,880,733 6,944,225
Interest income 239,609 195,948 474,195 380,116
Interest expense (89,897) (90,508) (160,827) (183,521)
----------------- ------------------ ------------------ -----------------
Net loss ($4,662,086) ($3,043,640) ($9,100,490) ($5,860,530)
----------------- ------------------ ------------------ -----------------
----------------- ------------------ ------------------ -----------------
Basic and diluted net loss per common
share ($0.27) ($0.29) ($0.52) ($0.55)
----------------- ------------------ ------------------ -----------------
----------------- ------------------ ------------------ -----------------
Weighted average number of common shares
for basic and diluted net loss per
common share 17,548,337 10,580,920 17,362,780 10,580,986
----------------- ------------------ ------------------ -----------------
----------------- ------------------ ------------------ -----------------
</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,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows used for operating activities:
Net loss...................................................... $(9,100,490) $(5,860,530)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................... 632,116 676,669
Common stock issued for technology milestone................ 250,000 --
Cashless exercise of warrants............................... 17,496
Changes in assets and liabilities:
Accounts receivable.................................... (50,018) 53,333
Prepaid expenses and other current assets.............. (389,301) (44,762)
Other assets.......................................... 16,437 38,301
Accounts payable and accrued expenses.................. 1,028,499 157,140
----------------- -----------------
Total adjustments.................................... 1,505,229 880,681
----------------- -----------------
Net cash used for operating activities........................... (7,595,261) (4,979,849)
Cash flows from (for) investing activities:
Purchase of equipment......................................... (250,658) (834,355)
Leasehold improvements........................................ (31,448) (33,642)
Purchase of short-term investments............................ (754,638) --
Maturities of short-term investments.......................... 6,105,904 2,007,487
Purchase of long-term investments............................. -- --
Maturities of long-term investments........................... -- 4,636,996
----------------- -----------------
Net cash provided by investing activities........................ 5,069,160 5,776,486
----------------- -----------------
Cash flows from financing activities:
Issuance of stock............................................. 4,059,939 (5,249)
Proceeds from notes receivable................................ 10,000 10,000
Repayments of debt............................................ (41,066) (103,823)
Proceeds from equipment loan.................................. 787,500 690,080
Principal payments of capital lease obligations............... (330,258) (329,618)
----------------- -----------------
Net cash provided by financing activities........................ 4,486,115 261,390
----------------- -----------------
Net increase in cash and cash equivalents........................ 1,960,014 1,058,027
Cash and cash equivalents, beginning of period................... 6,463,688 2,837,600
----------------- -----------------
Cash and cash equivalents, end of period......................... $8,423,702 $3,895,627
----------------- -----------------
----------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................ $160,827 $183,521
</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
A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. is a biopharmaceutical company founded in
May 1992 and is engaged in the research, development and commercialization of
novel classes of antiinfective drugs to combat serious life threatening bacteria
and fungi infections. Cubist has established multiple technology licenses and
collaborations and has established a network of advisors and collaborators.
Cubist is located in Cambridge, Massachusetts.
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 Cubist's audited
financial statements and related footnotes for the year ended December 31, 1998
which are included in Cubist's Annual Report on Form 10-K. Such Annual Report on
Form 10-K was filed with the Securities and Exchange Commission on March 17,
1999.
NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted
average number of common shares and 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. At June
30, 1999, and 1998 the Company had 1,697,209 and 1,130,331 options outstanding,
respectively. At June 30, 1999, and 1998 the Company had 3,071,345; and 86,619
warrants outstanding, respectively.
C. LICENSE AGREEMENT
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay research payments and, if certain scientific and
development milestones are achieved, Novartis will make milestone payments. In
addition, Novartis will be required to pay royalties to Cubist on worldwide
sales of any drug developed and commercialized from any products derived from
this collaboration. Upon the signing of the research and license agreement,
Novartis purchased, and Cubist issued to Novartis, 797,488 shares of Common
Stock for a total purchase price of $4.0 million in cash. The proceeds from the
sale of these shares will be primarily used to fund the clinical development of
daptomycin and development of its VITA-TM- technology.
6
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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 CUBIST'S CASH, CASH EQUIVALENTS, OTHER CAPITAL RESOURCES, INTEREST
INCOME, OTHER INCOME AND FUTURE REVENUES DUE UNDER CUBIST'S COLLABORATIVE
AGREEMENTS TO FUND ITS OPERATING EXPENSES AND CAPITAL REQUIREMENTS AS CURRENTLY
PLANNED THROUGH 1999, (II) STATEMENTS ABOUT THE AMOUNT OF CAPITAL EXPENDITURES
THAT CUBIST EXPECTS TO INCUR IN 1999, AND (III) 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).
YOU 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 CUBIST'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998. THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN REPRESENT CUBIST'S JUDGMENT AS OF THE DATE OF THIS
QUARTERLY REPORT ON FORM 10-Q, AND CUBIST 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 combat serious life
threatening bacteria and fungi infections. Cubist 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 Cubist'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. Cubist is a party to collaborative agreements based specifically on
its aminoacyl-tRNA synthetase program with Bristol-Myers Squibb and Merck. Under
these collaborative agreements, Cubist is entitled to receive research support
payments and, if certain drug development milestones are achieved, milestone
payments. In addition, Cubist will be entitled to receive royalties on worldwide
sales of any drug developed and commercialized from these collaborations.
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay Cubist research payments and if certain
scientific and development milestones are achieved, Novartis will make milestone
payments. In addition, Novartis will be required to pay royalties to Cubist on
worldwide sales of any drug developed and commercialized from any products
derived from this collaboration. Upon the signing of the research and license
agreement, Novartis purchased, and Cubist issued to Novartis, 797,488 shares of
Common Stock for a total purchase price of $4.0 million in cash. The proceeds
from the sale of these shares will be primarily used to fund the clinical
development of daptomycin and development of its VITA-TM- technology. These
additional funds together with existing cash resources are expected to be used
to fund the Company's operations and capital requirements through 1999.
On November 7, 1997, Cubist entered into a license agreement with Eli
Lilly and Company, pursuant to which Cubist acquired exclusive worldwide rights
to develop, manufacture and market daptomycin. In exchange for such license,
Cubist has paid to Eli Lilly an upfront license fee in cash, and if certain drug
development milestones are achieved, has agreed to pay milestone payments in
cash or by issuing shares of Common Stock to Eli Lilly. In addition, Cubist will
be required to pay royalties to Eli Lilly on worldwide sales of daptomycin.
Daptomycin is a novel, natural product being developed for the treatment of
STAPHYLOCOCCUS AUREUS and enterococcus infections in humans. Cubist began
clinical trials of daptomycin in February of 1999.
On February 19, 1999 Cubist issued to Eli Lilly and Co. 56,948 shares
of Cubist Common Stock as consideration for the licensing of daptomycin to
Cubist pursuant to, and in accordance with, the terms of the
7
<PAGE>
agreements with Eli Lilly dated November 7, 1997. The issuance of shares was
incident to the initiation of Phase III clinical testing of daptomycin.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES. Total revenues in the three months ended June 30, 1999 were
$863,000 compared to $374,000 in the three months ended June 30, 1998, an
increase of $489,000 or 130.7%. The revenue earned in the three months ended
June 30, 1999 consisted of $563,000 in research support funding from the
Novartis collaboration and $250,000 in research support funding from the
Bristol-Myers Squibb collaboration; and $50,000 in funding from SBIR grants. In
the three months ended June 30, 1998, total revenues consisted of research
support funding from the Bristol-Myers Squibb collaboration; and funding from
SBIR grants. The increase was due to revenues associated with the Novartis
collaboration.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended June 30, 1999 were $4,700,000 compared to
$2,705,000 in the three months ended June 30, 1998, an increase of $1,995,000 or
73.8%. The increase was largely due to increased consulting and manufacturing
costs related to daptomycin development, and the additional personnel and
purchases required by such development; and milestone expenses related to the
initiation of Phase III clinical trials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the three months ended June 30, 1999 were $975,000 compared to
$817,000 in the three months ended June 30, 1998, an increase of $158,000 or
19.3%. The increase was largely due to increased costs related to personnel and
increased investor and public relations expenses.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
June 30, 1999 was $240,000 compared to $196,000 in the three months ended June
30, 1998, an increase of $44,000 or 22.5%. The increase in interest income was
due primarily to a higher average cash, cash equivalent and investment balances
during the three months ended June 30, 1999 as compared to the three months
ended June 30, 1998 due to the Novartis collaboration. Interest expense in the
three months ended June 30, 1999 was $90,000 as compared to $91,000 during the
three months ended June 30, 1998.
NET LOSS. The net loss during the three months ended June 30, 1999 was
$4,662,000 compared to $3,044,000 during the three months ended June 30, 1998,
an increase of $1,618,000 or 53.2%. The increase was primarily due to additional
expenses incurred associated with the development of daptomycin.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES. Total revenues in the six months ended June 30, 1999 were
$1,467,000 compared to $887,000 in the six months ended June 30, 1998, an
increase of $580,000 or 65.4%. The revenue recognized in the six months ended
June 30, 1999 consisted of $1,417,000 in research support payments from the
Bristol-Myers Squibb and Novartis collaborations; and $50,000 in SBIR grants. In
the six months ended June 30, 1998, revenues consisted of research support
payments from the Bristol-Myers Squibb and Merck collaborations; and in SBIR
grants. The increase was due to revenues associated with the Novartis research &
license agreement.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the six months ended June 30, 1999 were $8,926,000 compared to
$5,269,000 in the six months ended June 30, 1998, an increase of $3,657,000 or
69.4%. The increase was largely due to increased costs related to daptomycin
development, and the additional personnel and purchases that are required by
such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the six months ended June 30, 1999 were $1,954,000 compared to
$1,675,000 in the six months ended June 30, 1998, an increase of $279,000 or
8
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16.6%. The increase was primarily due to increased costs related to investor and
public relations, and increased legal expenses.
INTEREST INCOME AND EXPENSE. Interest income in the six months ended
June 30, 1999 was $474,000 compared to $380,000 in the six months ended June 30,
1998, an increase of $94,000 or 24.7%. The increase in interest income was due
primarily to a higher average cash, cash equivalent and investment balances
during the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998. Interest expense in the six months ended June 30, 1999 was
$161,000 as compared to $184,000 during the six months ended June 30, 1998 due
to decreased capital lease activity.
NET LOSS. The net loss during the six months ended June 30, 1999 was
$9,100,000 compared to $5,861,000, an increase of $3,239,000 or 55.2%. The
increase was primarily due to the additional expenses incurred to support the
advancement of the Company's internal research and development programs as well
as increased revenue from such stage of research support funding.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Cubist has financed its operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The total cash, cash
equivalent and investments balance at June 30, 1999 was $15,593,000 compared to
$19,012,000 at December 31, 1998.
Since inception through June 30, 1999, Cubist had invested an aggregate
of $8,100,000 (of which $259,000 was invested during the three months then
ended) in property and equipment, primarily in laboratory equipment under
capital leases. The obligations under capital leases at June 30, 1999 were
$1,587,000. Minimum annual principal payments due under capital leases total
$843,000 in 1999. Principal payments are scheduled to decline each year
thereafter until expiration in 2002. Cubist made principal payments under its
capital lease obligations of $330,000 in the six months ended on June 30, 1999.
Cubist expects its capital expenditures in 1999 to be approximately $800,000
consisting of laboratory and other equipment purchases.
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay Cubist research payments and if certain
scientific and development milestones are achieved, Novartis will make milestone
payments. In addition, Novartis will be required to pay royalties to Cubist on
worldwide sales of any drug developed and commercialized from any products
derived from this collaboration. Upon the signing of the research and license
agreement, Novartis purchased, and Cubist issued to Novartis, 797,488 shares of
Common Stock for a total purchase price of $4.0 million in cash. The proceeds
from the sale of these shares will be primarily used to fund the clinical
development of daptomycin and development of its VITA-TM- technology.
The additional funds from the sale of shares to Novartis, together with
existing cash resources and its existing capital resources, interest income and
future revenues due under the Novartis, Bristol-Myers Squibb and Merck
collaborative agreements will be sufficient to fund its operating expenses and
capital requirements as currently planned through 1999. The actual cash
requirements of Cubist may vary materially from those now planned and will
depend on numerous factors. There can be no assurance that it's existing cash,
cash equivalents, other capital resources, interest income and future revenues
due under the Novartis, Bristol-Myers Squibb and Merck collaborative agreements
will be sufficient to fund Cubist's operating expenses and capital requirements
during that period. Cubist will need to raise substantial additional capital to
fund its operations from and after January 1, 2000 and intends to seek such
additional funding through public or private financing or collaborative or other
arrangements with corporate partners.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" which is effective for fiscal years beginning after June
15, 1999. The statement establishes accounting and reporting standards requiring
that every derivative
9
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instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Adoption of this standard is not expected to
have a material impact on the financial position or results of operations of
Cubist.
YEAR 2000 READINESS
The "Year 2000" issue generally describes the various problems which
may result from the improper processing of dates and date-sensitive
calculations. Computers and other equipment containing computer-related
components (such as programmable logic controllers and other embedded systems)
using two digits to identify the year in a date may not be able to distinguish
between dates in the 20th century versus the 21st century. Because computer and
microprocessor use is so widespread, the issue has become a societal concern,
the impact of which is not yet known.
Cubist has completed the assessment of its critical computer systems
and embedded systems and believes them to be Year 2000 compliant. Although
Cubist believes its critical systems are Year 2000 compliant, there can be no
assurances that other defects will not be discovered in the future. Cubist
believes that any failure of it's non-critical systems to be Year 2000 compliant
will not have a material adverse effect on it.
In addition to Cubist's critical systems, Cubist relies on third party
service providers and suppliers (i.e., payroll services company,
telecommunications companies, banks and utility companies and contract
manufacturers) in the conduct of its business, and it recognizes that there may
be potential exposure to Year 2000-related business disruptions as a result.
Cubist has contacted its significant service providers and contract
manufacturers and has obtained assurances from some that they are addressing
Year 2000 issues in a prudent fashion. Others have not replied in any fashion,
but none have informed Cubist of material Year 2000 issues. Cubist is unable to
control whether the firms and suppliers it does business with currently, and in
the future, will have systems which are Year 2000 compliant. Cubist's operations
could be adversely affected to the extent that firms and suppliers would be
unable to provide services, materials or products.
To the extent that Year 2000 compliance assurances are not given by its
third party service providers and suppliers, Cubist intends to devise
contingency plans to address any potential negative effects in the event of the
unavailability of services, materials or products. If necessary, Cubist may
increase inventory levels of materials and products prior to December 1999 as a
contingency against possible disruption of supply. Nevertheless, a contingency
plan devised by Cubist may not prevent a business interruption caused by one or
more of its third party service providers or suppliers, and the failure of any
such contingency plan to do so may have a material adverse effect on Cubist.
Expenditures to date have not been material and have consisted solely
of the time of certain company personnel. Cubist does not currently expect that
future costs of completing the assessment will be material.
10
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cubist owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
Cubist's capital until it is required to fund operations, including it's
research and development activities. None of these market-risk sensitive
instruments are held for trading purposes. Cubist does not own derivative
financial instruments in its investment portfolio. The investment portfolio
contains instruments that are subject to the risk of a decline in interest
rates.
Interest Rate Risk - Cubist's investment portfolio includes investment
grade debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, Cubist does not believe that it has a
material exposure to interest rate risk.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Cubist's Registration Statement on Form S-1 (Reg. No. 333-6795) in
connection with it's initial public offering of Common Stock was declared
effective by the Securities and Exchange Commission on October 25, 1996. On
October 25, 1996, Cubist also filed another Registration Statement on Form S-1
(Reg. No. 333-5880) with the SEC pursuant to Rule 462 (b) promulgated under the
Securities Act of 1933, as amended. For ease of reference and clarity, the two
registration statements referred to in this paragraph and referred to in the
following paragraphs collectively as the "IPO Registration Statement" registered
2,875,000 shares of Cubist's Common Stock under the Securities Act.
The aggregate initial public offering proceeds for all 2,875,000 shares
of Common Stock registered by the IPO Registration Statement was $17,250,000.
The net proceeds to Cubist from such issuance and distribution, after deducting
the aggregate amount of related expenses (including underwriting discounts and
commissions) paid by Cubist were $15,153,000.
Through June 30, 1999 Cubist spent $9,928,000 of the $15,153,000 net
proceeds received for the following uses and in the following amounts per use:
$373,000 in construction of plant, building and facilities; $2,174,000 for
repayment of indebtedness; $7,381,000 for working capital. All amounts spent by
Cubist for such uses, other than payment of salaries to directors and officers
of Cubist, consisted of direct payments to persons or entities, none of which
was a director or officer of Cubist, holder of 10 percent or more of any class
of equity securities of Cubist or other affiliate of Cubist. Cubist holds the
remaining $5,225,000 of the net proceeds in cash, cash equivalents, and
investments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Cubist's Stockholders was held on June 1,
1999.
(b) The Annual Meeting was held to consider and vote upon (i) electing
three individuals to serve as Class III directors on the Cubist Board of
Directors for a three year term and until their successors have been duly
elected and qualified to replace them, and (ii) approving an amendment to
Cubist's Restated Certificate of Incorporation to increase the number of shares
of Common Stock authorized for issuance by Cubist from 25,000,000 to
50,000,000;.
(c) The votes cast with respect to each Director are summarized as
follows:
<TABLE>
<CAPTION>
DIRECTOR NAME FOR WITHHELD TOTAL VOTES
------------- --- -------- -----------
<S> <C> <C> <C>
Scott M. Rocklage, Ph.D. 14,336,555 24,880 14,361,435
Paul R. Schimmel, Ph.D. 14,334,345 27,090 14,361,435
John K. Clarke 14,347,590 13,845 14,361,435
</TABLE>
11
<PAGE>
The Cubist Board of Directors as of the date of this Quarterly Report consists
of Scott M. Rocklage, Ph.D., Paul R. Schimmel, Ph.D., John K. Clarke, Barry
Bloom, Ph.D., Geroge Conrades, David W. Martin, Jr., M.D., Walter Maupay, Trudie
Resch and John Zabriskie, Ph.D.
The votes cast for approval of the amendment to the Restated
Certificate of Incorporation are summarized as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- ------- ------- ----------------
<S> <C> <C> <C>
14,201,678 147,807 11,950 -0-
</TABLE>
A copy of the Restated Certificate of Incorporation of Cubist as amended and in
effect as of the date of this Quarterly Report is filed with this Quarterly
Report as Exhibit 3.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 -- Restated Certificate of Incorporation as amended and
in effect as of the date of this Quarterly Report.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by Cubist on June 29, 1999, to file a
press release announcing the appointment of Walter Maupay, Trudie Resch and John
Zabriskie, Ph.D. to the Cubist Board of Directors.
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 12, 1999 By: /s/ THOMAS A. SHEA
--------------------------------------
Thomas A. Shea,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
12
<PAGE>
EXHIBIT 3
RESTATED CERTIFICATE OF INCORPORATION
OF
CUBIST PHARMACEUTICALS, INC.
CUBIST PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that (i) the original Certificate of
Incorporation of the Corporation was filed by the Corporation with the Secretary
of State of Delaware on May 1, 1992, (ii) this Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the Delaware General Corporation Law, and (iii) the Restated
Certificate of Incorporation restates, integrates and further amends the
Corporation's current Restated Certificate of Incorporation, as heretofore
amended, to read in its entirety as follows:
FIRST. The name of the Corporation is CUBIST PHARMACEUTICALS, INC.
SECOND. The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 30,000,000, consisting solely of:
<TABLE>
<S> <C>
25,000,000 shares of common stock, $.001 par value per share
("Common Stock"); and
5,000,000 shares of preferred stock, $.001 par value per
share ("Preferred Stock").
</TABLE>
The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights of
the Preferred Stock and Common Stock, respectively:
1. PREFERRED STOCK. The Board of Directors is hereby expressly
authorized to provide for, designate and issue, out of the authorized but
unissued shares of Preferred Stock, one or more other series of Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of any
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
<PAGE>
-2-
(b) whether the shares of such series shall have voting rights
or powers, in addition to any voting rights required by law, and, if so, the
terms of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or series;
(d) whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(e) the amount or amounts payable with respect to shares of
such class or series upon, and the rights of the holders of such class or series
in, the voluntary or involuntary liquidation, dissolution or winding up, or upon
any distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such class or series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class or
series of any other securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or series;
(i) the conditions or restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other class or
series; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative,
participating, optional or other special rights of each series of Preferred
Stock, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. The Board
of Directors is hereby expressly authorized from time to time to increase (but
not above the total number of authorized shares of Preferred Stock) or decrease
(but not below the number of shares thereof then outstanding) the number of
shares of stock of any series of Preferred Stock designated to any one or more
series of
<PAGE>
-3-
Preferred Stock pursuant to this Section 1. Different series of Preferred Stock
shall not be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or resolutions
adopted by the Board of Directors creating or establishing any such series of
Preferred Stock. No resolution, vote, or consent of the holders of the capital
stock of the Corporation shall be required in connection with the creation or
issuance of any shares of any series of Preferred Stock authorized by and
complying with the conditions of this Restated Certificate of Incorporation, the
right to any such resolution, vote, or consent being expressly waived by all
present and future holders of the capital stock of the Corporation.
At such time as no shares of any series of Preferred Stock that may be
issued from time to time remain issued and outstanding, including without
limitation because all of such shares have been converted into shares of Common
Stock in accordance with this Restated Certificate of Incorporation, all
authorized shares of such series of Preferred Stock, automatically and without
further actions, shall be reclassified as authorized but unissued shares of
undesignated Preferred Stock of no particular class or series, and any and all
of such shares may thereafter be issued by the Board of Directors of the Company
in one or more series, and the terms of any such series may be determined by the
Board of Directors, as provided in this Section 1.
2. COMMON STOCK
2.1. INCREASE OR DECREASE IN AUTHORIZED NUMBER. The number of
authorized shares of Common Stock may be increased or decreased (but not below
the combined number of shares thereof then outstanding by the affirmative vote
of the holders of the majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the Delaware General
Corporation Law.
2.2. VOTING RIGHTS. Except as otherwise required by law, and subject to
the voting rights provided to the holders of any series of Preferred Stock, the
holders of Common Stock shall have full voting rights and powers to vote on all
matters submitted to stockholders of the Corporation for vote, consent or
approval, and each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held of record by such holder.
2.3. DIVIDEND, LIQUIDATION AND OTHER RIGHTS. Each share of Common Stock
issued and outstanding shall be identical in all respects with each other such
share, and no dividends shall be paid on any shares of Common Stock unless the
same dividend is paid on all shares of Common Stock outstanding at the time of
such payment. Except for and subject to those rights expressly granted to the
holders of Preferred Stock and except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have all other rights of
stockholders, including, without limitation, (a) the right to receive dividends,
when and as declared by the Board of Directors, out of assets lawfully available
therefor, and (b) in the event of any distribution of assets upon a liquidation
or otherwise, the right to receive ratably and equally all the assets and funds
of the Corporation remaining after the payment to the holders of the Preferred
Stock or of any other class or series of stock ranking senior to the Common
Stock upon liquidation of the specific preferential amounts which they are
entitled to receive upon such liquidation.
<PAGE>
-4-
FIFTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) Effective as of the closing (or the first closing) of the
Corporation's registered initial public offering of Common Stock (the
"IPO Closing"), the Board of Directors shall be divided into three
classes of directors, such classes to be as nearly equal in number of
directors as possible, having staggered three-year terms of office, the
term of office of the directors of the first such class ("Class I") to
expire at the first annual meeting of the Corporation's stockholders
following the IPO Closing, those of the second class ("Class II") to
expire at the second annual meeting of the Corporation's stockholders
following the IPO Closing, and those of the third class ("Class III")
at the third annual meeting of the Corporation's stockholders following
the IPO Closing, such that at each such annual meeting of stockholders,
nominees will stand for election for three-year terms to succeed those
directors whose terms are to expire as of such meeting. Likewise, at
each other annual meeting of stockholders held from and after the IPO
Closing, those directors elected at such meeting to succeed those
directors whose terms expire at such meeting, shall serve for a term
expiring at the third annual meeting of stockholders following their
election. Notwithstanding anything expressed or implied to the contrary
in the foregoing provisions of this Article FIFTH, each director shall
continue to serve as such until the expiration of his term as set forth
above in this paragraph (a) and his successor is duly elected and
qualified or until his or her earlier death, incapacity, resignation or
removal. Subject to the right, if any, of holders of any series of
Preferred Stock to remove any director elected by the holders of such
series and/or any other series of Preferred Stock, any director serving
as such pursuant to this paragraph (a) of Article FIFTH may be removed
only for cause and only by the vote of the holders of a majority of the
shares of the Corporation's stock entitled to vote for the election of
directors. Those directors in office immediately prior to the IPO
Closing shall be allocated among Class I, Class II and Class III as
determined by a resolution or resolutions of the Board of Directors,
which may have been adopted prior to the effectiveness of this Restated
Certificate of Incorporation.
(b) The Board of Directors shall have the power and authority:
(1) to adopt, amend or repeal any or all of the By-Laws of the
Corporation, subject only to such limitations, if any, as may be from
time to time imposed by other provisions of this Restated Certificate
of Incorporation, by law, or by the By-Laws; and (2) to the full extent
permitted or not prohibited by law, and without the consent of or other
action by the stockholders, to authorize or create mortgage, pledges or
other liens or encumbrances upon any or all of the assets, real,
personal or mixed, and franchises of the Corporation, including
after-acquired property, and to exercise all of the powers of the
Corporation in connection therewith.
(c) Except as the Delaware General Corporation Law may
otherwise require, and Subject to the rights of the holders of any
series of Preferred Stock with respect the filling of vacancies or new
directorships in the Board of Directors, any vacancies or new
directorships in the Board of Directors, including unfilled vacancies
or new directorships resulting from the removal of directors with cause
or
<PAGE>
-5-
from any increase in the number of directors, may be filled only by
the vote of a majority of the remaining directors then in office,
although less than a quorum, or by the sole remaining director.
(d) Directors need not be stockholders of the Corporation.
SIXTH. No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; PROVIDED, HOWEVER, that, to the extent required from time to time by
applicable law, this Article SIXTH shall not eliminate or limit the liability of
a director, to the extent such liability is provided by applicable law, (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
SEVENTH. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding, by
reason of being or having been a director or officer of the Corporation or
serving or having served at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such proceeding is alleged action or
failure to act in an official capacity as a director, trustee, officer, employee
or agent or in any other capacity while serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such person
in connection therewith, as further provided in the By-Laws.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class or series of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of the Corporation or of any creditor or stockholder thereof
or on the application of any receiver or receivers appointed for the
Corporation under the provisions of Section 391 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class or series of stockholders of
the Corporation, as the case may be, to be summoned in such a manner as the
said court directs. If a majority of the number representing three-fourths
(3/4ths) in value of the creditors or class of creditors, and/or of the
stockholders or class or series of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of the Corporation as a consequence of such compromise or arrangement, the
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on
<PAGE>
-6-
all creditors or class of creditors, and/or stockholders or class or series
of stockholders of the Corporation, as the case may be, and also on the
Corporation.
NINTH. The Board of Directors, when considering a tender offer or
merger or acquisition proposal, may take into account factors in addition to
potential short-term economic benefits to stockholders of the Corporation,
including without limitation (A) comparison of the proposed consideration to be
received by stockholders in relation to the then current market price of the
Corporation's capital stock, the estimated current value of the Corporation in a
freely negotiated transaction, and the estimated future value of the Corporation
as an independent entity and (B) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on the
communities in which the Corporation operates.
TENTH. Any action required or permitted to be taken by the stockholders
of the Corporation may be taken only at a duly called annual or special meeting
of the stockholders, and not by written consent in lieu of such a meeting.
Subject to the right, if any, of the holders of any series of Preferred Stock to
call special meetings of stockholders of the Corporation, special meetings of
stockholders of the Corporation may be called only by the Chairman of the Board
of Directors, the President, or a majority of the total number of directors
which the Corporation would have if there were no vacancies.
ELEVENTH. The affirmative vote of the holders of at least seventy-five
percent (75%) of the outstanding voting stock of the Corporation (in addition to
any separate class vote that may in the future be required pursuant to the terms
of any outstanding Preferred Stock) shall be required (i) to amend or repeal the
provisions of Articles FOURTH (to the extent such provisions relate to the
authority of the Board of Directors to issue shares of Preferred Stock in one or
more series, the terms of which may be determined by the Board of Directors),
FIFTH, SEVENTH, NINTH, TENTH or ELEVENTH of the Corporation's Restated
Certificate of Incorporation, as amended from time to time, (ii) to amend, adopt
or repeal the Corporation's By-Laws (PROVIDED, HOWEVER, that the provisions of
this Article ELEVENTH shall in no way limit the power or authority of the Board
of Directors to amend, adopt or repeal By-Laws), or (iii) to reduce the number
of authorized shares of Common Stock or Preferred Stock.
[Remainder of page intentionally left blank]
<PAGE>
-7-
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its President and attested by its
Secretary this 29th day of October, 1996.
CUBIST PHARMACEUTICALS, INC.
By /s/ Scott M. Rocklage
-------------------------------------
Scott M. Rocklage,
President
ATTEST:
/s/ Justin P. Morreale
- ------------------------------------
Justin P. Morreale,
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
to the
CERTIFICATE OF INCORPORATION
of
CUBIST PHARMACEUTICALS, INC.
(Pursuant to Section 242 of the Delaware General Law)
It is hereby certified that:
1. The name of the Corporation is Cubist Pharmaceuticals, Inc.
2. Article Fourth of the Certificate of Incorporation of the Corporation
is hereby amended to increase the total number of shares of Common
Stock that the Corporation shall have authority to issue from
25,000,000 shares to 50,000,000. Therefore, the total number of shares
of all classes of capital stock that the corporation shall have
authority to issue is 55,000,000, consisting solely of:
<TABLE>
<S> <C>
50,000,000 shares of common stock, $.001 par value
per share ("Common Stock"); and
5,000,000 shares of preferred stock, $.001 par value
per share ("Preferred Stock").
</TABLE>
3. The amendment of the Restated Certificate of Incorporation herein
certified has been duly adopted by the sole stockholder of the Company
pursuant to Section 242 of the General Corporation Law of the State of
Delaware at the Annual Meeting of Stockholders of the Company held on
June 1, 1999.
CUBIST PHARMACEUTICALS, INC.
Signed on June 21, 1999 By: /s/ Thomas A. Shea
----------------------------------------
Name: Thomas A. Shea
Title: Chief Financial Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
CUBIST PHARMACEUTICALS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Cubist Pharmaceuticals, Inc., a corporation organized and existing
under the General Corporation Law (the "DGCL") of the State of Delaware
(hereinafter called the "CORPORATION"), hereby certifies that the following
resolution was adopted by the Board of Directors of the Corporation as required
by Section 151 of the DGCL at a meeting duly called and held on July 21, 1999:
RESOLVED: That pursuant to Section 4 of Article IV of the Certificate
of Incorporation, as amended, of the Corporation, the Board
of Directors hereby establishes a series of Preferred Stock,
par value $0.001 per share (the "SERIES A PREFERRED STOCK"),
of the Corporation and hereby states the designation and
number of shares, and fixes the preferences, voting powers,
qualifications and special or relative rights or privileges
thereof, as follows: -
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting the Series A Preferred
Stock shall be 500,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
shares of Series A Preferred Stock then outstanding, PLUS the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon conversion of any outstanding securities issued by the
Corporation and convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of the Common Stock of
<PAGE>
-2-
the Corporation, par value $0.001 per share ("COMMON STOCK"), and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of
(a) $1 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on
the Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to
<PAGE>
-3-
receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders, of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in
<PAGE>
-4-
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of
<PAGE>
-5-
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such
<PAGE>
-6-
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chief Financial Officer and attested by its
Secretary as of July 27, 1999.
CUBIST PHARMACEUTICALS, INC.
By: /s/ Thomas A. Shea
-----------------------------------
Name: Thomas A. Shea
Title: Vice President
Administration &
Finance, Chief Financial
Officer and Treasurer
ATTEST:
By: /s/ Justin P. Morreale
--------------------------------------
Name: Justin P. Morreale
Title: Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912183
<NAME> CUBIST PHARMACEUTICALS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,423,702
<SECURITIES> 7,169,009
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 19,844,378
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