Cambrex Corporation
Annual Report 2006

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2006ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 1-10638CAMBREX CORPORATION(Exact name of registrant as specified in its Charter)Delaware(State or other jurisdiction ofincorporation or organization) 22-2476135(I.R.S. EmployerIdentification No.) One Meadowlands Plaza,East Rutherford, New Jersey(Address of principal executive offices) 07073(Zip Code)Registrant’s telephone number, including area code: (201) 804-3000Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, $.10 par value New York Stock ExchangeSecurities registered pursuant to Section 12 (g) of the Act: (None)Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes o. No .Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. Yes o. No .Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange 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 . No o.Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will notbe contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer oAccelerated filer Non-accelerated filer o Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o. No .The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $546,922,749 as of June 30,2006.APPLICABLE ONLY TO CORPORATE REGISTRANTSAs of February 28, 2007, there were 28,269,931 shares outstanding of the registrant’s Common Stock, $.10 par value.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for the 2007 Annual Meeting are incorporated by reference into Part III of thisReport. CAMBREX CORPORATION AND SUBSIDIARIESINDEX TO ANNUAL REPORT ONFORM 10-K FILED WITH THESECURITIES AND EXCHANGE COMMISSIONFor the Year Ended December 31, 2006Item PageNo. No. PART I 1 Business 2 1A Risk Factors 8 1B Unresolved Staff Comments 15 2 Properties 15 3 Legal Proceedings 16 4 Submission of Matters to a Vote of Security Holders 16 PART II 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 6 Selected Financial Data 19 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 7A Quantitative and Qualitative Disclosures about Market Risk 37 8 Financial Statements and Supplementary Data 38 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 88 9A Controls and Procedures 88 9B Other Information 89 PART III 10 Directors, Executive Officers and Corporate Governance 90 11 Executive Compensation 92 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 92 13 Certain Relationships and Related Transactionsand Director Independence 92 14 Principal Accountant Fees and Services 92 PART IV 15 Exhibits and Financial Statement Schedules 93 1 PART IItem 1 BusinessGeneralCambrex Corporation (the “Company” or “Cambrex”), a Delaware corporation, began business in December 1981. Cambrex is alife sciences company dedicated to providing products and services that accelerate and improve the discovery and commercialization ofhuman therapeutics. The Company primarily supplies its products and services worldwide to pharmaceutical and biopharmaceuticalcompanies, generic drug companies, biotechnology companies and research organizations. The Company reports financial results in threesegments: Bioproducts, Biopharma and Human Health. The Company’s overall strategy is to focus on niche life sciences markets withglobal opportunities, support state-of-the-art technology, and demonstrate excellence in regulatory compliance, environmental, health andsafety performance, and customer service. As part of the process of evaluating strategic alternatives to enhance shareholder value, the saleof the Cork and Landen businesses within the Human Health segment was completed on October 27, 2006, and accordingly, thesebusinesses are being reported as discontinued operations in all periods presented. As discussed in Note 21, the Company completed thesale of the Bioproducts and Biopharma businesses on February 6, 2007.The Company uses a consistent business approach in each of its segments: • Niche Market Focus: The Company participates in niche markets where significant technical expertise provides competitiveadvantage and market differentiation. • Market Leadership: The Company secures leading market positions through excellent customer service, proprietary technologies,specialized capabilities and an outstanding regulatory record and leverages these capabilities across the market segments in whichit participates. • New Products and Services: The Company continues to invest in research and product development in order to introduceinnovative products and services to accelerate revenue growth, provide competitive advantage and maintain its leading marketpositions. The new products and services are developed to address the changing needs of life sciences customers for increasedautomation, speed-to-market and testing relevance. • Operational Excellence: The Company maintains its commitment to continually improve productivity and customer service levelsand maintains excellent quality and regulatory compliance systems. • Acquisition and Licensing: The Company may drive growth in strategic business segments through the prudent acquisition ofproducts, product lines, technologies and capabilities to enhance the Company’s position in its niche markets.Market Overview and Growth DriversThe Company participates in markets that serve the healthcare industry. Customers include companies and institutions thatdiscover and commercialize therapeutics such as traditional drugs (made using organic chemistry), biologics and cell based therapies.The aging population, continued investment in healthcare research and drug development and the necessity to develop life savingtherapeutics to address unmet needs drives business growth in life sciences companies serving the healthcare market. Aging “babyboomers” in the United States, Europe and Japan may provide an enormous healthcare opportunity. This group typically has moreeducation, a higher socio-economic level, and higher demands for healthcare services than previous generations.Demand for Cambrex products and services is increased by its customers financial resources to advance their research anddevelopment projects for therapeutic candidates from the laboratory to the clinic, and eventually, to the patient. Healthcare investmentcomes from a variety of sources. Large pharmaceutical and biotechnology companies spend billions on drug discovery and development.Research institutions may be funded by the government,(dollars in thousands, except share data)2 business or private sectors. Venture capital and initial public offering investments remained robust in 2006 allowing companies tocontinue to spend on drug development and commercialization.It is estimated that getting a drug to market may take up to sixteen years. With the need to get new drugs to market faster,pharmaceutical companies make huge investments in drug discovery and require a continuing stream of innovative research tools toaccelerate the drug discovery process. More and more cellular models are being used to understand the mechanism of disease and theefficacy and toxicity of drug candidates. Demand for rapid, accurate tests to assess drug candidates is growing. Cambrex is a leadingprovider of the tools and testing products used in the drug discovery process.Once a drug is identified, companies need to develop a robust process for the manufacture of clinical and commercial quantities.Product testing and quality processes need to be integrated into the manufacturing process. This is a critical step to getting a commerciallyviable drug to market. Cambrex excels in the manufacture and testing of active pharmaceutical ingredients (“APIs”) and drug substancesat laboratory, clinical and commercial scale and specializes in optimizing manufacturing processes.Demand for outsourced services from pharmaceutical companies continues to grow. Large pharmaceutical and biotechnologycompanies may outsource the development and manufacturing of a drug substance to manage multiple internal priorities, access newtechnologies or additional capacity, preserve needed capital or ensure multiple sources of supply. Emerging pharmaceutical, biotechnologyand many generic drug companies outsource all process development and manufacturing. Cambrex is particularly well positioned toassist drug companies with these much needed services for traditional APIs, biologics and cell therapies.New drugs are typically patented. When the patent expires, the drug may be manufactured and marketed in its generic form. Growthin the generic drug market is driven by the continuing stream of drug patents that will expire in the future and favorable market forcesthat encourage the use of generic pharmaceuticals as a more cost effective health care alternative to higher-priced branded drugs. In theUnited States and many countries in Europe, governments and prescription benefit management companies provide incentives for genericsubstitution to reduce costs. Cambrex’s active pharmaceutical ingredients are used in over 100 niche generic drugs globally.The market for human therapeutics is regulated by the Food and Drug Administration (“FDA”) and other regulatory agenciesthrough the development, manufacturing and commercialization process. The FDA approves human therapeutics and regulatesmanufacturing. Excellent regulatory and quality systems are essential to serve the industry.Asian competitors have increased their capabilities in drug substance manufacturing and finished dosage form drugs in recentyears. Although there has been limited direct impact on the Company’s niche products, the presence of these competitors in the markethas resulted in downward pricing pressure on generic active pharmaceutical ingredients. Regulatory compliance and product quality maydetermine the long term impact of these competitors.Development of the BusinessThe discussion below provides insight to the general development of our business, including the material acquisitions anddisposition of assets over the past five years.On January 1, 2002, the Company realigned the organization to focus on life sciences. The operating units that primarily producedspecialty and fine chemicals, and animal health and agriculture products were combined to form a new subsidiary, RutherfordChemicals, Inc.On November 10, 2003, the Company sold its Rutherford Chemicals business for a sale price of up to $65,000, consisting of$55,000 in cash paid at closing, a $2,000 subordinated 12% interest bearing note, and an $8,000 performance-based cash earn-out ifcertain future operating profit targets are achieved. The sale of Rutherford Chemicals represents the completion of the transformation froma specialty chemical organization into a leading life sciences company.(dollars in thousands, except share data)3 On October 2, 2004, Cambrex France SARL, one of the Company’s subsidiaries, acquired Genolife SA for approximately $6,000in cash. Genolife, renamed Cambrex Bio Science Clermont Ferrand SAS, located in Saint Beauzire, France, specializes in rapidmicrobial detection testing for the pharmaceutical, agriculture, food, and cosmetic industries. The acquisition complements theCompany’s endotoxin and mycoplasma detection product lines and builds upon its testing reagent and service franchise.On February 2, 2006, the Company acquired Cutanogen Corporation (“Cutanogen”) for a purchase price of $1,445 which waspaid at closing with additional purchase price payments of up to $4,800 subject to the achievement of certain regulatory and commercialmilestones. The Company expensed the purchase price payment and will continue to expense all additional payments prior to regulatoryapproval of the product as in-process research and development. At acquisition, Cutanogen was a development stage company, as it hadno long-lived assets, revenues or employees. The results are reported as part of the Bioproducts segment.On October 19, 2006, the Company signed a definitive stock purchase agreement to sell two businesses within the Human Healthsegment to a holding company controlled by International Chemical Investors II S.A. for nominal consideration. The sale was completedon October 27, 2006. As a result of this transaction, the Cork and Landen businesses are being reported as discontinued operations in allperiods presented.On October 23, 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of thebusinesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) for total cash consideration of $460,000.This sale was completed on February 6, 2007. The results of these two segments are reported as continuing operations in all periodspresented. The Company will begin reporting these segments as discontinued operations during the first quarter of 2007.ProductsThe Company uses its technical expertise in a wide range of chemical and biological processes to meet the needs of its customers forhigh quality products and services for specialized applications.The following table presents gross sales from the Company’s three segments: Years Ended December 31 2006 2005 2004 Bioproducts $163,119 $149,498 $136,108 Biopharma 52,477 41,698 43,270 Human Health 236,659 223,565 216,528 Gross Sales $452,255 $414,761 $395,906 Bioproducts: The Bioproducts segment consists of research products (including cell biology products, cell based assays andmolecular biology products) and therapeutic applications (including endotoxin detection products, biotherapeutic media and serumproducts and cell therapy and related services). The Company manufactures more than 1,800 products which are sold to more than14,000 customers worldwide with no one customer accounting for over 10% of 2006 sales in this segment.This table summarizes the gross sales by product category for this segment: 2006 2005 Change % Change Research products $80,394 $75,810 $4,584 6.0%Therapeutic applications 82,725 73,688 9,037 12.3%Total Bioproducts $163,119 $149,498 $13,621 9.1%Bioproducts sales of $163,119 were $13,621 or 9.1% above 2005. Bioproducts sales were favorably impacted 0.4% due toexchange rates reflecting a weaker U.S. dollar.(dollars in thousands, except share data)4 Research products of $80,394 were $4,584 or 6.0% higher than prior year due primarily to increased sales in cell biology andmolecular biology products resulting from stronger demand, price increases and new products.Therapeutic applications sales of $82,725 were $9,037 or 12.3% higher than prior year due to higher sales of cell therapy servicesdue to the addition of new customers and rapid microbial detection products reflecting increased purchasing levels.Biopharma: The Biopharma segment consists of the Company’s contract biopharmaceutical process development andmanufacturing business. Biopharma sales of $52,477 were $10,779 or 25.9% above 2005. The sales increase primarily reflects highersuite and process development revenue partially offset by lower labor fees and reimbursed material revenue. Foreign currency had noimpact on Biopharma sales. There was one customer that individually accounted for 10% of 2006 sales in this segment.Human Health: The Human Health segment is primarily comprised of the custom development and manufacture ofpharmaceutical ingredients derived from organic chemistry. Products and services are supplied globally to innovative and generic drugcompanies. Products include active pharmaceutical ingredients and advanced pharmaceutical intermediates. Services include customdevelopment and GMP manufacturing services.The Human Health segment is classified into three product groups: (1) APIs, (2) pharmaceutical intermediates, and (3) other. Theseproducts and services are sold to a diverse group of more than 1,100 customers, with two customers individually accounting for morethan 10% of 2006 sales in this segment; one, a pharmaceutical company with which a long-term sales contract is in effect that isscheduled to expire at the end of 2008, accounted for 12.3%. The Company is currently in negotiations to extend this contract to 2013which, if the Company elects to do so, will result in significantly lower profitability for sales under this arrangement in 2007 and 2008.There is no guarantee that this contract will be renewed. A second customer, a distributor representing multiple customers, accounted for14.4%. Human Health products are sold through a combination of direct sales and independent agents. One active pharmaceuticalingredient makes up 15.3% of 2006 sales in this segment.This table summarizes the gross sales for this product segment: 2006 2005 Change % Change Active pharmaceutical ingredients $176,407 $162,710 $13,697 8.4%Pharmaceutical intermediates 29,786 30,578 (792) (2.6)%Other 30,466 30,277 189 0.6%Total Human Health $236,659 $223,565 $13,094 5.9%Human Health sales of $236,659 increased $13,094 or 5.9% including a 0.5% favorable impact due to exchange rates reflectingthe weaker U.S. dollar.Sales of APIs of $176,407 were $13,697 or 8.4% above the prior year due primarily to higher demand for certain central nervoussystem and cardiovascular APIs, nicotine polacrilex resin (used in smoking cessation products) and higher sales of a diuretic API,partially offset by lower sales of a gastrointestinal API due to weaker demand.Pharmaceutical intermediates sales of $29,786 were $792 or 2.6% below 2005 primarily due to lower sales of an end-stage kidneytreatment product due to decreased demand.Other sales of $30,466 were $189 or 0.6% above the prior year due primarily to higher volumes of x-ray media, partially offset bylower sales of feed additive products.Marketing and DistributionThe Company’s Human Health and Biopharma segments generally include higher value, low-to-medium volume niche productsrequiring significant technical expertise to develop and manufacture. Marketing generally requires significant cooperative effort among ahighly trained sales and marketing staff, a scientific staff that can(dollars in thousands, except share data)5 assess the technical fit and estimate manufacturing economics and the business unit management to determine the strategic and businessfit. The process to take a client’s project from the clinical trial stage to a commercial, approved therapeutic may take from two to tenyears. The Company uses sales agents in those areas where direct sales efforts are not economical.For the Bioproducts segment, the Company markets and sells its products in the United States and Europe principally through itsown direct sales force. The remaining international markets are served principally through an extensive network of independentdistributors. The Company has also implemented an e-commerce website to market and sell these products in the United States andEurope.Raw MaterialsThe Company uses a wide array of raw materials in the conduct of its businesses.For its Human Health products, the Company generally will have a primary and secondary supplier for its critical raw materials.Prices for these raw materials are generally stable except for the petroleum-based solvents where prices can vary with market conditions.For its Bioproducts products, the Company buys materials from many suppliers and is generally not dependent on any one supplieror group of suppliers. There is a well-established market for raw fetal bovine serum but price and supply are cyclical and fluctuate.Bovine spongiform encephalopathy, also known as mad cow disease, can periodically restrict the locations from which the Company canimport fetal bovine serum. The Company also has a long-term contract with one company to supply agarose, the key raw material used tomake electrophoresis media products.The other key raw materials used by all segments of the Company are advanced organic intermediates that generally have been inadequate supply from multiple suppliers.Research and DevelopmentThe Company’s research and development program is designed to increase the Company’s competitiveness by improving itstechnology and developing processes for the manufacture of new products to meet customer requirements. The goals are to introduceinnovative products; improve manufacturing processes to reduce costs, improve quality and increase capacity; to identify marketopportunities that warrant significant technical expertise, and offer the prospects of a long-term, profitable business relationship. Researchand development activities are performed at most of the Company’s manufacturing facilities in both the United States and Europe.Approximately 130 employees are involved directly in research and development activities worldwide.The Cambrex Center of Technical Excellence, a research and development organization located in The Technology Centre of NewJersey in North Brunswick, NJ, helps place the Company in a unique position to be a full-service resource for pharmaceutical andbiotechnology companies throughout the drug development cycle.The Company spent $21,190, $21,469 and $18,759 in 2006, 2005 and 2004, respectively, on research and development efforts.Patents and TrademarksThe Company has patent protection in many of its product areas. In addition, the Company also relies on know-how and tradesecrets (related to many of its manufacturing processes and techniques not generally known to other life sciences companies) fordeveloping and maintaining its market position.Worldwide, the Company currently owns approximately 150 granted/in-force patents which have various expiration dates, the latestof which is in 2029 and which cover selected items in each of the Company’s major product areas. In addition, the Company has appliedfor patents for various inventions and is in the process of preparing patent applications for other inventions.(dollars in thousands, except share data)6 The Company has trademarks registered in the United States and a number of other countries for use in connection with theCompany’s products and business. The Company also holds common law trademark rights for several marks. The Company believesthat many of its trademarks are generally recognized in its industry. Such trademarks include Poietics®, Clonetics®, MYCOAlert®,NuSieve®, Reliant®, Latitude®, PAGEr®, MetaPhor®, AccuGENE® and BioWhittaker®.The Company requires employees to sign confidentiality and ownership of inventions agreements where appropriate.CompetitionIn the Bioproducts segment, no one company is known to compete with the Company in all of its product groups, but in each groupcompetition is offered by a number of companies, including in some cases, firms substantially larger and with greater financial resourcesthan the Company. The markets in which the Company competes are generally concentrated and are highly competitive, with competitioncentering on product specifications and performance, quality, depth of product line, price, technical support, innovative productdevelopment and on time delivery.In the Biopharma segment, the competitors include therapeutic companies and other companies that supply contractbiopharmaceutical development and manufacturing services to biotech companies. Generally, the competition focuses on larger quantitiesand scale of manufacturing capacity. Cambrex differentiates its services by concentrating on small to medium scale process developmentand manufacturing services, an excellent regulatory compliance record, experience producing vaccines and approved drugs, acommitment to quality, and world-class early development services.In the Human Health segment, the Company has two primary groups of competitors; those that produce generic activepharmaceutical ingredients and those that provide development and manufacturing services for branded active pharmaceutical ingredientsand intermediates. For generic active pharmaceutical ingredients, there are approximately five primary competitors which are located inEurope. For competitors that provide custom development and manufacturing services for branded active pharmaceutical ingredients,there are approximately twenty competitors, six of which are large multinational companies that also produce fine chemicals. Morerecently, competitors from Asia have entered the market for larger volume active pharmaceutical ingredients. While there has been limitedimpact on the specific products the Company produces, it is expected that regulatory compliance, product quality and logistics willdetermine the long term impact of these competitors in the market. If the Company perceives significant competitive risk and a need fortechnical or financial commitment, it generally negotiates long term contracts or guarantees from its customers.Environmental and Safety Regulations and ProceedingsGeneral: Certain products manufactured by the Company involve the use, storage and transportation of toxic and hazardousmaterials. The Company’s operations are subject to extensive international and domestic federal, state and local laws and regulationsrelating to the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safeworking conditions. The Company maintains environmental and industrial safety and health compliance programs at its plants andbelieves that its manufacturing operations are in compliance with all applicable safety, health and environmental laws.The Company conducts detailed environmental due diligence on all acquisitions. The Company’s acquisitions were made withconsideration of any known environmental conditions. Also, as with other companies engaged in our industry, risks of substantial costsand liabilities are inherent in certain plant operations and certain products produced at the Company’s plants. Additionally, prevailinglegislation tends to hold companies primarily responsible for the proper disposal of their wastes even after transferal to third party wastedisposal facilities. Moreover, other future developments, such as increasingly strict environmental, safety and health laws andregulations, and enforcement policies there under, could result in substantial costs and liabilities to the Company and could subject theCompany’s handling, manufacture, use, reuse, or disposal of substances or pollutants at its plants to more(dollars in thousands, except share data)7 rigorous scrutiny than at present. Although the Company has no direct operations and conducts its business through subsidiaries, certainlegal principles that provide the basis for the assertion against a parent company of liability for the actions of its subsidiaries maysupport the direct assertion against the Company of environmental liabilities of its subsidiaries.Known environmental matters which may result in liabilities to the Company and the related estimates and accruals are summarizedin Note 19 to the Cambrex Corporation and Subsidiaries Consolidated Financial Statements.Present and Future Environmental Expenditures: The Company’s policy is to comply with all legal requirements of applicableenvironmental, health and safety laws and regulations. The Company believes it is in compliance with such requirements and hasadequate professional staff and systems in place to remain in compliance. In some cases, compliance can only be achieved by capitalexpenditures and the Company made capital expenditures of $2,823 in 2006, $2,152 in 2005, and $3,304 in 2004 for environmentalprojects. As the environmental proceedings in which the Company is involved progress from the remedial investigation and feasibilitystudy stage to implementation of remedial measures, related expenditures may increase. The Company considers costs for environmentalcompliance to be a normal cost of doing business and includes such costs in pricing decisions.Item 1A Risk FactorsFactors That May Affect Future ResultsThe following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. Ifany of the following risks occur, the Company’s business, financial condition, operating results and cash flows could be materiallyadversely effected. The risks and uncertainties described below are not the only ones the Company faces. Additionally, risks anduncertainties not presently known to the Company or that it currently deems immaterial also may impair its business, financialcondition, operating results and cash flows in the future.We may pursue transactions that may cause us to experience significant charges to earnings that may adversely affect ourstock price and financial condition.We regularly review potential transactions related to technologies, products, product rights and businesses complementary to ourbusiness. These transactions could include mergers, acquisitions, divestitures, strategic alliances or licensing agreements. In the future,we may choose to enter into these transactions at any time. As a result of acquiring businesses or entering into other significanttransactions, we have previously experienced, and may continue to experience, significant charges to earnings for merger and relatedexpenses that may include transaction costs, closure costs or costs related to the write-off of acquired in-process research anddevelopment. These costs may also include substantial fees for investment bankers, attorneys, accountants, financial printing costs,severance and other closure costs associated with the elimination of duplicate or discontinued products, employees, operations andfacilities.If we make acquisitions, we may experience difficulty integrating the businesses.We continually explore and conduct discussions with many third parties regarding possible acquisitions. Our ability to continue toachieve our goals may depend upon our ability to effectively integrate such businesses, to achieve cost efficiencies and to manage thesebusinesses as part of our company. However, we may experience difficulty integrating the merged companies. As a result of uncertaintyfollowing an acquisition and during the integration process, we could experience disruption in our business or employee base. There isalso a risk that key employees of the combined company may seek employment elsewhere, including with competitors, or that valuedemployees may be lost upon the elimination of duplicate functions. If we are not able to successfully blend our products and technologieswith the acquired business to create the advantages the acquisition was intended to create, it may effect our results of operations, ourability to develop and introduce new products and the market price(dollars in thousands, except share data)8 of our common stock. Furthermore, there may be overlap between our products, services or customers, and the combined company maycreate conflicts in relationships or other commitments detrimental to the integrated businesses.If we fail to improve the operations of future acquired businesses, we may be unable to achieve our growth strategy.Some of the businesses we have acquired or will acquire had or may have significantly lower operating margins than we do and/oroperating losses prior to the time we acquired them. In the past, we have occasionally experienced temporary delays in improving theoperating margins of these acquired businesses. In the future, if we are unable to improve the operating margins of acquired businesses oroperate them profitably, we may be unable to achieve our growth strategy.Companies may discontinue or decrease their usage of our services.We have observed increasing pressure on the part of our customers to reduce spending, including the use of our services, as a resultof negative economic trends generally and in the pharmaceutical industry. These customers could discontinue or decrease their usage ofour services, including as a result of an economic slowdown in the overall United States or foreign economies.Competition and/or a reduction in demand for our products could reduce sales.The markets for our products are competitive and price sensitive. Other suppliers have significant financial, operational, sales andmarketing resources, and experience in research and development. These and other companies may have developed or could in the futuredevelop new technologies that would compete with our products or render our products obsolete. In addition, demand for our productsmay weaken due to reduction in research and development budgets, loss of distributors or other factors.The markets for certain of our products are also subject to specific competitive risks and can be highly price competitive. Ourcompetitors have competed in the past by lowering prices on certain products. Our competitors may lower prices on these or otherproducts in the future and we may, in certain cases, respond by lowering our prices. Conversely, failure to anticipate and respond to pricecompetition may hurt our market share.We believe that customers in our markets display loyalty to their initial supplier of a particular product. Therefore, it may bedifficult to generate sales to potential customers who have purchased products from competitors. To the extent we are unable to be the firstto develop and supply new products, our competitive position may suffer.Our failure to obtain new contracts or renewed contracts or cancellation of existing contracts may adversely affect ourbusiness.Many of our contracts are short-term in duration. As a result, we must continually replace our contracts with new contracts tosustain our revenue. In addition, many of our long-term contracts may be cancelled or delayed by clients for any reason upon notice. TheCompany currently has a long-term sales contract within the Human Health segment that accounts for more than 10% of segment salesthat is scheduled to expire at the end of 2008. There is no guarantee that this contract will be renewed.Our operating results may unexpectedly fluctuate in future periods.The Company’s revenue and operating results have fluctuated, and could continue to fluctuate, on a quarterly basis. The operatingresults for a particular quarter may be lower than expected as a result of a number of factors, including the timing of contracts; the delayor cancellation of a contract; the mix of services provided; seasonal slowdowns in different parts of the world; the timing of start-upexpenses for new services and facilities; and changes in government regulations. Because a high percentage of the Company’s costs arerelatively fixed in the short term (such as the cost of maintaining facilities and compensating employees), any one of these factors could(dollars in thousands, except share data)9 have a significant impact on the Company’s quarterly results. In some quarters, the Company’s revenue and operating results may fallbelow the expectations of securities analysts and investors due to any of the factors described above. In such event, the trading price of theCompany’s common stock would likely decline, even if the decline in revenue did not have any long-term adverse implications for theCompany’s business.Failure to obtain products and components from third-party manufacturers could affect our ability to manufacture anddeliver our products.We rely on third-party manufacturers to supply many of our raw materials, product components, and in some cases, entireproducts. In addition, we have a single source for supplies of some raw materials and components to our products. Manufacturingproblems may occur with these and other outside sources. If such problems occur, we cannot ensure that we will be able to manufactureour products profitably or on time.Any significant reduction in government regulation of the drug development process could have a material adverse effect onour business.The manufacturing of pharmaceutical products are subject to extensive regulation by governmental authorities, including the FDAand comparable regulatory authorities in other countries. The Company’s business depends in part on strict government regulation of thedrug development process. Legislation may be introduced and enacted from time to time to modify regulations administered by the FDAand governing the drug approval process. Any significant reduction in the scope of regulatory requirements or the introduction ofsimplified drug approval procedures could have a material adverse effect on the Company’s business.Violations of cGMP and other government regulations could have a material adverse effect on our business.All facilities and manufacturing techniques used for manufacturing of products for clinical use or for commercial sale in the UnitedStates must be operated in conformity with current Good Manufacturing Practices (“cGMP”) regulations as required by the FDA. TheCompany’s facilities are subject to scheduled periodic regulatory and customer inspections to ensure compliance with cGMP and otherrequirements applicable to such products. A finding that the Company had materially violated these requirements could result inregulatory sanctions, the loss of a customer contract, the disqualification of data for client submissions to regulatory authorities and/or amandated closing of the Company’s facilities. Any such material violations would have a material adverse effect on the Company’sbusiness.Litigation may harm our business or otherwise negatively impact our management and financial resources.Substantial, complex or extended litigation could cause the Company to incur large expenditures and distract our management. Forexample, lawsuits by employees, stockholders, counterparties to acquisition and divestiture contracts, collaborators, distributors,customers, or end-users of our products or services could be very costly and substantially disrupt our business. Disputes from time totime with such companies or individuals are not uncommon, and we cannot assure you that we will always be able to resolve suchdisputes out of court or on terms favorable to the Company.Refer to Note 19 for a discussion of the Company’s environmental and legal matters.Loss of key personnel could hurt our business.The Company depends on a number of key executives. The loss of services of any of the Company’s key executives could have amaterial adverse effect on the Company’s business.The Company also depends on its ability to attract and retain qualified scientific and technical employees. There can be noassurance the Company will be able to retain its existing scientific and technical employees, or to(dollars in thousands, except share data)10 attract and retain additional qualified employees. The Company’s inability to attract and retain qualified scientific and technicalemployees would have a material adverse effect on the Company’s business.Potential product liability claims, errors and omissions claims in connection with services we perform and potential liabilityunder indemnification agreements between us and our officers and directors could adversely effect our business.The Company manufactures products intended for use by the public. These activities could expose the Company to risk of liabilityfor personal injury or death to persons using such products, although the Company does not presently market or sell the products to endusers. The Company seeks to reduce its potential liability through measures such as contractual indemnification provisions with clients(the scope of which may vary from client-to-client, and the performances of which are not secured), exclusion of services requiringdiagnostic or other medical services, and insurance maintained by clients. The Company could be materially and adversely effected if itwere required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnificationagreements, if the indemnity, although applicable, is not performed in accordance with its terms or if the Company’s liability exceeds theamount of applicable insurance or indemnity. In addition, the Company could be held liable for errors and omissions in connection withthe services it performs. The Company currently maintains product liability and errors and omissions insurance with respect to theserisks. There can be no assurance, however, that the Company’s insurance coverage will be adequate or that insurance coverage willcontinue to be available on terms acceptable to the Company.The Company also indemnifies its officers and directors for certain events or occurrences while the officer or director is, or wasserving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be requiredto make under these indemnification agreements is unlimited; however, the Company has a “Director and Officer” insurance policy thatcovers a portion of any potential exposure. The Company could be materially and adversely effected if it were required to pay damages orincur legal costs in connection with a claim above its insurance limits.Assessments by various tax authorities may be materially different than we have provided for and we may experiencesignificant volatility in our annual and quarterly effective tax rate.As a matter of course, the Company is regularly audited by federal, state, and foreign tax authorities. From time to time, these auditsresult in proposed assessments. While the Company believes that it has adequately provided for any such assessments, future settlementsmay be materially different than we have provided.In recent years, as described more fully in Note 9, the Company has recorded a valuation allowance against all net domestic deferredtax assets. Until such time as the Company’s domestic profitability is restored and considered by management to be sustainable for theforeseeable future, the Company will not record the income tax benefit or expense for domestic pre-tax losses and income respectively, andas such may experience significant volatility in its effective tax rate.We have a significant amount of debt.The Company had a $277,500 revolving credit facility of which $158,600 was outstanding at December 31, 2006 which wassubsequently paid off and retired during the first quarter of 2007. See Note 21 for a discussion on the repayment of the credit facility. Ifthe Company enters into a new credit facility and is unable to generate sufficient cash flow or otherwise obtain funds necessary to makerequired payments on the credit facility, including from cash and cash equivalents on hand, we will be in default under the terms of theloan agreements and indentures under which we have outstanding debt securities.Even if we are able to meet our debt service obligations, the amount of debt we have could adversely affect us in a number of ways,including: • limiting our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt servicerequirements, or other purposes;(dollars in thousands, except share data)11 • limiting our flexibility in planning for, or reacting to, changes in our business; • placing us at a competitive disadvantage relative to our competitors who have lower levels of debt; • making us more vulnerable to a downturn in our business or the economy generally; and • requiring us to use a substantial portion of our cash to pay principal and interest on our debt, instead of contributing those fundsto other purposes such as working capital and capital expenditures.International unrest or foreign currency fluctuations could adversely effect our results.Our international revenues, which include revenues from our non-U.S. subsidiaries and export sales from the U.S., represented59% of our product revenues in 2006 and 2005. With the sale of the Bioproducts and Biopharma businesses, we expect that internationalrevenues will account for an even larger percentage of our revenues for the foreseeable future.There are a number of risks arising from our international business, including: • foreign currencies we receive for sales outside the U.S. could be subject to unfavorable exchange rates with the U.S. dollar andreduce the amount of revenue that we recognize; • the possibility that unfriendly nations or groups could boycott our products; • general economic and political conditions in the markets in which we operate; • potential increased costs associated with overlapping tax structures; • more limited protection for intellectual property rights in some countries; • unexpected changes in regulatory requirements; • the difficulties of compliance with a wide variety of foreign laws and regulations; • longer accounts receivable cycles in certain foreign countries; and • import and export licensing requirements.A significant portion of our business is conducted in currencies other than the U.S. dollar, which is our reporting currency. Werecognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations betweenthe U.S. dollar and the currencies in which we do business have caused and will continue to cause foreign currency transaction gains andlosses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currenciesinvolved, the variability of currency exposures, and the potential volatility of currency exchange rates. We engage in limited foreignexchange hedging transactions to manage our foreign currency exposure, but our strategies are short-term in nature and may notadequately protect our operating results from the full effects of exchange rate fluctuations.The market price of our stock could be volatile.The market price of our common stock has been subject to volatility and, in the future, the market price of our common stock mayfluctuate substantially due to a variety of factors, including: • quarterly fluctuations in our operating income and earnings per share results; • technological innovations or new product introductions by us or our competitors; • economic conditions; • disputes concerning patents or proprietary rights; • changes in earnings estimates and market growth rate projections by market research analysts; • sales of common stock by existing holders;(dollars in thousands, except share data)12 • loss of key personnel; • securities class actions or other litigation; and • the Company’s ability to retain financing in order to pay special dividends.The market price for our common stock may also be effected by our ability to meet analysts’ expectations. In addition, the stockmarket is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securitiesissued by many companies for reasons unrelated to the operating performance of these companies.Incidents related to hazardous materials could adversely affect our business.Portions of our operations require the controlled use of hazardous materials. Although we are diligent in designing and implementingsafety procedures to comply with the standards prescribed by federal, state, and local regulations, the risk of accidental contamination ofproperty or injury to individuals from these materials cannot be completely eliminated. In the event of such an incident, we could be liablefor any damages that result, which could adversely effect our business.Additionally, any incident could partially or completely shut down our research and manufacturing facilities and operations.We generate waste that must be transported to approved storage, treatment and disposal facilities. The transportation and disposal ofsuch waste are required to meet applicable state and federal statutes and regulations. The storage, treatment and disposal of such wastepotentially exposes us to environmental liability if, in the future, such transportation and disposal are deemed to have violated suchstatues and/or regulations or if the storage, treatment and disposal facilities are inadequate and are proved to have damaged theenvironment.The Company is also party to several environmental remediation investigations and cleanups and, along with other companies, hasbeen named a “potential responsible party” for certain waste disposal sites. The Company has also retained the liabilities with respect tocertain pre-closing environmental matters associated with the sale of the Rutherford Chemicals business.The possibility we will be unable to protect our technologies could effect our ability to compete.Our success depends to a significant degree upon our ability to develop proprietary products and technologies. However, we cannotbe assured that patents will be granted on any of our patent applications. We also cannot be assured that the scope of any of our issuedpatents will be sufficiently broad to offer meaningful protection. We only have patents issued in selected countries. Therefore, third partiescan make, use, and sell products covered by our patents in any country in which we do not have patent protection. In addition, ourissued patents or patents we license could be successfully challenged, invalidated or circumvented so that our patent rights would notcreate an effective competitive barrier. We provide our customers the right to use our products under label licenses that are for researchpurposes only. These licenses could be contested, and we cannot be assured that we would either be aware of an unauthorized use or beable to enforce the restrictions in a cost-effective manner.If a third party claimed an intellectual property right to technology we use, we may need to discontinue an important product orproduct line, alter our products and processes, defend our right to use such technology in court or pay license fees. Although we may,under these circumstances, attempt to obtain a license to such intellectual property, we may not be able to do so on favorable terms, or atall. Additionally, if our products are found to infringe on a third party’s intellectual property, we may be required to pay damages for pastinfringement, and lose the ability to sell certain products or receive licensing revenues.(dollars in thousands, except share data)13 Compliance with changing regulation of corporate governance and public disclosure may result in additional expense.Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Actof 2002, are creating uncertainty for companies. These new or changed laws and standards are subject to multiple interpretations, inmany cases due to their lack of specification. As a result, their application in practice may evolve over time as new guidance is providedby regulatory and governing bodies which could result in higher costs necessitated by revisions to disclosures and governance practices.We are committed to maintaining high standards of corporate governance and public disclosure. As a result of the efforts to comply withthe evolving laws and regulations increased general and administrative expenses have been experienced and are likely to continue. Inparticular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and the related assessments have requiredcommitment of significant internal and external financial and operational resources.EmployeesAt December 31, 2006, the Company had 1,916 employees worldwide (801 of whom were from international operations) comparedwith 1,837 employees at December 31, 2005 and 1,742 at December 31, 2004.Cambrex Karlskoga AB and Cambrex Profarmaco Milano S.r.l. production, administration, scientific and technical employees arerepresented by various local and national unions. The Company believes its labor relations are satisfactory.SeasonalityThe Company experiences some seasonality primarily due to planned plant shutdowns by the Company and certain customers inthe third quarter. Operating results for any quarter, however, are not necessarily indicative of results for any future period. In particular,as a result of various factors such as acquisitions, plant shutdowns, and the timing of large contract revenue streams, the Companybelieves that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance.Export and International SalesThe Company exports numerous products to various areas, principally Western Europe, Asia and Canada. Export sales from theCompany’s domestic operations in 2006, 2005 and 2004 amounted to $43,872, $47,115 and $29,945, respectively. Sales frominternational operations were $221,769 in 2006, $197,511 in 2005, and $196,017 in 2004. Refer to Note 17 to the CambrexCorporation and Subsidiaries Consolidated Financial Statements.Available InformationThis annual report on Form 10-K, the Company’s quarterly reports on Form 10-Q, the Company’s current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are madeavailable free of charge on the Company’s Internet website www.cambrex.com as soon as reasonably practicable after such material iselectronically filed with or furnished to the SEC. The most recent certifications by the Company’s Chief Executive Officer and ChiefFinancial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to this Annual report on Form 10-K. Lastyear the Company filed with the New York Stock Exchange the Annual Chief Executive Officer Certification as required bySection 303A.12.(a) of the New York Stock Exchange Listed Company Manual.Reports filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE,Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements andother information regarding issuers that file electronically with the SEC.The following corporate governance documents are available free of charge on the Company’s website: the charters of our Audit,Regulatory Affairs, Compensation and Governance Committees, our Corporate Governance(dollars in thousands, except share data)14 Guidelines and our Code of Business Conduct and Ethics. These corporate governance documents are also available in print to anystockholder requesting a copy from our corporate secretary at our principal executive offices. Information contained on our website is notpart of this report. We will also post on our website any amendments to or waivers of our Code of Business Conduct and Ethics thatrelate to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer.Item 1B Unresolved Staff CommentsNone.Item 2 Properties.Set forth below is information relating to the Company’s manufacturing facilities as of December 31, 2006:Location Acreage Operating Subsidiary Product Lines ManufacturedCharles City, IA 57 acres CambrexCharles City, Inc. Active Pharmaceutical Ingredients, PharmaceuticalIntermediates, Imaging Chemicals, Animal HealthProducts and Fine Custom ChemicalsKarlskoga, Sweden 42 acres CambrexKarlskoga AB Active Pharmaceutical Ingredients, PharmaceuticalIntermediates, Imaging Chemicals and Fine CustomChemicalsPaullo (Milan), Italy 13 acres CambrexProfarmaco Milano S.r.l. Active Pharmaceutical IngredientsWalkersville, MD* 116 acres Cambrex Bio ScienceWalkersville, Inc. Cells and Media and Endotoxin DetectionVerviers, Belgium* 9 acres Cambrex Bio Science VerviersSprl Cells and MediaRockland, ME* 93 acres Cambrex Bio ScienceRockland, Inc. Electrophoresis and ChromatographyCopenhagen, Denmark* Leased Cambrex Bio ScienceCopenhagen ApS Electrophoresis and ChromatographyBaltimore, MD * Leased Cambrex Bio ScienceBaltimore, Inc. Contract Biopharmaceutical ServicesHopkinton, MA* Leased Cambrex Bio ScienceHopkinton, Inc. Contract Biopharmaceutical ServicesSaint-Beauzire, France* Leased Cambrex Bio Science ClermontFerrand SAS Microbial and GMO Detection Kits and BioAssayProductsGaithersburg, MD* Leased Cambrex Bio ScienceWalkersville, Inc. PoieticstmSalisbury, MD* Leased Cambrex Bio ScienceWalkersville, Inc. Endotoxin DetectionThe Company also leases 42,000 square feet in North Brunswick, New Jersey for its Center of Technical Excellence, which has a10 year term ending March 27, 2010. In addition, the Company owns a six acre site and buildings in North Haven, CT, and a three acresite in Carlstadt, New Jersey. The Company believes its facilities to be in good condition, well-maintained and adequate for its currentneeds.Most of the Company’s products and services are provided from multi-purpose facilities. Each product has a unique requirementfor equipment, and occupies such equipment for varying amounts of time. It is generally possible, with proper lead time and customerand regulatory approval (if required), to transfer the manufacturing of a particular product to another facility should capacity constraintsdictate.*These Bioproducts and Biopharma segment sites were sold on February 6, 2007. See Note 21 for more information regarding thesale of these businesses.(dollars in thousands, except share data)15 Item 3 Legal ProceedingsSee “Environmental and Safety Regulations and Proceedings” under Item 1 and Note 19 to the Cambrex Corporation andSubsidiaries Consolidated Financial Statements with respect to various proceedings involving the Company in connection withenvironmental matters. The Company is party to a number of other proceedings also discussed in Note 19.Item 4 Submission of Matters to a Vote of Security HoldersNone(dollars in thousands, except share data)16 PART IIItem 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesThe Company’s common stock, $.10 par value is listed on the New York Stock Exchange (NYSE) under the symbol CBM. Thefollowing table sets forth the closing high and low sales price of the common stock as reported on the NYSE:2006 High Low First Quarter $22.11 $18.52 Second Quarter 21.62 18.89 Third Quarter 22.76 19.78 Fourth Quarter 24.22 20.38 2005 High Low First Quarter $26.22 $20.70 Second Quarter 21.20 17.51 Third Quarter 20.96 18.46 Fourth Quarter 19.41 16.88 As of February 20, 2007, the Company estimates that there were approximately 7,192 beneficial holders of the outstanding commonstock of the Company.The quarterly dividend on common stock was $0.03 for 2006 and 2005.2006 Equity Compensation TableThe following table provides information as of December 31, 2006 with respect to shares of common stock that may be issuedunder the Company’s existing equity compensation plans. Column (a) Column (b) Column (c) Number of securities remaining for future Number of securities issuance under to be issued upon Weighted average equity compensation exercise of exercise price of plans (excluding outstanding options, outstanding options, securities reflected Plan category warrants and rights warrants and rights in column (a)) Equity compensation plans approved by security holders 2,418,618 $28.12 507,385 Equity compensation plans not approved by security holders 344,775 $30.82 28,209 Total 2,763,393 $28.46 535,594 (dollars in thousands, except share data)17 Comparison of Five-Year Cumulative Total ReturnsThe following graph compares the Company’s cumulative total stockholder return for a five-year period, with a performanceindicator of the overall stock market, the S&P 500 Index, and the S&P 1500 Pharmaceutical and Biotechnology Index which theCompany believes more closely reflects its current businesses. Prices are as of December 31 of the year indicated.The Company’s commercial activities are focused on manufacturing and marketing to customers concentrated in the Life Sciences,including pharmaceutical chemicals and intermediates, and products in the Biosciences Industry. Although the Company’s products arediverse, making it difficult to select a comparative peer group, the Company believes that the S&P 1500 Pharmaceutical andBiotechnology Index is a good comparison group for the commercial activities on which it currently focuses. The S&P 1500Pharmaceutical and Biotechnology Index comprises 46 companies as of December 31, 2006.(dollars in thousands, except share data)18 Item 6 Selected Financial DataThe following selected consolidated financial data of the Company for each of the years in the five year period ended December 31,2006 are derived from the audited financial statements including all adjustments necessary for discontinued operations presentation. Theconsolidated financial statements of the Company as of December 31, 2006 and December 31, 2005 and for each of the years in the threeyear period ended December 31, 2006 and the report of independent registered public accounting firm thereon are included elsewhere inthis annual report. On November 10, 2003, the Company completed the sale of the Rutherford Chemicals business. On October 27,2006, the Company completed the sale of two businesses within the Human Health segment (See Note 20 to the consolidated financialstatements). As a result, the Rutherford Chemicals business and the results for the two businesses sold in 2006 are being reported asdiscontinued operations for all periods presented. The data presented below should be read in conjunction with the financial statements ofthe Company and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”included elsewhere herein. Years Ended December 31, 2006(1) 2005(2) 2004(3) 2003(4) 2002(5) INCOME DATA: Gross sales $452,255 $414,761 $395,906 $366,891 $362,480 Net revenues 455,474 418,470 401,128 372,732 367,814 Gross profit 171,349 160,125 164,086 155,559 172,437 Selling, general and administrative 117,312 103,258 97,774 92,005 83,573 Research and development 21,190 21,469 18,759 16,247 14,966 Impairment and other charges — 82,383 48,720 11,342 4,238 Operating profit/(loss) 32,847 (46,985) (1,167) 35,965 69,660 Interest expense, net 13,917 9,786 9,339 10,223 10,145 Other expense, net 1,454 47 112 112 8,181 Income/(loss) before income taxes 17,476 (56,818) (10,618) 25,630 51,334 Provision for income taxes 18,721 26,413 14,613 26,029 13,226 (Loss)/income from continuing operations (1,245) (83,231) (25,231) (399) 38,108 Loss from discontinued operations, net of tax (28,627) (27,227) (1,639) (53,664) (4,699)(Loss)/income before cumulative effect of a change inaccounting principle (29,872) (110,458) (26,870) (54,063) 33,409 Cumulative effect of a change in accounting principle (228) — — — — Net (loss)/income (30,100) (110,458) (26,870) (54,063) 33,409 EARNINGS PER SHARE DATA: (Loss)/earnings per common share (basic): (Loss)/income from continuing operations $(0.05) $(3.15) $(0.97) $(0.02) $1.47 Loss from discontinued operations, net of tax $(1.06) $(1.03) $(0.06) $(2.08) $(0.18)Cumulative effect of a change in accounting principle $(0.01) $— $— $— $— Net (loss)/income $(1.12) $(4.18) $(1.03) $(2.10) $1.29 (Loss)/earnings per common share (diluted): (Loss)/income from continuing operations $(0.05) $(3.15) $(0.97) $(0.02) $1.44 Loss from discontinued operations, net of tax $(1.06) $(1.03) $(0.06) $(2.08) $(0.18)Cumulative effect of a change in accounting principle $(0.01) $— $— $— $— Net (loss)/income $(1.12) $(4.18) $(1.03) $(2.10) $1.26 Weighted average shares outstanding: Basic 26,816 26,456 26,094 25,775 25,954 Diluted 26,816 26,456 26,094 25,775 26,520 (dollars in thousands, except share data)19 Years Ended December 31, 2006(1) 2005(2) 2004(3) 2003(4) 2002(5) DIVIDENDS PER COMMON SHARE $0.12 $0.12 $0.12 $0.12 $0.12 BALANCE SHEET DATA: (at end of period) Working capital $117,616 $139,207 $182,915 $138,458 $154,324 Total assets 606,376 612,472 791,985 778,503 835,283 Long-term obligations 162,371 186,819 226,187 212,369 265,945 Total stockholders’ equity 246,646 243,251 391,316 396,630 410,954 (1)Loss from continuing operations include pre-tax charges of $8,607 within administrative expenses for the costs related to theevaluation of strategic alternatives to enhance shareholder value, $1,791 within research and development expenses due to theacquisition of Cutanogen, $1,475 for the write-down of an investment in equity securities within other expense, $5,272 withininterest expense due to the pre-payment of a portion of the Company’s long-term debt and tax expense of $1,696 related to prioryears returns included in the provision for income taxes. Discontinued operations include the loss on sale of the Cork and Landenbusinesses of $23,244, $200 related to a Rutherford Chemicals environmental reserve and a goodwill impairment charge of$2,092.(2)Loss from continuing operations include pre-tax charges for goodwill impairment of $67,950 and long-lived asset impairmentcharge of $14,433 in the Biopharma segment. Results also include pre-tax charges for executive severance of $4,223 and anincrease in an environmental reserve of $1,300 recorded in operating expenses, and a tax benefit due to a favorable Swedish courtdecision of $3,329 and an increase in valuation allowances against domestic deferred tax assets totaling $16,926 within theprovision for income taxes. Discontinued operations include goodwill impairment of $8,435 and long-lived asset impairmentcharge of $16,359 and a tax benefit related to the long-lived asset impairment of $1,673.(3)Loss from continuing operations include a pre-tax charge of $48,720 for goodwill impairment related to the Biopharma segment.(4)Loss from continuing operations include a pre-tax charge of $11,342 recorded in operating expenses for the settlement of certainclass action lawsuits involving Mylan Laboratories and the establishment of valuation allowances against net domestic deferred taxassets totaling $21,487 within the provision for income taxes.(5)Income from continuing operations include a pre-tax charge of $4,238 for asset impairment and severance related to the closure of asmall manufacturing facility and a $7,344 pre-tax charge for investment impairments recorded in other expense.(dollars in thousands, except share data)20 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of OperationsExecutive OverviewThe Company’s business consists of three segments — Bioproducts, Biopharma and Human Health. The Bioproducts segmentconsists of research products and services and therapeutic applications. The Biopharma segment consists of the Company’sbiopharmaceutical process development and manufacturing business. The Human Health segment is primarily comprised of activepharmaceutical ingredients derived from organic chemistry and pharmaceutical intermediates.As part of the process of evaluating strategic alternatives to enhance shareholder value, on October 27, 2006, the sale of the Corkand Landen businesses, within the Human Health segment, was completed and accordingly, these businesses are being reported asdiscontinued operations in all periods presented.As part of the process of evaluating strategic alternatives to enhance shareholder value, on October 23, 2006, the Company enteredinto a definitive stock purchase agreement with Lonza Group AG for the sale of the businesses that comprise the Bioproducts andBiopharma segments (excluding certain liabilities) for total cash consideration of $460,000. This sale was completed on February 6,2007. The results of these two segments are reported as continuing operations in all periods presented. The Company will begin reportingthese segments as discontinued operations during the first quarter of 2007.With the divestiture of the Bioproducts and Biopharma segments, Cambrex will focus its efforts towards expanding its HumanHealth business. Continued expansion of the custom development pipeline, increased sales of products based on proprietary technology,and higher demand for generic APIs contributed to the 5.9% sales increase in this segment. With one of the broadest portfolios of productsand services in the API market, Human Health remains very profitable and represents a solid platform for future growth.The following significant events occurred during 2006 which affected results from continuing operations: • A charge of approximately $8,600 recorded within administrative expenses for the costs related to the evaluation of strategicalternatives to enhance shareholder value. • A $5,272 charge recorded within interest expense due to the pre-payment of a portion of the Company’s long-term debt. • A $1,791 charge recorded within research and development expenses due to the acquisition of Cutanogen. • A $1,475 charge for the write-down of an investment in equity securities.Sales in 2006 increased 9.0% to $452,255, including a 0.4% favorable impact resulting from foreign currency, from $414,761 in2005 due to higher sales in all segments.Gross margins in 2006 decreased to 37.9% from 38.6% in 2005 due to lower Human Health and Bioproducts margins resultingfrom increased production costs in the Human Health and Bioproducts segments and lower pricing within the Human Health segment,partially offset by higher margins in the Biopharma segment due to higher revenues. Foreign currency unfavorably impacted gross marginby 0.3% in 2006.A pharmaceutical company with which a long-term sales contract is in effect that is scheduled to expire at the end of 2008,accounted for 12.3% of Human Health sales. The Company is currently in negotiations to extend this contract to 2013 which, if theCompany elects to do so, will result in significantly lower profitability for sales under this arrangement in 2007 and 2008. There is noguarantee that this contract will be renewed.The Company recorded tax expense of $18,721 in 2006 compared to $26,413 in 2005. The tax provisions in 2006 and 2005 areprimarily affected by the non-recognition of tax benefits in the U.S. and certain foreign jurisdictions where losses are incurred and theCompany records valuation allowances against the benefits, the recording of tax expense for profitable non-U.S. entities and agreedincome tax audit adjustments in the U.S. and non U.S. entities.(dollars in thousands, except share data)21 The Company reported a loss from continuing operations of $1,245, or $0.05 per diluted share in 2006, compared to $83,231, or$3.15 per diluted share, in 2005.Critical Accounting PoliciesThe Company’s critical accounting policies are those that require the most subjective or complex judgments, often as a result of theneed to make estimates about the effect of matters that are inherently uncertain. The Company bases its estimates on historical experienceand on other various assumptions that are deemed reasonable by management under each applicable circumstance. Actual results oramounts could differ from estimates and the differences could have a material impact on the consolidated financial statements. Adiscussion of the Company’s critical accounting policies, the underlying judgments and uncertainties affecting their application and thelikelihood that materially different amounts would be reported under different conditions or using different assumptions, is as follows:Revenue RecognitionRevenues in the Bioproducts and Human Health segments are generally recognized when title to products and risk of loss aretransferred to customers. Certain contracts in the Bioproducts and Biopharma segments are based on time and materials and revenue forthese contracts is recognized as services are performed. Additional conditions for recognition of revenue are that collection of salesproceeds is reasonably assured and the Company has no further performance obligations.The Company has certain contracts that contain multiple deliverables, principally in the Biopharma and Bioproducts segments.These deliverables often include process development services and commercial production and are divided into separate units ofaccounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there isobjective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate unitsbased on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units.For contracts that contain milestone-based payments, the Company recognizes revenue using the proportional performance methodbased on the percentage of costs incurred relative to the total costs estimated to be incurred to complete the contract. Revenue recognitioncomputed under this methodology is compared to the amount of non-refundable cash payments received or contractually receivable at thereporting date and the lesser of the two amounts is recognized as revenue at each reporting date.The proportional performance methodology applied by the Company, utilizes an input based measure, specifically labor costs, todetermine proportional performance because the Company believes the use of an input measure is a reasonable surrogate of proportionalperformance compared to an output based measure, such as milestones.Amounts billed in advance are recorded as deferred revenue on the balance sheet. Since payments received are non-refundable, thetermination of a contract by a customer prior to its completion could result in an immediate recognition of deferred revenue relating topayments already received not previously recognized as revenue.Sales terms to certain customers include remittance of discounts if certain conditions are met. Additionally, sales are generally madewith a limited right of return under certain conditions. The Company estimates these rebates and estimated returns at the time of salebased on the terms of agreements with customers and historical experience and recognizes revenue net of these estimated costs which areclassified as allowances and rebates.Asset Valuations and Review for Potential ImpairmentsThe review of long-lived assets, principally fixed assets and other amortizable intangibles, requires the Company to estimate theundiscounted future cash flows generated from these assets whenever events or changes in circumstances indicate that the carrying valuemay not be fully recoverable. If undiscounted cash flows are less than carrying value, the long-lived assets are written down to fair value.(dollars in thousands, except share data)22 The review of the carrying value of goodwill and indefinite lived intangibles is done annually or whenever events or changes incircumstances indicate that the carrying value may not be fully recoverable utilizing a two-step process. In the first step, the fair value ofthe reporting units is determined using a discounted cash flow model and compared to the carrying value. If such analysis indicates thatimpairment may exist, the Company then estimates the fair value of the other assets and liabilities utilizing appraisals and discountedcash flow analyses to calculate an impairment charge.The determination of fair value is judgmental in nature and involves the use of significant estimates and assumptions, includingprojected future cash flows primarily based on operating plans, discount rates, determination of appropriate market comparables andperpetual growth rates. These estimates and assumptions could have a significant impact on whether or not an impairment charge isrecognized and the magnitude of any such charge.Environmental and Litigation ContingenciesThe Company periodically assesses the potential liabilities related to any lawsuits or claims brought against us. See Note 19 in theaccompanying financial statements for a discussion of our current environmental and litigation matters, reserves recorded and ourposition with respect to any related uncertainties. While it is typically very difficult to determine the timing and ultimate outcome of theseactions, the Company uses its best judgment to determine if it is probable that the Company will incur an expense related to a settlementfor such matters and whether a reasonable estimation of such probable loss, if any, can be made. If probable and estimable, the Companyaccrues for the costs of clean-up, settlements and legal fees. If the aggregate amount of the liability and the timing of the payment is fixedor reasonably determinable, the Company discounts the amount to reflect the time value of money. Given the inherent uncertainty relatedto the eventual outcome of litigation and environmental matters, it is possible that all or some of these matters may be resolved foramounts materially different from any provisions that the Company may have made with respect to their resolution.Income TaxesThe Company applies an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities arerecognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets andliabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The recoverability of deferred taxassets is dependent upon the Company’s assessment that it is more likely than not that sufficient future taxable income will be generatedin the relevant tax jurisdiction to utilize the deferred tax asset. In the event the Company determines that future taxable income will not besufficient to utilize the deferred tax asset, a valuation allowance is recorded. The Company’s valuation allowances primarily relate to netoperating loss carryforwards, foreign tax credits, and alternative minimum tax credits in the U.S., where profitability is uncertain and netoperating loss carryforwards in certain state and foreign jurisdictions with little or no history of generating taxable income or where futureprofitability is uncertain.Employee Benefit PlansThe Company provides a range of benefits to employees and retired employees, including pensions, post-retirement, postemployment and health care benefits. The Company records annual amounts relating to these plans based on calculations, which includevarious actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates, and health carecost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions basedon current rates and trends when it is deemed appropriate to do so. The effect of the modifications is generally recorded and amortizedover future periods. The Company believes that the assumptions utilized for recording obligations under its plans are reasonable.The discount rate used to measure pension liabilities and costs is selected by projecting cash flows associated with plan obligationswhich were matched to a yield curve of high quality bonds. The Company then selected the single rate that produces the same presentvalue as if each cash flow were discounted by the corresponding spot rate on the yield curve.(dollars in thousands, except share data)23 Results of OperationsThe following tables show the gross sales of the Company’s three segments, in dollars and as a percentage of the Company’s totalgross sales for the years ended December 31, 2006, 2005 and 2004, as well as the gross profit by product segment for 2006 and 2005. Years Ended December 31, 2006 2005 2004 Gross Sales Bioproducts $163,119 $149,498 $136,108 Biopharma 52,477 41,698 43,270 Human Health 236,659 223,565 216,528 Total Gross Sales $452,255 $414,761 $395,906 Total Net Revenues $455,474 $418,470 $401,128 Total Gross Profit $171,349 $160,125 $164,086 Gross Sales Distribution Bioproducts 36.1% 36.0% 34.4%Biopharma 11.6 10.1 10.9 Human Health 52.3 53.9 54.7 Total Gross Sales Distribution 100.0% 100.0% 100.0%2006-2005 Gross Sales & Gross Profit by Product Segment 2006 2005 Gross Gross Gross Gross Gross Gross Sales Profit Profit % Sales Profit Profit % Bioproducts $163,119 $84,350 51.7% $149,498 $77,908 52.1%Biopharma 52,477 3,236 6.2 41,698 (3,811) (9.1)Human Health 236,659 83,763 35.4 223,565 86,028 38.5 Total $452,255 $171,349 37.9% $414,761 $160,125 38.6%2006 Compared to 2005Gross sales for 2006 increased 9.0% to $452,255 from $414,761 in 2005. Sales in all segments increased compared to 2005.Gross sales were favorably impacted 0.4% due to exchange rates reflecting weakness in the U.S. dollar primarily versus the Euro andSwedish Krona.Gross profit in 2006 was $171,349 compared to $160,125 in 2005. Gross margins in 2006 decreased to 37.9% from 38.6% in2005. The reduced gross margins percentage reflects lower margins in the Human Health and Bioproducts segments partially offset byhigher margins in the Biopharma segment.(dollars in thousands, except share data)24 The following table shows gross sales by geographic area for the years ended December 31, 2006 and 2005: 2006 2005 North America $222,058 $196,970 Europe 202,261 191,155 Asia 17,963 17,958 Other 9,973 8,678 Total $452,255 $414,761 The Bioproducts Segment gross sales in 2006 of $163,119 were $13,621 or 9.1% above 2005. Bioproducts sales were favorablyimpacted 0.4% due to exchange rates reflecting a weaker U.S. dollar. The increased sales, before the impact of foreign currency, areprimarily due to higher sales in both the research products and therapeutics applications categories including cell therapy, rapid microbialdetection, cell biology, and molecular biology due to stronger demand, higher pricing and the addition of new customers.Bioproducts gross margins decreased to 51.7% in 2006 from 52.1% in 2005. The reduced margins are due primarily to increasedproduction costs partially offset by higher sales volume, increased pricing in most product categories and a favorable impact due toexchange rates.The Biopharma Segment gross sales in 2006 of $52,477 were $10,779 or 25.9% above 2005 reflecting higher suite and processdevelopment revenues partially offset by lower labor fees and reimbursed material revenue. Foreign currency had no impact on Biopharmasales.Biopharma gross margins increased to 6.2% in 2006 from (9.1%) in 2005. The improved margins are due primarily to higherrevenues partially offset by higher production costs.The Human Health Segment gross sales in 2006 of $236,659 increased $13,094 or 5.9% above 2005. Human Health sales werefavorably impacted 0.5% due to exchange rates reflecting a weaker U.S. dollar. The increase in sales is due mainly to stronger demand forcertain central nervous system and cardiovascular APIs, nicotine polacrilex resin (used in smoking cessation products) and higher salesof a diuretic API. These sales were partially offset by lower sales of a gastrointestinal API, feed additives and a pharmaceuticalintermediate used for end-stage kidney treatment. Increasing pricing pressures on APIs also negatively impacted sales.Human Health gross margins decreased to 35.4% in 2006 from 38.5% in 2005. The reduced margins are due primarily to higherproduction costs, lower pricing on certain APIs, and unfavorable impact of foreign currency partially offset by increased sales volumeand favorable product mix.Selling, general and administrative (“SG&A”) expenses of $117,312 or 25.9% of gross sales in 2006 increased from $103,258 or24.9% in 2005. Administrative expenses increased primarily due to costs associated with the strategic alternative process, higher legal andaudit fees, higher valuation of stock appreciation rights and the expensing of stock options partially offset by lower personnel costs.Research and development expenses of $21,190 were 4.7% of gross sales in 2006, compared to $21,469 or 5.2% of gross sales in2005. The decrease primarily reflects a reduction of Corporate personnel and lower labor costs partially offset by Cutanogen in processresearch and development costs of $1,791.Operating profit in 2006 was $32,847 compared to a loss of $46,985 in 2005. The 2006 results include strategic alternative costsof approximately $8,600 and Cutanogen in process research and development costs of $1,791. The 2005 results reflect impairmentcharges of $82,383, a charge for executive severance of $4,223 and a $1,300 charge for an environmental remediation reserve at a formersite. Excluding these charges, operating profit would have increased from 2005 by $2,324 but decreased 0.3% as a percentage of salesresulting from lower gross margins in the Human Health and Bioproducts segments.Net interest expense of $13,917 in 2006 increased $4,131 from 2005. The Company incurred costs of $5,272 associated with theprepayment of debt in 2006. Excluding this charge, net interest expense would have decreased(dollars in thousands, except share data)25 $1,141 primarily reflecting lower average debt partially offset by higher interest rates. The average interest rate was 5.8% and 5.5% in2006 and 2005, respectively.The Company recorded tax expense of $18,721 in 2006 compared to $26,413 in 2005. The tax expense for 2006 includes a$12,147 valuation allowance to offset benefits generated from U.S. tax losses and tax credits and losses in certain non-U.S. jurisdictions.These valuation allowances result from the Company’s recent history of domestic and certain foreign losses and its short-term projectionsfor losses from continuing operations in the relative jurisdictions. Since 2003, the Company has maintained a full valuation allowance onthe tax benefits arising from domestic pre-tax losses.The Company recorded tax expense of $26,413 in 2005. The tax expense for 2005 includes a $16,926 valuation allowance to writedown the carrying value of certain U.S. tax assets that had been previously preserved by tax strategies. This valuation allowance resultsfrom the Company’s recent history of domestic losses and its short-term projections for continued domestic losses.The Company will continue to record a full valuation allowance on its domestic net deferred tax assets and indefinite livedintangibles until an appropriate level of domestic profitability is sustained or tax strategies can be developed that would enable theCompany to conclude that it is more likely than not that a portion of the domestic net deferred assets would be realized. If the Companycontinues to report pre-tax losses in the United States, income tax benefits associated with those losses will not be recognized and,therefore, those losses would not be reduced by such income tax benefits. The carryforward periods for foreign tax credits, research andexperimentation tax credits, net operating losses, and the federal alternative minimum tax credits are 10 years, 20 years, 20 years and anindefinite period, respectively. As such, improvements in domestic pre-tax income in the future may result in these tax benefits ultimatelybeing realized. However, there is no assurance that such improvements will be achieved.Loss from continuing operations in 2006 was $1,245, or $0.05 per diluted share, versus $83,231, or $3.15 per diluted share in2005.2005 Compared to 2004Gross sales for 2005 increased 4.8% to $414,761 from $395,906 in 2004. Sales in the Bioproducts and Human Health segmentsincreased compared to 2004, more than offsetting the decrease in the Biopharma segment. Gross sales were unfavorably impacted 0.5%due to exchange rates reflecting strength in the U.S. dollar primarily versus the Euro and Swedish Krona.Gross profit in 2005 was $160,125 compared to $164,086 in 2004. Gross margin in 2005 decreased to 38.6% from 41.4% in2004, reflecting lower margins in all segments.The following table shows gross sales by geographic area for the years ended December 31, 2005 and 2004: 2005 2004 North America $196,970 $205,749 Europe 191,155 164,228 Asia 17,958 17,493 Other 8,678 8,436 Total $414,761 $395,906 The Bioproducts Segment gross sales in 2005 of $149,498 were $13,390 or 9.8% above 2004. Bioproducts sales wereunfavorably impacted 0.1% due to exchange rates reflecting a stronger U.S. dollar. The increased sales, before the impact of foreigncurrency, are primarily due to higher sales in both the research products and therapeutics applications categories including cell biology,cell therapy, rapid microbial detection, testing services, serum, media and assays due to stronger demand, higher pricing and the additionof new customers.(dollars in thousands, except share data)26 Bioproducts gross margins decreased to 52.1% in 2005 from 55.1% in 2004 due primarily to increased production labor to supportcurrent and future activity levels and higher utilities partially offset by higher sales volume and increased pricing in most productcategories.The Biopharma Segment gross sales in 2005 of $41,698 were $1,572 or 3.6% below 2004 reflecting lower suite and processdevelopment revenues partially offset by higher reimbursed materials and labor fees. Foreign currency had no impact on Biopharma sales.Biopharma gross margins decreased to (9.1%) in 2005 from 11.3% in 2004 due primarily to a higher percentage of revenues fromreimbursed materials which have virtually no profit margin, lower revenues and higher production costs.The Human Health Segment gross sales in 2005 of $223,565 increased $7,037 or 3.2% above 2004. Human Health sales wereunfavorably impacted 0.8% due to exchange rates reflecting a stronger U.S. dollar. The increase in sales is due mainly to stronger demandof a gastrointestinal API, nicotine polacrilex resin (used in smoking cessation products), a pharmaceutical intermediate used for end-stagekidney treatment and higher sales of a diuretic API. These sales were partially offset by lower sales of certain central nervous system andcardiovascular APIs due to increasing competition resulting in lower volumes sold and lower sales of a gastrointestinal API and cropadditive.Human Health gross margins decreased to 38.5% in 2005 from 38.9% in 2004 due primarily to higher production costs, lowerpricing on certain APIs, and unfavorable impact of foreign currency partially offset by favorable product mix and increased sales volume.Selling, general and administrative expenses of $103,258 or 24.9% of gross sales in 2005 increased from $97,774 or 24.7% in2004. Sales and marketing expenses increased primarily due to additional sales and marketing personnel within the Bioproducts segment.Higher administrative costs are primarily due to executive severance, increased personnel and higher environmental costs related to aformer site, partially offset by lower valuation of stock appreciation rights and legal expenses.Research and development expenses of $21,469 were 5.2% of gross sales in 2005, compared to $18,759 or 4.7% of gross sales in2004. The increase primarily reflects investments in new product technologies for pathogen testing and higher custom development costs.During the fourth quarter of 2005 the Company performed an impairment assessment of long-lived assets, which includesamortizable intangible assets as well as property, plant and equipment. As a result of lower long- term profitability projections, theCompany determined that the sum of the undiscounted expected future operating cash flows were less than the carrying value of therelated assets. The Company recorded an impairment charge for long-lived assets in the fourth quarter of $14,433 in the Biopharmasegment to write-down these assets to their fair value as determined primarily based on appraisals. During the performance of the annualgoodwill impairment test in the fourth quarter of 2005, the Company determined that the goodwill of two reporting units was impairedutilizing the steps as outlined in Critical Accounting Policies, “Asset Valuations and Review for Potential Impairments.” The goodwillimpairment charge recorded in the fourth quarter of 2005 was $67,950. The goodwill impairment charge is primarily due to lower longterm profitability projections due to current market factors. In the third quarter of 2004, the Company recorded an impairment charge of$48,720 to reduce the carrying value of goodwill in the Biopharma segment.Operating loss in 2005 was $46,985 compared to $1,167 in 2004. The results reflect lower gross margins in all segments andhigher operating expenses. In addition to the impairment charges, 2005 results include a charge for executive severance of $4,223 and a$1,300 charge for an environmental remediation reserve at a former site. The 2004 results include the $48,720 charge for the goodwillimpairment discussed above and $2,863 of income due to early termination of a Bioproducts customer contract.Net interest expense of $9,786 in 2005 increased $447 from 2004 mainly due to higher interest income in 2004 reflecting higher cashbalances accumulating interest. Average debt balance, year over year, was slightly lower in 2005, while the average interest rate was 5.5%in 2005 and 2004.(dollars in thousands, except share data)27 The Company recorded tax expense of $26,413 in 2005 compared to $14,613 in 2004. The tax expense for 2005 includes a$16,926 valuation allowance to write down the carrying value of certain U.S. tax assets that had been previously preserved by taxstrategies. This valuation allowance results from the Company’s recent history of domestic losses and its short-term projections forcontinued domestic losses. Since 2003, the Company has maintained a full valuation allowance on the tax benefits arising from domesticpre-tax losses. The majority of the 2004 tax expense represents taxes on international profits.The Company will continue to record a full valuation allowance on its domestic net deferred tax assets and indefinite livedintangibles until an appropriate level of domestic profitability is sustained or tax strategies can be developed that would enable theCompany to conclude that it is more likely than not that a portion of the domestic net deferred assets would be realized. If the Companycontinues to report pre-tax losses in the United States, income tax benefits associated with those losses will not be recognized and,therefore, those losses would not be reduced by such income tax benefits. The carryforward periods for foreign tax credits, research andexperimentation tax credits, net operating losses, and the federal alternative minimum tax credits are 10 years, 20 years, 20 years and anindefinite period, respectively. As such, improvements in domestic pre-tax income in the future may result in these tax benefits ultimatelybeing realized. However, there is no assurance that such improvements will be achieved.Loss from continuing operations in 2005 was $83,231 or $3.15 per diluted share, versus $25,231, or $0.97 per diluted share in2004.Liquidity and Capital ResourcesDuring 2006 cash and cash equivalents on hand decreased $11,596 to $33,746. The weaker U.S. dollar favorably impacted thetranslated cash balances by $3,629. During 2006, the Company generated cash flows from operations totaling $34,720, a decrease of$7,715 versus the same period a year ago. The decrease in cash flows generated from operations in 2006 versus 2005 is due primarily tothe timing of tax payments in 2006 compared to 2005.During 2005, the Company repatriated approximately $92,000 as a dividend from its foreign subsidiaries pursuant to the AmericanJobs Creation Act of 2004, approximately $36,000 drawn from the Company’s European-based credit facility, and the balance fromforeign subsidiary cash on hand.Cash flows used in investing activities in 2006 of $41,254 primarily include capital expenditures of $38,239 and acquired in-process research and development of $1,392. Capital expenditures for 2006 and 2005 primarily consisted of capital improvements toexisting facilities and a purification lab and new warehouse at a Human Health facility.Cash flows used in financing activities in 2006 of $8,691 include a net reduction of debt of $26,678 and dividends paid of$3,210 partially offset by proceeds from stock options exercised of $21,310. In 2005 the Company had a net reduction of debt of$39,210 and paid dividends of $3,176 which was partially offset by proceeds from stock options exercised of $3,906.In October 2005, the Company entered into a $277,500 five-year Syndicated Senior Revolving Credit Facility (“5-YearAgreement”), which expires in October 2010.The 5-Year Agreement allows the Company to choose among various interest rate options and to specify the portion of the borrowingto be covered by specific interest rates. Under the 5-Year Agreement the interest rate options available to the Company are the following:(i) LIBOR plus an applicable margin that ranges from .475% to .85%, (ii) higher of U.S. Prime Rate or Federal Funds Rate plus .5% or(iii) Money Market rate as quoted by the Administrative Agent of the Agreement. The applicable margin is based upon the ratio ofconsolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) (as defined inthe 5-Year Agreement, “Leverage Rates”). The Company also pays a facility fee between .15% to .275% on the entire credit facility whichis based upon the leverage ratio. The 5-Year Agreement is subject to financial covenants(dollars in thousands, except share data)28 requiring the Company to maintain certain levels of interest coverage ratio, leverage ratios and limitations on indebtedness. The Companycomplied with all covenants in this 5-Year Agreement during 2006.The 5-Year Agreement is collateralized by dividend and distribution rights associated with a pledge of a portion of stock that theCompany owns in a foreign holding company. This foreign holding company owns a majority of the Company’s non-U.S. operatingsubsidiaries.As of December 31, 2006, there was $158,600 outstanding and $118,900 undrawn under the 5-Year Agreement. Of the undrawnamount, $102,923 was available to be borrowed as of December 31, 2006 due to limits established in the 5-Year Agreement.The 2006 and 2005 weighted average interest rate for long-term bank debt was 5.8% and 5.5%, respectively.Contractual ObligationsAt December 31, 2006, our contractual obligations with initial or remaining terms in excess of one year were as follows: Total 2007 2008 2009 2010 2011+ Long term debt, including capital leases $163,871 $1,500 $1,674 $1,823 $158,874 $— Interest on debt 40,485 10,528 10,360 10,315 8,643 639 Operating leases 20,777 4,968 4,392 4,080 2,925 4,412 Purchase obligations 15,779 10,708 1,724 1,349 999 999 Mylan settlement 3,200 1,600 1,600 — — — Contractual cash obligations $244,112 $29,304 $19,750 $17,567 $171,441 $6,050 In addition to the contractual obligations listed above, the Company expects to contribute approximately $5,647 in cash to its twoU.S. defined-benefit pension plans and $434 in cash to its international pension plans in 2007.See Notes 10, 11, 18 and 21 for additional information regarding our debt and other commitments.On October 23, 2006, the Company entered into a definitive stock purchase agreement with Lonza Group AG for the sale of thebusinesses that comprise the Bioproducts and Biopharma segments (excluding certain liabilities) for total cash consideration of $460,000.The sale was completed on February 6, 2007 and the Company repaid the outstanding debt and retired the 5-Year Agreement. Assumingfinancing can be arranged under favorable terms at anticipated levels, the Company expects to distribute $13.50 to $14.50 per share as aspecial dividend to shareholders subsequent to arranging the financing.Management believes that existing sources of capital, together with cash flows from operations, will be sufficient to meet foreseeablecash flow requirements. A key to our access to liquidity is the maintenance of our long-term credit ratings and ability to meet debtcovenants to maintain certain levels of an interest coverage ratio and leverage ratio. The Company met all covenants related to the 5-YearAgreement during 2006. As discussed in Note 21, the Company completed the sale of the businesses that comprise the Bioproducts andBiopharma segments on February 6, 2007 for total consideration of $460,000 and repaid the outstanding debt and retired the 5-YearAgreement.Our forecasted cash flow from future operations may be adversely affected by various factors including, but not limited to, declinesin customer demand, increased competition, the deterioration in general economic and business conditions, as well as other factors. Seethe Risk Factors section of this document for further explanation of factors that may negatively impact our cash flows. Any change in thecurrent status of these factors could adversely impact the Company’s ability to fund operating cash flow requirements.(dollars in thousands, except share data)29 In connection with the sale of the Bioproducts and Biopharma businesses in February 2007, the Company will utilize domesticNOL’s and foreign tax credits for which a full valuation allowance was provided for at December 31, 2006. The NOL’s and foreign taxcredits will be utilized to reduce significantly all the domestic tax on this transaction. Additionally it is anticipated that any U.S. incometax related to the distribution from non-U.S. Bioproducts entities repatriated subsequent to sale of those entities in first quarter 2007 willbe offset by foreign tax credits.Market RisksIn the normal course of business, the Company uses a variety of techniques and instruments, including derivatives, as part of itsoverall risk management strategy to lower its exposure to market risks arising from adverse changes in interest rates and foreign currencyexchange rates.Currency Risk ManagementThe Company’s primary market risk relates to exposure to foreign currency exchange rate fluctuations on transactions entered intoby international operations which are primarily denominated in the U.S. dollar, Euro and Swedish krona. The Company currently usesforeign currency exchange forward contracts to mitigate the effect of short-term foreign exchange rate movements on the Company’soperating results. The notional amount of these contracts as of December 31, 2006 was $14,255. Unrealized foreign exchange contractlosses do not subject the Company’s actual results to risk as gains or losses on these contracts are undertaken to offset gains or losses onthe transactions that are hedged.With respect to the contracts outstanding at December 31, 2006, a 10% fluctuation of the local currency over a one-year periodwould cause $1,384 pre-tax earnings to be at risk. This is based on the notional amount of the contracts, adjusted for unrealized gainsand losses, of $13,841. These calculations do not include the impact of exchange gains or losses on the underlying positions that wouldoffset the gains and losses of the derivative instruments.Interest Rate ManagementAs of December 31, 2006, the Company had borrowings of $158,600 that were based on short-term variable interest rates in the5-Year Agreement.ContingenciesThe Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in theordinary course of its business activities. The Company continually assesses all known facts and circumstances as they pertain to alllegal and environmental matters and evaluates the need for reserves and disclosures as deemed necessary based on these facts andcircumstances and as such facts and circumstances develop. These matters, either individually or in the aggregate, could have a materialadverse effect on the Company’s financial condition, operating results and cash flows in a future reporting period.EnvironmentalIn connection with laws and regulations pertaining to the protection of the environment, the Company and/or its subsidiaries is aparty to several environmental proceedings and remediation investigations and cleanups and, along with other companies, has beennamed a potentially responsible party (“PRP”) for certain waste disposal sites (“Superfund sites”). Additionally, as discussed in the “Saleof Rutherford Chemicals” section of this Note, the Company has retained the liability for certain environmental proceedings, associatedwith the Rutherford Chemicals business. Each of these matters is subject to various uncertainties, and it is possible that some of thesematters will be decided unfavorably against the Company.The resolution of such matters often spans several years and frequently involves regulatory oversight or adjudication.(dollars in thousands, except share data)30 Additionally, many remediation requirements are not fixed and are likely to be affected by future technological, site, and regulatorydevelopments. Consequently, the ultimate extent of liabilities with respect to such matters, as well as the timing of cash disbursementscannot be determined with certainty.In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costsassociated with the study and remediation of Superfund sites not owned by the Company and the Company’s current and formeroperating sites. These accruals were $4,862 and $3,353 at December 31, 2006 and December 31, 2005, respectively. The increase in theaccrual is primarily due to an increase in the reserve for several of the Company’s former operating sites of $1,252, an increase in thereserve at a Company subsidiary with an offsetting receivable recorded in Other Assets of $887 and currency fluctuation of $119,partially offset by payments of $749. Based upon currently available information and analysis, the Company’s current accrualrepresents management’s best estimate of the probable and estimable costs associated with environmental proceedings including amountsfor legal and investigation fees where remediation costs may not be estimable at the reporting date.As a result of the sale of the Bayonne, New Jersey facility (see “Sale of Rutherford Chemicals” section of this Note), an obligation toinvestigate site conditions and conduct required remediation under the New Jersey Industrial Site Recovery Act was triggered and theCompany has retained the responsibility for such obligation. The Company completed a preliminary assessment of the site and submittedthe preliminary assessment to the New Jersey Department of Environmental Protection (“NJDEP”). The preliminary assessment identifiedpotential areas of concern based on historical operations and sampling of such areas commenced. The Company has completed a secondphase of sampling and determined that a third phase of sampling is necessary to determine the extent of contamination and any necessaryremediation. The results of the completed and proposed sampling, and any additional sampling deemed necessary, will be used to developan estimate of the Company’s future liability for remediation costs, if required. The Company submitted its plan for the third phase ofsampling to the NJDEP during the fourth quarter of 2005. The sampling will commence upon approval of the sampling plan. During2006 the Company increased reserves by $235 to cover currently anticipated investigation and minimum remediation costs related to thesite.In March 2000, the Company completed the acquisition of the Cambrex Profarmaco Landen facility in Belgium. At the time ofacquisition, Cambrex was aware of certain site contamination and recorded a reserve for the estimated costs of remediation. As discussedin Note 20, in October 2006, the Company completed the sale of the Landen facility and the obligation related to the remediation of thissite transferred to the new owner with the sale.The Company’s Cosan subsidiary conducted manufacturing operations in Clifton, New Jersey from 1968 until 1979. Prior to theacquisition by the Company, the operations were moved to another location and thereafter Cambrex purchased the business. In 1997,Cosan entered into an Administrative Consent Order with the NJDEP. Under the Administrative Consent Order, Cosan was required tocomplete an investigation of the extent of the contamination related to the Clifton site and conduct remediation as may be necessary. Duringthe third quarter of 2005, the Company completed the investigation related to the Clifton site, which extends to adjacent properties. Theresults of the investigation caused the Company to increase its related reserves by $1,300 in 2005 based on the proposed remedial actionplan. The Company submitted the results of the investigation and proposed remedial action plan to the NJDEP. In late 2006, the NJDEPrequested that an additional investigation be conducted at the site. The Company expects to complete such additional work during the nextseveral months.In February 2005, the New Jersey Federal District Court ruled that a lawsuit claiming property damages against Cosan by theowners of contaminated property adjacent to the Clifton location could be placed on the active calendar. To avoid the expense anduncertainty of trial, the parties have reached agreement to settle this matter. A reserve of $425 was recorded in March 2006. In July 2006,under the settlement, Cosan paid the property owner $425 and this matter is considered concluded.In March 2006, the Company received notice from the USEPA that two former operating subsidiaries are considered PRPs at theBerry’s Creek Superfund Site, Bergen County, New Jersey. The operating companies are among many other PRPs that were listed in thenotice. Pursuant to the notice, the PRPs have been asked to perform a(dollars in thousands, except share data)31 remedial investigation and feasibility study of the Berry’s Creek Site. The Company has met with the other PRPs. Both operatingcompanies joined the groups of PRPs and filed a joint response to the USEPA agreeing to jointly negotiate to conduct or fund (along withother PRPs) an appropriate remedial investigation and feasibility study of the Berry’s Creek Site. At this time it is too early to predict theextent of any liabilities. However, reserves have been established to cover anticipated initial costs related to the site.The Company is involved in other matters where the range of liability is not reasonably estimable at this time and it is notdeterminable when information will become available to provide a basis for recording an accrual, should an accrual ultimately berequired.Litigation and Other MattersMylan LaboratoriesIn 1998 the Company and its subsidiary Profarmaco S.r.l. (currently known as Cambrex Profarmaco Milano S.r.l.”)(“Profarmaco”) were named as defendants (along with Mylan Laboratories, Inc. (“Mylan”) and Gyma Laboratories of America, Inc.,Profarmaco’s distributor in the United States) in a proceeding instituted by the Federal Trade Commission (“FTC”) in the United StatesDistrict Court for the District of Columbia (the “District Court”). Suits were also commenced by several State Attorneys’ General. Thesuits alleged violations of the Federal Trade Commission Act arising from exclusive license agreements between Profarmaco and Mylancovering two APIs. The FTC and Attorneys’ General suits were settled in February 2001, with Mylan (on its own behalf and on behalf ofProfarmaco and Cambrex) agreeing to pay over $140,000 and with Mylan, Profarmaco and Cambrex agreeing to monitor certain futureconduct.The same parties including the Company and Profarmaco have also been named in purported class action complaints brought byprivate plaintiffs in various state courts on behalf of purchasers of the APIs in generic form, making allegations similar to those raised inthe FTC’s complaint and seeking various forms of relief including treble damages.In April 2003, Cambrex reached an agreement with Mylan under which Cambrex would contribute $12,415 to the settlement oflitigation brought by a class of direct purchasers. In exchange, Cambrex and Profarmaco received from Mylan a release and fullindemnity against future costs or liabilities in related litigation brought by purchasers, as well as potential future claims related to thismatter. Cambrex recorded an $11,342 charge (discounted to the present value due to the five year pay-out) in the first quarter of 2003 as aresult of this settlement. In accordance with the agreement $9,215 has been paid through December 31, 2006, with the remaining $3,200to be paid over the next two years.Vitamin B-3In May 1998, the Company’s subsidiary, Nepera, which formerly operated the Harriman facility and manufactured and soldniacinamide (“Vitamin B-3”), received a Federal Grand Jury subpoena for the production of documents relating to the pricing and possiblecustomer allocation with regard to that product. In 2000, Nepera reached agreement with the Government as to its alleged role in VitaminB-3 violations from 1992 to 1995. The Canadian government claimed similar violations. All government suits in the U.S. and Canadahave been concluded.Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalfof alleged purchasers of Vitamin B-3. The actions seek injunctive relief and unspecified but substantial damages. All cases have beensettled within established reserve amounts.Settlement documents are expected to be finalized and payments are expected to be made during the next several months. The balanceof the reserves recorded within accrued liabilities related to this matter was $1,582 as of December 31, 2006.(dollars in thousands, except share data)32 Sale of Rutherford ChemicalsThe Company completed the sale of its Rutherford Chemicals business in November 2003. Under the agreement for the sale(“Purchase Agreement”), the Company provided standard representations and warranties and included various covenants concerning thebusiness, operations, liabilities and financial condition of the Rutherford Chemicals business (“Rutherford Business”). Most of suchrepresentations and warranties survived for a period of thirty days after the preparation of the audited financial statements for year-end2004 by the purchasers of the Rutherford Business (“Buyers”). Therefore, claims for breaches of such representations had to be broughtduring such time frame. Certain specified representations, warranties and covenants, such as those relating to employee benefit mattersand certain environmental matters, survive for longer periods and claims under such representations, warranties and covenants could bebrought during such longer periods. Under the Purchase Agreement, the Company has indemnified the Buyer for breaches ofrepresentations, warranties and covenants. Indemnifications for certain but not all representations and warranties are subject to adeductible of $750 and a cap at 25 percent of the purchase price.Under the Purchase Agreement, the Company has retained the liabilities associated with existing general litigation matters related toRutherford Chemicals. With respect to certain pre-closing environmental matters, the Company retains the responsibility for: (i) certainexisting matters including violations, environmental testing for the New York facility incinerator and off-site liabilities; and(ii) completing the on-going remediation at the New York facility. Further, as a result of the sale of the Bayonne, New Jersey facilitywithin Rutherford Chemicals, and as discussed in the Environmental Section above, the obligation to investigate site conditions andconduct required remediation under the provisions of the New Jersey Industrial Site Recovery Act was triggered; and the Company hasretained the responsibility for completion of any such investigation and remediation. With respect to all other pre-closing environmentalliabilities, whether known or unknown, the Buyer is responsible for the management of potential future matters; however, the Buyer andthe Company may share the costs of associated remediation with respect to such potential future matters, subject to certain limitationsdefined in the agreement for sale. The Company has accrued for exposures which are deemed probable and estimable.In March 2005, the Company received a claim from the Buyers claiming breach of certain representations, warranties andcovenants contained in the Purchase Agreement. In April 2005, the Company responded rejecting the claim. Thereafter, the Buyerssubmitted an amended claim. The amended claim alleges breaches of representations, warranties and covenants covering each of the fiveoperating sites sold pursuant to the Purchase Agreement and are related primarily to facility structures, utilities and equipment and allegesdamages of $26,407. To the extent the alleged damages arise from breaches of representations and warranties, the claim would be subjectto a cap of between approximately $14,000 and $16,250, depending on whether certain contingent payments are made, and is subject tothe deductible of $750 which is the responsibility of the Buyers. In May 2005, the Company responded to the Buyers and rejected theclaim entirely.In September 2005, the Company received a request for indemnity (“September Notice”) from the Buyers related to an arbitrationclaim filed by a Rutherford Business customer (“Customer”). The arbitration claim arises from a claimed breach of a supply agreementthat was assigned to and assumed by the Buyers pursuant to the Purchase Agreement. Thereafter, the Company was also served with anarbitration claim by the Customer related to the same matter. In the arbitration claim, the Customer claims $30,000 in damages arisingfrom Buyers’ breach of the supply agreement. The Buyers have now settled the Customer arbitration claim for $1,500. The Buyersclaim that the September Notice amends the earlier claims that they filed in March and April 2005, as discussed above, and that theCustomer’s claimed breach of the supply agreement should be treated as part of a breach of a representation, warranty or covenant setforth in the earlier notices. The supply agreement was assigned to and assumed by the Buyers, and the Company has now beendismissed from the Customer’s arbitration claim. In October 2005, the Company rejected the Buyers’ claim for indemnity under theSeptember Notice in its entirety.In October 2005, the Company received a notice from the Buyers (“October Notice”) that summarized the claims previously receivedin March and April 2005, and included the Buyers’ response to the Company’s April and May rejection of the earlier notices. TheOctober Notice also set forth additional claims for environmental matters related to the Rutherford Business that relate to environmentalmatters at each of the five operating sites sold(dollars in thousands, except share data)33 pursuant to the Purchase Agreement. In December 2005, the Buyers added two additional environmental claims related to the formeroperating sites (“December Notices”). The Company has now responded to the October and December Notices disputing theenvironmental claims on various grounds, including that the Company believes most claims relate to Buyers’ obligations under thePurchase Agreement. The Company also requested additional information because some environmental claims may be covered by sectionsof the Purchase Agreement where the parties share liability concerning such matters.In April 2006, the Company received a summons and complaint (the “Complaint”) from the Buyers, which was filed in theSupreme Court of the State of New York, County of New York. The Complaint seeks indemnification, declaratory and injunctive relieffor alleged (i) breaches of representations, warranties and covenants covering each of the former operating sites related to facilitystructures, utilities and equipment included in the March, April and October Notices mentioned above and the allegedly related breach ofthe Customer Supply Agreement arising from a breach of warranty at the Harriman facility included in the September Notice mentionedabove (collectively “Equipment Matters”); and (ii) claims related to environmental matters at each of the five operating locations, most ofwhich related to the former Harriman location included in the October Notice and December Notices mentioned above (collectively“Environmental Matters”).The Company continues its evaluation of Buyers’ allegations and intends to defend itself against these claims vigorously. TheCompany continues to believe that the Equipment Matters are without merit. Further, the Company continues to believe that based oncurrent information the majority of the Environmental Matters are either the Buyers’ responsibility or without merit and the remaining areotherwise not reasonably estimable at this time. As such, the Company has recorded no reserves for this matter.Class Action MatterIn October 2003, the Company was notified of a securities class action lawsuit filed against Cambrex and five former and currentCompany officers. Five class action suits were filed with the New Jersey Federal District Court (the “Court”). Discovery in this matter isproceeding. In January 2004, the Court consolidated the cases, designated the lead plaintiff and selected counsel to represent the class. Anamended complaint was filed in March 2004. The lawsuit has been brought as a class action in the names of purchasers of theCompany’s common stock from October 21, 1998 through July 25, 2003. The complaint alleges that the Company failed to disclose ina timely fashion the January 2003 accounting restatement and subsequent SEC investigation, as well as the loss of a significant contractat the Baltimore facility.The Company filed a Motion to Dismiss in May 2004. Thereafter, the plaintiff filed a reply brief. In October 2005, the Court deniedthe Company’s Motion to Dismiss against the Company and two current Company officers. The Company has reached its deductibleunder its insurance policy and further costs, expenses and any settlement is expected to be paid by the Company’s insurers. TheCompany continues to believe that the complaints are without merit and will vigorously defend against them. As such, the Company hasrecorded no reserves related to this matter.Securities and Exchange CommissionThe SEC is currently conducting an investigation into the Company’s inter-company accounting procedures from the period 1997through 2001. The investigation began in the first half of 2003 after the Company voluntarily disclosed certain matters related to inter-company accounts for the five-year period ending December 31, 2001 that resulted in the restatement of the Company’s financialstatements for those years. To the Company’s knowledge, the investigation is limited to this inter-company accounting matter, and theCompany does not expect further revisions to its historical financial statements relating to these issues. The Company is fully cooperatingwith the SEC.Baltimore LitigationIn 2001, the Company acquired the biopharmaceutical manufacturing business in Baltimore (the “Baltimore Business”). The sellersof the Baltimore Business filed suit against the Company alleging that the Company made(dollars in thousands, except share data)34 false representations during the negotiations on which the sellers relied in deciding to sell the business and that the Company breached itsobligation to pay additional consideration as provided in the purchase agreement which was contingent on the performance of theBaltimore Business. Management believes the matter to be without merit and continues its defense of this matter. A decision on the Motionfor Summary Judgment filed by the Company in 2006 is pending.OtherThe Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiaryobligations to the Company’s lenders related to financial assurance obligations under certain environmental laws for remediation, closureand/or third party liability requirements of certain of its subsidiaries and a former operating location; contract provisions forindemnification protecting its customers and suppliers against third party liability for manufacture and sale of Company products thatfail to meet product warranties and contract provisions for indemnification protecting licensees against intellectual property infringementrelated to licensed Company technology or processes.Additionally, as permitted under Delaware law, the Company has agreements whereby we indemnify our officers and directors forcertain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The term of theindemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be requiredto make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that covers aportion of any potential exposure.The Company currently believes the estimated fair value of its indemnification agreements is not significant based on currentlyavailable information, and as such, the Company has no liabilities recorded for these agreements as of December 31, 2006.In addition to the matters identified above, Cambrex’s subsidiaries are party to a number of other proceedings.Impact of Recent Accounting PronouncementsStock Based CompensationThe Company adopted FAS 123(R) “Share-Based Payment,” effective January 1, 2006 using the modified prospective transitionmethod. Prior to January 1, 2006, the company accounted for those plans under the recognition and measurement provisions of APBOpinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation cost associated with stockoptions was recognized in the financial results for the years ended December 31, 2005 and 2004, as all the options granted under thoseplans had an exercise price equal to the market value of the underlying common stock on the date of grant. The year ended December 31,2006 does not include compensation cost for options granted prior to January 1, 2006 as all options outstanding prior to January 1, 2006were fully vested as of December 31, 2005. On December 31, 2006, the Company had seven active stock-based employee compensationplans. All stock options granted during 2006 vest 25% per year over four years and have a term of seven years. The Company also hadoutstanding at December 31, 2006 restricted stock as described below.Beginning January 1, 2006, the Company began recognizing compensation costs for stock option awards to employees based ontheir grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.The weighted-average fair value per share for the stock options granted to employees for the years ended December 31, 2006, 2005 and2004 were $8.00, $8.56 and $9.68, respectively.Stock option values were estimated using a 0.55% to 0.56% dividend yield, expected volatility of 36.49% to 38.28% and a risk-freeinterest rate of 4.42% to 4.96%. The Company’s stock options are not publicly traded; therefore, expected volatilities are based onhistorical volatility of the Company’s stock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whosematurity period approximates the option’s expected term. The expected term of 3.75 to 4.75 years was utilized based on the “simplified”method for determining the expected term of stock options in Staff Accounting Bulletin No. 107, “Share-Based Payment.” Assumptionsused in(dollars in thousands, except share data)35 estimating the fair value of stock options granted for the year ended December 31, 2006 are consistent with the assumptions used prior tothe adoption of FAS 123(R) with the exception of the expected life. As a result of using the “simplified” method, the expected life wasshortened by 1.25 years.FAS 123(R) requires companies to estimate the expected forfeitures for all unvested awards and record compensation costs only forthose awards that are expected to vest. As of December 31, 2006, the total compensation cost related to unvested stock option awardsgranted to employees but not yet recognized was $1,601. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 3.3 years.The amount of stock-based compensation costs related to stock options recorded for the year ended December 31, 2006 was $448.Diluted earnings per share changed by $0.02 in the year ended December 31, 2006 as a result of adopting FAS 123(R) on January 1,2006.Accounting for Uncertainty in Income TaxesIn June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertaintyin Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxpositions. This Interpretation requires that the Company recognize in the consolidated financial statements the impact of a tax position thatis more likely than not to be sustained upon examination based on the technical merits of the position. The provisions of FIN 48 will beeffective for Cambrex at the beginning of the Company’s 2007 fiscal year, with the cumulative effect of the change in accounting principlerecorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on theconsolidated financial statements.Fair Value MeasurementsIn September 2006, the FASB issued FASB Statement No. 157 “Fair Value Measurements” (“FAS 157”). This statement definesfair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. Thisstatement will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard doesnot expand the use of fair value to any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of thisstatement.Employers’ Accounting for Defined Benefit Pension and Other Postretirement PlansIn September 2006, the FASB issued FASB Statement No. 158 “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“FAS 158”) which is effective for fiscal yearsending after December 15, 2006. FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefitpostretirement plan as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which thechanges occur through comprehensive income. This statement does not impact the amounts recognized in the income statement. FAS 158will also require an employer to measure the funded status of a plan as of the date of the fiscal year end balance sheet. This measurementrequirement is effective for fiscal years ending after December 15, 2008.Based on the Company’s funded status of plan obligations disclosed in Note 15, the impact of adopting FAS 158 was a reductionto accumulated other comprehensive income of $7,464 ($7,088 net of tax) as of December 31, 2006, with no impact to the Company’sconsolidated statements of operations or cash flows. There will not be any affect on the Company’s financing agreements as none of thecurrent debt covenants were impacted.Accounting for Planned Major Maintenance ActivitiesIn September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1 “Accounting for Planned Major MaintenanceActivities”. This FSP amends certain provisions of APB Opinion No. 28 “Interim Financial Reporting”. This FSP prohibits the use of theaccrue-in-advance method of accounting for planned major(dollars in thousands, except share data)36 maintenance activities in annual and interim reporting periods. This FSP is effective for the first fiscal year beginning after December 15,2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year. This FSP should be applied retrospectively for allfinancial statements presented, unless it is impractical to do so. The Company expects the impact of this pronouncement to be immaterial.Amendment of FSP FAS 123(R)-1In October 2006, the FASB issued FSP 123(R)-5 “Amendment of FSP FAS 123(R)-1”. FSP 123(R)-5 applies to instruments thatwere originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely toreflect an equity restructuring that occurs when the holders are no longer employees, no change in the recognition or the measurement (dueto a change in classification) of those instruments will result if certain conditions are met. This FSP is effective for the first reportingperiod beginning after October 10, 2006 and should be applied retrospectively to prior periods. Earlier adoption is permitted in periods forwhich financial statements have not yet been issued. The Company is currently evaluating the impact of this pronouncement.Forward-Looking StatementsThis document may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of1995 and Rule 3b-6 under The Securities Exchange Act of 1934, including, without limitation, statements regarding expectedperformance, especially expectations with respect to sales, research and development expenditures, earnings per share, capitalexpenditures, acquisitions, divestitures, collaborations, or other expansion opportunities. These statements may be identified by the factthat they use words such as “expects,” “anticipates,” “intends,” “estimates,” “believes” or similar expressions in connection with anydiscussion of future financial and operating performance. Any forward-looking statements are qualified in their entirety by reference to thefactors discussed throughout this Form 10-K. Any forward-looking statements contained herein are based on current plans andexpectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from currentexpectations including, but not limited to, global economic trends, pharmaceutical outsourcing trends, competitive pricing or productdevelopments, government legislation and/or regulations (particularly environmental issues), tax rate, interest rate, technology,manufacturing and legal issues, changes in foreign exchange rates, performance of minority investments, uncollectable receivables, losson disposition of assets, cancellation or delays in renewal of contracts, lack of suitable raw materials or packaging materials, theCompany’s ability to receive regulatory approvals for its products, the outcome of the evaluation of strategic alternatives, the availabilityof financing on favorable terms in order to fund the portion of the special dividend that is not being funded from proceeds of the sale andwhether the Company’s estimates set forth in the definitive proxy statement filed January 4, 2007 with respect to its earnings and profitsutilized to calculate taxes on the Bio Businesses divestiture in 2007 will be correct, and other factors described under the caption “RiskFactors That May Affect Future Results” in this Form 10-K. Any forward-looking statement speaks only as of the date on which it ismade, and the Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of newinformation, future events or otherwise. New factors emerge from time to time and it is not possible for us to predict which will arise. Inaddition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, maycause actual results to differ materially from those contained in any forward-looking statements.Item 7a Quantitative and Qualitative Disclosures about Market RiskThe information required in this section can be found in the “Market Risks” section of Item 7 on page 30 of this Form 10-K.(dollars in thousands, except share data)37 Item 8 Financial Statements and Supplementary DataThe following consolidated financial statements and selected quarterly financial data of the Company are filed under this item: Page Number (in this Report)Report of Independent Registered Public Accounting Firm 39Consolidated Balance Sheets as of December 31, 2006 and 2005 41Consolidated Income Statements for the Years Ended December 31, 2006, 2005 and 2004 42Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004 43Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 44Notes to Consolidated Financial Statements 45Selected Quarterly Financial and Supplementary Data 86The consolidated financial statements and financial statement schedule are filed pursuant to Item 15 of this report.(dollars in thousands, except share data)38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofCambrex CorporationWe have completed integrated audits of Cambrex’s 2006 consolidated financial statements and of its internal control over financialreporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Our opinions, based on our audits, are presented below.Consolidated financial statements and financial statement schedulesIn our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all materialrespects, the financial position of Cambrex and its subsidiaries at December 31, 2006 and 2005, and the results of their operations andtheir cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying indexappearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with therelated consolidated financial statements. These financial statements and financial statement schedules are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedulesbased on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.As discussed in Notes 4 and 14 to the consolidated financial statements, in 2006 the Company changed the manner in which itaccounts for pension and other postretirement benefit plans and the manner in which it accounts for share-based compensation.Internal control over financial reportingAlso, in our opinion, management’s assessment, included Management’s Report on Internal Control Over Financial Reportingappearing under Item 9A, that Cambrex Corporation maintained effective internal control over financial reporting as of December 31,2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizationsof the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, theCompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based oncriteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible formaintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance withthe standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basisfor our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance39 with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ PRICEWATERHOUSECOOPERS LLPFlorham Park, NJMarch 15, 200740 CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(dollars in thousands, except share data) December 31, 2006 2005 ASSETSCurrent assets: Cash and cash equivalents $33,746 $45,342 Trade receivables, less allowances of $2,819 and $2,761 at respective dates 74,012 69,283 Inventories, net 94,601 81,080 Assets of discontinued operations — 18,913 Prepaid expenses and other current assets 22,391 14,908 Total current assets 224,750 229,526 Property, plant and equipment, net 227,024 201,784 Goodwill 98,046 94,420 Other intangible assets, net 50,163 51,183 Assets of discontinued operations — 29,574 Other assets 6,393 5,985 Total assets $606,376 $612,472 LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities: Accounts payable $42,246 $33,720 Accrued expense and other current liabilities 64,888 50,368 Liabilities of discontinued operations — 6,231 Total current liabilities 107,134 90,319 Long-term debt 162,371 186,819 Deferred tax liabilities 30,219 26,976 Liabilities of discontinued operations — 7,921 Accrued pension and postretirement benefits 43,644 35,656 Other non-current liabilities 16,362 21,530 Total liabilities 359,730 369,221 Commitments and contingencies (see Notes 18 and 19) Stockholders’ equity: Common Stock, $.10 par value; authorized 100,000,000 issued 30,145,319 and 29,118,141 shares atrespective dates 3,015 2,912 Additional paid-in capital 241,360 219,236 Retained earnings 28,860 62,170 Treasury stock, at cost, 2,446,097 and 2,443,313 shares at respective dates (20,832) (20,768)Deferred compensation — (2,131)Accumulated other comprehensive loss (5,757) (18,168)Total stockholders’ equity 246,646 243,251 Total liabilities and stockholders’ equity $606,376 $612,472 See accompanying notes to consolidated financial statements.41 CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS(dollars in thousands, except share data) Years Ended December 31, 2006 2005 2004 Gross Sales $452,255 $414,761 $395,906 Allowances and rebates 1,955 2,649 1,557 Net sales 450,300 412,112 394,349 Other revenues 5,174 6,358 6,779 Net revenues 455,474 418,470 401,128 Cost of goods sold 284,125 258,345 237,042 Gross profit 171,349 160,125 164,086 Selling, general and administrative expenses 117,312 103,258 97,774 Research and development expenses 21,190 21,469 18,759 Asset impairments — 82,383 48,720 Operating profit /(loss) 32,847 (46,985) (1,167)Other (income)/expenses Interest income (820) (1,066) (1,436)Interest expense 14,737 10,852 10,775 Other expenses — net 1,454 47 112 Income/(loss) before income taxes 17,476 (56,818) (10,618)Provision for income taxes 18,721 26,413 14,613 Loss from continuing operations $(1,245) $(83,231) $(25,231)Loss from discontinued operations, net of tax (28,627) (27,227) (1,639)Loss before cumulative effect of a change in accounting principle (29,872) (110,458) (26,870)Cumulative effect of a change in accounting principle (228) — — Net loss $(30,100) $(110,458) $(26,870)Basic loss per share Loss from continuing operations $(0.05) $(3.15) $(0.97)Loss from discontinued operations, net of tax $(1.06) $(1.03) $(0.06)Cumulative effect of a change in accounting principle $(0.01) $— $— Net loss $(1.12) $(4.18) $(1.03)Diluted loss per share Loss from continuing operations $(0.05) $(3.15) $(0.97)Loss from discontinued operations, net of tax $(1.06) $(1.03) $(0.06)Cumulative effect of a change in accounting principle $(0.01) $— $— Net loss $(1.12) $(4.18) $(1.03)Weighted average shares outstanding: Basic 26,816 26,456 26,094 Diluted 26,816 26,456 26,094 See accompanying notes to consolidated financial statements.42 CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(dollars in thousands, except share data) Accumulated Common Stock Additional Other Total Par Value Paid-In Retained Deferred Treasury Comprehensive Comprehensive Stockholders’ Shares Issued ($.10) Capital Earnings Compensation Stock Loss Income/(Loss) Equity Balance at December 31, 2003 28,471,652 $2,847 $206,256 $205,787 $(1,616) $(22,101) $5,457 $396,630 Comprehensive loss Net loss (26,870) (26,870) (26,870)Other comprehensive income/(loss) Foreign currency translation adjustments 20,224 Unrealized gains on hedging contracts, netof tax of $716 1,276 Minimum pension liability adjustment, netof tax of $513 (3,488) Unrealized gains on available for salemarketable securities, net of tax of $7 13 Other comprehensive income 18,025 18,025 18,025 Total comprehensive loss $(8,845) Cash dividends at $0.12 per share (3,113) (3,113)Purchase of treasury stock (219) (219)Exercise of stock options 353,951 36 6,248 6,284 Restricted stock 372 (366) 205 211 Other 244 124 368 Balance at December 31, 2004 $28,825,603 $2,883 $213,120 $175,804 $(1,982) $(21,991) $23,482 $391,316 Comprehensive loss Net loss (110,458) (110,458) (110,458)Other comprehensive income/(loss) Foreign currency translation adjustments (40,188) Unrealized losses on hedging contracts, netof tax of $883 (984) Minimum pension liability adjustment, netof tax of $217 (117) Unrealized losses on available for salemarketable securities, net of tax of $0 (361) Other comprehensive loss (41,650) (41,650) (41,650)Total comprehensive loss $(152,108) Cash dividends at $0.12 per share (3,176) (3,176)Purchase of treasury stock (75) (75)Exercise of stock options 292,538 29 3,877 3,906 Restricted stock 2,239 (149) 1,298 3,388 Balance at December 31, 2005 29,118,141 $2,912 $219,236 $62,170 $(2,131) $(20,768) $(18,168) $243,251 Comprehensive loss Net loss (30,100) (30,100) (30,100)Other comprehensive income/(loss) Foreign currency translation adjustments 14,443 Unrealized gains on hedging contracts, netof tax of $177 280 Pension liability, net of tax of $(20) 839 Unrealized losses on available for salemarketable securities, net of tax of $0 (10) Reclassification adjustment for loss onmarketable securities included in netearnings, net of tax of $0 1,475 Other comprehensive income 17,027 17,027 17,027 Total comprehensive loss $(13,073) Adjustment to initially apply FASB StatementNo. 158, net of tax of $376 (7,088) (7,088)Disposition of business — pension 2,472 2,472 Cash dividends at $0.12 per share (3,210) (3,210)Purchase of treasury stock (113) (113)Exercise of stock options 1,069,876 103 20,977 230 21,310 Deferred compensation 222 159 381 Stock options 448 448 Restricted stock 477 2,131 (340) 2,268 Balance at December 31, 2006 30,188,017 $3,015 $241,360 $28,860 $— $(20,832) $(5,757) $246,646 See accompanying notes to consolidated financial statements.43 CAMBREX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands) Years Ended December 31, 2006 2005 2004 Cash flows from operating activities: Net loss $(30,100) $(110,458) $(26,870)Adjustments to reconcile net loss to cash flows: Asset impairment charges — 82,383 48,720 Depreciation and amortization 31,466 33,072 35,333 Acquired in-process research and development 1,445 — — Stock based compensation included in net income 1,488 1,936 1,228 Write-off of debt origination fees 463 — — Deferred income tax provision 1,532 14,264 937 Allowance for doubtful accounts 962 873 (369)Inventory reserve 6,618 4,362 3,390 Loss on sale of assets 555 1,126 — Unrealized loss on marketable security 1,475 — — Changes in assets and liabilities: Trade receivables (2,175) (12,248) (5,399)Inventories (15,110) (16,995) (8,668)Prepaid expenses and other current assets (4,081) 11,707 1,088 Accounts payable and other current liabilities 12,092 9,939 4,094 Other non-current assets and liabilities 1,641 (2,513) (10,819)Discontinued operations: Loss on sale of businesses 23,244 — — Changes in operating assets and liabilities (2,335) (3,276) 1,014 Other non-cash charges 3,448 3,469 5,054 Writedown of assets 2,092 24,794 — Net cash provided from operating activities 34,720 42,435 48,733 Cash flows from investing activities: Capital expenditures (38,239) (37,187) (35,402)Acquisition of businesses (net of cash acquired) — (814) (5,256)Acquired in-process research and development (1,392) — — Divestiture of business, net of cash (636) — — Other investing activities (68) 1,482 223 Discontinued operations: Capital expenditures (919) (3,120) (4,078)Net cash used in investing activities (41,254) (39,639) (44,513)Cash flows from financing activities: Dividends (3,210) (3,176) (3,113)Long-term debt activity (including current portion): Borrowings 225,327 212,119 86,218 Repayments (252,005) (251,329) (72,708)Proceeds from stock options exercised 21,310 3,906 6,284 Purchase of treasury stock (113) (75) (219)Other — 20 212 Net cash (used in)/provided by financing activities (8,691) (38,535) 16,674 Effect of exchange rate changes on cash 3,629 (9,770) 6,295 Net (decrease)/increase in cash and cash equivalents (11,596) (45,509) 27,189 Cash and cash equivalents at beginning of year 45,342 90,851 63,662 Cash and cash equivalents at end of year $33,746 $45,342 $90,851 Supplemental disclosure: Interest paid, net of capitalized interest $13,613 $11,185 $11,848 Income taxes paid $16,690 $12,181 $20,182 See accompanying notes to consolidated financial statements.44 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data)(1) The CompanyCambrex Corporation and Subsidiaries (the “Company” or “Cambrex”) primarily provides products and services worldwide topharmaceutical and biopharmaceutical companies, generic drug companies, biotechnology companies and research organizations. TheCompany is dedicated to providing essential products and services to accelerate drug discovery, development and manufacturingprocesses for human therapeutics. The Company reports financial results in three segments: Bioproducts, consisting of research productsand therapeutic application products; Biopharma segment, consisting of contract biopharmaceutical process development andmanufacturing services; and Human Health segment, consisting of active pharmaceutical ingredients and pharmaceutical intermediatesproduced under Food and Drug Administration cGMP for use in the production of prescription and over-the-counter drug products andother fine custom chemicals derived from organic chemistry. As discussed in Note 20, on October 27, 2006 the sale of the Cork andLanden busineeses was completed and accordingly, these businesses are being reported as discontinued operations in all periodspresented.As discussed in Note 21, the sale of the businesses that comprise the Bioproducts and Biopharma segments was completed onFebruary 6, 2007. The results of these two segments are reported as continuing operations in all periods presented. The Company willbegin reporting these segments as discontinued operations during the first quarter of 2007.(2) Summary of Significant Accounting PoliciesBasis of PresentationIn October of 2006, the Company sold two businesses within the Human Health segment to a holding company controlled byInternational Chemical Investors II S.A. for nominal consideration. As a result of this transaction, the Company reported a non-cashcharge of $23,244 in the fourth quarter of 2006, and all periods presented reflect the results of these businesses as discontinuedoperations.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.Cash EquivalentsTemporary cash investments with an original maturity of less than three months are considered cash equivalents. The carryingamounts approximate fair value.Derivative InstrumentsDerivative financial instruments are used by the Company primarily for hedging purposes to mitigate a variety of working capital,investment and borrowing risks. The use and mix of hedging instruments can vary depending on business and economic conditions andmanagement’s risk assessments. The Company uses a variety of strategies, including foreign currency forward contracts and transactionhedging, to minimize or eliminate foreign currency exchange rate risk associated with foreign currency transactions. Gains and losses onthese hedging transactions are generally recorded in earnings in the same period as they are realized, which is usually the same period asthe settlement of the underlying transactions. The Company uses interest rate derivative instruments only as hedges or as an integral partof borrowings. As such, the differential to be paid or received in connection with these instruments is accrued and recognized in income asan adjustment to interest expense.The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk managementobjectives and strategies for undertaking various hedging relationships. All cash flow hedges45 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)are linked to transactions and the Company assesses effectiveness at inception and on a quarterly basis. If it is determined that aderivative instrument is not highly effective or the transaction is no longer deemed probable of occurring, the Company discontinueshedge accounting.InventoriesInventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. The determination of market valueinvolves assessment of numerous factors, including costs to dispose of inventory and estimated selling prices. Reserves are recorded toreduce carrying value for inventory determined to be damaged, obsolete or otherwise unsaleable.Property, Plant and EquipmentProperty, plant and equipment is stated at cost, net of accumulated depreciation. Plant and equipment are depreciated on a straight-line basis over the estimated useful lives for each applicable asset group as follows:Buildings and improvements 20 to 30 years, or term of lease if applicableMachinery and equipment 7 to 15 yearsFurniture and fixtures 5 to 7 yearsComputer hardware and software 3 to 7 yearsExpenditures for additions, major renewals or betterments are capitalized and expenditures for maintenance and repairs are chargedto income as incurred.When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, andany resulting gain or loss is reflected in operating expenses. Interest is capitalized in connection with the construction and acquisition ofassets. The capitalized interest is recorded as part of the cost of the asset to which it relates and is amortized over the asset’s estimateduseful life. Total interest capitalized in connection with ongoing construction activities in 2006, 2005 and 2004 amounted to $797, $683and $351, respectively.Intangible AssetsFinite-lived intangible assets are recorded at cost and amortized on a straight-line basis as follows:Patents Amortized over the remaining life of individual patentsProduct technology 5 to 18 yearsNon-compete agreements 5 yearsTrademarks and other up to 40 yearsImpairment of GoodwillThe Company reviews the carrying value of acquired intangible assets, including goodwill, to determine whether impairment mayexist on an annual basis or whenever it has reason to believe goodwill may not be recoverable. The annual impairment test of goodwill isperformed during the fourth quarter of each fiscal year.Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identifypotential impairment by comparing the fair value of each reporting unit, determined using various valuation techniques, with the primarytechnique being a discounted cash flow analysis, to its carrying value. A46 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about cash flows, growthrates and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-termplans. Discount rate assumptions are based on market participant comparables. If the fair value of a reporting unit exceeds its carryingamount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If thecarrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure theamount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’sgoodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value ofthat goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in thesame manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated toall of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of thereporting unit was the purchase price paid to acquire the reporting unit.The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangibleasset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in anamount equal to that excess.Impairment of Long-Lived AssetsThe Company assesses the impairment of its long-lived assets, including amortizable intangible assets, and property, plant andequipment, whenever economic events or changes in circumstances indicate that the carrying amounts of the assets may not berecoverable. Long lived assets are considered to be impaired when the sum of the undiscounted expected future operating cash flows is lessthan the carrying amounts of the related assets. If impaired, the assets are written down to fair market value.Revenue RecognitionRevenues in the Bioproducts and Human Health segments are generally recognized when title to products and risk of loss aretransferred to customers. Certain contracts in the Bioproducts and Biopharma segments are based on time and materials and revenue forthese contracts is recognized as services are performed. Additional conditions for recognition of revenue are that collection of salesproceeds is reasonably assured and the Company has no further performance obligations.The Company has certain contracts that contain multiple deliverables, principally in the Biopharma and Bioproducts segments.These deliverables often include process development services and commercial production and are divided into separate units ofaccounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there isobjective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate unitsbased on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units.For contracts that contain milestone-based payments, the Company recognizes revenue using the proportional performance methodbased on the percentage of costs incurred relative to the total costs estimated to be incurred to complete the contract. Revenue recognitioncomputed under this methodology is compared to the amount of non-refundable cash payments received or contractually receivable at thereporting date and the lesser of the two amounts is recognized as revenue at each reporting date.The proportional performance methodology applied by the Company, utilizes an input based measure, specifically labor costs, todetermine proportional performance because the Company believes the use of an input47 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)measure is a reasonable surrogate of proportional performance compared to an output based measure, such as milestones.Amounts billed in advance are recorded as deferred revenue on the balance sheet. Since payments received are non-refundable, thetermination of a contract by a customer prior to its completion could result in an immediate recognition of deferred revenue relating topayments already received not previously recognized as revenue.Sales terms to certain customers include remittance of discounts if certain conditions are met. Additionally, sales are generally madewith a limited right of return under certain conditions. The Company estimates these rebates and estimated returns at the time of salebased on the terms of agreements with customers and historical experience and recognizes revenue net of these estimated costs which areclassified as allowances and rebates.Income TaxesThe Company and its eligible subsidiaries file a consolidated U.S. income tax return. Certain subsidiaries which are consolidatedfor financial reporting are not eligible to be included in the consolidated U.S. income tax return. Cambrex has not provided U.S. federalincome and withholding taxes on its undistributed earnings from non-U.S. operations as of December 31, 2006 because it intends toreinvest such earnings indefinitely outside of the United States. If Cambrex were to distribute these earnings, it is anticipated that foreigntax credits will be available under current law to significantly reduce the resulting U.S. income tax liability. Determination of the amountof unrecognized deferred tax related to these earnings is not practical. At December 31, 2006, the cumulative amount of unremittedearnings of non-U.S. subsidiaries was approximately $44,000.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results coulddiffer from those estimates.Environmental CostsIn the ordinary course of business, the Company is subject to extensive and changing federal, state, local and foreign environmentallaws and regulations, and has made provisions for the estimated financial impact of environmental cleanup related costs. The Company’spolicy is to accrue environmental cleanup related costs of a non-capital nature, including estimated litigation costs, when those costs arebelieved to be probable and can be reasonably estimated. The quantification of environmental exposures requires an assessment of manyfactors, including changing laws and regulations, advancements in environmental technologies, the quality of information availablerelated to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediationor settlement. Such accruals are adjusted as further information develops or circumstances change. For certain matters, the Companyexpects to share costs with other parties. Costs of future expenditures for environmental remediation obligations are not discounted to theirpresent value unless the aggregate amount of the liability and the timing of cash payments are fixed or reasonably determinable. Recoveriesof environmental remediation costs from other parties are recorded as assets when their receipt is deemed certain.Foreign CurrencyThe functional currency of the Company’s foreign subsidiaries is the applicable local currency. The translation of the applicableforeign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet dateand for revenue and expense accounts and cash flows using average48 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)rates of exchange prevailing during the year. Adjustments resulting from the translation of foreign currency financial statements areaccumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses relating totransactions of a long-term investment nature are accumulated in stockholders’ equity. Gains or losses resulting from foreign currencytransactions are included in the results of operations as a component of other revenues in the consolidated income statement. Foreigncurrency net transaction (losses)/gains were ($561), $934 and $1,135 in 2006, 2005 and 2004, respectively.Earnings Per Common ShareAll diluted earnings per share are computed on the basis of the weighted average shares of common stock outstanding plus commonequivalent shares arising from the effect of dilutive stock options, using the treasury stock method.Earnings per share calculations are as follows: For the Years Ended, 2006 2005 2004 Net loss: Loss from continuing operations $(1,245) $(83,231) $(25,231)Loss from discontinued operations, net of tax (28,627) (27,227) (1,639)Cumulative effect of a change in accounting principle (228) — — Net loss $(30,100) $(110,458) $(26,870)Weighted average shares outstanding: Basic weighted average shares outstanding 26,816 26,456 26,094 Effect of dilutive stock options * — — — Diluted weighted average shares outstanding 26,816 26,456 26,094 Loss per share (basic): Loss from continuing operations $(0.05) $(3.15) $(0.97)Loss from discontinuing operations, net of tax $(1.06) $(1.03) $(0.06)Cumulative effect of a change in accounting principle $(0.01) $— $— Net loss $(1.12) $(4.18) $(1.03)Loss per share (diluted): Loss from continuing operations $(0.05) $(3.15) $(0.97)Loss from discontinued operations, net of tax $(1.06) $(1.03) $(0.06)Cumulative effect of a change in accounting principle $(0.01) $— $— Net loss $(1.12) $(4.18) $(1.03)*For 2006, 2005 and 2004, the effect of stock options would be anti-dilutive and is therefore excluded.For the year ended December 31, 2006, 2005 and 2004, 2,157,470, 3,317,847, and 2,083,716 shares respectively, were notincluded in the calculation of diluted shares outstanding because the effect would be anti-dilutive.49 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)Freight Billing and CostsThe Company bills a portion of freight cost incurred on shipments to customers. Freight costs are reflected in cost of goods sold.Amounts billed to customers are recorded within net revenues. The amounts billed to customers included within net revenues were$4,814, $4,335 and $4,350 in 2006, 2005 and 2004, respectively.Stock Based CompensationAt December 31, 2006, the Company has seven active stock-based employee compensation plans currently in effect, which aredescribed more fully in Note 14. During 2005 and 2004, the Company accounted for those plans under the recognition and measurementprinciples of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. No stock-based employeecompensation cost related to the stock option plans was reflected in net income in 2005 and 2004, as all options granted under those planshad an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates theeffect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 “Accounting forStock-Based Compensation” (“FAS 123”) as amended by FAS 148, “Accounting for Stock-Based Compensation”, to stock-basedemployee compensation. Years Ended December 31, 2005 2004 Net loss, as reported $(110,458) $(26,870)Add: stock based compensation expense included in reported net loss 1,936 1,228 Deduct: stock-based compensation expenses determined using fair value method 21,504 5,969 Pro forma net loss $(130,026) $(31,611)Loss per share: Basic — as reported $(4.18) $(1.03)Basic — pro forma $(4.91) $(1.21)Diluted — as reported $(4.18) $(1.03)Diluted — pro forma $(4.91) $(1.21)During 2005 all unvested options outstanding as well as all options granted during 2005 were fully vested by the CompensationCommittee of the Board of Directors. This represents approximately 2,650,000 options which resulted in the acceleration of pro formacompensation expense of $12,711 in 2005. The Company had imposed a holding period that would require all optionees to refrain fromselling shares acquired upon the exercise of these options until certain future dates. This holding period was lifted during the fourthquarter of 2006. The purpose of the accelerated vesting was to eliminate compensation expense in the income statement that the Companywould otherwise have recorded with respect to these accelerated options subsequent to the January 1, 2006 effective date of FAS 123(R).Due to this acceleration of stock options, the pro forma disclosures are not likely to be representative of the effects on reported net incomefor future periods.The pro forma compensation expense for 2005 and 2004 was calculated based on recognizing ratably over the vesting period the fairvalue of each option determined using the Black-Scholes option-pricing model for non-performance options and a path dependent modelfor performance options.50 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)The following assumptions were used in the Black-Scholes model to determine fair value on grant date of grants issued in 2005 and2004: 2005 2004 Expected volatility 41.20% 41.75%Average dividend yield 0.57% 0.55%Expected term 6 - 7 years 6 - 7 years Risk-free interst rate 2.75% - 4.47% 2.75% - 3.95%Marketable SecuritiesThe Company accounts for marketable securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities” (“FAS 115”). The Company determines the appropriate classification of all marketable securities asheld-to-maturity, available-for-sale or trading at the time of purchase, and re-evaluates such classification as of each balance sheet date. Asof December 31, 2006 and 2005, all of the Company’s marketable securities were classified as available-for-sale, and as a result, werereported at fair value. Unrealized gains and losses are reflected as a net amount under the caption of accumulated other comprehensiveincome/(loss) in stockholders’ equity. Realized gains and losses are recorded in other expenses. For purposes of computing gains orlosses, cost is identified on a specific identification basis. As of December 31, 2006 and 2005 the fair value of marketable securities was$1,495 and $375, respectively and the cost basis was $377 and $723, respectively. Unrealized gains of $1,331 and unrealized losses of$213 were recorded in accumulated other comprehensive income in 2006 compared to unrealized gains of $133 and unrealized losses of$481 in 2005.During the fourth quarter of 2006 an investment in equity securities that had an unrealized loss previously recorded in accumulatedother comprehensive income/(loss) was recorded as a charge to Other Expense for $1,475. The Company concluded that the continueddecline in market price of the equity securities was other than temporary.Comprehensive LossIncluded within accumulated other comprehensive income/(loss) for the Company are foreign currency translation adjustments,changes in the fair value related to derivative instruments classified as cash flow hedges, net of related tax benefit, unrealized gain onavailable for sales securities and changes in the pension liability, net of tax. Total comprehensive loss for the years ended 2006 and 2005is included in the Statements of Stockholders’ Equity.The components of accumulated other comprehensive income/(loss) in stockholders’ equity are as follows: 2006 2005 Foreign currency translation $7,359 $(7,084)Unrealized gain/(loss) on hedging contracts, net of tax 88 (192)Unrealized gain/(loss) on available for sale securities 1,117 (348)Minimum pension liability, net of tax — (10,544)Pensions, net of tax (14,321) — Total $(5,757) $(18,168)51 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(2) Summary of Significant Accounting Policies — (continued)Allocation of Interest to Discontinued OperationsInterest expense is allocated to discontinued operations based upon net assets consistent with EITF 87-24 “Allocations of Interest onDiscontinued Operations.”(3) AcquisitionsOn February 2, 2006, the Company acquired Cutanogen Corporation (“Cutanogen”) for a purchase price of $1,445 which waspaid at closing with additional purchase price payments of up to $4,800 subject to the achievement of certain regulatory and commercialmilestones. The Company expensed the purchase price payment and will continue to expense all additional payments prior to regulatoryapproval of the product as in-process research and development. At acquisition, Cutanogen was a development stage company, as it hadno long-lived assets, revenues or employees. The results are reported as part of the Bioproducts segment.(4) Impact of Recently Issued Accounting PronouncementsAccounting for Uncertainty in Income TaxesIn June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertaintyin Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxpositions. This Interpretation requires that the Company recognize in the consolidated financial statements the impact of a tax position thatis more likely than not to be sustained upon examination based on the technical merits of the position. The provisions of FIN 48 will beeffective for Cambrex at the beginning of the Company’s 2007 fiscal year, with the cumulative effect of the change in accounting principlerecorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on theconsolidated financial statements.Fair Value MeasurementsIn September 2006, the FASB issued FASB Statement No. 157 “Fair Value Measurements” (“FAS 157”). This statement definesfair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. Thisstatement will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard doesnot expand the use of fair value to any new circumstances. FAS 157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of thisstatement.Employers’ Accounting for Defined Benefit Pension and Other Postretirement PlansIn September 2006, the FASB issued FASB Statement No. 158 “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“FAS 158”) which is effective for fiscal yearsending after December 15, 2006. FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefitpostretirement plan as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which thechanges occur through comprehensive income. This statement does not impact the amounts recognized in the income statement. FAS 158will also require an employer to measure the funded status of a plan as of the date of the fiscal year end balance sheet. This measurementrequirement is effective for fiscal years ending after December 15, 2008.Based on the Company’s funded status of plan obligations disclosed in Note 15, the impact of adopting FAS 158 was a reductionto accumulated other comprehensive income of $7,464 ($7,088 net of tax) as of December 31, 2006, with no impact to the Company’sconsolidated statements of operations or cash flows. There52 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(4) Impact of Recently Issued Accounting Pronouncements — (continued)will not be any affect on the Company’s financing agreements as none of the current debt covenants will be impacted.Accounting for Planned Major Maintenance ActivitiesIn September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1 “Accounting for Planned Major MaintenanceActivities”. This FSP amends certain provisions of APB Opinion No. 28 “Interim Financial Reporting”. This FSP prohibits the use of theaccrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods. This FSP iseffective for the first fiscal year beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscalyear. This FSP should be applied retrospectively for all financial statements presented, unless it is impractical to do so. The Companyexpects the impact of this pronouncement to be immaterial.Amendment of FSP FAS 123(R)-1In October 2006, the FASB issued FSP 123(R)-5 “Amendment of FSP FAS 123(R)-1”. FSP 123(R)-5 applies to instruments thatwere originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely toreflect an equity restructuring that occurs when the holders are no longer employees, no change in the recognition or the measurement (dueto a change in classification) of those instruments will result if certain conditions are met. This FSP is effective for the first reportingperiod beginning after October 10, 2006 and should be applied retrospectively to prior periods. Earlier adoption is permitted in periods forwhich financial statements have not yet been issued. The Company is currently evaluating the impact of this pronouncement.(5) Goodwill and Intangible AssetsIn accordance with FAS 142, “Goodwill and Other Intangible Assets” the Company has established reporting units for purposes oftesting goodwill for impairment. Goodwill has been assigned to the reporting units to which the value of the goodwill relates. TheCompany evaluates goodwill and other intangible assets not subject to amortization at least on an annual basis and whenever events andchanges in circumstances suggest that the carrying amount may not be recoverable based on the estimated future cash flows.During the performance of the annual goodwill impairment test in the fourth quarter of 2005, the Company determined that thegoodwill of two reporting units was impaired. The Company tested for impairment and determined that the carrying value exceeded its fairvalue by using a discounted cash flow model. Management then computed the fair value of its tangible and intangible assets within theBiopharma segment for purposes of determining the implied fair value of goodwill. The goodwill impairment charge recorded in the fourthquarter of 2005 was $67,950 for the two reporting units in the Biopharma segment. The goodwill impairment charge is primarily due tolower long term profitability projections due to market factors. The Company also recorded a write-down of certain amortizable intangibleassets within the Biopharma segment as follows: product technology of $662, patents of $135 and license agreements of $55, due to thelower future cash flow projections. Additionally, in the third quarter of 2004, the Company recorded an impairment charge of $48,720 toreduce the carrying value of goodwill in the Biopharma segment.53 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(5) Goodwill and Intangible Assets — (continued)The changes in the carrying amount of goodwill for the years ended December 31, 2006 and 2005 are as follows: Human Bioproducts Biopharma Health Segment Segment Segment Total Balance as of January 1, 2005 $54,284 $76,618 $33,439 $164,341 Other, including purchase price adjustment 2,319 195 — 2,514 Translation effect (983) — (3,502) (4,485)Goodwill impairment — (67,950) — (67,950)Balance as of December 31, 2005 $55,620 $8,863 $29,937 $94,420 Translation effect 990 — 2,636 3,626 Balance at December 31, 2006 $56,610 $8,863 $32,573 $98,046 Other intangible assets that are not subject to amortization consist of the following: As of As of December 31, December 31, 2006 2005 Trademarks $33,898 $33,898 Proprietary Process 2,052 2,052 Total $35,950 $35,950 Intangible Assets:Other intangible assets, which will continue to be amortized, consist of the following: As of December 31, 2006 Gross Carrying Accumulated Net Carrying Amount Amortization Amount Product technology $13,232 $(5,381) $7,851 Patents 5,721 (2,108) 3,613 Supply agreements 2,110 (1,542) 568 License agreement 2,005 (586) 1,419 Other 2,203 (1,441) 762 Total $25,271 $(11,058) $14,213 54 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(5) Goodwill and Intangible Assets — (continued) As of December 31, 2005 Gross Carrying Accumulated Net Carrying Amount Amortization Amount Product technology $12,326 $(4,257) $8,069 Patents 5,264 (1,676) 3,588 Supply agreements 2,110 (1,152) 958 License agreement 2,005 (401) 1,604 Other 1,974 (960) 1,014 Total $23,679 $(8,446) $15,233 Amortization expense amounted to $2,159, $2,237 and $1,921 for the years ended December 31, 2006, 2005 and 2004,respectively.The expected future amortization expense related to current intangible assets is as follows:For the year ended December 31, 2007 $1,953 For the year ended December 31, 2008 $1,861 For the year ended December 31, 2009 $1,463 For the year ended December 31, 2010 $1,253 For the year ended December 31, 2011 $1,253 (6) Net InventoriesInventories are stated at the lower of cost, determined on a first-in, first-out basis, or market.Net inventories consist of the following: December 31, 2006 2005 Finished goods $48,186 $41,150 Work in process 22,107 21,588 Raw materials 21,364 15,852 Supplies 2,944 2,490 Total $94,601 $81,080 (7) Property, Plant and EquipmentDuring the fourth quarter of 2005 the Company performed an impairment assessment of long-lived assets, which includesamortizable intangible assets as well as property, plant and equipment. As a result of lower long term profitability projections, theCompany determined that the sum of the undiscounted expected future operating cash flows were less than the carrying value of certainlong-lived assets within the Biopharma segment. The Company recorded an impairment charge for long-lived assets in the fourth quarterof $13,581 in the Biopharma segment to write down these assets to their fair value as determined primarily based on appraisals.55 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(7) Property, Plant and Equipment — (continued)Property, plant and equipment consist of the following: December 31, 2006 2005 Land $6,865 $6,718 Buildings and improvements 144,730 122,967 Machinery and equipment 318,572 277,314 Furniture and fixtures 14,575 12,833 Construction in progress 35,951 29,857 Total 520,693 449,689 Accumulated depreciation (293,669) (247,905)Net $227,024 $201,784 Depreciation expense was $29,307, $30,835 and $33,412 for the years ended December 31, 2006, 2005 and 2004, respectively.(8) Accrued Expense and Other Current LiabilitiesThe components of accrued expenses and other current liabilities are as follows: Years Ended December 31, 2006 2005 Salaries and employee benefits payable $24,706 $19,559 Deferred revenue 6,011 8,978 Legal services 5,166 630 Advances from suppliers 4,967 4,293 Other 24,038 16,908 Total $64,888 $50,368 (9) Income TaxesIncome/(loss) before income taxes consist of the following: Years Ended December 31, 2006 2005 2004 Domestic $(29,406) $(98,203) $(60,058)International 46,882 41,385 49,440 Total $17,476 $(56,818) $(10,618)56 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(9) Income Taxes — (continued)The provision for income taxes consist of the following provisions/(benefits): Years Ended December 31, 2006 2005 2004 Current: Federal $680 $(2,424) $— State (116) 659 348 International 16,625 13,914 13,328 $17,189 $12,149 $13,676 Deferred: Federal $337 $17,238 $— State — (6) (17)International 1,195 (2,968) 954 1,532 14,264 937 Total $18,721 $26,413 $14,613 The provision for income taxes differs from the statutory federal income tax rate of 35% for 2006, 2005 and 2004 as follows: Years Ended December 31, 2006 2005 2004 Income tax provision/(benefit) at U.S. federal statutory rate $6,116 $(19,886) $(3,716)State and local taxes, net of federal income tax benefits 321 423 208 Effect of foreign income taxed at rates other than the U.S. federal statutory rate (1,241) (4,150) (3,021)Net change in valuation allowance 12,147 39,979 21,142 Reclassification from accumulated other comprehensive income — (2,368) — Indefinite-lived intangibles 337 16,926 — Adjustments for prior years’ taxes 1,257 (2,960) — Other (216) (1,551) — Total $18,721 $26,413 $14,613 57 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(9) Income Taxes — (continued)The components of deferred tax assets and liabilities as of December 31, 2006 and 2005 relate to temporary differences andcarryforwards as follows: December 31, 2006 2005 Current deferred tax assets: Inventory $2,377 $1,349 Receivables 454 493 Legal and related reserves 6,874 5,213 Other 4,010 3,169 Current deferred tax assets 13,715 10,224 Valuation allowances (12,758) (10,039)Total current deferred tax assets $957 $185 Current deferred tax liabilities: Other $559 $— Total current deferred tax liabilities $559 $— Non-current deferred tax assets: Foreign tax credits carryforwards $39,957 $31,698 Environmental 1,359 1,166 Net operating loss carryforwards (domestic) 30,660 33,223 Net operating loss carryforwards (foreign) 6,257 6,629 Employee benefits 7,851 5,790 Impairment of investment in securities 2,920 2,764 Research & experimentation tax credits carryforwards 4,022 5,629 Alternative minimum tax credits carryforwards 4,054 4,155 Fixed assets 8,687 2,775 Intangibles 13,858 16,755 Other 3,597 3,438 Non-current deferred tax assets 123,222 114,022 Valuation allowances* (113,898) (107,666)Total non-current deferred tax assets $9,324 $6,356 Non-current deferred tax liabilities: Fixed assets $12,867 $8,026 Intangibles 8,067 6,986 Indefinite-lived intangibles 17,263 16,926 Other 1,346 1,394 Total non-current deferred tax liabilities $39,543 $33,332 Total net non-current deferred tax liabilities $30,219 $26,976 *In addition to the effect of the domestic and foreign valuation allowances reflected in the current effective tax rate, the valuationallowance has changed due to agreed tax audit adjustments for prior year deferred tax amounts and currency translation adjustments.58 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(9) Income Taxes — (continued)The Company establishes a valuation allowance against deferred tax assets when it is more likely than not that the Company will beunable to realize those deferred tax assets in the future. Based on the Company’s current and past performance, cumulative losses inrecent years resulting from domestic operations, the market environment in which the Company operates, and the utilization of past taxattributes, the Company has established a valuation allowance of $123,423 against a portion of its domestic deferred tax assets. However,the Company has not recorded a valuation allowance against domestic tax assets which are offset by domestic deferred tax liabilities thatare expected to reverse in the future. In addition, the Company has recorded a valuation allowance against deferred tax assets relating todomestic indefinite lived intangible assets of $17,263 at December 31, 2006 that had been previously preserved by tax strategies prior toyear end 2005. This valuation allowance results from the Company’s recent history of domestic losses and increased uncertaintyregarding the timing and extent of a return to domestic profitability. With respect to the Company’s foreign deferred tax assets, theCompany has recorded a valuation allowance of $3,232 as of December 31, 2006.The Company expects to maintain a full valuation allowance against its net domestic deferred tax assets, subject to the considerationof all prudent and feasible tax planning strategies, until such time as the Company attains an appropriate level of future domesticprofitability and the Company is able to conclude that it is more likely than not that its domestic deferred tax assets are realizable. Thechange in the domestic valuation allowance for the years ended December 31, 2006 and 2005 was $7,811 and $39,934 respectively. Thechange in the foreign valuation allowance for the years ended December 31, 2006 and 2005 was $1,139 and $1,182, respectively.Under the tax laws of the various jurisdictions in which the Company operates, net operating losses (“NOLs”) may be carriedforward or back, subject to statutory limitations, to reduce taxable income in future or prior years. The domestic NOLs totalapproximately $86,220 and the foreign NOLs total approximately $18,392. The domestic NOLs will expire during the period from 2019through 2026. NOLs in foreign jurisdictions will carryforward indefinitely.As of December 31, 2006, approximately $39,957 of foreign tax credits, $4,022 of research & experimentation tax credits and$4,054 of alternative minimum tax credits were available as credits against future U.S. income taxes. Under the U.S. Internal RevenueCode, these will expire respectively 2007 through 2016, and, 2020 through 2026. The alternative minimum tax credit carryforwards haveno expiration date. All domestic credits are offset by a full valuation allowance.In 2005 the company adopted a Domestic Reinvestment Plan as described under Section 965 of the Internal Revenue Code andintroduced under the American Jobs Creation Act of 2004. The Company repatriated approximately $92,000, and as a result, reducedapproximately $13,000 of its deferred tax asset related to its U.S. NOL operating loss carryfoward with a corresponding adjustment to thevaluation allowance previously recorded against this asset. Additionally, $3,101 of foreign tax credits as allowed under Section 965 wereutilized.Cambrex has not provided U.S. federal income and withholding taxes on its undistributed earnings from non-US operations as ofDecember 31, 2006 because it intends to reinvest such earnings indefinitely outside of the United States. If Cambrex were to distributethese earnings, it is anticipated that foreign tax credits will be available under current law to significantly reduce the resulting U.S. incometax liability. Determination of the amount of unrecognized deferred tax related to these earnings is not practical.As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these auditsresult in proposed assessments. The Company believes that its positions comply with applicable law and intends to continue to defend itspositions. The Company believes that it has adequately provided for the estimated outcome related to these matters.59 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(10) Short-term DebtThe Company has lines of credit in Italy with local banks that provide three types of financing with the following limits: Overdraftprotection of approximately $8,200, export financing of approximately $4,000 and advances on uncleared deposits of approximately$300. The overdraft protection and export financing facilities bear interest at varying rates when utilized, however, advances on uncleareddeposits bear no interest. There was $137 outstanding as of December 31, 2006 and $43 outstanding as of December 31, 2005. The 2006and 2005 weighted average interest rates were 4.0% and 2.0%, respectively.(11) Long-term DebtLong-term debt consists of the following: December 31, 2006 2005 Bank credit facilities $158,600 $81,943 Senior notes — 100,000 Capitalized leases 4,675 6,056 Notes payable 596 291 Subtotal 163,871 188,290 Less: current portion 1,500 1,471 Total $162,371 $186,819 In October 2005, the Company entered into a $277,500 five-year Syndicated Senior Revolving Credit Facility (“5-YearAgreement”), which expires in October 2010.The 5-Year Agreement allows the Company to choose among various interest rate options and to specify the portion of the borrowingto be covered by specific interest rates. Under the 5-Year Agreement the interest rate options available to the Company are the following:(i) LIBOR plus an applicable margin that ranges from .475% to .85%, (ii) higher of U.S. Prime Rate or Federal Funds Rate plus .5% or(iii) Money Market rate as quoted by the Administrative Agent of the Agreement. The applicable margin is based upon the ratio ofconsolidated funded indebtedness to consolidated EBITDA (as defined in the 5-Year Agreement, “Leverage Rate”). The Company alsopays a facility fee between .15% to .275% on the entire credit facility which is based upon the leverage ratio. The 5-Year Agreement issubject to financial covenants requiring the Company to maintain certain levels of interest coverage ratio, leverage ratios and limitations onindebtedness. The Company complied with all covenants in this 5-Year Agreement during 2006.The 5-Year Agreement is collateralized by dividend and distribution rights associated with a pledge of a portion of stock that theCompany owns in a foreign holding company. This foreign holding company owns a majority of the Company’s non-U.S. operatingsubsidiaries. As of December 31, 2006, there was $158,600 outstanding and $118,900 undrawn under the 5-Year Agreement. Of theundrawn amount, $102,923 was available to be borrowed as of December 31, 2006 due to limits established in the 5-Year Agreement.See Note 21 for a discussion on the payoff of the credit facility.As of December 31, 2005, the Company had outstanding two Senior notes, a $75,000 7-year note due in June 2010 with a rate of5.31%, and a $25,000 10-year note due in October 2013 with an annual rate of 7.05%. These Senior notes ranked equal with theCompany’s 5-Year Agreement. On January 27, 2006, the Company elected to prepay these Senior notes with funds provided byborrowing under the 5-Year Agreement. Approximately $5,272 was recorded in interest expense in the first quarter of 2006 related to amake whole payment of $4,809 paid to the60 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(11) Long-term Debt — (continued)Senior note holders concurrent with the January 27, 2006 payment, and the related acceleration of $463 of unamortized origination fees.Capital leases outstanding as of December 31, 2006 are for building, building improvements and equipment. These leases runthrough 2010 with the majority running through 2009. All capital leases are collateralized by their underlying assets.The 2006 and 2005 weighted average interest rate for long-term bank debt was 5.8% and 5.5%, respectively.Aggregate maturities of long-term debt are as follows:2007 $1,500 2008 1,674 2009 1,823 2010 158,874 2011 — Thereafter — Total $163,871 (12) Derivatives and Fair Value of Financial InstrumentsThe Company uses derivative financial instruments to reduce exposures to market risks resulting from fluctuations in interest ratesand foreign exchange rates. The Company is exposed to credit loss in the event of nonperformance by the counter parties to the contracts.However, the Company does not anticipate non-performance by the counterparties.The Company’s policy is to enter into forward exchange contracts or currency options to hedge foreign currency transactions. Thishedging strategy mitigates the impact of short-term foreign exchange rate movements on the Company’s operating results primarily inSweden, Belgium, and Italy. The Company’s primary market risk relates to exposures to foreign currency exchange rate fluctuations ontransactions entered into by these international operations that are denominated primarily in U.S. dollars, Swedish krona, and Euros. Asa matter of policy, the Company does not hedge to protect the translated results of foreign operations.The Company’s forward exchange contracts substantially offset gains and losses on the transactions being hedged. The forwardexchange contracts have varying maturities with none exceeding twelve months. The Company makes net settlements for forwardexchange contracts at maturity, based upon negotiated rates at inception of the contracts.All forward contracts outstanding at December 31, 2006 have been designated as cash flow hedges and, accordingly, changes in thefair value of derivatives are recorded each period in accumulated other comprehensive income. Changes in the fair value of the derivativeinstruments reported in accumulated other comprehensive income will be reclassified into earnings in the period in which earnings areimpacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges is recognized in current-periodearnings and is immaterial to the Company’s financial results. The unrealized net gain recorded in accumulated other comprehensiveincome at December 31, 2006 was $88. This amount will be reclassified into earnings as the underlying forecasted transactions occur.The net gain recognized in earnings related to foreign currency forward contracts during the twelve months ended December 31, 2006 was$104.61 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(12) Derivatives and Fair Value of Financial Instruments — (continued)The table below reflects the notional and fair value amounts of foreign exchange contracts at December 31, 2006 and 2005. 2006 2005 Notional Fair Notional Fair Amounts Value Amounts Value Forward exchange contracts $14,255 $292 $16,741 $(166)The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, and accountspayable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount forshort-term and long-term debt approximates fair value because all of this underlying debt is at variable rates.(13) Stockholders’ EquityThe Company has two classes of common shares which are Common Stock and Nonvoting Common Stock. Authorized shares ofCommon Stock were 100,000,000 at December 31, 2006 and 2005. Authorized shares of Nonvoting Common Stock were 730,746 atDecember 31, 2006 and 2005. Nonvoting Common Stock with a par value of $.10, has equal rights with Common Stock, with theexception of voting power. Nonvoting Common Stock is convertible, share for share, into Common Stock, subject to any legalrequirements applicable to holders restricting the extent to which they may own voting stock. As of December 31, 2006 and 2005, noshares of Nonvoting Common Stock were outstanding. The Company has authorized 5,000,000 shares of Series Preferred Stock, parvalue $.10, issuable in series and with rights, powers and preferences as may be fixed by the Board of Directors. At December 31, 2006and 2005, there was no preferred stock outstanding.The Company held treasury stock of 2,446,097 and 2,443,313 shares at December 31, 2006 and 2005, respectively, which areprimarily used for issuance to employee benefit plans.At December 31, 2006 there were 535,594 of authorized shares of Common Stock reserved for issuance for stock option plans.(14) Stock based CompensationThe Company adopted FAS 123(R) “Share-Based Payment,” effective January 1, 2006 using the modified prospective transitionmethod. Prior to January 1, 2006, the company accounted for those plans under the recognition and measurement provisions of APBOpinion No. 25, “Accounting for Stock Issued to Employees”. No stock-based employee compensation cost associated with stockoptions was recognized in the financial results for the years ended December 31, 2005 and 2004, as all the options granted under thoseplans had an exercise price equal to the market value of the underlying common stock on the date of grant. The year ended December 31,2006 does not include compensation cost for options granted prior to January 1, 2006 as all options outstanding prior to January 1, 2006were fully vested as of December 31, 2005. On December 31, 2006, the Company had seven active stock-based employee compensationplans. All stock options granted during 2006 vest 25% per year over four years and have a term of seven years. The Company also hadoutstanding at December 31, 2006 restricted stock as described below.Beginning January 1, 2006, the Company began recognizing compensation costs for stock option awards to employees based ontheir grant-date fair value. The value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model.The weighted-average fair value per share for the stock options granted to employees for the years ended December 31, 2006, 2005 and2004 were $8.00, $8.56 and $9.68, respectively.62 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(14) Stock based Compensation — (continued)Stock option values were estimated using a 0.55% to 0.56% dividend yield, expected volatility of 36.49% to 38.28% and a risk-freeinterest rate of 4.42% to 4.96%. The Company’s stock options are not publicly traded; therefore, expected volatilities are based onhistorical volatility of the Company’s stock. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whosematurity period approximates the option’s expected term. The expected term of 3.75 to 4.75 years was utilized based on the “simplified”method for determining the expected term of stock options in Staff Accounting Bulletin No. 107, “Share-Based Payment.” Assumptionsused in estimating the fair value of stock options granted for the year ended December 31, 2006 are consistent with the assumptions usedprior to the adoption of FAS 123(R) with the exception of the expected life. As a result of using the “simplified” method, the expected lifewas shortened by 1.25 years.FAS 123(R) requires companies to estimate the expected forfeitures for all unvested awards and record compensation costs only forthose awards that are expected to vest. As of December 31, 2006, the total compensation cost related to unvested stock option awardsgranted to employees but not yet recognized was $1,601. The cost will be amortized on a straight-line basis over the remaining weighted-average vesting period of 3.3 years.The amount of stock-based compensation costs related to stock options recorded for the year ended December 31, 2006 was $448.Diluted earnings per share changed by $0.02 in the year ended December 31, 2006 as a result of adopting FAS 123(R) on January 1,2006.Cambrex senior executives participate in a long-term incentive plan which rewards achievement of long-term strategic goals withrestricted stock units. Awards are made annually to key executives and vest in one-third increments on the first, second and thirdanniversaries of the grant. On the third anniversary of the grant, restrictions on sale or transfer are removed and shares are issued toexecutives. In the event of termination of employment or retirement, the participant is entitled to the vested portion of the restricted stockunits and forfeits the remaining amount; the three-year sale and transfer restriction remains in place. For certain employees withemployment contracts, all shares vest upon certain events, including a change in control. In the event of death or permanent disability, allshares vest and the deferred sales restriction lapses. These awards are classified as equity awards as defined in FAS 123(R). Historically,only senior executives participated in this plan. As of January 1, 2006, certain other employees are eligible to receive restricted stock aspart of a redesigned stock-based compensation plan. These awards cliff vest on the third anniversary of the grant date. For the yearsended December 31, 2006, 2005 and 2004, the Company recorded $1,040, $892 and $725, respectively, in compensation expense forthis plan. In addition, the Company recorded $2,214 and $227 in compensation expense in 2005 and 2004, respectively, for restrictedstock in accordance with the former CEO’s sign-on agreement. As of December 31, 2006, the total compensation cost related to unvestedrestricted stock granted but not yet recognized was $2,553. The cost will be amortized on a straight-line basis over the remainingweighted-average vesting period of 1.7 years.At December 31, 2005, the Company had outstanding 150,000 fully-vested cash-settled incentive SARs at a price of $19.30. TheseSARs were classified as liability awards and, as such, were recorded at fair value until the rights were exercised during the fourth quarterof 2006. For the year ended December 31, 2006 the Company recorded $269 in compensation expense. For the years ended December 31,2005 and 2004 the Company recorded the SAR’s at intrinsic value, which resulted in a $1,170 reversal of compensation expense in 2005and $276 of compensation expense in 2004. Under FAS 123(R), the Company is required to measure the SARs at fair market value.Prior to adopting FAS 123(R), the SARs were measured at the intrinsic value. The Company also recorded $228 in compensation expenseas a cumulative effect of a change in accounting principle in accordance with FAS 123(R) in 2006.63 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(14) Stock based Compensation — (continued)Shares of Common Stock subject to outstanding options under the stock option plans were as follows: Options Outstanding Options Exercisable Weighted Average Weighted Remaining Average Authorized Number of Option Price Contractual Exercise Number of Exercise for Issuance Shares per Share Life (yrs) Price Shares Price 1994 Plan 300,000 14,000 $ 26.67 4.31 $26.67 14,000 $26.67 1996 Plan 3,000,000 126,000 17.31 – 25.16 2.81 20.95 125,250 20.94 169,148 26.00 – 37.07 3.36 30.71 169,148 30.71 257,434 40.50 – 43.63 3.56 43.12 257,434 43.12 1998 Plan 1,180,000 296,985 18.75 – 27.56 2.37 22.57 252,400 22.78 137,839 34.75 – 43.63 3.55 41.50 137,839 41.50 2000 Plan 500,000 195,775 20.28 – 21.71 5.93 21.03 103,900 20.72 149,000 34.75 – 46.85 3.65 43.68 149,000 43.68 2001 Plan 750,000 182,130 18.68 – 25.88 1.55 24.69 162,055 25.10 422,112 29.75 – 42.87 3.97 33.54 422,112 33.54 8,582 46.85 4.57 46.85 8,582 46.85 2003 Plan 500,000 224,038 18.68 – 25.56 4.74 20.37 144,371 19.81 2004 Plan 1,500,000 580,350 18.15 – 21.90 3.86 21.80 580,350 21.80 7,730,000 2,763,393 $17.31 – $46.85 $28.46 2,526,441 $29.12 The following table is a summary of the Company’s stock option activity issued to employees and related information: Weighted Average Number of Options Shares Exercise Price Exercisable Outstanding at December 31, 2003 3,702,865 $28.62 1,867,331 Granted 1,029,350 22.08 Exercised (353,951) 17.48 Forfeited or expired (428,407) 35.76 Outstanding at December 31, 2004 3,949,857 27.07 1,787,967 Granted 653,033 20.07 Exercised (292,538) 13.32 Forfeited or expired (296,705) 31.45 Outstanding at December 31, 2005 4,013,647 26.60 4,013,647 Granted 249,367 21.39 Exercised (1,069,876) 19.91 Forfeited or expired (429,745) 28.26 Outstanding at December 31, 2006 2,763,393 28.46 Exercisable at December 31, 2006 $29.12 2,526,441 64 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(14) Stock based Compensation — (continued)The aggregate intrinsic value for all stock options exercised for the years ended December 31, 2006, 2005 and 2004 were $2,684,$1,701 and $3,139, respectively. The aggregate intrinsic value for all stock options outstanding as of December 31, 2006 was $2,025.The aggregate intrinsic value for all stock options exercisable as of December 31, 2006 was $1,710. Weighted- Number of Average Grant- Nonvested Stock Options Shares Date Fair Value Nonvested at January 1, 2006 — Granted 249,367 $21.39 Forfeited (12,415) $21.39 Nonvested at December 31, 2006 236,952 $21.39 A summary of the Company’s nonvested restricted stock as of December 31, 2006 and changes during the year ended December 31,2006, are presented below: Weighted- Number of Average Grant- Nonvested Restricted Stock Shares Date Fair Value Nonvested at January 1, 2006 69,756 $24.30 Granted 153,838 21.52 Vested during period (30,306) 24.64 Forfeited (27,420) 22.11 Nonvested at December 31, 2006 165,868 $22.02 (15) Retirement Plans and Other Postretirement BenefitsThe Company adopted FAS 158 for the year ended December 31, 2006. FAS 158 requires an employer to recognize the overfundedor underfunded status of each pension and other postretirement benefit plan as an asset (for overfunded plans) or a liability (forunderfunded plans) in the balance sheet replacing the accrued or prepaid asset currently recorded and reversing any amounts previouslyrecorded with respect to any additional minimum pension liability. Shareholders’ Equity and Accumulated Other Comprehensive Incomechanged due to the change in the additional minimum liability that would have been recognized at December 31, 2006, and theincremental effect of adopting FAS 158. The adoption of FAS 158 resulted in an increase in non-current liabilities of $12,211, a decreasein current liabilities of $5,291, a decrease in accumulated other comprehensive income of $7,464 ($7,088 net of tax) and a decrease toother assets of $544.Domestic Pension PlansThe Company maintains two U.S. defined-benefit pension plans which cover all eligible employees: the Nepera Hourly Pension Planwhich covers the union employees at the previously-owned Harriman, New York plant, and the Cambrex Pension Plan which covers allother eligible employees.Benefits for the salaried and certain hourly employees are based on salary and years of service, while those for employees covered bya collective bargaining agreement are based on negotiated benefits and years of service.The Company’s policy is to fund pension costs currently to the full extent required by the Internal Revenue Code. Pension planassets consist primarily of balanced fund investments.65 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The net periodic pension expense for 2006, 2005 and 2004 is based on a twelve month period and on valuations of the plans as ofJanuary 1. However, the reconciliation of funded status is determined as of the September 30 measurement date.The funded status of these plans, incorporating fourth quarter contributions, as of September 30, 2006 and 2005 is as follows: 2006 2005 Change in benefit obligation Benefit obligation at October 1 $58,451 $53,253 Service cost 2,571 2,751 Interest cost 3,448 3,166 Actuarial (gain)/loss (562) 1,393 Benefits paid (2,391) (2,112)Benefit obligation at September 30 $61,517 $58,451 2006 2005 Change in plan assets Fair value of plan assets at October 1 $38,437 $34,887 Actual return on plan assets 3,381 3,861 Contributions 3,334 1,801 Benefits paid (2,391) (2,112)Fair value of plan assets at September 30 $42,761 $38,437 Funded status (18,756) (20,014)Unrecognized prior service cost — 476 Unrecognized net loss — 14,272 Additional minimum liability — (9,442)Accrued benefit cost at September 30, (18,756) (14,708)Fourth quarter contributions 902 — Accrued benefit cost at December 31, $(17,854) $(14,708)The amounts recognized in accumulated other comprehensive income/(loss) as of December 31, 2006 consist of the following: 2006 Actuarial loss $12,922 Prior service cost 430 $13,352 66 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)Major assumptions used in determining the benefit obligation as of September 30 for the Company’s domestic pension plans arepresented in the following table: 2006 2005Discount rate 6.00% 5.75%Rate of compensation increase 5.00% 5.00%The components of net periodic pension cost are as follows: 2006 2005 2004 Components of net periodic pension cost Service cost $2,571 $2,751 $2,395 Interest cost 3,448 3,166 3,010 Expected return on plan assets (3,041) (2,939) (2,768)Amortization of prior service cost 46 46 46 Recognized actuarial loss 448 466 592 Net periodic benefit cost $3,472 $3,490 $3,275 The estimated amounts that will be amortized from accumulated other comprehensive income/(loss) into net periodic cost in 2007 areas follows: Pension Benefits Actuarial loss $395 Prior service cost 46 Total $441 Major assumptions used in determining the net cost for the Company’s domestic pension plans are presented in the following table: 2006 2005 2004Discount rate 5.75% 5.75% 6.00%Expected return on plan assets 8.00% 8.50% 8.50%Rate of compensation increase 5.00% 5.00% 4.50%In making its assumption for the long-term rate of return, the Company has utilized historical rates earned on securities allocatedconsistently with its investments.The aggregate Accumulated Benefit Obligation (“ABO”) of $56,376 exceeds plan assets by $13,616 as of September 30, 2006 forall domestic plans.The Company expects to contribute approximately $5,647 in cash to its two U.S. defined-benefit pension plans in 2007.67 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)Estimated Future Benefit PaymentsThe following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Pension Benefits 2007 $2,270 2008 $2,391 2009 $2,526 2010 $2,658 2011 $2,846 2012-2016 $17,965 The investment objective for plan assets is to achieve long-term growth of capital with exposure to risk set at an appropriate level.The objective shall be accomplished through the utilization of a diversified asset mix consisting of equities (domestic and international)and taxable fixed income securities. The account is to be managed on a fully discretionary basis to obtain the highest total rate of return inkeeping with a moderate level of risk.The allocation of pension plan assets is as follows: Percentage of Plan Target Assets Asset Category: Allocation 2006 2005 U.S. equities 30%-70% 45.8% 49.9%International equities 0%-20% 11.7% 11.2%U.S. fixed income 20%-60% 35.6% 36.9%Cash N/A 6.9% 2.0% 100.0% 100.0%The Company has two Supplemental Executive Retirement Plans (“SERP”) for key executives. These plans are non-qualified andunfunded.The benefit obligation for these plans as of December 31, 2006 and 2005 is as follows: 2006 2005 Change in benefit obligation Benefit obligation at beginning of year $8,030 $7,422 Service cost 193 224 Interest cost 463 434 Actuarial loss 394 280 Benefits paid (264) (330)Benefits obligation at end of year 8,816 8,030 Funded status (8,816) (8,030)Unrecognized prior service cost — 20 Unrecognized net transition obligation — 199 Unrecognized net loss — 1,747 Additional minimum liability — (1,649)Accrued benefit at December 31, $(8,816) $(7,713)68 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The amounts recognized in accumulated other comprehensive income/(loss) as of December 31, 2006 consist of the following: 2006 Actuarial loss $2,098 Prior service cost 16 Transition obligation 98 $2,212 Major assumptions used in determining the benefit obligation as of December 31 for the Company’s SERP Plans are presented in thefollowing table: 2006 2005 Discount rate 5.75% 5.75%Rate of compensation increase 5.00% 5.00%The components of net periodic benefit cost are as follows: 2006 2005 2004 Components of net periodic benefit cost Service cost $193 $224 $215 Interest cost 463 434 440 Amortization of prior service cost 4 4 4 Recognized actuarial loss 143 140 159 Net periodic benefit cost $803 $802 $818 The estimated amounts that will be amortized from accumulated other comprehensive income/(loss) into net periodic cost in 2007 areas follows: SERP Benefits Actuarial loss $66 Prior service cost 4 Transition obligation 98 Total $168 Major assumptions used in determining the net cost for the Company’s SERP plans are presented in the following table: 2006 2005 2004 Discount rate 5.75% 5.75% 6.00%Rate of compensation increase 5.00% 5.00% 5.00%69 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)Estimated Future Benefit PaymentsThe following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: SERP Benefits 2007 $480 2008 $598 2009 $612 2010 $617 2011 $616 2012-2016 $2,956 International Pension PlansCertain foreign subsidiaries of the Company maintain pension plans for their employees that conform to the common practice intheir respective countries. Based on local laws and customs, some of those plans are not funded. For those plans that are funded, theamount in the trust, supporting the plan, is actuarially determined, and where applicable, in compliance with local statutes.The funded status of these plans, as of December 31, 2006 and 2005 is as follows: 2006 2005 Change in benefit obligation Benefit obligation at beginning of year $13,243 $13,810 Service cost 721 606 Interest cost 578 607 Plan participants’ contributions — — Actuarial loss 176 873 Benefits paid/transfers (312) (252)Foreign exchange 2,156 (2,401)Benefit obligation at end of year $16,562 $13,243 Change in plan assets Fair value of plan assets at beginning of year $583 $488 Actual return on plan assets 24 9 Company contributions 377 126 Plan participants’ contributions 58 44 Benefits paid (38) (10)Foreign exchange 87 (74)Fair value of plan assets at end of year $1,091 $583 Funded status $(15,472) $(12,663)Unrecognized actuarial loss — 2,796 Unrecognized prior service cost — (80)Unrecognized net gain — (35)Additional minimum liability — (1,646)Foreign exchange — (63)Accrued benefit $(15,472) $(11,691)70 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The amounts recognized in accumulated other comprehensive income/(loss) as of December 31, 2006 consist of the following: 2006 Actuarial loss $2,944 Prior service credit (75) $2,869 Major assumptions used in determining the benefit obligation as of December 31, for the Company’s international pension plans arepresented in the following table: 2006 2005 Discount rate 4.00%-4.50% 4.50%-5.00%Rate of compensation increase 2.70%-3.25% 3.00%-3.50%The components of the net periodic pension cost are as follows: 2006 2005 2004 Components of net periodic pension cost Service cost $721 $606 $520 Interest cost 578 607 621 Expected return on plan assets (88) (67) (52)Amortization of unrecognized net obligation (35) (35) (35)Amortization of prior service cost (6) (6) (6)Recognized actuarial loss 73 49 36 Net periodic benefit cost $1,243 $1,154 $1,084 The estimated amounts that will be amortized from accumulated other comprehensive income/(loss) into net periodic cost in 2007 areas follows: Pension Benefits Actuarial loss $170 Prior service cost (7)Total $163 Major assumptions used in determining the net cost for the Company’s international pension plans are presented in the followingtable: 2006 2005 2004Discount rate 4.50% – 5.00% 4.50% – 5.00% 4.50% – 5.26%Expected return on plan assets 4.25% 4.50% 4.50%Rate of compensation increase 3.00% – 3.50% 3.00% – 3.50% 3.00% – 3.50%The aggregate ABO of $15,029 for international plans exceeds plan assets by $13,938 in 2006.The Company expects to contribute approximately $434 in cash to its international pension plans in 2007.71 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued) Estimated Future Benefit PaymentsThe following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Pension Benefits 2007 $389 2008 $473 2009 $522 2010 $581 2011 $621 2012-2016 $4,244 The allocation of pension plan assets is as follows: Percentage of PlanAssets 2006 2005 Asset Category: Fixed income 100.0% 100.0% Savings PlanCambrex makes available to all employees a savings plan as permitted under Sections 401(k) and 401(a) of the Internal RevenueCode. Employee contributions are matched in part by Cambrex. The cost of this plan amounted to $2,285, $2,095 and $2,092 in2006, 2005 and 2004, respectively. Other Postretirement BenefitsCambrex provides post-retirement health and life insurance benefits (“postretirement benefits”) to all eligible retired employees.Employees who retire at or after age 55 with fifteen years of service are eligible to participate in the postretirement benefit plans. Certainsubsidiaries and all employees hired after December 31, 2002 (excluding those covered by collective bargaining) are not eligible for thesebenefits. The Company’s responsibility for such premiums for each plan participant is based upon years of service. Such plans are self-insured and are not funded. Effective January 1, 2006, the Cambrex Retiree Medical Plan will no longer provide prescription coverage toretirees or dependents age 65 or over.72 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The benefit obligation of the plan as of September 30, 2006 and 2005, incorporating fourth quarter payments, is as follows: 2006 2005 Change in benefit obligation Accumulated benefit obligation at October 1 $1,872 $2,655 Service cost 60 60 Interest cost 109 154 Plan participants’ contributions 63 — Actuarial gain (181) (766)Plan amendments — (51)Benefits paid (128) (180)Accumulated benefit obligation at September 30 $1,795 $1,872 Unrecognized net loss — (1,343)Unrecognized prior service cost — 1,046 Accrued benefit cost at September 30, $1,795 $1,575 Fourth quarter benefits paid — (29)Amount recognized at December 31 $1,795 $1,546 Amounts recognized in accumulated other comprehensive income/(loss) as of December 31, 2006 consist of the following: 2006 Actuarial loss $1,077 Prior service credit (890) $187 The periodic postretirement benefit cost includes the following components: Years Ended December 31, 2006 2005 2004 Components of net periodic benefit cost Service cost $60 $60 $53 Interest cost 109 154 154 Actuarial loss recognized 85 118 119 Amortization of unrecognized prior service cost (155) (152) (151)Total periodic postretirement benefit cost $99 $180 $175 73 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic pension cost in 2007are as follows: Other Postretirement Benefits Actuarial loss $65 Prior service credit (155)Total $(90)Major assumptions used in determining the benefit obligation and net cost for the Company’s postretirement benefits are presented inthe following table as weighted averages: Benefit Obligation Net Cost 2006 2005 2006 2005 2004 Weighted-average assumptions: Discount rate 6.00% 5.75% 5.75% 5.75% 6.00% Estimated Future Benefit PaymentsThe following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Other Postretirement Benefits 2007 $77 2008 $84 2009 $86 2010 $91 2011 $97 2012-2016 $568 The assumed health care cost trend rate used to determine the accumulated postretirement benefit obligation is 10% in 2006decreasing 1% per year to an ultimate rate of 5% in 2011 (9% in 2005). A one-percentage-point increase in the assumed health care costtrend rate would increase the accumulated postretirement benefit obligation by $48 and would increase the sum of interest and service costby $3. A one-percentage-point decrease would lower the accumulated postretirement benefit obligation by $54 and would decrease the sumof interest and service cost by $3. OtherThe Company has a non-qualified Compensation Plan for Key Executives (“the Deferred Plan”). Under the Deferred Plan, officersand key employees may elect to defer all or any portion of their pre-tax earnings or to elect to defer receipt of the Company’s stock whichwould otherwise have been issued upon the exercise of the Company’s options. Included within other liabilities at December 31, 2006 and2005 there is $1,840 and $2,472, respectively, representing the Company’s obligation under the plan. To assist in the funding of thisobligation, the Company invests in certain mutual funds and as such, included within other assets at December 31, 2006 and 2005 is$1,840 and $2,472, respectively, representing the fair value of these funds. Total shares held in trust as of December 31, 2006 and 2005are 232,430 and 224,075, respectively, and are included as a reduction of equity at cost. The value of the shares held in trust and thecorresponding liability of $5,281 at December 31, 2006 has been recorded in equity.74 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(15) Retirement Plans and Other Postretirement Benefits — (continued)The Deferred Plan is not funded by the Company, but the Company has established a Deferred Compensation Trust Fund which holdsthe shares issued.(16) Segment InformationThe Company classifies its business units into three reportable segments: Bioproducts, consisting of research products and servicesand therapeutic application products, Biopharma, consisting of biopharmaceutical process development and manufacturing services andHuman Health, consisting of active pharmaceutical ingredients and pharmaceutical intermediates produced under FDA cGMP for use inthe production of prescription and over-the-counter drug products and other fine custom chemicals derived from organic chemistry.Information as to the operations of the Company in each of its business segments is set forth below based on the nature of theproducts and services offered. Cambrex evaluates performance based on gross profit and operating profit. Intersegment sales are notmaterial. The Company allocates certain corporate expenses to each of the segments.In 2006, 2005 and 2004 no single customer accounted for more than 10% of total consolidated gross sales.The Company currently has a long-term sales contract within the Human Health segment that accounts for more than 10% ofsegment sales that is scheduled to expire at the end of 2008.The following is a summary of business segment information: 2006 2005 2004 Gross Sales Bioproducts $163,119 $149,498 $136,108 Biopharma 52,477 41,698 43,270 Human Health 236,659 223,565 216,528 $452,255 $414,761 $395,906 Gross Product Sales Detail for Each Segment 2006 2005 2004 Bioproducts: Research products $80,394 $75,810 $70,657 Therapeutic application 82,725 73,688 65,451 Total Bioproducts $163,119 $149,498 $136,108 Biopharma: Contract biopharmaceutical manufacturing $52,477 $41,698 $43,270 Total Biopharma $52,477 $41,698 $43,270 Human Health: Active pharmaceutical ingredients $176,407 $162,710 $158,894 Pharmaceutical intermediates 29,786 30,578 25,815 Other 30,466 30,277 31,815 Total Human Health $236,659 $223,565 $216,524 75 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(16) Segment Information — (continued) 2006 2005 2004 Gross Profit Bioproducts $84,350 $77,908 $74,930 Biopharma 3,236 (3,811) 4,880 Human Health 83,763 86,028 84,276 $171,349 $160,125 $164,086 2006 2005 2004 Operating profit/(loss) Bioproducts $27,196 $25,670 $26,386 Biopharma (6,062) (97,245) (53,813)Human Health 49,157 50,512 50,352 Corporate (37,444) (25,922) (24,092)Total operating profit/(loss) $32,847 $(46,985) $(1,167)Capital Expenditures Bioproducts $9,504 $12,392 $10,601 Biopharma 4,066 5,536 9,167 Human Health 28,946 18,103 14,515 Corporate 68 1,156 1,119 $42,584 $37,187 $35,402 Depreciation Bioproducts $6,613 $6,066 $5,514 Biopharma 3,705 4,840 4,239 Human Health 18,223 18,750 22,425 Corporate 766 1,179 1,234 $29,307 $30,835 $33,412 Amortization Bioproducts $1,861 $1,295 $1,455 Biopharma 259 903 431 Human Health 39 39 35 $2,159 $2,237 $1,921 76 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(16) Segment Information — (continued) 2006 2005 Total Assets Bioproducts $240,032 $231,965 Biopharma 56,097 58,652 Human Health 286,437 249,299 Corporate 23,810 24,068 Assets of discontinued operations — 48,488 $606,376 $612,472 (17) Foreign Operations and Export SalesThe following summarized data represents the gross sales and long lived tangible assets for the Company’s domestic and foreignentities for 2006, 2005 and 2004: Domestic Foreign Total 2006 Gross sales $230,486 $221,769 $452,255 Long-lived tangible assets 111,360 115,664 227,024 2005 Gross sales $217,250 $197,511 $414,761 Long-lived tangible assets 112,500 89,284 201,784 2004 Gross sales $199,889 $196,017 $395,906 Long-lived tangible assets 124,595 104,175 228,770 Export sales, included in domestic gross sales, in 2006, 2005 and 2004 amounted to $43,872, $47,115, and $29,945,respectively.Sales by geographic area consist of the following: 2006 2005 2004 North America $222,058 $196,970 $205,749 Europe 202,261 191,155 164,228 Asia 17,963 17,958 17,493 Other 9,973 8,678 8,436 Total $452,255 $414,761 $395,906 77 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(18) CommitmentsThe Company has operating leases expiring on various dates through the year 2026. The leases are primarily for the rental of officespace, office and laboratory equipment and vehicles. At December 31, 2006, future minimum commitments under non-cancelableoperating lease arrangements were as follows:Year ended December 31: 2007 $4,968 2008 4,392 2009 4,080 2010 2,925 2011 and thereafter 4,412 Total commitments $20,777 Total operating lease expense was $5,497, $5,627 and $4,768 for the years ended December 31, 2006, 2005 and 2004,respectively.The Company is party to several unconditional purchase obligations resulting from contracts that contain legally binding provisionswith respect to quantities, pricing and timing of purchases. The Company’s purchase obligations include commitments to purchase rawmaterials and equipment and for the construction of a new warehouse and R&D laboratory. At December 31, 2006 future commitmentsunder these obligations were as follows:Year ended December 31: 2007 $10,708 2008 1,724 2009 1,349 2010 999 2011 and thereafter 999 Total commitments $15,779 In the first quarter 2003, the Company reached an agreement with Mylan Laboratories, Inc. under which the Company wouldcontribute $12,415 to the settlement of consolidated litigation brought by a class of direct purchasers. As of December 31, 2006, $9,215was paid in accordance with the agreement, with the remaining $3,200 to be paid in two equal installments over the next two years.(19) ContingenciesThe Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in theordinary course of its business activities. The Company continually assesses all known facts and circumstances as they pertain to alllegal and environmental matters and evaluates the need for reserves and disclosures as deemed necessary based on these facts andcircumstances and as such facts and circumstances develop. These matters, either individually or in the aggregate, could have a materialadverse effect on the Company’s financial condition, operating results and cash flows in a future reporting period. EnvironmentalIn connection with laws and regulations pertaining to the protection of the environment, the Company and/or its subsidiaries is aparty to several environmental proceedings and remediation investigations and cleanups and,78 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued)along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites (“Superfund sites”).Additionally, as discussed in the “Sale of Rutherford Chemicals” section of this Note, the Company has retained the liability for certainenvironmental proceedings, associated with the Rutherford Chemicals business. Each of these matters is subject to various uncertainties,and it is possible that some of these matters will be decided unfavorably against the Company.The resolution of such matters often spans several years and frequently involves regulatory oversight or adjudication.Additionally, many remediation requirements are not fixed and are likely to be affected by future technological, site, and regulatorydevelopments. Consequently, the ultimate extent of liabilities with respect to such matters, as well as the timing of cash disbursementscannot be determined with certainty.In matters where the Company has been able to reasonably estimate its liability, the Company has accrued for the estimated costsassociated with the study and remediation of Superfund sites not owned by the Company and the Company’s current and formeroperating sites. These accruals were $4,862 and $3,353 at December 31, 2006 and December 31, 2005, respectively. The increase in theaccrual is primarily due to an increase in the reserve for several of the Company’s former operating sites of $1,252, an increase in thereserve at a Company subsidiary with an offsetting receivable recorded in Other Assets of $887 and currency fluctuation of $119,partially offset by payments of $749. Based upon currently available information and analysis, the Company’s current accrualrepresents management’s best estimate of the probable and estimable costs associated with environmental proceedings including amountsfor legal and investigation fees where remediation costs may not be estimable at the reporting date.As a result of the sale of the Bayonne, New Jersey facility (see “Sale of Rutherford Chemicals” section of this Note), an obligation toinvestigate site conditions and conduct required remediation under the New Jersey Industrial Site Recovery Act was triggered and theCompany has retained the responsibility for such obligation. The Company completed a preliminary assessment of the site and submittedthe preliminary assessment to the New Jersey Department of Environmental Protection (“NJDEP”). The preliminary assessment identifiedpotential areas of concern based on historical operations and sampling of such areas commenced. The Company has completed a secondphase of sampling and determined that a third phase of sampling is necessary to determine the extent of contamination and any necessaryremediation. The results of the completed and proposed sampling, and any additional sampling deemed necessary, will be used to developan estimate of the Company’s future liability for remediation costs, if required. The Company submitted its plan for the third phase ofsampling to the NJDEP during the fourth quarter of 2005. The sampling will commence upon approval of the sampling plan. During2006 the Company increased reserves by $235 to cover currently anticipated investigation and minimum remediation costs related to thesite.In March 2000, the Company completed the acquisition of the Cambrex Profarmaco Landen facility in Belgium. At the time ofacquisition, Cambrex was aware of certain site contamination and recorded a reserve for the estimated costs of remediation. As discussedin Note 20, in October 2006, the Company completed the sale of the Landen facility and the obligation related to the remediation of thissite transferred to the new owner with the sale.The Company’s Cosan subsidiary conducted manufacturing operations in Clifton, New Jersey from 1968 until 1979. Prior to theacquisition by the Company, the operations were moved to another location and thereafter Cambrex purchased the business. In 1997,Cosan entered into an Administrative Consent Order with the NJDEP. Under the Administrative Consent Order, Cosan was required tocomplete an investigation of the extent of the contamination related to the Clifton site and conduct remediation as may be necessary. Duringthe third quarter of 2005, the Company completed the investigation related to the Clifton site, which extends to adjacent properties. Theresults of the investigation caused the Company to increase its related reserves by $1,300 in 2005 based on the79 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued)proposed remedial action plan. The Company submitted the results of the investigation and proposed remedial action plan to the NJDEP.In late 2006, the NJDEP requested that an additional investigation be conducted at the site. The Company expects to complete suchadditional work during the next several months.In February 2005, the New Jersey Federal District Court ruled that a lawsuit claiming property damages against Cosan by theowners of contaminated property adjacent to the Clifton location could be placed on the active calendar. To avoid the expense anduncertainty of trial, the parties have reached agreement to settle this matter. A reserve of $425 was recorded in March 2006. In July 2006,under the settlement, Cosan paid the property owner $425 and this matter is considered concluded.In March 2006, the Company received notice from the USEPA that two former operating subsidiaries are considered PRPs at theBerry’s Creek Superfund Site, Bergen County, New Jersey. The operating companies are among many other PRPs that were listed in thenotice. Pursuant to the notice, the PRPs have been asked to perform a remedial investigation and feasibility study of the Berry’s CreekSite. The Company has met with the other PRPs. Both operating companies joined the groups of PRPs and filed a joint response to theUSEPA agreeing to jointly negotiate to conduct or fund (along with other PRPs) an appropriate remedial investigation and feasibility studyof the Berry’s Creek Site. At this time it is too early to predict the extent of any liabilities. However, reserves have been established to coveranticipated initial costs related to the site.The Company is involved in other matters where the range of liability is not reasonably estimable at this time and it is notdeterminable when information will become available to provide a basis for recording an accrual, should an accrual ultimately berequired. Litigation and Other Matters Mylan LaboratoriesIn 1998 the Company and its subsidiary Profarmaco S.r.l. (currently known as Cambrex Profarmaco Milano S.r.l.”)(“Profarmaco”) were named as defendants (along with Mylan Laboratories, Inc. (“Mylan”) and Gyma Laboratories of America, Inc.,Profarmaco’s distributor in the United States) in a proceeding instituted by the Federal Trade Commission (“FTC”) in the United StatesDistrict Court for the District of Columbia (the “District Court”). Suits were also commenced by several State Attorneys’ General. Thesuits alleged violations of the Federal Trade Commission Act arising from exclusive license agreements between Profarmaco and Mylancovering two APIs. The FTC and Attorneys’ General suits were settled in February 2001, with Mylan (on its own behalf and on behalf ofProfarmaco and Cambrex) agreeing to pay over $140,000 and with Mylan, Profarmaco and Cambrex agreeing to monitor certain futureconduct.The same parties including the Company and Profarmaco have also been named in purported class action complaints brought byprivate plaintiffs in various state courts on behalf of purchasers of the APIs in generic form, making allegations similar to those raised inthe FTC’s complaint and seeking various forms of relief including treble damages.In April 2003, Cambrex reached an agreement with Mylan under which Cambrex would contribute $12,415 to the settlement oflitigation brought by a class of direct purchasers. In exchange, Cambrex and Profarmaco received from Mylan a release and fullindemnity against future costs or liabilities in related litigation brought by purchasers, as well as potential future claims related to thismatter. Cambrex recorded an $11,342 charge (discounted to the present value due to the five year pay-out) in the first quarter of 2003 as aresult of this settlement. In accordance with the agreement $9,215 has been paid through December 31, 2006, with the remaining $3,200to be paid over the next two years.80 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued) Vitamin B-3In May 1998, the Company’s subsidiary, Nepera, which formerly operated the Harriman facility and manufactured and soldniacinamide (“Vitamin B-3”), received a Federal Grand Jury subpoena for the production of documents relating to the pricing and possiblecustomer allocation with regard to that product. In 2000, Nepera reached agreement with the Government as to its alleged role in VitaminB-3 violations from 1992 to 1995. The Canadian government claimed similar violations. All government suits in the U.S. and Canadahave been concluded.Nepera has been named as a defendant, along with several other companies, in a number of private civil actions brought on behalfof alleged purchasers of Vitamin B-3. The actions seek injunctive relief and unspecified but substantial damages. All cases have beensettled within established reserve amounts.Settlement documents are expected to be finalized and payments are expected to be made during the next several months. The balanceof the reserves recorded within accrued liabilities related to this matter was $1,582 as of December 31, 2006. Sale of Rutherford ChemicalsThe Company completed the sale of its Rutherford Chemicals business in November 2003. Under the agreement for the sale(“Purchase Agreement”), the Company provided standard representations and warranties and included various covenants concerning thebusiness, operations, liabilities and financial condition of the Rutherford Chemicals business (“Rutherford Business”). Most of suchrepresentations and warranties survived for a period of thirty days after the preparation of the audited financial statements for year-end2004 by the purchasers of the Rutherford Business (“Buyers”). Therefore, claims for breaches of such representations had to be broughtduring such time frame. Certain specified representations, warranties and covenants, such as those relating to employee benefit mattersand certain environmental matters, survive for longer periods and claims under such representations, warranties and covenants could bebrought during such longer periods. Under the Purchase Agreement, the Company has indemnified the Buyer for breaches ofrepresentations, warranties and covenants. Indemnifications for certain but not all representations and warranties are subject to adeductible of $750 and a cap at 25 percent of the purchase price.Under the Purchase Agreement, the Company has retained the liabilities associated with existing general litigation matters related toRutherford Chemicals. With respect to certain pre-closing environmental matters, the Company retains the responsibility for: (i) certainexisting matters including violations, environmental testing for the New York facility incinerator and off-site liabilities; and(ii) completing the on-going remediation at the New York facility. Further, as a result of the sale of the Bayonne, New Jersey facilitywithin Rutherford Chemicals, and as discussed in the Environmental Section above, the obligation to investigate site conditions andconduct required remediation under the provisions of the New Jersey Industrial Site Recovery Act was triggered; and the Company hasretained the responsibility for completion of any such investigation and remediation. With respect to all other pre-closing environmentalliabilities, whether known or unknown, the Buyer is responsible for the management of potential future matters; however, the Buyer andthe Company may share the costs of associated remediation with respect to such potential future matters, subject to certain limitationsdefined in the agreement for sale. The Company has accrued for exposures which are deemed probable and estimable.In March 2005, the Company received a claim from the Buyers claiming breach of certain representations, warranties andcovenants contained in the Purchase Agreement. In April 2005, the Company responded rejecting the claim. Thereafter, the Buyerssubmitted an amended claim. The amended claim alleges breaches of representations, warranties and covenants covering each of the fiveoperating sites sold pursuant to the Purchase81 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued)Agreement and are related primarily to facility structures, utilities and equipment and alleges damages of $26,407. To the extent thealleged damages arise from breaches of representations and warranties, the claim would be subject to a cap of between approximately$14,000 and $16,250, depending on whether certain contingent payments are made, and is subject to the deductible of $750 which is theresponsibility of the Buyers. In May 2005, the Company responded to the Buyers and rejected the claim entirely.In September 2005, the Company received a request for indemnity (“September Notice”) from the Buyers related to an arbitrationclaim filed by a Rutherford Business customer (“Customer”). The arbitration claim arises from a claimed breach of a supply agreementthat was assigned to and assumed by the Buyers pursuant to the Purchase Agreement. Thereafter, the Company was also served with anarbitration claim by the Customer related to the same matter. In the arbitration claim, the Customer claims $30,000 in damages arisingfrom Buyers’ breach of the supply agreement. The Buyers have now settled the Customer arbitration claim for $1,500. The Buyersclaim that the September Notice amends the earlier claims that they filed in March and April 2005, as discussed above, and that theCustomer’s claimed breach of the supply agreement should be treated as part of a breach of a representation, warranty or covenant setforth in the earlier notices. The supply agreement was assigned to and assumed by the Buyers, and the Company has now beendismissed from the Customer’s arbitration claim. In October 2005, the Company rejected the Buyers’ claim for indemnity under theSeptember Notice in its entirety.In October 2005, the Company received a notice from the Buyers (“October Notice”) that summarized the claims previously receivedin March and April 2005, and included the Buyers’ response to the Company’s April and May rejection of the earlier notices. TheOctober Notice also set forth additional claims for environmental matters related to the Rutherford Business that relate to environmentalmatters at each of the five operating sites sold pursuant to the Purchase Agreement. In December 2005, the Buyers added two additionalenvironmental claims related to the former operating sites (“December Notices”). The Company has now responded to the October andDecember Notices disputing the environmental claims on various grounds, including that the Company believes most claims relate toBuyers’ obligations under the Purchase Agreement. The Company also requested additional information because some environmentalclaims may be covered by sections of the Purchase Agreement where the parties share liability concerning such matters.In April 2006, the Company received a summons and complaint (the “Complaint”) from the Buyers, which was filed in theSupreme Court of the State of New York, County of New York. The Complaint seeks indemnification, declaratory and injunctive relieffor alleged (i) breaches of representations, warranties and covenants covering each of the former operating sites related to facilitystructures, utilities and equipment included in the March, April and October Notices mentioned above and the allegedly related breach ofthe Customer Supply Agreement arising from a breach of warranty at the Harriman facility included in the September Notice mentionedabove (collectively “Equipment Matters”); and (ii) claims related to environmental matters at each of the five operating locations, most ofwhich related to the former Harriman location included in the October Notice and December Notices mentioned above (collectively“Environmental Matters”).The Company continues its evaluation of Buyers’ allegations and intends to defend itself against these claims vigorously. TheCompany continues to believe that the Equipment Matters are without merit. Further, the Company continues to believe that based oncurrent information the majority of the Environmental Matters are either the Buyers’ responsibility or without merit and the remaining areotherwise not reasonably estimable at this time. As such, the Company has recorded no reserves for this matter. Class Action MatterIn October 2003, the Company was notified of a securities class action lawsuit filed against Cambrex and five former and currentCompany officers. Five class action suits were filed with the New Jersey Federal District Court82 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued)(the “Court”). Discovery in this matter is proceeding. In January 2004, the Court consolidated the cases, designated the lead plaintiff andselected counsel to represent the class. An amended complaint was filed in March 2004. The lawsuit has been brought as a class action inthe names of purchasers of the Company’s common stock from October 21, 1998 through July 25, 2003. The complaint alleges that theCompany failed to disclose in a timely fashion the January 2003 accounting restatement and subsequent SEC investigation, as well as theloss of a significant contract at the Baltimore facility.The Company filed a Motion to Dismiss in May 2004. Thereafter, the plaintiff filed a reply brief. In October 2005, the Court deniedthe Company’s Motion to Dismiss against the Company and two current Company officers. The Company has reached its deductibleunder its insurance policy and further costs, expenses and any settlement is expected to be paid by the Company’s insurers. TheCompany continues to believe that the complaints are without merit and will vigorously defend against them. As such, the Company hasrecorded no reserves related to this matter. Securities and Exchange CommissionThe SEC is currently conducting an investigation into the Company’s inter-company accounting procedures from the period 1997through 2001. The investigation began in the first half of 2003 after the Company voluntarily disclosed certain matters related to inter-company accounts for the five-year period ending December 31, 2001 that resulted in the restatement of the Company’s financialstatements for those years. To the Company’s knowledge, the investigation is limited to this inter-company accounting matter, and theCompany does not expect further revisions to its historical financial statements relating to these issues. The Company is fully cooperatingwith the SEC. Baltimore LitigationIn 2001, the Company acquired the biopharmaceutical manufacturing business in Baltimore (the “Baltimore Business”). The sellersof the Baltimore Business filed suit against the Company alleging that the Company made false representations during the negotiations onwhich the sellers relied in deciding to sell the business and that the Company breached its obligation to pay additional consideration asprovided in the purchase agreement which was contingent on the performance of the Baltimore Business. Management believes the matterto be without merit and continues its defense of this matter. A decision on the Motion for Summary Judgment filed in 2006 is pending. OtherThe Company has commitments incident to the ordinary course of business including corporate guarantees of certain subsidiaryobligations to the Company’s lenders related to financial assurance obligations under certain environmental laws for remediation, closureand/or third party liability requirements of certain of its subsidiaries and a former operating location; contract provisions forindemnification protecting its customers and suppliers against third party liability for manufacture and sale of Company products thatfail to meet product warranties and contract provisions for indemnification protecting licensees against intellectual property infringementrelated to licensed Company technology or processes.Additionally, as permitted under Delaware law, the Company has agreements whereby we indemnify our officers and directors forcertain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The term of theindemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be requiredto make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that covers aportion of any potential exposure.83 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(19) Contingencies — (continued)The Company currently believes the estimated fair value of its indemnification agreements is not significant based on currentlyavailable information, and as such, the Company has no liabilities recorded for these agreements as of December 31, 2006.In addition to the matters identified above, Cambrex’s subsidiaries are party to a number of other proceedings.(20) Discontinued OperationsOn October 19, 2006, the Company signed a definitive stock purchase agreement to sell two businesses within the Human Healthsegment to a holding company controlled by International Chemical Investors II S.A. for nominal consideration. The sale closed onOctober 27, 2006. As a result of the transaction, the Company reported a non-cash charge of $23,244 in the fourth quarter of 2006.As a result of the signing of the agreement on October 19, 2006, and the completion of the transaction on October 27, 2006, theCork and Landen businesses are being reported as a discontinued operation in all periods presented.In addition to the operations of the Cork and Landen businesses, the Company records activity related to the sale of the RutherfordChemicals business in 2003 as discontinued operations. During the fourth quarter of 2006, the Company recorded $200 related to anenvironmental reserve for a Rutherford Chemicals site. For the years ended December 31, 2006, 2005 and 2004 the Company recorded$200, $0 and $978, respectively, in discontinued operations pertaining to Rutherford Chemicals.The following table shows revenues and loss from the discontinued operations: Years Ended December 31, 2006 2005 2004 Revenues $30,942 $37,225 $43,209 Pre-tax loss from operations of discontinued operations $(5,383) $(29,819) $(1,791)Loss on sale of Cork and Landen (23,244) — — Loss from discontinued operations before income taxes $(28,627) $(29,819) $(1,791)The 2006, 2005 and 2004 pre-tax loss from operations of discontinued operations includes asset impairment charges of $2,092,$24,794 and $0, respectively.84 CAMBREX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except share data) — (Continued)(20) Discontinued Operations — (Continued)The following table shows the carrying amount of the assets and liabilities as of December 31, 2005 of the businesses that were soldon October 27, 2006: December 31, 2005 Assets: Cash $590 Accounts receivable, net 5,141 Inventories, net 12,536 Other current assets 646 Property, plant and equipment, net 27,635 Intangibles, net 1,939 Total assets held for sale 48,487 Liabilities: Accounts payable and accrued liabilities 6,231 Other liabilities 7,921 Total liabilities held for sale $14,152 Net assets held for sale $34,335 (21) Subsequent EventOn February 6, 2007, the Company completed the sale of the businesses that comprise the Bioproducts and Biopharma segments(excluding certain liabilities) to Lonza Group AG for total cash consideration of $460,000. One of the members of the Company’s Boardof Directors is a Vice Chairman of a firm that was paid approximately $1,200 in 2006 to act as financial advisors on this transaction.The Company repaid all outstanding debt on its credit facility with the proceeds.The following table shows the assets and liabilities of the Bioproducts and Biopharma segments as of December 31, 2006: December 31, 2006 Current assets $79,535 Other assets 202,296 Total assets 281,831 Current liabilities 33,401 Other liabilities 8,101 Total liabilities 41,502 Net assets $240,329 85 CAMBREX CORPORATION AND SUBSIDIARIESSELECTED QUARTERLY FINANCIAL AND SUPPLEMENTARY DATA — UNAUDITED(in thousands, except per share data) 1st 2nd 3rd 4th Quarter(1) Quarter(2) Quarter(3) Quarter(4) 2006 Gross sales $109,264 $114,114 $104,442 $124,435 Net revenues 109,574 115,080 105,339 125,481 Gross profit 42,946 42,040 39,430 46,933 (Loss)/income from continuing operations (1,867) 1,527 (1,466) 561 (Loss)/income before cumulative effect of a change in accounting principle (1,177) 976 (4,304) (25,367)Net(loss)/income (1,405) 976 (4,304) (25,367)Basic earnings per share:(8) (Loss)/income from continuing operations (0.07) 0.06 (0.05) 0.02 Net(loss)/income (0.05) 0.04 (0.16) (0.94)Diluted earnings per share:(8) (Loss)/income from continuing operations (0.07) 0.06 (0.05) 0.02 Net(loss)/income (0.05) 0.04 (0.16) (0.93)Average shares: Basic 26,661 26,741 26,752 27,108 Diluted 26,661 26,791 26,752 27,252 1st 2nd 3rd 4th Quarter Quarter(5) Quarter(6) Quarter(7) 2005 Gross sales $100,006 $105,963 $97,599 $111,193 Net revenues 101,568 106,601 97,956 112,345 Gross profit 42,398 39,833 37,339 40,555 Income/(loss) from continuing operations 4,719 8,041 1,568 (97,559)Net income/(loss) 4,090 7,080 (48) (121,580)Basic earnings per share:(8) Income/(loss) from continuing operations 0.18 0.30 0.06 (3.66)Net income/(loss) 0.16 0.27 (0.00) (4.56)Diluted earnings per share:(8) Income/(loss) from continuing operations 0.18 0.30 0.06 (3.66)Net income/(loss) 0.15 0.27 (0.00) (4.56)Average shares: Basic 26,346 26,402 26,418 26,654 Diluted 26,630 26,510 26,418 26,654 On October 27, 2006, the sale of the Cork and Landen facility, within the Human Health segment, was completed and accordingly,these businesses are being reported as discontinued operations in all periods presented.(1) Loss from continuing operations include pre-tax charges of $1,020 within administrative expenses for the costs related to theevaluation of strategic alternatives to enhance shareholder value, $1,445 within research and development expenses due to theacquisition of Cutanogen and $5,272 within interest expense due to the pre-payment of a portion of the Company’s long-term debt.86 (2) Income from continuing operations include pre-tax charges of $1,337 within administrative expenses for the costs related to theevaluation of strategic alternatives to enhance shareholder value and $92 within research and development expenses due to theacquisition of Cutanogen.(3) Loss from continuing operations include pre-tax charges of $1,734 within administrative expenses for the costs related to theevaluation of strategic alternatives to enhance shareholder value, $127 within research and development expenses due to theacquisition of Cutanogen and tax expense of $1,696 related to prior years returns included in the provision for income taxes.Discontinued operations include a goodwill impairment charge of $2,092.(4) Income from continuing operations include pre-tax charges of $4,516 within administrative expenses for the costs related to theevaluation of strategic alternatives to enhance shareholder value, $127 within research and development expenses due to theacquisition of Cutanogen and $1,475 for the write-down of an investment in equity securities. Discontinued operations include theloss on sale of the Cork and Landen businesses of $23,244 and $200 related to a Rutherford Chemicals environmental reserve.(5) Income from continuing operations include a tax benefit due to a favorable Swedish court decision of $3,329.(6) Income from continuing operations include pre-tax charges for an increase in an environmental reserve of $1,300 recorded in operatingexpenses.(7) Loss from continuing operations include pre-tax charges for goodwill impairment of $67,950 and long-lived asset impairment chargeof $14,433 in the Biopharma segment. Results also include pre-tax charges for executive severance of $4,223 and an increase invaluation allowances against domestic deferred tax assets totaling $16,926 within the provision for income taxes. Discontinuedoperations include goodwill impairment of $8,435 and long-lived asset impairment charge of $16,359 and a tax benefit related to thelong-lived asset impairment of $1,673.(8) Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding for eachperiod, as such, the sum of the quarters may not necessarily equal the earnings per share amount for the year.87 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A Controls and ProceduresConclusion Regarding the Effectiveness of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in its reportsfiled or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures,no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation ofmanagement, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on thisevaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2006 our disclosure controls andprocedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized, reported, accumulated and communicated tomanagement, including the Company’s Chief Executive Officer and Chief Financial Officer within the time periods specified in theSecurities and Exchange Commission’s rules and forms.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined inExchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principlesgenerally accepted in the United States, and include those policies and procedures that: • Pertain to the maintenance of records, that in reasonable detail, accurately and fairly represent the transactions and dispositionsof the assets of the Company, • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordancewith authorizations of management and the Board of Directors of the Company, and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of theCompany’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Under the supervision and with the participation of our management, including our principal executive officer and principalfinancial officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006based on the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”). Our management concluded that based on its assessment, our internal control over financial reporting waseffective as of December 31, 2006.88 Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has beenaudited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in our2006 Annual Report.Remediation of Prior Material WeaknessAs reported in the annual report on Form 10-K for the year ended December 31, 2005, the Company’s management identified amaterial weakness in its internal controls over the accounting for income taxes. As result of this material weakness, managementconcluded in its 2005 annual report on Form 10-K that the Company’s internal controls over financial reporting was not effective as ofDecember 31, 2005.During 2006, our management carried out an evaluation, with the participation of our principal executive officer and principalfinancial officer, of changes in our internal control over financial reporting, as defined in Exchange Act Rule 13a -15(f). Based on thisevaluation, our management determined that the actions listed below were sufficient to eliminate the material weakness described above.The Company has taken the following steps to eliminate the material weakness: • Strengthened procedures whereby the current income tax payable account and deferred income tax asset and liability accounts arereconciled on a regular and timely basis. • Increased level of review and discussion of significant tax matters and supporting documentation with senior financemanagement. • Hired additional permanent personnel in the tax department. • Identified interim personnel to augment existing corporate tax staff to ensure there are adequate resources to reconcile all tax-relatedaccounts for each reporting period.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required byparagraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.Item 9B Other InformationNone.89 PART IIIItem 10 Directors, Executive Officers and Corporate Governance.Executive Officers of the RegistrantThe following table lists the officers of the Company:Name Age OfficeJames A. Mack* 69 Chairman of the Board of Directors, President and ChiefExecutive OfficerLuke M. Beshar* 48 Executive Vice President, Strategy & Corporate DevelopmentRobert J. Congiusti* 53 Vice President, Information TechnologyMary E. Fletcher 45 Assistant General Counsel and Assistant Corporate SecretaryAnup Gupta 42 Vice President, Financial Planning and TreasurerSteven M. Klosk* 49 Executive Vice President, Chief Operating Officer & President,Pharmaceutical Products and ServicesMelissa M. Lesko 45 Vice President, Human ResourcesPaolo Russolo* 62 President, Profarmaco MilanoGregory P. Sargen* 41 Vice President & Chief Financial OfficerCharles W. Silvey 48 Vice President, Internal AuditPeter E. Thauer* 67 Senior Vice President, Law & Environment, General Counsel andCorporate Secretary*Executive OfficerThe Company’s executive officers are elected by the Board of Directors and serve at the Board’s discretion.Mr. Mack joined Cambrex in February 1990 and was reappointed President and Chief Executive Officer of Cambrex in February2006. Mr. Mack had retired as President and Chief Executive Officer in August 2004. He joined the Company as President and ChiefOperating Officer and was appointed to the position of President and Chief Executive Officer in April 1995. Mr. Mack has been adirector of the Cambrex Board of Directors since joining the Company in 1990 and was appointed Chairman of the Board of Directors inOctober 1999. Prior to joining Cambrex, Mr. Mack was Vice President in charge of the worldwide Performance Chemicals business ofOlin Corporation. Mr. Mack was Executive Vice President of Oakite Products, Inc. from 1982 to 1984. Prior to joining Oakite, he heldvarious positions with The Sherwin-Williams Company, most recently as President and General Manager of the Chemicals Divisionfrom 1977 to 1981. Mr. Mack is a past Chairman of the Board of Governors of the Synthetic Organic Chemical ManufacturingAssociation and is a member of the Board of Trustees of the Michigan Tech Alumni Fund.Mr. Beshar joined Cambrex in December 2002 and currently serves in the role of Executive Vice President, Strategy & CorporateDevelopment. He joined the Company as Senior Vice President and Chief Financial Officer and in February 2004 was appointed toExecutive Vice President and Chief Financial Officer. He was appointed to his current position in February 2007. Prior to joiningCambrex, Mr. Beshar was Senior Vice President and Chief Financial Officer with Dendrite International. Prior to Dendrite, he wasExecutive Vice President, Finance and Chief Financial Officer for Exp@nets, Inc. from 1998 through 2002. Mr. Beshar has served asChief Financial Officer for other businesses in his career and has been the President and Chief Financial Officer of a company privatelyowned by Merrill Lynch Capital Partners. Mr. Beshar is a member of the Board of Directors of PNY Technologies, Inc.Mr. Congiusti joined Cambrex in September 1994 and currently serves in the role of Vice President, Information Technology. Hejoined the Company as Director, Information Services and was appointed to his current position in November 1998. Prior to joining theCompany, he held various senior information systems management positions from 1984 to 1994 at International Specialty Products andAmerican Cyanamid Company.90 Ms. Fletcher joined Cambrex in September 1992 and currently serves in the role of Assistant General Counsel and AssistantCorporate Secretary. She joined the Company as Associate Counsel. Ms. Fletcher was appointed Senior Counsel in January 1997 andAssistant General Counsel in May 2000. She was appointed to her current role in November 2005. Prior to joining Cambrex, Ms. Fletcherwas with the New Jersey Department of Environmental Protection from 1985 to 1989, serving in various environmental compliance andenforcement roles.Mr. Gupta joined Cambrex in October 2003 and currently serves as Vice President, Financial Planning and Treasurer. He joined theCompany as Director, Financial Planning and Analysis and was appointed Director, Finance in September 2005. In February 2006, hewas promoted to his current position. Prior to joining Cambrex, Mr. Gupta was with Satyam Computer Services as Vice President,Automotive Vertical Business Unit from 2002 to 2003. From 1987 to 2002, he worked in various capacities at Planet One, Scient,Trilogy, The Boston Consulting Group and Andersen Consulting (now known as Accenture).Mr. Klosk joined Cambrex in October 1992 and currently serves in the role of Executive Vice President, Chief Operating Officer &President, Pharmaceutical Products and Services. Mr. Klosk joined the Company as Vice President, Administration. He was appointedExecutive Vice President, Administration in October 1996 and was promoted to the position of Executive Vice President, Administrationand Chief Operating Officer for the Cambrex Pharma and Biopharmaceutical Business Unit in October 2003. In January 2005,Mr. Klosk assumed direct responsibility for the leadership of the Biopharmaceutical Business Unit as Chief Operating Officer. In August2006, Mr. Klosk assumed the responsibility of the Pharma business as Executive Vice President and Chief Operating Officer —Biopharma & Pharma and in February 2007 was appointed to his current position. From 1988 until he joined Cambrex, Mr. Klosk wasVice President, Administration and Corporate Secretary for The Genlyte Group, Inc. From 1985 to 1988, he was Vice President,Administration for Lightolier, Inc., a subsidiary of The Genlyte Group, Inc.Ms. Lesko joined Cambrex in August 1995 and currently serves in the role of Vice President, Human Resources. She joinedCambrex as Manager, Human Resources and was promoted to the position of Director, Compensation, Staffing and Development inOctober 2001. In October 2004, she was promoted to her current position. Prior to joining Cambrex, Ms. Lesko held various humanresources management positions at The Genlyte Group, Inc. and RCA Records.Dr. Russolo is President, Profarmaco Milano and joined the Company in 1994 with the acquisition of Profarmaco Nobel S.r.l. inMilan Italy, where he served as Managing Director since 1982. Dr. Russolo joined Profarmaco Nobel S.r.l. in 1971. Upon the acquisitionof Profarmaco Nobel S.r.l., Dr. Russolo continued serving in the role of Managing Director until 2000, when he was appointed toPresident, Cambrex Profarmaco Business Unit. Upon the completion of the sale of the Landen facility Dr. Russolo assumed his currentposition.Mr. Sargen joined Cambrex in February 2003 and has served as Vice President and Chief Financial Officer since February 2007.Mr. Sargen previously held the position of Vice President, Finance. Previously, he was with Exp@nets, Inc. from 1999 through 2002,serving in the roles of Executive Vice President, Finance/Chief Financial Officer and Vice President/Corporate Controller. From 1996 to1998, he was with Fisher Scientific International’s Chemical Manufacturing Division, serving in the roles of Vice President, Finance andController. Mr. Sargen has also held various positions in finance, accounting and audit with Merck & Company, Inc., Heat and Control,Inc., and Deloitte & Touche.Mr. Silvey joined Cambrex in August 2004 as Vice President, Internal Audit. Prior to joining the Company, he was with AutomaticData Processing (ADP) from 2002 to 2004 as Vice President, Financial and Operational Audit. From 1998 to 2002, he was with LucentTechnologies, most recently in the role of Chief Financial Officer, Americas’ — Lucent Worldwide Services. From 1995 to 1998, hewas with CR Bard, Inc., serving in various finance and audit roles. From 1990 to 1995, he was with KPMG Peat Marwick LLP asAudit Manager.Mr. Thauer joined Cambrex in August 1989 and currently serves in the role of Senior Vice President, Law and Environment,General Counsel, and Corporate Secretary. He joined the Company as General Counsel and Corporate Secretary and was appointed VicePresident, Law and Environment in December 1992. He was appointed to his current position in January 2001. From 1987 until 1989,he was Counsel to the business and finance group of the firm of Crummy, Del Deo, Dolan, Griffinger and Vecchione. From 1971 to1987, Mr. Thauer held various positions with Avon Products, Inc., including U.S. Legal Department Head and Corporate AssistantSecretary.91 Item 11 Executive Compensation.Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Item 13 Certain Relationships and Related Transactions and Directors Independence.Item 14 Principal Accountant Fees and Services.The remaining information called for by Part III is hereby incorporated by reference to the information set forth under the captions“Principal Stockholders,” “Common Stock Ownership by Directors and Executive Officers,” “Board of Directors,” “Election ofDirectors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Ethics,” “Compensation Committee Interlocks andInsider Participation,” “Compensation Committee Report on Executive Compensation,” “Executive and Other Compensation,” “Executiveand Other Compensation,” “Audit Committee Report” and “Principal Accounting Firm Fees” in the registrant’s definitive proxy statementfor the Annual Meeting of Stockholders, to be held April 26, 2007, which meeting involves the election of directors, which definitiveproxy statement is being filed with the Securities and Exchange Commission pursuant to Regulation 14A.92 PART IVItem 15 Exhibits and Financial Statement Schedules(a) 1. The following consolidated financial statements of the Company are filed as part of this report: Page Number (in this report)Financial Statements: Report of Independent Registered Public Accounting Firm 39Consolidated Balance Sheets as of December 31, 2006 and 2005 41Consolidated Income Statements for the Years Ended December 31, 2006, 2005 and 2004 42Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004 43Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 44Notes to Consolidated Financial Statements 45Supplemental Data: Selected Quarterly Financial and Supplementary Data 86(a) 2. (i) The following schedule to the consolidated financial statements of the Company as filed herein and the Report ofIndependent Registered Public Accounting Firm are filed as part of this report. Page Number (in this report)Schedule II — Valuation and Qualifying Accounts 94All other schedules are omitted because they are not applicable or not required or because the required information is included in theconsolidated financial statements of the Company or the notes thereto.(a) 3. The exhibits filed in this report are listed in the Exhibit Index on pages 97-99.93 SCHEDULE IICAMBREX CORPORATIONVALUATION AND QUALIFYING ACCOUNTSFOR THE Years Ended December 31, 2006, 2005 and 2004(dollars in thousands)Column A Column B Column C Column D Column E Additions Charged/ Charged/ Balance (Credited) to (Credited) to Balance Beginning Cost and Other End of Description of Year Expenses Accounts Deductions Year Year ended December 31, 2006: Doubtful trade receivables and returns and allowances $2,761 $963 $173 $1,078 $2,819 Deferred tax valuation allowance 117,705 12,147 (3,196) — 126,656 Year ended December 31, 2005: Doubtful trade receivables and returns and allowances $2,301 $872 $(45) $367 $2,761 Deferred tax valuation allowance 76,589 39,979 1,137 — 117,705 Year ended December 31, 2004: Doubtful trade receivables and returns and allowances $3,253 $(369) $91 $674 $2,301 Deferred tax valuation allowance 51,631 21,142 3,816 — 76,589 94 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.CAMBREX CORPORATION By /s/ James A. MackJames A. MackChairman of the Board of DirectorsPresident and Chief Executive OfficerDate: March 15, 2007Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ James A. MackJames A. Mack Chairman of the Board of Directors President andChief Executive Officer ) /s/ Gregory P. SargenGregory P. Sargen Vice President and Chief Financial Officer(Principal Financial Officerand Accounting Officer) ) /s/ David R. BethuneDavid R. Bethune Director ) /s/ Rosina B. Dixon*Rosina B. Dixon, M.D. Director ) /s/ Roy W. Haley*Roy W. Haley Director ) /s/ Kathryn Rudie Harrigan*Kathryn Rudie Harrigan, PhD Director ) /s/ Leon J. Hendrix, Jr.*Leon J. Hendrix, Jr. Director ) March 15, 2007 /s/ Ilan Kaufthal*Ilan Kaufthal Director ) /s/ William Korb*William Korb Director ) /s/ John R. Miller*John R. Miller Director )95 Signature Title Date/s/ Peter G. TombrosPeter G. Tombros Director ) *By /s/ James A. MackJames A. MackAttorney-in-Fact )96 EXHIBIT INDEXExhibit No. Description 3.1 — Restated Certificate of Incorporation of registrant, as amended.(W). 3.2 — By Laws of registrant.(X). 4.1 — Form of Certificate for shares of Common Stock of registrant.(A) — Exhibit 4(a). 10.1 — Purchase Agreement dated July 11, 1986, as amended, between the registrant and ASAG, Inc.(A) —Exhibit 10(r). 10.2 — Asset Purchase Agreement dated as of June 5, 1989 between Whittaker Corporation and the registrant.(B) —Exhibit 10(a). 10.3 — Asset Purchase Agreement dated as of July 1, 1991 between Solvay Animal Health, Inc. and the registrant.(C). 10.4 — Asset Purchase Agreement dated as of March 31, 1992 between Hexcel Corporation and the registrant.(E). 10.5 — Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel NV and theregistrant, for the purchase of Nobel Chemicals AB.(H). 10.6 — Stock Purchase Agreement dated as of September 15, 1994 between Akzo Nobel AB, Akzo Nobel and theregistrant, for the purchase of Profarmaco Nobel, S.r.l.(H). 10.7 — Stock purchase agreement dated as of October 3, 1997 between BioWhittaker and the registrant.(M). 10.8 — Asset purchase agreement dated as of August 7, 2003 between Rutherford Acquisition Corporation and CambrexCorporation and The Sellers listed in the asset Purchase agreement.(O). 10.9 — Credit Agreement dated as of October 7, 2005 between Cambrex Corporation, the subsidiary borrowers partyhereto, the subsidiary guarantors party hereto, the lenders party hereto and JP Morgan Chase Bank, N.A., asAdministrative Agent.(T). 10.13 — Retention and Enhanced Severance Program.(Y). 10.14 — 2007 Retention Program.(AA). 10.15 — James A. Mack Compensation Agreement, as amended.(Y)(Z). 10.16 — 1994 Stock Option Plan.(G). 10.17 — 1996 Performance Stock Option Plan.(L). 10.18 — 1998 Performance Stock Option Plan.(N). 10.19 — 2000 Employee Performance Stock Option Plan.(N). 10.20 — Form of Employment Agreement (amended and restated) between the registrant and its executive officers named inthe Revised Schedule of Parties thereto.(BB — Exhibit 10.20) (as amended (CC) Exhibit 10.20.1). 10.21 — Revised Schedule of Parties to Employment Agreement (Exhibit 10.20 hereto).(J). 10.22 — Cambrex Corporation Savings Plan.(F). 10.23 — Cambrex Corporation Supplemental Retirement Plan.(I). 10.24 — Deferred Compensation Plan of Cambrex Corporation (as amended and restated as of March 1, 2001).(BB). 10.25 — Employment Agreement dated February 6, 2007 between the registrant and Gregory P. Sargen.(J). 10.26 — Consulting Agreement dated December 15, 1994 between the registrant and Arthur I. Mendolia.(I). 10.27 — Consulting Agreement dated December 15, 1994 between the registrant and Cyril C. Baldwin, Jr.(I). 10.28 — Consulting Agreement dated January 26, 1995 between the registrant and James A. Mack.(I). 10.29 — Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Arthur I.Mendolia.(I).See legend on following page97 Exhibit No. Description 10.30 — Additional Retirement Payment Agreement dated December 15, 1994 between the registrant and Cyril C.Baldwin, Jr.(I). 10.31 — Additional Retirement Payment Agreement between the registrant and James A. Mack.(I). 10.32 — Employment Agreement dated February 6, 2007 between the registrant and Paolo Russolo.(J). 10.33 — 2001 Performance Stock Option Plan.(P). 10.34 — 2003 Performance Stock Option Plan.(P). 10.35 — 2004 Performance Incentive Plan.(Q). 10.36 — Directors’ Common Stock Fee Payment Plan.(Q). 10.37 — Directors’ Compensation Arrangements.(S). 10.38 — 2004 Incentive Plan.(U). 10.39 — Separation and General Release Agreement.(V). 10.40 — Registration Rights Agreement dated as of June 6, 1985 between the registrant and the purchasers of its Class DConvertible Preferred stock and 9% Convertible Subordinated Notes due 1997.(A) — Exhibit 10(m). 10.41 — Administrative Consent Order dated September 16, 1985 of the New Jersey Department of EnvironmentalProtection to Cosan Chemical Corporation.(A) — Exhibit 10(q). 10.42 — Registration Rights Agreement dated as of June 5, 2006 between the registrant and American Stock Transfer andTrust Company.(K). 10.43 — Share Purchase Agreement between Cambrex AB and International Chemical Investors II S.A.(CC). 10.44 — Consulting Agreement dated November 10, 2006 between registrant and Gary L. Mossman.(DD). 10.45 — Mr. Thomas Bird Bonus Arrangement.(HH). 10.46 — Stock Purchase Agreement dated October 23, 2006 between Lonza America Inc., Lonza Bioproducts AG, LonzaSales AG, Lonza Group Limited and Cambrex Corporation and Subsidiaries(GG — Exhibit 10.1). 10.47 — Agreement to Lift Sales Restrictions on Certain Vested Options.(EE). 10.48 — Agreement to Accelerate Vesting of Certain Options.(FF). 10.50 — Manufacturing Agreement dated as of July 1, 1991 between the registrant and A.L. Laboratories, Inc.(D). 21 — Subsidiaries of registrant.(J). 23 — Consent of PricewaterhouseCoopers LLP to the incorporation by reference of its report herein in RegistrationStatement Nos. 333-57404, 333-22017, 33-21374, 33-37791, 33-81780, 33-81782, 333-113612, 333-113613,333-129473 and 333-136529 on Form S-8 of the registrant.(J). 24 — Powers of Attorney to sign this report.(J). 31.1 — CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(J). 31.2 — CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(J). 32.1 — CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(R). 32.2 — CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(R).See legend on following page98 EXHIBIT INDEX (A) Incorporated by reference to the indicated Exhibit to registrant’s Registration Statement on Form S-1 (RegistrationNo. 33-16419). (B) Incorporated by reference to registrant’s Annual Report on Form 8-K dated June 5, 1989. (C) Incorporated by reference to registrant’s Current Report on Form 8-K dated July 1, 1991. (D) Incorporated by reference to the registrant’s Annual Report on Form 10-K for 1991. (E) Incorporated by reference to the registrant’s Current Report on Form 8-K dated April 10, 1992 and Amendment No. 1 to itsCurrent Report. (F) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 33-81780) dated July 20,1994. (G) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 33-81782) dated July 20,1994. (H) Incorporated by reference to registrant’s Registration Statement on Form 8-K dated October 27, 1994. (I) Incorporated by reference to the registrant’s Annual Report on Form 10-K for 1994. (J) Filed herewith. (K) Incorporated by reference to the registrant’s Registration Statement on Form 8-A dated May 25, 2006. (L) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-22017) dated February 19,1997. (M) Incorporated by reference to the registrant’s Current Report on Form 8-K dated October 8, 1997. (N) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-57404) dated March 22,2001. (O) Incorporated by reference to the registrant’s Current Report on Form 8-K dated November 10, 2003. (P) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-113612) dated March 15,2004. (Q) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-113613) dated March 15,2004. (R) Furnished herewith. (S) Incorporated by reference to the registrant’s Current Report on Form 8-K dated June 6, 2005. (T) Incorporated by reference to the registrant’s Current Report on Form 8-K filed October 13, 2005. (U) Incorporated by reference to registrant’s Registration Statement on Form S-8 (Registration No. 333-129473) datedNovember 4, 2005. (V) Incorporated by reference to the registrant’s Current Report on Form 8-K dated January 4, 2006. (W) Incorporated by reference to registrant’s Annual Report on Form 10-K dated March 31, 2005. (X) Incorporated by reference to registrant’s Quarterly Report on Form 10-Q filed August 4, 2005. (Y) Incorporated by reference to Item 1.01 registrant’s Current Report on Form 8-K dated February 7, 2006. (Z) Incorporated by reference to Item 5.02(e)(1) to registrant’s Current Report on Form 8-K dated February 9, 2007. (AA) Incorporated by reference to Item 5.02(e) to registrant’s Current Report on Form 8-K dated December 22, 2006. (BB) Incorporated by reference to registrant’s Annual Report on Form 10-K for year end 2005 filed on May 26, 2006. (CC) Incorporated by reference to registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2006. (DD) Incorporated by reference to registrant’s Current Report on Form 8-K dated November 15, 2006. (EE) Incorporated by reference to registrant’s Current Report on Form 8-K dated November 7, 2006. (FF) Incorporated by reference to registrant’s Current Report on Form 8-K dated June 7, 2005. (GG) Incorporated by reference to registrant’s Current Report on Form 8-K filed October 24, 2006. (HH) Incorporated by reference to registrant’s Current Report on Form 8-K filed November 1, 2006.99 . . . CAMBREX CORPORATION ANNUAL REPORT ON FORM 10-K EXHIBIT 10.21 REVISED SCHEDULE OF PARTIES NAME TITLE DATE OF AGREEMENT--------------- ---------------------------------------- ------------------ Peter E. Thauer Senior Vice President, Law and Environment, 02/06/06 General Counsel and Corporate SecretarySteven M. Klosk Executive Vice President, Chief Operating 02/06/06 OfficerLuke M. Beshar Executive Vice President, Strategy 02/06/06 & Corporate Development EXHIBIT 10.25 EMPLOYMENT AGREEMENT THIS AGREEMENT made by and between CAMBREX CORPORATION, a Delawarecorporation (the "Company"), and Gregory P. Sargen, (the "Employee"), as of the6th day of February, 2007. WHEREAS, the Employee presently is a key management employee of theCompany, namely its Vice President & Chief Financial Officer; and WHEREAS, the Board of Directors of the Company (the "Board"), on theadvice of its Compensation Committee, has determined that it is in the bestinterests of the Company and its stockholders to assure that the Company willhave the continued dedication of the Employee, notwithstanding the possibility,threat, or occurrence of a Change of Control (as defined below) of the Company.The Board believes it is imperative to diminish the inevitable distraction ofthe Employee by virtue of the personal uncertainties and risks created by apending or threatened Change of Control, to encourage the Employee's fullattention and dedication to the Company currently and in the event of anythreatened or pending Change of Control which provides the Employee withindividual financial security and which are competitive with those of othercorporations. In order to accomplish these objectives, the Board has caused theCompany to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall be the first date during the "Change ofControl Period" (as defined in Section 1(b)) on which a Change of Controloccurs. Anything in this Agreement to the contrary notwithstanding, if theEmployee's employment with the Company is terminated prior to the date on whicha Change of Control occurs, and it is reasonably demonstrated that suchtermination (1) was at the request of a third party who has taken stepsreasonably calculated to effect a Change of Control or (2) otherwise arose inconnection with or anticipation of a Change of Control, then for all purposes ofthis Agreement the "Effective Date" shall mean the date immediately prior to thedate of such termination. (b) The "Change of Control Period" is the period commencing on the datehereof and ending on the third anniversary of such date; provided, however, thatcommencing on the date one year after the date hereof, and on each successiveanniversary thereof (each such anniversary being hereinafter referred to as a"Renewal Date"), the Change of Control Period shall be automatically extended soas to end on the third anniversary of such Renewal Date unless at least sixty(60) days prior to such Renewal date the Company shall give notice that theChange of Control Period shall not be so extended, in which event the thencurrent Change of Control Period shall not be extended and shall end on the thenapplicable ending date. 2. Change of Control. For the purpose of this Agreement, a "Change ofControl" shall mean: (a) the acquisition (other than from the Company) by any person, entity or"group" (within the meaning of Section 13 (d)(3) or 14(d)(2) of the SecuritiesExchange Act of 1934 (the "Exchange Act") but excluding for this purpose theCompany or its subsidiaries or any employee benefit plan of the Company or itssubsidiaries which acquires beneficial ownership of voting securities of theCompany) of "beneficial ownership" (within the meaning of Rule 13d-3 promulgatedunder the Exchange Act) of fifteen percent (15%) or more of either the then - 2 -outstanding shares of common stock or the combined voting power of the Company'sthen outstanding voting securities entitled to vote generally in the election ofdirectors; or (b) individuals who, as of the date hereof, constitute the Board (as ofthe date hereof the "Incumbent Board") cease for any reason to constitute atleast a majority of the Board; provided that any person becoming a member of theBoard subsequent to the date hereof whose election or nomination for election bythe Company's stockholders (other than an election or nomination of anindividual whose initial assumption of office is in connection with an actual orthreatened election contest relating to the election of the directors of theCompany, as such terms are used in Rule 14a-11 of Regulation 14A promulgatedunder the Exchange Act) was approved by a vote of at least a majority of thedirectors then comprising the Incumbent Board shall be, for purposes of thisAgreement, considered a member of the Incumbent Board; or (c) approval by the stockholders of the Company of either areorganization, or merger, or consolidation, with respect to which persons whowere the stockholders of the Company immediately prior to such reorganization,merger or consolidation do not, immediately thereafter, own more than fiftypercent (50%) of the combined voting power entitled to vote generally in theelection of directors of the reorganized, merged or consolidated entity's thenoutstanding voting securities, or a liquidation or dissolution of the Company,or the sale of all or substantially all of the assets of the Company; or (d) the sale or disposition by the Company of all or substantially all ofthe assets of the Company; or (e) any other event or series of events or which, notwithstanding any ofthe foregoing provisions of this Section 2 to the contrary, is determined by amajority of the Incumbent Board to constitute a Change of Control for thepurposes of this Agreement. 3. Employment Period. The Company hereby agrees to employ the Employee, andthe Employee hereby agrees to remain in the employ of the Company, for theperiod (the "Employment Period") commencing on the Effective Date and ending onthe second anniversary of such date; provided, however, that if a Change ofControl actually occurs but the Employee's employment is terminated by theCompany other than for Cause (as defined in Section 5(b) hereof) prior to theoccurrence of such Change of Control but within twelve (12) months after (a) the commencement of a tender offer for at least 15% of the Company's common stock by any person (other than the Company, one of its subsidiaries or any employee benefit plan sponsored or maintained by the Company or one of its subsidiaries) that has not been withdrawn on or before the date of such termination; (b) the commencement of a proxy contest intended to remove control of the Company's business from the Incumbent Board that has not been abandoned on or before the date of such termination; or (c) the execution of a definitive agreement to merge or otherwise consolidate the Company with or into another corporation or to sell a substantial - 3 - portion of the Company's assets (in each case, other than a transaction involving only the Company and one or more corporations or other entities directly or indirectly owned and controlled by the Company) that is still binding on the parties thereto at the date of such termination;the Effective Date of this Agreement shall be deemed to be the day immediatelyprior to the date of such termination and the date of such termination shall bedeemed to be the Employee's Date of Termination (as defined in Section 5(e)hereof) for the purposes of this Agreement. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Employee's position shallbe at least commensurate in all substantial respects with the Employee'sposition with the Company and its subsidiaries during the ninety-day periodimmediately preceding the Effective Date and (B) the Employee's services shallbe performed at the location where the Employee was employed immediatelypreceding the Effective Date or any office or location less than thirty-five(35) miles from such location. (ii) During the Employment Period, the Employee agrees to devotereasonable attention and time during normal business hours to the business andaffairs of the Company and, to the extent necessary to discharge theresponsibilities assigned to the Employee hereunder, to use the Employee'sreasonable best efforts to perform faithfully and efficiently suchresponsibilities. It is expressly understood and agreed that to the extent thatany outside activities have been conducted by the Employee prior to theEffective Date, the continued conduct of such activities subsequent to theEffective Date shall not thereafter be deemed to interfere with the performanceof the Employee's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shallreceive a base salary ("Base Salary") at a monthly rate at least equal to thehighest monthly base salary paid or payable to the Employee by the Company andits subsidiaries during the twelve-month period immediately preceding the monthin which the Effective Date occurs. During the Employment Period, the BaseSalary shall be reviewed at least annually and shall be increased at any timeand from time to time as shall be substantially consistent with increases inbase salary awarded in the ordinary course of business to other key employees ofthe Company and its subsidiaries. Any increase in Base Salary shall not serve tolimit or reduce any other obligation to the Employee under this Agreement. (ii) Annual Bonus. In addition to Base Salary, the Employee shall beeligible (but not entitled) to receive, for each fiscal year during theEmployment Period, an annual bonus (an "Annual Bonus") (pursuant to any regularincentive bonus plan maintained by the Company) in cash, restricted stock,restricted stock units or other forms of remuneration on - 4 -the same basis as with respect to the fiscal year immediately preceding thefiscal year in which the Effective Date occurs. 5. Termination. (a) Death or Disability. This Agreement shall terminateautomatically upon the Employee's death. If the Company determines in good faiththat the Disability of the Employee has occurred (pursuant to the definition of"Disability" set forth below), it may give to the Employee written notice of itsintention to terminate the Employee's employment. In such event, the Employee'semployment with the Company shall terminate effective on the thirtieth (30th)day after receipt of such notice by the Employee (the "Disability EffectiveDate"), provided that, within the thirty (30) days after such receipt, theEmployee shall not have returned to full-time performance of the Employee'sduties. For purposes of this Agreement, "Disability" means disability which, atleast twenty-six (26) weeks after its commencement, is determined to be totaland permanent by a physician selected by the Company or its insurers andacceptable to the Employee or the Employee's legal representative (suchagreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employee's employment for"Cause". For purposes of this Agreement, "Cause" shall constitute either (i)personal dishonesty or breach of fiduciary duty involving personal profit; (ii)the commission of a criminal act related to the performance of duties, or thefurnishing of proprietary confidential information about the Company to acompetitor, or potential competitor or third party whose interests are adverseto those of the Company; (iii) habitual intoxication by alcohol or drugs duringwork hours; or (iv) conviction of a felony. (c) Good Reason. The Employee's employment may be terminated by theEmployee for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) relocation of the principal place at which the Employee'sduties are to be performed to a location more than thirty-five (35) miles fromthe principal place where the Employee's duties were performed during theninety-day period immediately preceding the Effective Date; (ii) a substantial reduction in the Base Salary, or in thebenefits or perquisites provided the Employee from those which pertained duringthe 90-day period immediately preceding the Effective Date; (iii) a substantial reduction in the Employee's,responsibilities, authorities or functions from those which pertained during the90-day period immediately preceding the Effective Date; (iv) a substantial adverse change in the Employee's workconditions from those which pertained during the 90-day period immediatelypreceding the Effective Date; and (v) any failure by the Company to comply with and satisfySection II(c) of this Agreement. - 5 - Notwithstanding anything in this Agreement to the contrary, atermination by the Employee for any reason during the 30-day period immediatelyfollowing the first anniversary of the Effective Date shall be deemed to be atermination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause orby the Employee for Good Reason shall be communicated by Notice of Terminationto the other party hereto given in accordance with Section 12(b) of thisAgreement. For purposes of this Agreement, a "Notice of Termination" means awritten notice which (i) indicates the specific termination provision in thisAgreement relied upon (ii) sets forth in reasonable detail the facts andcircumstances claimed to provide a basis for termination of the Employee'semployment under the provision so indicated and (iii) if the Date of Termination(as defined below) is other than the date of receipt of such notice, specifiesthe termination date (which date shall be not more than fifteen (15) days afterthe giving of such notice). The failure by the Employee to set forth in theNotice of Termination any fact or circumstance which contributes to a showing ofGood Reason shall not waive any right of the Employee hereunder or preclude theEmployee from asserting such fact or circumstance in enforcing his rightshereunder. (e) Date of Termination. "Date of Termination" means the date ofreceipt of the Notice of Termination or any later date specified therein, as thecase may be; provided, however, that (i) if the Employee's employment isterminated by the Company other than Cause or Disability, the Date ofTermination shall be the date on which the Company notifies the Employee of suchtermination and (ii) if the Employee's employment is terminated by reason ofdeath or Disability, the Date of Termination shall be the date of death of theEmployee or the Disability Effective Date, as the case may be. 6. Obligation of the Company upon Termination. (a) Death. If the Employee's employment is terminated by reason of theEmployee's death, this Agreement shall terminate without further obligations tothe Employee's legal representatives under this Agreement, other than thoseobligations accrued or earned and vested (if applicable) by the Employee as ofthe Date of Termination, including, for this purpose (i) the Employee's fullBase Salary through the Date of Termination at the rate in effect on the Date ofTermination or, if higher, at the highest rate in effect at any time from theninety-day period preceding the Effective Date through the Date of Termination(the "Highest Base Salary"), (ii) the product of the Annual Bonus paid to theEmployee for the last full fiscal year and a fraction, the numerator of which isthe number of days in the current fiscal year through the Date of Termination,and the denominator of which is three hundred sixty-five (365) and (iii) anycompensation previously deferred by the Employee (together with accrued interestthereon, if any) and not yet paid by the Company and any accrued vacation paynot yet paid by the Company (such amounts specified in clauses (i), (ii) and(iii) are hereinafter referred to as "Accrued Obligations"). All such AccruedObligations shall be paid to the Employee's estate or beneficiary, asapplicable, in a lump sum in cash within thirty (30) days of the Date ofTermination. Anything in this Agreement to the contrary notwithstanding, theEmployee's family shall be entitled to receive benefits at least equal to themost favorable benefits provided by the Company and any of its subsidiariesunder such plans, programs, practices and policies - 6 -relating to family death benefits, if any, in accordance with the most favorableplans, programs, practices and policies of the company and its subsidiaries ineffect at any time during the ninety-day period immediately preceding theEffective Date or, if more favorable to the Employee and/or the Employee'sfamily, as in effect on the date of the Employee's death with respect to otherkey employees of the Company and its subsidiaries and their families. (b) Disability. If the Employee's employment is terminated by reason ofthe Employee's Disability, this Agreement shall terminate without furtherobligations to the Employee; other than those obligations accrued or earned andvested (if applicable) by the Employee as of the Date of Termination, includingfor this purpose, all Accrued Obligations. All such Accrued Obligations shall bepaid to the Employee in a lump sum in cash within thirty (30) days of the Dateof Termination. Anything in this Agreement to the contrary notwithstanding, theEmployee shall be entitled after the Disability Effective Date to receivedisability and other benefits at least equal to the most favorable of thoseprovided by the Company and its subsidiaries to disabled employees and/or theirfamilies in accordance with such plans, programs, practices and policies of theCompany and its subsidiaries in effect at any time during the ninety-day periodimmediately preceding the Effective Date or, if more favorable to the Employeeand/or the Employee's family, as in effect at any time thereafter with respectto other key employees of the Company and its subsidiaries and their families. (c) Cause; Other than for Good Reason. If the Employee's employmentshall be terminated for Cause, this Agreement shall terminate without furtherobligations to the Employee other than the obligation to pay to the Employee theHighest Base Salary through the Date of Termination plus the amount of anycompensation previously deferred by the Employee (together with accrued interestthereon, if any). If the Employee terminates employment other than for GoodReason, this Agreement shall terminate without further obligations to theEmployee, other than those obligations accrued or earned and vested (ifapplicable) by the Employee through the Date of Termination, including for thispurpose, all Accrued Obligations. All such Accrued Obligations shall be paid tothe Employee in a lump sum in cash within thirty (30) days of the Date ofTermination. (d) Good Reason; Other than for Cause or Disability. If, during theEmployment Period, the Company shall terminate the Employee's employment otherthan for Cause, Disability, or death or if the Employee shall terminate hisemployment for Good Reason: (i) the Company shall pay to the Employee in a lump sum in cashwithin thirty (30) days after the Date of Termination the aggregate of thefollowing amounts: A. to the extent not theretofore paid, the Employee's HighestBase Salary through the Date of Termination; and B. the product of (x) the highest Annual Bonus earned by theEmployee during the two fiscal years immediately preceding the Date ofTermination, or, if higher, the Employee's Target Bonus after the date of thisAgreement until an Annual Bonus has actually been earned and (y) a fraction, thenumerator of which is the number of days in the current fiscal year through theDate of Termination and the denominator of which is three hundred sixty-five(365); and - 7 - C. the product of (x) a fraction, the numerator of which istwenty-four (24) minus the number of whole months the Employee has been employedby the Company following the first anniversary of the Effective Date and thedenominator of which is twelve (12) and (y) the annualized Highest Base Salary;and D. the product of (x) fraction, the numerator of which istwenty-four (24) minus the number of whole months the Employee has been employedby the Company following the first anniversary of the Effective Date and thedenominator of which is twelve (12) and (y) the highest Annual Bonus earned bythe Employee during two fiscal years immediately preceding the Date ofTermination, provided that Employee's Annual Bonus under this Section after thedate of this Agreement shall be his Target Bonus until an Annual Bonus hasactually been earned; and E. in the case of compensation previously deferred by theEmployee, all amounts previously deferred (together with accrued interestthereon, if any) and not yet paid by the Company, and any accrued vacation paynot yet paid by the Company; and F. for the remainder of the Employment Period, or such longerperiod as any plan, program, practice or policy may provide, the Company shallcontinue benefits to the Employee and/or the Employee's family at least equal tothose which would have been provided to them as if the Employee's employment hadnot been terminated, in accordance with the most favorable employee benefitplans of the Company and its subsidiaries (including health insurance and lifeinsurance) during the ninety-day period immediately preceding the Effective Dateor, if more favorable to the Employee, as in effect at any time thereafter withrespect to other key employees and their families; and (iii) all outstanding equity awards shall immediately vest and, asapplicable, become exercisable; and 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent orlimit the Employee's continuing or future participation in any benefit, bonus,incentive or other plans, programs, policies or practices, provided by theCompany or any of its subsidiaries and for which the Employee may qualify, norshall anything herein limit or otherwise affect such rights as the Employee mayhave under any stock option or other agreements with the Company or any of itssubsidiaries. Amounts which are vested benefits or which the Employee isotherwise entitled to receive under any plan, policy, practice or program of theCompany or any of its subsidiaries at or subsequent to the Date of Terminationshall be payable in accordance with such plan, policy, practice or programprovided, however, that in the event the terms of any such plan, policy,practice or program concerning the payment of benefits thereunder shall conflictwith any provision of this Agreement, the terms of this Agreement shall takeprecedence but only if and to the extent the payment would not adversely affectthe tax exempt status (if applicable) of any such plan, policy, practice orprogram and only if the Employee agrees in writing that such payment shall be inlieu of any corresponding payment from such plan, policy, practice or program. 8. Full Settlement. The Company's obligation to make the payments providedfor in this Agreement and otherwise to perform its obligations hereunder shallnot be affected by any - 8 -set-off, counterclaim, recoupment, defense or other claim, right or action whichthe Company may have against the Employee or others. In no event shall theEmployee be obligated to seek other employment or take any other action by wayof mitigation of the amounts payable to the Employee under any of the provisionsof this Agreement. The Company agrees to pay, to the full extent permitted bylaw, all legal fees and expenses which the Employee may reasonably incur as aresult of any contest (regardless of the outcome thereof) by the Company orothers of the validity or enforceability of, or liability under, any provisionof this Agreement or any guarantee of performance thereof (including as a resultof any contest by the Employee about the amount of any payment pursuant toSection 9 of this Agreement), plus in each case interest at the applicableFederal rate provided for in Section 7872(f)(2) of the Internal Revenue Code of1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, inthe event it shall be determined that any payment or distribution by the Companyto or for the benefit of the Employee, whether paid or payable or distributed ordistributable pursuant to the terms of this Agreement or otherwise (a"payment"), would be subject to the excise tax imposed by Section 4999 of theCode or any interest or penalties with respect to such excise tax (such excisetax, together with any such interest and penalties, are hereinafter collectivelyreferred to as the "Excise Tax"), then the Employee shall be entitled to receivean additional payment (a "Gross-Up Payment") in the amount such that afterpayment by the Employee of all taxes (including any interest or penaltiesimposed with respect to such taxes), including any Excise Tax, imposed upon theGross-Up Payment, the Employee retains an amount of the Gross-Up Payment equalto the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinationsrequired to be made under this Section 9, including whether a Gross-Up Paymentis required and the amount of such Gross-Up Payment, shall be made by theCompany's regular outside independent public accounting firm (the "AccountingFirm") which shall provide detailed supporting calculations both to the Companyand the Employee within fifteen (15) business days of the Date of Termination,if applicable, or such earlier time as is requested by the Company. The initialGross-Up Payment, if any, as determined pursuant to this Section 9(b), shall bepaid to the Employee within five (5) days of the receipt of the AccountingFirm's determination. If the Accounting Firm determines that no Excise Tax ispayable by the Employee, it shall furnish the Employee with an opinion that hehas substantial authority under Section 6661 of the Code not to report anyExcise Tax on his federal income tax return. Any determination by the AccountingFirm shall be binding upon the Company and the Employee. As a result of theuncertainty in the application of Section 4999 of the Code at the time of theinitial determination by the Accounting Firm hereunder, it is possible thatGross-Up Payments which will not have been made by the Company should have beenmade ("Underpayment"), consistent with the calculations required to be madehereunder. In the event that the Company exhausts its remedies pursuant toSection 9(c) and the Employee thereafter is required to make a payment of anyExcise Tax, the Accounting Firm shall determine the amount of the Underpaymentthat has occurred and any such Underpayment shall be promptly paid by theCompany to or for the benefit of the Employee. - 9 - (c) The Employee shall notify the Company in writing of any claim bythe Internal Revenue Service that, if successful, would require the payment bythe Company of the Gross-Up Payment. Such notification shall be given as soon aspracticable but no later than ten (10) business days after the later of either(i) the date the Employee has actual knowledge of such claim, or (ii) ten (10)days after the Internal Revenue Service issues to the Employee either a writtenreport proposing imposition of the Excise Tax or a statutory Notice ofDeficiency with respect thereto, and shall apprise the Company of the nature ofsuch claim and the date on which such claim is requested to be paid. TheEmployee shall not pay such claim prior to the expiration of the thirty-dayperiod following the date on which it gives such notice to the Company (or suchshorter period ending on the date that any payment of taxes with respect to suchclaim is due). If the Company notifies the Employee in writing prior to theexpiration of such period that it desires to contest such claim, the Employeeshall: (i) give the Company any information reasonably requested bythe Company relating to such claim, (ii) take such action in connection with contesting such claimas the Company shall reasonably request in writing from time to time, including,without limitation, accepting legal representation with respect to such claim byan attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in ordereffectively to contest such claim, (iv) permit the Company to participate in any proceedingsrelating to such claim; provided, however, that the Company shall bear and paydirectly all costs and expenses (including additional interest and penalties)incurred in connection with such contest and shall indemnify and hold theEmployee harmless, on an after-tax basis, for any Excise Tax or income tax,including interest and penalties with respect thereto, imposed as a result ofsuch representation and payment of costs and expenses. Without limitation of theforegoing provisions of this Section 9(c), the Company shall control allproceedings taken in connection with such contest and, at its sole option, maypursue or forego any and all administrative appeals, proceedings, hearings andconferences with the taxing authority in respect of such claim and may, at itssole option, either direct the Employee to request or accede to a request for anextension of the statute of limitations with respect only to the tax claimed, orpay the tax claimed and sue for a refund or contest the claim in any permissiblemanner, and the Employee agrees to prosecute such contest to a determinationbefore any administrative tribunal, in a court of initial jurisdiction and inone or more appellate courts, as the Company shall determine; provided, however,that if the Company directs the Employee to pay such claim and sue for a refund,the Company shall advance the amount of such payment to the Employee, on aninterest-free basis and shall indemnify and hold the Employee harmless, on anafter-tax basis, from any Excise Tax or income tax, including interest orpenalties with respect hereto, imposed with respect to such advance or withrespect to any imputed income with respect to such advance; and further providedthat any extension of the statue of limitations requested or acceded to by theEmployee at the Company's request and relating to payment of taxes for thetaxable year of the Employee with respect to which such contested amount isclaimed to be due is limited solely to such contested amount. Furthermore, theCompany's control of the contest - 10 -shall be limited to issues with respect to which a Gross-Up Payment would bepayable hereunder and the Employee shall be entitled to settle or contest, asthe case may be, any other issue raised by the Internal Revenue Service or anyother taxing authority. (d) If, after the receipt by the Employee of an amountadvanced by the Company pursuant to Section 9(c), the Employee becomes entitledto receive any refund with respect to such claim, the Employee shall (subject tothe Company's complying with the requirements of Section 9(c)) promptly pay tothe Company the amount of such refund (together with any interest paid orcredited thereon after taxes applicable thereto). If, after the receipt by theEmployee of an amount advanced by the Company pursuant to Section 9(c), adetermination is made that the Employee shall not be entitled to any refund withrespect to such claim and the Company does not notify the Employee in writing ofits intent to contest such denial of refund prior to the expiration of thirty(30) days after such determination, then such advance shall be forgiven andshall not be required to be repaid and the amount of such advance shall offset,to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) In the event that any state or municipality or subdivisionthereof shall subject any Payment to any special tax which shall be in additionto the generally applicable income tax imposed by such state, municipality, orsubdivision with respect to receipt of such Payment, the foregoing provisions ofthis Section 9 shall apply, mutatis mutandis, with respect to such special tax. 10. Non-competition. As a condition to receiving any benefits pursuant tothis Agreement, the Employee agrees that during his period of employment andthrough the first anniversary of his Date of Termination, the Employee shall notengage in or become associated with any Competitive Activity. For purposes ofthis Section 10, a "Competitive Activity" shall mean any business or otherendeavor that engages in any country in which the Company or its Affiliates havebusiness operations in a business that directly or indirectly competes with allor any substantial part of any of the business in which the Company or itsAffiliates is engaged at the time of the Employee's Date of Termination. TheEmployee shall be considered to have become "engaged" or "associated" with aCompetitive Activity if he becomes involved as an owner, employee, officer,director, independent contractor, agent, partner, advisor, lender, or in anyother capacity calling for the rendition of the Employee's personal services,either alone or with any individual, partnership, corporation or otherorganization that is engaged in a Competitive Activity and his involvementrelates in any respect to the Competitive Activity of such entity; provided,however, that the Employee shall not be prohibited from owning less than twopercent of any publicly traded corporation, whether or not such corporation isin competition with the Company. If, at any time, the provisions of this Section10 shall be determined to be invalid or unenforceable, by reason of being vagueor unreasonable as to area, duration or scope of activity, this Section 10 shallbe considered divisible and shall become and be immediately amended to only sucharea, duration and scope of activity as shall be determined to be reasonable andenforceable by the court or other body having jurisdiction over the matter; andthe Employee agrees - 11 -that this Section 10 as so amended shall be valid and binding as though anyinvalid or unenforceable provision had not been included herein. 11. Confidential Information. The Employee shall hold in a fiduciarycapacity for the benefit of the Company all secret or confidential information,knowledge or data relating to the Company or any of its subsidiaries, and theirrespective businesses, which shall have been obtained by the Employee during theEmployee's employment by the Company or any of its subsidiaries and which shallnot be or become public knowledge (other than by acts by the Employee or hisrepresentatives in violation of this Agreement). After termination of theEmployee's employment with the Company, the Employee shall not, without theprior written consent of the Company, communicate or divulge any suchinformation, knowledge or data to anyone other than the Company and thosedesignated by it. In no event shall an asserted violation of the provisions ofthis Section 10 constitute a basis for deferring or withholding any amountsotherwise payable to the Employee under this Agreement. 12. Successors. (a) This Agreement is personal to the Employee and without theprior written consent of the Company shall not be assignable by the Employeeotherwise than by will or the laws of descent and distribution. This Agreementshall inure to the benefit of and be enforceable by the Employee's legalrepresentatives. (b) This Agreement shall inure to the benefit of and bebinding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct orindirect, by purchase, merger, consolidation or otherwise) to all orsubstantially all of the business and/or assets of the Company to assumeexpressly and agree to perform this Agreement in the same manner and to the sameextent that the Company would be required to perform it if no such successionhad taken place. As used in this Agreement, "Company" shall mean the Company ashereinbefore defined and any successor to its business and/or assets asaforesaid which assumes and agrees to perform this Agreement by operation oflaw, or otherwise. 13. Miscellaneous. (a) This Agreement shall be governed by and construed inaccordance with the laws of the State of Delaware, without reference toprinciples of conflict of laws. The captions of this Agreement are not part ofthe provisions hereof an shall have no force or effect. (b) All notices and other communications hereunder shall be inwriting and shall be given by hand delivery to the other party or by registeredor certified mail, return receipt requested, postage prepaid, addressed asfollows: If to the Employee: Mr. Gregory P. Sargen - 12 - If to the Company: Cambrex Corporation One Meadowlands Plaza East Rutherford, N.J. 07073 Attention: General Counselor to such other address as either party shall have furnished to the other inwriting in accordance herewith. Notice and communications shall be effectivewhen actually received by the addressee. (c) The invalidity or unenforceability of any provision ofthis Agreement shall not affect the validity or enforceability of any otherprovision of this Agreement. (d) The Company may withhold from any amounts payable underthis Agreement such Federal, state or local taxes as shall be required to bewithheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliancewith any provision hereof shall not be deemed to be a waiver of such provisionor any other provision thereof. (f) This Agreement contains the entire understanding of theCompany and the Employee with respect to the subject matter hereof. Thisagreement may not be amended or modified otherwise than by a written agreementexecuted by the parties hereto or their respective successors and legalrepresentatives. (g) The Employee and the Company acknowledge that theemployment of the Employee by the Company or any of its subsidiaries prior tothe Effective Date is "at will", and, prior to the Effective Date, may beterminated by either the Employee or the employer at any time. Upon atermination of the Employee's employment or upon the Employee's ceasing to be anofficer of the Company, in each case, prior to the Effective Date, there shallbe no further rights under this Agreement. 14. Section 409A. Notwithstanding anything in this Agreement to thecontrary, to the extent the Employee would otherwise be entitled to a paymentduring the six months beginning on the Date of Termination that would be subjectto the additional tax imposed under Section 409A of the Code, (i) the paymentwill not be made to the Employee and instead will be made, at the election ofthe Company, either to a trust in compliance with Rev. Proc. 92-64 or an escrowaccount established to fund such payments (provided that such funds shall be atall times subject to the creditors of the Company and its affiliates) and (ii)the payment, together with interest thereon at the rate of "prime" plus 1%, willbe paid to the Employee on the earlier of the six-month anniversary of Date ofTermination or the Employee's death or disability (within the meaning of Section409A of the Code). Similarly, to the extent the Employee would otherwise beentitled to any benefit (other than a cash payment) during the six monthsbeginning on the Date of Termination that would be subject to the additional taxunder Section 409A of the Code, the benefit will be delayed and will - 13 -begin being provided (together, if applicable, with an adjustment to compensatethe Employee for the delay, with such adjustment to be determined in theCompany's reasonable good faith discretion) on the earlier of the six-monthanniversary of the Date of Termination or the Employee's death or disability(within the meaning of Section 409A of the Code). The Company will establish thetrust or escrow account, as applicable, no later than ten days following theEmployee's Date of Termination. It is the intention of the parties that thepayments and benefits to which the Employee could become entitled in connectionwith termination of employment under this Agreement comply with Section 409A ofthe Code. In the event that the parties determine that any such benefit or rightdoes not so comply, they will negotiate reasonably and in good faith to amendthe terms of this Agreement such that it complies (in a manner that attempts tominimize the economic impact of such amendment on the Employee and the Company). IN WITNESS WHEREOF, pursuant to the authorization from its Board ofDirectors, the Company has caused these presents to be executed in its name onits behalf, and the Employee has hereunto set his hand, all as of the day andyear first above written. CAMBREX CORPORATION By: ______________________________ James A. Mack, Chairman, President & Chief Executive Officer _____________________________ Gregory P. Sargen EXHIBIT 10.32 EMPLOYMENT AGREEMENT THIS AGREEMENT made by and between CAMBREX CORPORATION, a Delawarecorporation (the "Company"), and Paolo Russolo, (the "Employee"), as of the 6thday of February, 2007. WHEREAS, the Employee presently is a key management employee of asubsidiary of the Company, namely the President of the Cambrex ProfarmacoBusiness Unit; and WHEREAS, the Board of Directors of the Company (the "Board"), on theadvice of its Compensation Committee, has determined that it is in the bestinterests of the Company and its stockholders to assure that the Company willhave the continued dedication of the Employee, notwithstanding the possibility,threat, or occurrence of a Change of Control (as defined below) of the Company.The Board believes it is imperative to diminish the inevitable distraction ofthe Employee by virtue of the personal uncertainties and risks created by apending or threatened Change of Control, to encourage the Employee's fullattention and dedication to the Company currently and in the event of anythreatened or pending Change of Control which provides the Employee withindividual financial security and which are competitive with those of othercorporations. In order to accomplish these objectives, the Board has caused theCompany to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall be the first date during the "Change ofControl Period" (as defined in Section 1(b)) on which a Change of Controloccurs. Anything in this Agreement to the contrary notwithstanding, if theEmployee's employment with the Company is terminated prior to the date on whicha Change of Control occurs, and it is reasonably demonstrated that suchtermination (1) was at the request of a third party who has taken stepsreasonably calculated to effect a Change of Control or (2) otherwise arose inconnection with or anticipation of a Change of Control, then for all purposes ofthis Agreement the "Effective Date" shall mean the date immediately prior to thedate of such termination. (b) The "Change of Control Period" is the period commencing on the datehereof and ending on the third anniversary of such date; provided, however, thatcommencing on the date one year after the date hereof, and on each successiveanniversary thereof (each such anniversary being hereinafter referred to as a"Renewal Date"), the Change of Control Period shall be automatically extended soas to end on the third anniversary of such Renewal Date unless at least sixty(60) days prior to such Renewal date the Company shall give notice that theChange of Control Period shall not be so extended, in which event the thencurrent Change of Control Period shall not be extended and shall end on the thenapplicable ending date. 2. Change of Control. For the purpose of this Agreement, a "Change ofControl" shall mean: (a) the acquisition (other than from the Company) by any person, entityor "group" (within the meaning of Section 13 (d)(3) or 14(d)(2) of theSecurities Exchange Act of 1934 (the "Exchange Act") but excluding for thispurpose the Company or its subsidiaries or any employee benefit plan of theCompany or its subsidiaries which acquires beneficial ownership of votingsecurities of the Company) of "beneficial ownership" (within the meaning of Rule13d-3 - 2 -promulgated under the Exchange Act) of fifteen percent (15%) or more of eitherthe then outstanding shares of common stock or the combined voting power of theCompany's then outstanding voting securities entitled to vote generally in theelection of directors; or (b) individuals who, as of the date hereof, constitute the Board (as ofthe date hereof the "Incumbent Board") cease for any reason to constitute atleast a majority of the Board; provided that any person becoming a member of theBoard subsequent to the date hereof whose election or nomination for election bythe Company's stockholders (other than an election or nomination of anindividual whose initial assumption of office is in connection with an actual orthreatened election contest relating to the election of the directors of theCompany, as such terms are used in Rule 14a-11 of Regulation 14A promulgatedunder the Exchange Act) was approved by a vote of at least a majority of thedirectors then comprising the Incumbent Board shall be, for purposes of thisAgreement, considered a member of the Incumbent Board; or (c) approval by the stockholders of the Company of either areorganization, or merger, or consolidation, with respect to which persons whowere the stockholders of the Company immediately prior to such reorganization,merger or consolidation do not, immediately thereafter, own more than fiftypercent (50%) of the combined voting power entitled to vote generally in theelection of directors of the reorganized, merged or consolidated entity's thenoutstanding voting securities, or a liquidation or dissolution of the Company,or the sale of all or substantially all of the assets of the Company; or (d) the sale or disposition by the Company of all or substantially allof the assets of the Company; or (e) any other event or series of events or which, notwithstanding anyof the foregoing provisions of this Section 2 to the contrary, is determined bya majority of the Incumbent Board to constitute a Change of Control for thepurposes of this Agreement. 3. Employment Period. The Company hereby agrees to employ the Employee,and the Employee hereby agrees to remain in the employ of the Company, for theperiod (the "Employment Period") commencing on the Effective Date and ending onthe second anniversary of such date; provided, however, that if a Change ofControl actually occurs but the Employee's employment is terminated by theCompany other than for Cause (as defined in Section 5(b) hereof) prior to theoccurrence of such Change of Control but within twelve (12) months after (a) the commencement of a tender offer for at least 15% of the Company's common stock by any person (other than the Company, one of its subsidiaries or any employee benefit plan sponsored or maintained by the Company or one of its subsidiaries) that has not been withdrawn on or before the date of such termination; (b) the commencement of a proxy contest intended to remove control of the Company's business from the Incumbent Board that has not been abandoned on or before the date of such termination; or - 3 - (c) the execution of a definitive agreement to merge or otherwise consolidate the Company with or into another corporation or to sell a substantial portion of the Company's assets (in each case, other than a transaction involving only the Company and one or more corporations or other entities directly or indirectly owned and controlled by the Company) that is still binding on the parties thereto at the date of such termination;the Effective Date of this Agreement shall be deemed to be the day immediatelyprior to the date of such termination and the date of such termination shall bedeemed to be the Employee's Date of Termination (as defined in Section 5(e)hereof) for the purposes of this Agreement. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Employee's positionshall be at least commensurate in all substantial respects with the Employee'sposition with the Company and its subsidiaries during the ninety-day periodimmediately preceding the Effective Date and (B) the Employee's services shallbe performed at the location where the Employee was employed immediatelypreceding the Effective Date or any office or location less than thirty-five(35) miles from such location. (ii) During the Employment Period, the Employee agrees to devotereasonable attention and time during normal business hours to the business andaffairs of the Company and, to the extent necessary to discharge theresponsibilities assigned to the Employee hereunder, to use the Employee'sreasonable best efforts to perform faithfully and efficiently suchresponsibilities. It is expressly understood and agreed that to the extent thatany outside activities have been conducted by the Employee prior to theEffective Date, the continued conduct of such activities subsequent to theEffective Date shall not thereafter be deemed to interfere with the performanceof the Employee's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shallreceive a base salary ("Base Salary")at a monthly rate at least equal to thehighest monthly base salary paid or payable to the Employee by the Company andits subsidiaries during the twelve-month period immediately preceding the monthin which the Effective Date occurs. During the Employment Period, the BaseSalary shall be reviewed at least annually and shall be increased at any timeand from time to time as shall be substantially consistent with increases inbase salary awarded in the ordinary course of business to other key employees ofthe Company and its subsidiaries. Any increase in Base Salary shall not serve tolimit or reduce any other obligation to the Employee under this Agreement. (ii) Annual Bonus. In addition to Base Salary, the Employee shallbe eligible (but not entitled) to receive, for each fiscal year during theEmployment Period, an annual bonus (an "Annual Bonus") (either pursuant to anyincentive bonus plan maintained by the - 4 -Company or otherwise) in cash, restricted stock, restricted stock units or otherforms of remuneration on the same basis as with respect to the fiscal yearimmediately preceding the fiscal year in which the Effective Date occurs. 5. Termination. (a) Death or Disability. This Agreement shall terminate automaticallyupon the Employee's death. If the Company determines in good faith that theDisability of the Employee has occurred (pursuant to the definition of"Disability" set forth below), it may give to the Employee written notice of itsintention to terminate the Employee's employment. In such event, the Employee'semployment with the Company shall terminate effective on the thirtieth (30th)day after receipt of such notice by the Employee (the "Disability EffectiveDate"), provided that, within the thirty (30) days after such receipt, theEmployee shall not have returned to full-time performance of the Employee'sduties. For purposes of this Agreement, "Disability" means disability which, atleast twenty-six (26) weeks after its commencement, is determined to be totaland permanent by a physician selected by the Company or its insurers andacceptable to the Employee or the Employee's legal representative (suchagreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Employee's employment for"Cause". For purposes of this Agreement, "Cause" shall constitute either (i)personal dishonesty or breach of fiduciary duty involving personal profit; (ii)the commission of a criminal act related to the performance of duties, or thefurnishing of proprietary confidential information about the Company to acompetitor, or potential competitor or third party whose interests are adverseto those of the Company; (iii) habitual intoxication by alcohol or drugs duringwork hours; or (iv) conviction of a felony. (c) Good Reason. The Employee's employment may be terminated by theEmployee for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) relocation of the principal place at which the Employee'sduties are to be performed to a location more than thirty-five (35) miles fromthe principal place where the Employee's duties were performed during theninety-day period immediately preceding the Effective Date; (ii) a substantial reduction in the Base Salary, or in thebenefits or perquisites provided the Employee from those which pertained duringthe 90-day period immediately preceding the Effective Date; (iii) a substantial reduction in the Employee's, responsibilities,authorities or functions from those which pertained during the 90-day periodimmediately preceding the Effective Date; (iv) a substantial adverse change in the Employee's workconditions from those which pertained during the 90-day period immediatelypreceding the Effective Date; and - 5 - (v) any failure by the Company to comply with and satisfy SectionII(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause orby the Employee for Good Reason shall be communicated by Notice of Terminationto the other party hereto given in accordance with Section 12(b) of thisAgreement. For purposes of this Agreement, a "Notice of Termination" means awritten notice which (i) indicates the specific termination provision in thisAgreement relied upon (ii) sets forth in reasonable detail the facts andcircumstances claimed to provide a basis for termination of the Employee'semployment under the provision so indicated and (iii) if the Date of Termination(as defined below) is other than the date of receipt of such notice, specifiesthe termination date (which date shall be not more than fifteen (15) days afterthe giving of such notice). The failure by the Employee to set forth in theNotice of Termination any fact or circumstance which contributes to a showing ofGood Reason shall not waive any right of the Employee hereunder or preclude theEmployee from asserting such fact or circumstance in enforcing his rightshereunder. (e) Date of Termination. "Date of Termination" means the date ofreceipt of the Notice of Termination or any later date specified therein, as thecase may be; provided, however, that (i) if the Employee's employment isterminated by the Company other than Cause or Disability, the Date ofTermination shall be the date on which the Company notifies the Employee of suchtermination and (ii) if the Employee's employment is terminated by reason ofdeath or Disability, the Date of Termination shall be the date of death of theEmployee or the Disability Effective Date, as the case may be. 6. Obligation of the Company upon Termination. (a) Death. If the Employee's employment is terminated by reason of theEmployee's death, this Agreement shall terminate without further obligations tothe Employee's legal representatives under this Agreement, other than thoseobligations accrued or earned and vested (if applicable) by the Employee as ofthe Date of Termination, including, for this purpose (i) the Employee's fullBase Salary through the Date of Termination at the rate in effect on the Date ofTermination or, if higher, at the highest rate in effect at any time from theninety-day period preceding the Effective Date through the Date of Termination(the "Highest Base Salary"), (ii) the product of the Annual Bonus paid to theEmployee for the last full fiscal year and a fraction, the numerator of which isthe number of days in the current fiscal year through the Date of Termination,and the denominator of which is three hundred sixty-five (365) and (iii) anycompensation previously deferred by the Employee (together with accrued interestthereon, if any) and not yet paid by the Company and any accrued vacation paynot yet paid by the Company (such amounts specified in clauses (i), (ii) and(iii) are hereinafter referred to as "Accrued Obligations"). All such AccruedObligations shall be paid to the Employee's estate or beneficiary, asapplicable, in a lump sum in cash within thirty (30) days of the Date ofTermination. Anything in this Agreement to the contrary notwithstanding, theEmployee's family shall be entitled to receive benefits at least equal to themost favorable benefits provided by the Company and any of its subsidiariesunder such plans, programs, practices and policies relating to family deathbenefits, if any, in accordance with the most favorable plans, programs,practices and policies of the company and its subsidiaries in effect at any timeduring the ninety-day period immediately preceding the Effective Date or, if more favorable to the - 6 -Employee and/or the Employee's family, as in effect on the date of theEmployee's death with respect to other key employees of the Company and itssubsidiaries and their families. (b) Disability. If the Employee's employment is terminated by reason ofthe Employee's Disability, this Agreement shall terminate without furtherobligations to the Employee; other than those obligations accrued or earned andvested (if applicable) by the Employee as of the Date of Termination, includingfor this purpose, all Accrued Obligations. All such Accrued Obligations shall bepaid to the Employee in a lump sum in cash within thirty (30) days of the Dateof Termination. Anything in this Agreement to the contrary notwithstanding, theEmployee shall be entitled after the Disability Effective Date to receivedisability and other benefits at least equal to the most favorable of thoseprovided by the Company and its subsidiaries to disabled employees and/or theirfamilies in accordance with such plans, programs, practices and policies of theCompany and its subsidiaries in effect at any time during the ninety-day periodimmediately preceding the Effective Date or, if more favorable to the Employeeand/or the Employee's family, as in effect at any time thereafter with respectto other key employees of the Company and its subsidiaries and their families. (c) Cause; Other than for Good Reason. If the Employee's employmentshall be terminated for Cause, this Agreement shall terminate without furtherobligations to the Employee other than the obligation to pay to the Employee theHighest Base Salary through the Date of Termination plus the amount of anycompensation previously deferred by the Employee (together with accrued interestthereon, if any). If the Employee terminates employment other than for GoodReason, this Agreement shall terminate without further obligations to theEmployee, other than those obligations accrued or earned and vested (ifapplicable) by the Employee through the Date of Termination, including for thispurpose, all Accrued Obligations. All such Accrued Obligations shall be paid tothe Employee in a lump sum in cash within thirty (30) days of the Date ofTermination. (d) Good Reason; Other than for Cause or Disability. If, during theEmployment Period, the Company shall terminate the Employee's employment otherthan for Cause, Disability, or death or if the Employee shall terminate hisemployment for Good Reason: (i) the Company shall pay to the Employee in a lump sum in cashwithin thirty (30) days after the Date of Termination the aggregate of thefollowing amounts: A. to the extent not theretofore paid, the Employee'sHighest Base Salary through the Date of Termination; and B. the product of (x) the highest Annual Bonus earned by theEmployee during the two fiscal years immediately preceding the Date ofTermination and (y) a fraction, the numerator of which is the number of days inthe current fiscal year through the Date of Termination and the denominator ofwhich is three hundred sixty-five (365); and C. the product of (x) a fraction, the numerator of which istwenty-four (24) minus the number of whole months the Employee has been employedby the Company following the first anniversary of the Effective Date and thedenominator of which is twelve (12) and (y) the annualized Highest Base Salary;and - 7 - D. the product of (x) fraction, the numerator of which istwenty-four (24) minus the number of whole months the Employee has been employedby the Company following the first anniversary of the Effective Date and thedenominator of which is twelve (12) and (y) the highest Annual Bonus earned bythe Employee during two fiscal years immediately preceding the Date ofTermination, provided that Employee's Annual Bonus under this Section shall behis Target Bonus until an Annual Bonus has actually been earned; and E. any accrued vacation pay not yet paid by the Company; and F. all outstanding equity awards shall immediately vest and,as applicable, become exercisable. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent orlimit the Employee's continuing or future participation in any benefit, bonus,incentive or other plans, programs, policies or practices, provided by theCompany or any of its subsidiaries and for which the Employee may qualify, norshall anything herein limit or otherwise affect such rights as the Employee mayhave under any stock option or other agreements with the Company or any of itssubsidiaries. Amounts which are vested benefits or which the Employee isotherwise entitled to receive under any plan, policy, practice or program of theCompany or any of its subsidiaries at or subsequent to the Date of Terminationshall be payable in accordance with such plan, policy, practice or programprovided, however, that in the event the terms of any such plan, policy,practice or program concerning the payment of benefits thereunder shall conflictwith any provision of this Agreement, the terms of this Agreement shall takeprecedence but only if and to the extent the payment would not adversely affectthe tax exempt status (if applicable) of any such plan, policy, practice orprogram and only if the Employee agrees in writing that such payment shall be inlieu of any corresponding payment from such plan, policy, practice or program. 8. Full Settlement. The Company's obligation to make the payments providedfor in this Agreement and otherwise to perform its obligations hereunder shallnot be affected by any set-off, counterclaim, recoupment, defense or otherclaim, right or action which the Company may have against the Employee orothers. In no event shall the Employee be obligated to seek other employment ortake any other action by way of mitigation of the amounts payable to theEmployee under any of the provisions of this Agreement. The Company agrees topay, to the full extent permitted by law, all legal fees and expenses which theEmployee may reasonably incur as a result of any contest (regardless of theoutcome thereof) by the Company or others of the validity or enforceability of,or liability under, any provision of this Agreement or any guarantee ofperformance thereof (including as a result of any contest by the Employee aboutthe amount of any payment pursuant to Section 9 of this Agreement), plus in eachcase interest at the applicable Federal rate provided for in Section 7872(f)(2)of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Non-competition. As a condition to receiving any benefits pursuant tothis Agreement, the Employee agrees that during his period of employment andthrough the first anniversary of his Date of Termination, the Employee shall notengage in or become associated with any Competitive Activity. For purposes ofthis Section 9, a - 8 -"Competitive Activity" shall mean any business or other endeavor that engages inany country in which the Company or its Affiliates have business operations in abusiness that directly or indirectly competes with all or any substantial partof any of the business in which the Company or its Affiliates is engaged at thetime of the Employee's Date of Termination. The Employee shall be considered tohave become "engaged" or "associated" with a Competitive Activity if he becomesinvolved as an owner, employee, officer, director, independent contractor,agent, partner, advisor, lender, or in any other capacity calling for therendition of the Employee's personal services, either alone or with anyindividual, partnership, corporation or other organization that is engaged in aCompetitive Activity and his involvement relates in any respect to theCompetitive Activity of such entity; provided, however, that the Employee shallnot be prohibited from owning less than two percent of any publicly tradedcorporation, whether or not such corporation is in competition with the Company.If, at any time, the provisions of this Section 9 shall be determined to beinvalid or unenforceable, by reason of being vague or unreasonable as to area,duration or scope of activity, this Section 9 shall be considered divisible andshall become and be immediately amended to only such area, duration and scope ofactivity as shall be determined to be reasonable and enforceable by the court orother body having jurisdiction over the matter; and the Employee agrees thatthis Section 9 as so amended shall be valid and binding as though any invalid orunenforceable provision had not been included herein. 10. Confidential Information. The Employee shall hold in a fiduciarycapacity for the benefit of the Company all secret or confidential information,knowledge or data relating to the Company or any of its subsidiaries, and theirrespective businesses, which shall have been obtained by the Employee during theEmployee's employment by the Company or any of its subsidiaries and which shallnot be or become public knowledge (other than by acts by the Employee or hisrepresentatives in violation of this Agreement). After termination of theEmployee's employment with the Company, the Employee shall not, without theprior written consent of the Company, communicate or divulge any suchinformation, knowledge or data to anyone other than the Company and thosedesignated by it. In no event shall an asserted violation of the provisions ofthis Section 10 constitute a basis for deferring or withholding any amountsotherwise payable to the Employee under this Agreement. 11. Successors. (a) This Agreement is personal to the Employee and withoutthe prior written consent of the Company shall not be assignable by the Employeeotherwise than by will or the laws of descent and distribution. This Agreementshall inure to the benefit of and be enforceable by the Employee's legalrepresentatives. (b) This Agreement shall inure to the benefit of and bebinding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether director indirect, by purchase, merger, consolidation or otherwise) to all orsubstantially all of the business and/or - 9 -assets of the Company to assume expressly and agree to perform this Agreement inthe same manner and to the same extent that the Company would be required toperform it if no such succession had taken place. As used in this Agreement,"Company" shall mean the Company as hereinbefore defined and any successor toits business and/or assets as aforesaid which assumes and agrees to perform thisAgreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed inaccordance with the laws of the State of Delaware, without reference toprinciples of conflict of laws. The captions of this Agreement are not part ofthe provisions hereof an shall have no force or effect. (b) All notices and other communications hereunder shall bein writing and shall be given by hand delivery to the other party or byregistered or certified mail, return receipt requested, postage prepaid,addressed as follows: If to the Employee: Mr. Paolo Russolo If to the Company: Cambrex Corporation One Meadowlands Plaza East Rutherford, N.J. 07073 Attention: General Counselor to such other address as either party shall have furnished to the other inwriting in accordance herewith. Notice and communications shall be effectivewhen actually received by the addressee. (c) The invalidity or unenforceability of any provision ofthis Agreement shall not affect the validity or enforceability of any otherprovision of this Agreement. (d) The Company may withhold from any amounts payable underthis Agreement such Federal, state or local taxes as shall be required to bewithheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliancewith any provision hereof shall not be deemed to be a waiver of such provisionor any other provision thereof. (f) This Agreement contains the entire understanding of theCompany and the Employee with respect to the subject matter hereof. Thisagreement may not be amended or modified otherwise than by a written agreementexecuted by the parties hereto or their respective successors and legalrepresentatives. - 10 - (g) The Employee and the Company acknowledge that theemployment of the Employee by the Company or any of its subsidiaries prior tothe Effective Date is "at will", and, prior to the Effective Date, may beterminated by either the Employee or the employer at any time. Upon atermination of the Employee's employment or upon the Employee's ceasing to be anofficer of the Company, in each case, prior to the Effective Date, there shallbe no further rights under this Agreement. IN WITNESS WHEREOF, pursuant to the authorization from itsBoard of Directors, the Company has caused these presents to be executed in itsname on its behalf, and the Employee has hereunto set his hand, all as of theday and year first above written. CAMBREX CORPORATION By: ___________________________________ James A. Mack, Chairman, President & Chief Executive Officer ___________________________________ Paolo Russolo . . . CAMBREX CORPORATION EXHIBIT 21 SUBSIDIARIES OF REGISTRANTSubsidiary Incorporated in:------------- ----------------- Cambrex North Brunswick, Inc. DelawareCambrex Charles City, Inc. IowaCambrex Bio Science Walkersville, Inc. DelawareCambrex Profarmaco Milano S.r.l. ItalyCambrex Karlskoga AB SwedenCambrex Bio Science Verviers Sprl BelgiumCambrex Bio Science Rockland, Inc. DelawareCambrex Bio Science Copenhagen ApS DenmarkCambrex Bio Science Nottingham Limited EnglandCambrex Bio Science Baltimore, Inc. DelawareCambrex Bio Science Hopkinton, Inc. DelawareCambrex Bio Science Clermont Ferrand SAS France CAMBREX CORPORATION EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the RegistrationStatements on Form S-8 (File Nos. 333-57404, 333-22017, 33-21374, 33-37791,33-81780, 33-81782, 333-113612, 333-113613, 333-129473 and 333-136529) ofCambrex Corporation of our report dated March 15, 2007 relating to the financialstatements, financial statement schedule, management's assessment of theeffectiveness of internal control over financial reporting and the effectivenessof internal control over financial reporting, which appears in this Form 10-K./s/ PRICEWATERHOUSECOOPERS LLPFlorham Park, New JerseyMarch 15, 2007 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each officer and director of CambrexCorporation, a Delaware corporation, whose signature appears below constitutesand appoints James A. Mack and Gregory P. Sargen, and each of them, his true andlawful attorneys-in-fact and agents, with full power of substitution andresubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any and all Annual Reports on Form 10-K which said CambrexCorporation may be required to file pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 and any and all amendments thereto and to filethe same, with all exhibits thereto, and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto saidattorneys-in-fact and agents full power and authority to do and perform each andevery act and thing requisite and necessary to be done in and about thepremises, as fully to all intents and purposes as he might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact andagents or their substitutes may lawfully do or cause to be done by virtuehereof. IN WITNESS WHEREOF each of the undersigned has executed this instrument asof the 15th day of March 2007./s/ James A. Mack /s/ Gregory P. Sargen---------------------------------------- -----------------------------------James A. Mack Gregory P. SargenChairman of the Board of Directors, Vice President and Chief FinancialPresident and Chief Executive Officer Officer (Principal Financial Officer and Accounting Officer)/s/ David R. Bethune /s/ Ilan Kaufthal---------------------------------------- -----------------------------------David R. Bethune Ilan KaufthalDirector Director/s/ Rosina B. Dixon /s/ William Korb---------------------------------------- -----------------------------------Rosina B. Dixon, M.D. William KorbDirector Director/s/ Roy W. Haley /s/ John R. Miller---------------------------------------- -----------------------------------Roy W. Haley John R. MillerDirector Director/s/ Kathryn Rudie Harrigan /s/ Peter G. Tombros---------------------------------------- -----------------------------------Kathryn Rudie Harrigan, PhD Peter G. TombrosDirector Director/s/ Leon J. Hendrix, Jr.----------------------------------------Leon J. Hendrix, Jr.Director EXHIBIT 31.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)I, James A. Mack, certify that: 1. I have reviewed this annual report on Form 10-K of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periods in which this annual report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date: March 15, 2007 /s/ James A. Mack ---------------------------------------- James A. Mack Chairman of the Board of Directors, President and Chief Executive Officer EXHIBIT 31.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)I, Gregory P. Sargen, certify that: 1. I have reviewed this annual report on Form 10-K of Cambrex Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d-15(f))for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date: March 15, 2007 /s/ Gregory P. Sargen ---------------------------------------- Gregory P. Sargen Vice President and Chief Financial Officer EXHIBIT 32.1 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Annual Report of Cambrex Corporation (the"Company") on Form 10-K for the period ending December 31, 2006, as filed withthe Securities and Exchange Commission on the date hereof (the "Report"), I,James A. Mack, President and Chief Executive Officer of the Company, certify,pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section1350), that:1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: March 15, 2007 /s/ James A. Mack ---------------------------------------- James. A. Mack Chairman of the Board of Directors, President and Chief Executive Officer EXHIBIT 32.2 CAMBREX CORPORATION CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Annual Report of Cambrex Corporation (the"Company") on Form 10-K for the period ending December 31, 2006, as filed withthe Securities and Exchange Commission on the date hereof (the "Report"), I,Gregory P. Sargen, Vice President and Chief Financial Officer of the Company,certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.Section 1350), that:1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: March 15, 2007 /s/ Gregory P. Sargen ---------------------------------------- Gregory P. Sargen Vice President and Chief Financial Officer

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