-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S6QwzAXVSG9jiA5kQugFza7VvscBVAk7Kbq1Ezs/U4kZLNgDikDUdLbkdpCHfDlx PSIn19jaLzTiGxDXbfh01w== 0000950135-98-001439.txt : 19980310 0000950135-98-001439.hdr.sgml : 19980310 ACCESSION NUMBER: 0000950135-98-001439 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980309 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOGEN INC CENTRAL INDEX KEY: 0000714655 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043002117 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12042 FILM NUMBER: 98560286 BUSINESS ADDRESS: STREET 1: 14 CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176792000 MAIL ADDRESS: STREET 1: 14 CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: BIOGEN NV DATE OF NAME CHANGE: 19880622 10-K 1 BIOGEN, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-12042 BIOGEN, INC. (Exact name of Registrant as specified in its charter) Massachusetts 04-3002117 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 14 Cambridge Center, Cambridge, Massachusetts 02142 (Address of principal executive offices)(zip code) Registrant's telephone number, including area code: (617) 679-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by nonaffiliates of the Registrant at February 18, 1998 (excludes shares held by directors) $3,132,883,164: Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant. Common Stock outstanding at February 18, 1998: 73,822,242 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report, and portions of the Registrant's 1997 Annual Report to Shareholders are incorporated by reference into Parts II and IV of this Report. 2 PART I ITEM 1 - BUSINESS OVERVIEW Biogen, Inc. ("Biogen" or the "Company") is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of AVONEX(R) (Interferon beta-1a) for the treatment of relapsing forms of multiple sclerosis and from sales by Biogen's licensees of a number of products, including alpha interferon and hepatitis B vaccines and diagnostic products. Biogen began marketing AVONEX(R) in the United States in 1996 and in the fifteen member countries of the European Union in 1997. Biogen's revenues from sales of AVONEX(R) in 1997 were approximately $240 million. During 1997, Biogen also received approximately $172 million in royalty revenue and license fees from its licensees, including a one-time license fee of $15 million from Merck & Co., Inc. under a collaborative agreement for the development of VLA-4 inhibitor compounds. Biogen continues to devote significant resources to its ongoing research and development efforts. The Company focuses its efforts on areas where it has particular scientific strengths: multiple sclerosis, kidney diseases, inflammatory diseases, respiratory diseases, cardiovascular diseases, developmental biology and gene therapy. In 1997, Biogen completed early-stage clinical trials of several of its product candidates, including a Phase 2a clinical trial of LFA3TIP in patients with moderate to severe psoriasis, two Phase 2a studies of CVT-124, a diuretic being developed as a potential treatment for edema associated with congestive heart failure, a Phase 2 study of gelsolin, a mucolytic agent studied as a potential treatment for cystic fibrosis, and a Phase 1 safety study of humanized 5c8 anti-CD40 ligand monoclonal antibody in patients with ideopathic thrombocytopenic purpura. Additional clinical trials of LFA3TIP, humanized 5c8 and CVT-124 are underway or planned. In addition, Biogen has early-stage research programs directed toward finding therapies for kidney diseases, exploring ways to treat central nervous system disorders, developing products for human gene therapy and investigating new ways to modify immune responses more specifically in order to treat diseases of the immune system. Biogen is also exploring the use of functional genomics technology to find novel therapeutics. AVONEX(R) INTERFERON BETA-1a Biogen currently markets and sells AVONEX(R) (Interferon beta-1a) for the treatment of relapsing forms of multiple sclerosis. Multiple sclerosis is a progressive neurological disease in which the body loses the ability to transmit messages among nerve cells, leading to a loss of muscle control, paralysis and, in some cases, death. Patients with active relapsing multiple sclerosis experience an uneven pattern of disease progression characterized by periods of stability interrupted by flareups of the disease after which the patient returns to a new baseline of functioning. AVONEX(R) is a recombinant form of a protein produced by fibroblast cells in response to viral infection. AVONEX(R) has been shown in a pivotal clinical trial both to slow the accumulation of disability and to reduce the frequency of exacerbations in patients with relapsing forms of multiple sclerosis. Biogen began selling AVONEX(R) in the United States in May 1996. In March 1997, Biogen received regulatory approval to market and sell AVONEX(R) in the 15 member countries of the European 2 3 Union (EU). Shortly after approval in the EU, Biogen began selling AVONEX(R) in the United Kingdom, Germany, Austria, Sweden, Finland, Denmark and Switzerland. The Company introduced AVONEX(R) in the other countries of the EU, including Italy, Spain, the Netherlands, France and Ireland, in the latter half of 1997. AVONEX(R) is also on the market in Norway, Israel and Cyprus. In addition, Biogen has received regulatory approval and is awaiting final reimbursement and pricing clearance to market AVONEX(R) in New Zealand. The Company expects to receive regulatory approval to market and sell AVONEX(R) in Canada in the first half of 1998. In the United States and in most of the major countries of the EU, Biogen uses its own sales force to market AVONEX(R). In those countries, Biogen distributes AVONEX(R) principally through wholesale distributors of pharmaceutical products or mail order or specialty distributors or using shipping service providers. The Company also expects to market AVONEX(R) directly in Canada. In other countries, including Spain, Sweden, Finland, Norway, Denmark, Italy, Greece, Portugal, Israel and New Zealand, Biogen sells AVONEX(R) to distribution partners who are then responsible for most marketing and distribution activities. The Company has also entered into distribution agreements covering Australia, Latin America, the Caribbean, and South Africa, and anticipates entering into agreements covering Eastern Europe, Turkey and the Middle East in 1998. Under most of these agreements the distribution partners are responsible for obtaining regulatory approval for AVONEX(R) as well as marketing and distribution. Biogen is currently conducting several additional clinical studies of AVONEX(R). These include a clinical study of AVONEX(R) in patients who have had only one confirmed exacerbation and a dose comparison study comparing the approved dosage of AVONEX(R) with a higher dose, both of which were initiated in 1996, and a four-year open-label follow-up study initiated in 1995 to obtain long-term safety and antigenicity data. In addition, in 1997, Biogen began enrollment in a clinical study of AVONEX(R) in patients with secondary progressive multiple sclerosis, and commenced a Phase 2 clinical study of AVONEX(R) in the treatment of glioma, a type of brain cancer. Revenues from sales of AVONEX(R) in 1997 were $240 million or approximately 55% of total revenues. Revenues from sales of AVONEX(R) in 1996 were $76.5 million or approximately 28% of total revenues. Approximately 92% of AVONEX(R) sales in 1997 and approximately 99% of AVONEX(R) sales in 1996 were generated in the United States. Sales to three major wholesale distributors in the United States accounted for 11.3%, 10.8% and 10.5%, respectively, of total revenues (excluding interest) in 1997. MAJOR RESEARCH AND DEVELOPMENT PROGRAMS Biogen's research is focused on biological systems and processes where its scientific expertise in molecular biology, cell biology, immunology and protein chemistry can lead to a greater understanding of disease processes and, as a result, to the creation of new pharmaceuticals. Biogen selects product candidates from its research programs to test in clinical trials, focusing its efforts on those agents which it believes have the greatest potential competitive advantages and large commercial markets. Described below are Biogen's major research programs. 3 4 LFA3TIP Inflammation is the result of the body's immune system response to infection and injury. In many autoimmune diseases, the inflammation process is directed inappropriately against the body's own tissues, causing temporary or permanent damage. Biogen has focused the efforts of its inflammation programs on developing drugs to inhibit specific cellular interactions critical to the inflammation process. Central to inflammation is the activation of T-cells, specialized white blood cells which initiate and control the immune response. One of the cellular pathways which activates T-cells is the LFA-3/CD2 pathway. LFA3TIP, a recombinant protein, is designed to modulate immune responses by binding to the CD2 receptor. Biogen is developing LFA3TIP as a treatment for certain autoimmune diseases. In 1997, the Company completed a Phase 2a clinical study of the safety profile of LFA3TIP in patients with moderate to severe psoriasis. A second Phase 2a study was extended to test additional routes of administration. Psoriasis is a chronic autoimmune disease that is characterized by inflammation and thickening of the skin. An estimated 500,000 psoriasis patients in the United States and Europe combined have a severe enough form of the disease to need systemic therapies. The completed Phase 2a study involved 51 patients in the United States and Europe. A larger Phase 2b study designed to provide initial evidence of the efficacy of LFA3TIP compared to a placebo is scheduled to commence in the first half of 1998. HUMANIZED 5c8 The human immune system generates two types of responses: humoral (also known as antibody) responses and cell-mediated responses. When CD40 ligand ("CD40L") on the surface of an activated T-cell binds to CD40 on the surface of a B-cell, an antibody response occurs, and the production of antibodies is triggered. When CD40L on the surface of an activated T-cell binds to CD40 on the surface of a variety of other cells, such as macrophages and dendritic cells, a cell-mediated response occurs, and the cells then become activated, triggering an inflammatory response. The inhibition of the CD40-CD40L pathway offers a unique target for modulating both types of immune responses. Biogen is developing hu5c8, a humanized monoclonal antibody which binds to CD40L, as a treatment for a variety of autoimmune diseases and as a therapy for preventing organ and cellular transplant rejection. In 1997, the Company completed a Phase 1 safety study of hu5c8 in patients with ideopathic thrombocytopenic purpura ("ITP"). The Company expects to commence Phase 2 studies of hu5c8 in 1998 in ITP, systemic lupus erythematosus, and hemophilia A patients with inhibitors to Factor VIII. CVT-124 In March 1997, Biogen entered into a research collaboration and license agreement with CV Therapeutics, Inc. ("CVT") under which the Company obtained rights to develop and market CVT-124. CVT-124 is a highly selective antagonist of the adenosine A1 receptor which is expressed principally in the heart, brain and kidney, and which in the kidney mediates vasoconstriction and reabsorption of fluids. Biogen is developing CVT-124 as a treatment for edema associated with congestive heart failure. Congestive heart failure is a chronic progressive disease that affects approximately four to five million people in the United States. Patients with the disease experience both a chronic course as well as acute episodes that, in many cases, require hospitalization. Edema, or fluid retention, in lungs and extremities 4 5 is a significant symptom of chronic heart failure, leading to increased morbidity and need for hospitalization. In 1997, Biogen completed two Phase 2a clinical studies of CVT-124. The Company expects to commence a Phase 2b study comparing CVT-124 to a currently available therapy in 1998. VLA-4 INHIBITORS VLA-4 (Very Late Antigen-4) is a receptor which appears on the surface of most white blood cells except neutrophils and binds to VCAM-1, a protein found on the surface of vascular endothelial cells. The VLA-4/VCAM-1 pathway facilitates migration of white blood cells into tissue as part of the body's normal response during inflammation. This inflammatory response can be severely damaging or even life threatening when it is directed against the body's own tissue in chronic inflammatory diseases such as asthma. Biogen scientists have developed VLA-4-specific small molecule inhibitors designed to interrupt the cell adhesion activity of VLA-4 as a means of blocking the inflammation process in a highly specific manner. In December 1997, Biogen entered into a collaborative research, development and license agreement with Merck & Co., Inc. ("Merck") under which Biogen and Merck will collaborate on developing oral and aerosolized small molecule inhibitors of VLA-4. Biogen expects that Merck will commence a Phase 1 clinical trial of an aerosolized VLA-4 inhibitor in 1998. Under the agreement with Merck, Biogen has rights to develop, market and sell small molecule inhibitors of VLA-4 for the treatment of multiple sclerosis, kidney diseases and disorders, inflammatory bowel disease and most diseases with small patient populations. Merck has rights to develop, market and sell small molecule inhibitors of VLA-4 in all other indications, including asthma. As part of the agreement, Merck paid to Biogen an upfront fee of $15 million. The agreement also provides for payments to be made by each party upon the attainment of certain development milestones by the other party. In addition, if a product is successfully developed by a party, the other party will receive royalties on sales of the product. In connection with Merck's agreement with Biogen, Merck's Japanese affiliate, Banyu Pharmaceutical Co., Ltd., will manage clinical development and the regulatory approval process in Japan with respect to one of Biogen's proprietary compounds to be selected by Biogen. The marketing rights to the compound worldwide, including Japan, will be retained by Biogen. GELSOLIN Biogen has been studying a recombinant form of the actin-severing agent, gelsolin, as a potential therapy for patients with cystic fibrosis ("CF"), chronic bronchitis and several other pulmonary diseases. Thick viscid secretions in the airways of CF patients and patients with other respiratory diseases are believed to cause progressive pulmonary destruction. A major contributor to the viscosity of mucus secretions is the release of a large amount of filamentous actin by degenerating inflammatory cells which migrate in large numbers to the airways of patients with these diseases. Biogen and its collaborators believe that severing actin filaments contaminating the airway mucus may lead to clinical improvement. In 1997, Biogen completed a Phase 2 clinical study of gelsolin. The results of the trial were inconclusive. The Company does not intend to pursue further clinical development of gelsolin itself, and instead is currently looking for opportunities to license its rights to a third party. 5 6 OP-1 In 1996, Biogen entered into a collaborative research and license agreement with Creative BioMolecules, Inc. ("CBM") for the development of CBM's morphogenic protein, OP-1, for the treatment of kidney diseases and disorders. OP-1 is a circulating human protein agonist expressed during development and regeneration of the kidney, spinal cord and bone. Under its agreement with CBM, Biogen obtained exclusive worldwide rights to develop, market and sell OP-1 in the renal field. Biogen is currently studying OP-1 as a treatment for acute and chronic renal failure. HEDGEHOG PROTEINS In 1996, the Company entered into a research collaboration and license agreement with Ontogeny, Inc. ("Ontogeny") for the development of three specific "hedgehog" cell differentiation proteins. Hedgehog proteins are a class of novel human proteins that are responsible for inducing the formation or regeneration of tissue. Under its agreement with Ontogeny, Biogen obtained access to exclusive worldwide rights to develop therapeutics directly based on Ontogeny's proprietary family of sonic, indian and desert hedgehogs for most disease indications. The Company's current focus is the study of the hedgehog proteins for the treatment of central nervous system disorders. GENE THERAPY In 1995, the Company entered into a collaborative research agreement with Genovo, Inc. ("Genovo") for the development of certain human gene therapy treatments. Under its agreement with Genovo, Biogen received certain rights related to diseases of the liver and lung. OTHER RESEARCH PROGRAMS As part of its further research efforts, Biogen is exploring the use of growth factors to prevent or treat the degeneration of the kidney which results from renal failure. The Company is also investigating new ways to modify immune responses more specifically in order to treat diseases of the immune system. In addition, through its collaboration with CuraGen Corporation, Biogen is exploring the use of functional genomics technology to find novel therapeutics. RESEARCH AND DEVELOPMENT COSTS During 1997, 1996 and 1995, Biogen's research and development costs were approximately $145.5 million, $132.4 million and $87.4 million, respectively. RISKS ASSOCIATED WITH DRUG DEVELOPMENT AND COMMERCIALIZATION Certain of the statements set forth above regarding the Company's research and development programs and AVONEX(R) commercialization, such as the statement regarding the anticipated receipt and timing of regulatory approval for the marketing of AVONEX(R) in Canada and the anticipated commencement of clinical trials of drugs in development, are forward-looking, and are based upon the Company's current belief as to the outcome and timing of such future events. These events are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. For example, to receive final marketing approval from 6 7 Canada for AVONEX(R) in the first half of 1998, the Company must await final action by the Canadian regulatory authorities, the outcome and timing of which is still within the regulatory authorities' sole control. Many important factors affect the Company's ability to successfully develop and commercialize drugs, including the ability to demonstrate the safety and efficacy of drug candidates at each stage of the clinical trial process, to meet applicable regulatory standards and to receive required regulatory approvals, to be capable of producing drug candidates in commercial quantities at reasonable costs, to obtain and maintain all necessary patents or licenses, to compete successfully against other products, and to market products successfully. There can be no assurance that any of the products described in this section or resulting from Biogen's research and development programs will be successfully developed, prove to be safe and efficacious at each stage of clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at reasonable costs, be successfully marketed or successfully meet challenges from competitive products. For a detailed discussion of the outlook of the Company, see the "Outlook" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference under Item 7. PRINCIPAL PRODUCTS BEING MARKETED OR DEVELOPED BY BIOGEN'S LICENSEES INTRON(R) A ALPHA INTERFERON Alpha interferon is a naturally occurring protein produced by normal white blood cells. Biogen has been granted patents covering the production of alpha interferons through recombinant DNA techniques. See "Patents and Other Proprietary Rights." Biogen's worldwide licensee for recombinant alpha interferon, Schering-Plough Corporation ("Schering-Plough"), first began commercial sales of its Intron(R) A brand of alpha interferon in the United States in 1986 for hairy-cell leukemia. Schering-Plough now sells Intron(R) A worldwide for as many as 16 indications. The FDA has approved Intron(R) A for the treatment of chronic hepatitis B and hepatitis C, hairy cell leukemia, AIDS-related Kaposi's sarcoma, condylomata acuminata, and for injection as an adjuvant treatment to surgery in patients at high risk for systemic recurrence of malignant melanoma. In 1997, Schering-Plough also received marketing clearance from the FDA for use of Intron(R) A for injection in conjunction with anthracycline-containing combination chemotherapy for the initial treatment of patients with clinically aggressive non-Hodgkin's lymphoma, and filed a New Drug Application for the combination use of Intron(R) A and REBETOL(R) (ribavirin, USP capsules) for the treatment of chronic hepatitis C. Schering-Plough has undertaken studies using Intron(R) A for a number of additional indications. Royalties from Schering-Plough on sales of Intron(R) A accounted for approximately 19%, 27% and 40% of Biogen's revenues (excluding interest) in 1997, 1996 and 1995, respectively. HEPATITIS B VACCINES AND DIAGNOSTICS Hepatitis B is a blood-borne disease which causes a serious infection of the liver and substantially increases the risk of liver cancer. More than 250 million people worldwide have chronic hepatitis B virus infections. Biogen holds several important patents related to hepatitis B antigens produced by genetic engineering techniques. See "Patents and Other Proprietary Rights." These antigens are used in recombinant hepatitis B vaccines and in diagnostic test kits used to detect hepatitis B infection. 7 8 HEPATITIS B VACCINES At least 20 countries around the world, including the United States, recommend vaccination against hepatitis B for all infants. The United States Centers for Disease Control and the American Academy of Pediatrics have also recommended universal immunization of ten-year-old children and at-risk adolescents. The United States Occupational Safety and Health Administration has recommended that all persons with an occupational exposure to blood and other infectious material receive the hepatitis B vaccine. SmithKline Beecham Biologicals s.a. ("SmithKline") and Merck are the two major worldwide marketers of hepatitis B vaccines. Biogen has licensed to SmithKline exclusive rights under Biogen's hepatitis B patents to market hepatitis B vaccines in the major countries of the world, excluding Japan. SmithKline's vaccine is approved in the United States and in over 60 other countries. In 1990, SmithKline and Biogen entered into a sublicense arrangement with Merck under which Biogen currently receives royalties. Biogen has also licensed rights under its hepatitis B patents to Merck and The Green Cross Corporation on a non-exclusive basis in Japan. Royalties from SmithKline and Merck together accounted for approximately 14%, 23% and 48% of Biogen's revenues (excluding interest) in 1997, 1996 and 1995, respectively. HEPATITIS B DIAGNOSTICS Biogen has licensed its proprietary hepatitis B rights, on an antigen-by-antigen and nonexclusive basis, to diagnostic kit manufacturers. Biogen currently has hepatitis B license or license and supply agreements for diagnostic use with more than a dozen companies, including Abbott Laboratories, the major worldwide marketer of hepatitis B diagnostic kits, Ortho Diagnostic Systems, Inc., Roche Diagnostic Systems, Inc. and Organon Teknika B.V. OTHER PRODUCTS Under a license agreement with Eli Lilly and Company ("Lilly"), Biogen has granted Lilly rights under certain of Biogen's patents related to gene expression. Lilly uses the patented vectors and methods in several products that are on the market or in development. Under the license agreement Biogen receives royalties on sales of these products. See "Patents and Other Proprietary Rights". In 1996, Biogen granted a sublicense to Pharmacia & Upjohn AB ("Pharmacia & Upjohn") under certain patent rights to proprietary protein secretion technology exclusively licensed to Biogen by Harvard University. Under the terms of the license agreement, Biogen receives ongoing royalties on sales of Pharmacia & Upjohn's recombinant human growth hormone product, Genotropin(R), in the United States, Canada and Japan. In March 1997, Biogen granted to The Medicines Company ("TMC") exclusive worldwide rights to develop and market Hirulog(R) (bivalirudin) direct thrombin inhibitor. Biogen will receive milestone and royalty payments from TMC if TMC is successful in its efforts to develop and commercialize the drug. Financial information about foreign operations and export sales is included in Note 10 of the Notes to Consolidated Financial Statements incorporated by reference under Item 8. 8 9 PATENTS AND OTHER PROPRIETARY RIGHTS Biogen has filed numerous patent applications in the United States and various other countries seeking protection of a number of its processes and products, and patents have been issued on a number of these applications. The Company has also obtained rights to various patents and patent applications under licenses with third parties which provide for the payment of royalties by the Company. Issues remain as to the ultimate degree of protection that will be afforded to Biogen by its patents. There is no certainty that Biogen's existing patents or others, if obtained, will be of substantial protection or commercial benefit to Biogen. Furthermore, it is not known to what extent Biogen's pending patent applications or patent applications licensed from third parties will ultimately be granted as patents or whether those patents that have been issued or are issued in the future will prevail if they are challenged in litigation. Trade secrets and confidential know-how are important to Biogen's scientific and commercial success. Although Biogen seeks to protect its proprietary information, there can be no assurance that others will not either develop independently the same or similar information or obtain access to Biogen's proprietary information. RECOMBINANT ALPHA INTERFERON Biogen has more than 50 patents in countries around the world, including the United States and countries of the European Patent Office, covering the production of recombinant alpha interferons. Biogen has granted an exclusive worldwide license to Schering Plough under Biogen's alpha interferon patents, and receives royalties from Schering Plough on sales of its Intron(R) A brand of alpha interferon. See "Principal Products Being Marketed or Developed by Biogen's Licensees - Intron(R) A Alpha Interferon". In the United States, a Biogen patent application claiming recombinant mature human alpha interferon was involved in an interference to determine who was the first to invent that specific form of alpha interferon. In December 1995, priority of invention was awarded by a decision of the United States Patent and Trademark Office to the applicants of a patent application owned by Genentech, Inc. ("Genentech") and Hoffman La Roche Inc. ("Roche"). In April 1996, Biogen appealed the decision by way of a civil action against Genentech and Roche in the U.S. District Court for the District of Massachusetts. A decision is not expected before 1999. In the meantime, the companies are discussing possible alternative resolutions of the dispute. The primary U.S. patent under which Biogen has licensed Schering Plough for alpha interferon was not involved in the interference. Since Roche has granted certain non-exclusive rights under its patent application to Schering Plough, the decision of the U.S. Patent and Trademark Office in the interference has not affected Schering Plough's ability to market its Intron(R) A brand of alpha interferon. In the event Biogen does not prevail in its action against Genentech and Roche or does not resolve the matter in another manner satisfactory to Biogen, Schering Plough's royalty obligation to Biogen on sales of Intron(R) A in the United States will terminate upon expiration of Biogen's existing U.S. alpha interferon patent in 2002. In any event Schering Plough's royalty obligation to Biogen on sales of Intron(R) A in Europe will terminate upon expiration of Biogen's European alpha interferon patent in 2001. 9 10 In December 1996, Schering Plough filed suit in its own name, as exclusive licensee, against Amgen, Inc. ("Amgen") to enforce Biogen's U.S. alpha interferon patent claiming it to be infringed by Amgen's consensus interferon product known as Infergen(R). Yamanouchi Pharmaceutical Co. Ltd., Amgen's licensee, has filed a declaratory judgment action against Biogen in France, Italy and Germany seeking a judgment that its consensus interferon product does not infringe Biogen's alpha interferon patent. RECOMBINANT HEPATITIS B ANTIGENS Biogen has more than 75 patents in countries around the world, including three in the United States and two in countries of the European Patent Office, and several patent applications, covering the recombinant production of hepatitis B surface, core and "e" antigens. Biogen has licensed its recombinant hepatitis B antigen patent rights to manufacturers and marketers of hepatitis B vaccines and diagnostic test kits, and receives royalties on sales of the vaccines and test kits by its licensees. See "Principal Products Being Marketed or Developed by Biogen's Licensees - Hepatitis B Vaccines and Diagnostics." The obligation of SmithKline and Merck to pay royalties on sales of hepatitis B vaccines and the obligation of Biogen's other licensees under its hepatitis B patents to pay royalties on sales of diagnostic products will terminate upon expiration of Biogen's existing hepatitis B patents. Biogen's existing United States hepatitis B patents will expire in 2004. Biogen's European hepatitis B patents will expire at the end of 1999, except in those countries in which Biogen has or is able to obtain supplemental protection certificates. To date Biogen has received supplemental protection certificates in France, Italy, Luxembourg, The Netherlands and Sweden, and has a number of additional applications pending. The additional coverage afforded by the supplemental protection certificates ranges from two to six years. RECOMBINANT BETA INTERFERON In 1997, the Technical Board of Appeal of the European Patent Office revoked Biogen's European patent covering the production of recombinant beta interferon. Although no formal appeal procedure exists, Biogen has asked the European Patent Office to overturn the revocation. A patent application in the United States with similar claims is still pending. The Company also has a patent with similar claims in Israel. In Germany, a patent with similar claims was the subject of a nullity proceeding instituted by Schering AG in the German Federal Patent Court. In March 1998, the German Federal Patent Court indicated that it would uphold the German patent but with substantially narrower claims. The Company will decide whether to appeal the decision after it receives the written opinion. In July 1997, Biogen sued InterPharm Laboratories Ltd. ("Interpharm"), an affiliate of Ares Serono, S.A. ("Serono"), and related defendants, claiming that the manufacture by InterPharm of Serono's Rebif(R) (Interferon Beta-1a) infringes Biogen's patent in Israel. Other parties have pending patent applications or issued patents in the United States, Europe and other countries with claims to key intermediates in the production of beta interferon (the "Taniguchi patents") and to beta interferon itself (the "Roche patents"). Biogen has obtained non-exclusive rights in various countries of the world, including the United States, Japan and most European countries, to manufacture, use and sell AVONEX(R) under the Taniguchi patents and has obtained worldwide, non-exclusive rights under the Roche patents. In 1994, a European patent was issued to Dr. Rentschler Biotechnologie GmbH ("Rentschler") with claims relating to a specific cell line, production method and form of recombinant beta interferon. Biogen filed an opposition to the Rentschler patent in the European Patent Office seeking a revocation of the entire patent on grounds of lack of inventive step and lack of novelty. In April 1997, the Opposition Division of the European Patent Office revoked the Rentschler patent. Recently the European Patent 10 11 Office indicated that it will grant a second patent to Rentschler based on another patent application with claims to a specific structure of beta interferon. At such time as this patent is granted, Biogen will determine whether or not to oppose it. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against Biogen in the United States District Court for the District of New Jersey alleging infringement by Biogen of Berlex's "McCormick" patent in the United States in the production of AVONEX(R). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. Prior to the date of the suit filed by Berlex on the McCormick patent, Biogen filed a suit against Schering AG, Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") in the United States District Court for the District of Massachusetts for a declaratory judgment of non-infringement and invalidity of the McCormick patent contending that AVONEX(R), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is not valid. In November 1996, the U.S. District Court for the District of Massachusetts ruled that it had jurisdiction and Berlex's New Jersey action was transferred to Massachusetts. Biogen and Stanford subsequently entered into an agreement voluntarily dismissing Stanford from the suit. In February 1997, the U.S. District Court in Massachusetts dismissed Biogen's declaratory judgment action as to Schering AG without prejudice if such dismissal is later shown to result in an injustice to Biogen. The suit involving Berlex is still pending. A trial is not expected before the early part of 1999. OTHER PATENTS Biogen has granted Lilly a non-exclusive license under certain of Biogen's patents for gene expression. Lilly uses the patented vectors and methods in several products that are on the market or in development. Biogen's European patent relating to gene expression was opposed by Biotechnology General Corp. in December 1993. A hearing was held by the Opposition Division of the European Patent Office in March 1996. In March 1997, the Opposition Division decided to revoke Biogen's patent. Biogen has appealed the decision. In March 1995, Biogen filed suit in the U.S. District Court for the District of Massachusetts seeking to enjoin Amgen from manufacturing and selling its Neupogen(R) human granulocyte colony stimulating factor in the United States and asking for damages for infringing activities. Biogen believes that to make Neupogen(R) Amgen uses technology claimed in certain of Biogen's gene expression patents. Biogen does not expect a trial in the case prior to the early part of 1999. In July 1997, Biogen filed suit in the U.S. District Court for the District of Massachusetts to enjoin Amgen from manufacturing and selling its Infergen(R) consensus interferon in the United States and asking for damages for infringing activities. Biogen believes that to make Infergen(R) Amgen uses technology claimed in certain of Biogen's gene expression patents. Biogen's request to have the case consolidated with the Neupogen(R) suit was denied by the court. Biogen does not expect a trial in the case prior to the early part of 2000. THIRD PARTY PATENTS Biogen is aware that others, including various universities and companies working in the biotechnology field, have also filed patent applications and have been granted patents in the United 11 12 States and in other countries claiming subject matter potentially useful or necessary to Biogen's business. Some of those patents and applications claim only specific products or methods of making such products, while others claim more general processes or techniques useful or now used in the biotechnology industry. For example, Genentech has been granted patents and is prosecuting other patent applications in the United States and certain other countries which it may allege are currently used by Biogen and the rest of the biotechnology industry to produce recombinant proteins in microbial hosts. Genentech has offered to Biogen and others in the industry non-exclusive licenses under those patents and patent applications for various proteins and in various fields of use, but not for others. Schering-Plough, Biogen's exclusive licensee for recombinant alpha interferon, is licensed under certain of these patents for the manufacture, use and sale of recombinant alpha interferon. The ultimate scope and validity of Genentech's patents, of other existing patents, or of patents which may be granted to third parties in the future, the extent to which Biogen may wish or be required to acquire rights under such patents, and the availability and cost of acquiring such rights currently cannot be determined by Biogen. There has been, and Biogen expects that there may continue to be, significant litigation in the industry regarding patents and other intellectual property rights. Such litigation could create uncertainty and consume substantial resources. COMPETITION AND MARKETING IN GENERAL Competition in the biotechnology and pharmaceutical industries is intense and comes from many and varied sources. Biogen does not believe that it or any of the other industry leaders can be considered dominant in view of the rapid technological change in the industry. Biogen experiences significant competition from specialized biotechnology firms in the United States, Europe and elsewhere and from many large pharmaceutical, chemical and other companies. Certain of these companies have substantially greater financial, marketing, research and development and human resources than Biogen. The pharmaceutical companies have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. In addition, certain of Biogen's products may be subject to competition from products developed using alternatives to biotechnology techniques. Much competition is directed towards establishing proprietary positions through research and development. A key aspect of such competition is recruiting and retaining qualified scientists and technicians. Biogen believes that it has been successful in attracting skilled and experienced scientific personnel. Biogen believes that leadership in the industry will be based on managerial and technological superiority and may be influenced significantly by patents and other forms of protection of proprietary information. See "Patents and Other Proprietary Rights". The achievement of a leadership position depends largely upon Biogen's continued ability to attract and retain skilled and experienced personnel, its ability to identify and exploit commercially the products resulting from biotechnology research and the availability of adequate financial resources to fund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Many of Biogen's competitors are working to develop products similar to those under development by Biogen. The timing of the entry of a new pharmaceutical product into the market can be an important factor in determining the product's eventual success and profitability. Early entry may 12 13 have important advantages in gaining product acceptance and market share. Moreover, for certain diseases with limited patient populations, the FDA is prevented under the Orphan Drug Act, for a period of seven years, from approving more than one application for the "same" product for a single orphan drug designation, unless a later product is considered clinically superior. The European Union and other jurisdictions have or are considering similar laws. Accordingly, the relative speed with which Biogen can develop products, complete the testing and approval process and supply commercial quantities of the product to the market is expected to have an important impact on Biogen's competitive position. In addition, competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, reliability, availability and price. AVONEX(R) (INTERFERON BETA - 1a) As a treatment for multiple sclerosis, AVONEX(R) competes with interferon beta-1b which is sold in the United States under the brand name Betaseron(R) by Berlex Laboratories, Inc., a United States affiliate of Schering AG, and is sold in Europe under the brand name Betaferon(R) by Schering AG. AVONEX(R) also faces competition from Copaxone(R) glatiramer acetate (also known as copolymer-1). In the United States, Copaxone(R) is marketed by a partnership between Teva Pharmaceuticals ("Teva") and Hoechst Marion Roussel, Inc. AVONEX(R) also competes in Italy and Spain with FRONE(R), an extracted form of beta interferon sold by Ares Serono S.A. ("Serono") and in Germany with Imurek(R) azathioprine sold by Glaxo Wellcome GmbH. Serono has also filed for approval in the European Union to market and sell Rebif(R), its recombinant interferon beta-1a product, as a treatment for multiple sclerosis. Serono is also seeking approval to market Rebif(R) in the United States, but to be approved as a treatment for relapsing forms of multiple sclerosis would have to overcome the orphan drug status afforded to AVONEX(R) and Betaseron(R) for that indication by the FDA. A number of other companies are working to develop products to treat multiple sclerosis which may in the future compete with AVONEX(R). Biogen believes that competition among treatments for multiple sclerosis will be based on product performance, service and price. REGULATION Biogen's current and contemplated activities and the products and processes that will result from such activities are and will be subject to substantial government regulation. Before new pharmaceutical products may be sold in the United States and other countries, clinical trials of the products must be conducted and the results submitted to appropriate regulatory agencies for approval. These clinical trial programs generally involve a three-phase process. Typically, in Phase 1, trials are conducted in volunteers or patients to determine the early side effect profile and, perhaps, the pattern of drug distribution and metabolism. In Phase 2, trials are conducted in groups of patients with a specific disease in order to determine appropriate dosages, expand evidence of the safety profile and, perhaps, determine preliminary efficacy. In Phase 3, large scale, comparative trials are conducted on patients with a target disease in order to generate enough data to provide the statistical proof of efficacy and safety required by national regulatory agencies. The receipt of regulatory approvals often takes a number of years, involving the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. On occasion, regulatory authorities may require larger or additional studies, leading to unanticipated delay or expense. 13 14 In connection with the commercialization of products resulting from Biogen's research and development projects, it is necessary, in a number of countries, to comply with certain regulations relating to the manufacturing and marketing of such products and to the products themselves. For example, the commercial manufacturing, marketing and exporting of pharmaceutical products require the approval of the FDA in the United States and of comparable agencies in other countries. The FDA has established mandatory procedures and safety standards which apply to the manufacture, clinical testing and marketing of pharmaceutical products in the United States. The regulatory requirements and approval processes for new products in the European Union operate under similar principles as those applied in the United States. The process of seeking and obtaining approval of the FDA or regulatory authorities in the European Union or other regulatory authorities worldwide for a new product and licensing of the facilities in which the product is produced are likely to take a number of years and involve the expenditure of substantial resources. In addition, the regulatory approval processes for products in the United States, the countries of the European Union and other countries around the world are undergoing or may undergo changes. Biogen cannot determine what effect any changes in regulatory approval processes may have on its business. In the United States, the federal government regularly considers reforming health care coverage and costs. Resulting legislation or regulatory actions may have a significant effect on the Company's business. Biogen's ability to commercialize successfully human pharmaceutical products also may depend in part on the extent to which reimbursement for the costs of such products and related treatments will be available worldwide from government health administration authorities, private health insurers and other organizations. Currently, substantial uncertainty exists as to the reimbursement status of newly approved health care products by third-party payors. Biogen's policy is to conduct relevant research in compliance with the current United States National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules (the "NIH Guidelines") and all other applicable federal and state regulations. By local ordinance, Biogen is required, among other things, to comply with the NIH Guidelines in relation to its facilities in Cambridge, Massachusetts, and is required to operate pursuant to certain permits. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with Biogen's research work are or may be applicable to its activities. The extent of government regulation which might result from future legislation or administrative action cannot accurately be predicted. Certain agreements entered into by Biogen involving exclusive license rights may be subject to national or supranational antitrust regulatory control, the effect of which also cannot be predicted. EMPLOYEES At December 31, 1997, Biogen employed 797 full-time employees in the United States. Of the 797 employees, approximately 143 were engaged in, or directly supported, research and development, approximately 423 were involved in, or directly supported, manufacturing, quality assurance/quality control, regulatory, medical operations and preclinical and clinical development and approximately 107 were involved in sales and marketing. In addition, Biogen maintains consulting arrangements with a 14 15 number of scientists at various universities and other research institutions in Europe and the United States, including the nine outside members of its Scientific Board. ITEM 2 - PROPERTIES Biogen's principal executive offices and a majority of its administrative, manufacturing and research and development facilities are located in Cambridge Massachusetts. The Company owns a 150,000 square foot building in Cambridge which houses laboratories and office space. The Company also leases a total of approximately 300,992 square feet of additional office, manufacturing and research and development space in all or part of four other buildings in Cambridge, consisting of a 67,362 square foot building housing manufacturing facilities, laboratories and office space, a building with 65,792 square feet of space containing laboratories, purification and aseptic bottling facilities and office space, a multi-tenant building where the Company leases approximately 150,838 square feet of office space, of which the Company currently occupies 94,702 square feet, and a 17,000 square foot building housing office space and distribution facilities. The Company also has development options for additional property in Cambridge. The lease expiration dates for the leased sites range from 2000 to 2012. In 1997, the Company completed construction of a 100,000 square foot biologics manufacturing facility in Research Triangle Park, North Carolina. The Company recently received approval from the FDA to use the Research Triangle Park facility as an additional site for the manufacture of AVONEX(R). Biogen financed construction of the buildings which it owns in Cambridge, Massachusetts and Research Triangle Park, North Carolina with term loans. The loans are secured by the buildings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated by reference under Item 7. The Company's European headquarters consists of 1,400 square meters of office space in a multi-tenant building in Nanterre, France. The lease for this space terminates in 2003 with Biogen having the right to terminate the lease earlier under specified circumstances. The Company also leases small offices in England, Germany, The Netherlands, Switzerland, Austria and Canada. The Company believes that its production plants in Cambridge, Massachusetts and Research Triangle Park, North Carolina and existing outside sources will allow it to meet, in the near term, its production needs for clinical trials and its production needs for AVONEX(R). Biogen believes that its existing facilities are in compliance with applicable regulatory standards. The Company expects that additional facilities and outside sources will be required to meet the Company's future research and production needs. ITEM 3 - LEGAL PROCEEDINGS During the fourth quarter of 1994, a total of six class action lawsuits were initiated against the Company and several of its directors and officers. On March 3, 1995, these cases were consolidated into a single proceeding in the United States District Court for the District of Massachusetts. On January 23, 1996, in response to motions to dismiss the entire case filed by Biogen and the named officer and director defendants, the District Court issued a Memorandum and Order (dated January 22, 1996) 15 16 dismissing most of the claims asserted in the plaintiffs' Second Amended Complaint, including all claims against the Company's outside directors. The only claims remaining in the case pertain to a statement concerning the results of the Hirulog(R) TIMI-7 clinical trial in unstable angina. The Court did not reach a decision on the merits of these claims. On October 11, 1996, the Company filed a motion for summary judgment in the case. On September 4, 1997, the Court denied the motion but narrowed the plaintiff class. A trial is scheduled for April 1998. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against Biogen in the United States District Court for the District of New Jersey alleging infringement by Biogen of Berlex's "McCormick" patent in the United States in the production of AVONEX(R). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. Prior to the date of the suit filed by Berlex on the McCormick patent, Biogen had filed a suit against Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") in the United States District Court for the District of Massachusetts for a declaratory judgment of non-infringement and invalidity of the McCormick patent contending that AVONEX(R), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is not valid. In November 1996, the U.S. District Court in Massachusetts ruled that it had jurisdiction and Berlex's New Jersey action was transferred to Massachusetts. Biogen and Stanford subsequently entered into an agreement voluntarily dismissing Stanford from the suit. In February 1997, the U.S. District Court in Massachusetts dismissed Biogen's declaratory judgment action as to Schering without prejudice if such dismissal is later shown to result in an injustice to Biogen. The suit involving Berlex is still pending. A trial is not expected before the early part of 1999. In June 1996, ASTA Medica Aktiengesselschaft filed for arbitration against Biogen with the International Chamber of Commerce (ICC) in Paris, France. In its complaint, ASTA alleges that Biogen's 1993 termination of a 1989 agreement licensing ASTA to market recombinant interferon beta in certain European territories was ineffective. The agreement at issue also included as a party Bioferon, a Biogen joint venture that declared bankruptcy in 1993. The ASTA complaint asks that an ICC panel declare that the 1989 license is still in force, and, in the alternative, seeks approximately $5 million in damages. The territories included in the 1989 license were Austria, Belgium, Denmark, Finland, France, Greece, Iceland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Arbitration proceedings were held in late 1997 in Zurich under Swiss law. The parties expect a decision in the first half of 1998. For a description of legal proceedings relating to certain patent rights, see Item 1, "Business-Patents and Other Proprietary Rights." ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable 16 17 EXECUTIVE OFFICERS The following is a list of the executive officers of the Company and their principal positions with the Company. Each individual officer serves at the pleasure of the Board of Directors. Name Age Positions - ---- --- --------- James L. Vincent ........ 58 Chairman of the Board of Directors James R. Tobin .......... 53 President and Chief Executive Officer Burt A. Adelman ......... 45 Vice President - Development Operations Michael J. Astrue ....... 41 Vice President - General Counsel, Secretary and Clerk Frank A. Burke, Jr. ..... 54 Vice President - Human Resources Lawrence S. Daniels ..... 55 Vice President - Strategic Planning Joseph M. Davie ......... 58 Vice President - Research David C. Dlesk .......... 39 Vice President - Operations Irving H. Fox ........... 54 Vice President - Medical Affairs Timothy M. Kish ......... 46 Vice President - Finance and Chief Financial Officer Mark W. Leuchtenberger .. 41 Vice President - Sales, Marketing and Business Development James C. Mullen ......... 39 Vice President - International David D. Pendergast ..... 49 Vice President - Product Development and Quality Assurance The background of these officers is as follows: James L. Vincent has been Chairman of the Board of Directors of the Company since October 1985. From October 1985 until February 1997, Mr. Vincent also served as Chief Executive Officer of the Company. He also served as Chief Operating Officer and President from April 1988 until February 1994. Before joining Biogen, Mr. Vincent served as Group Vice President, Allied Corporation and as President, Allied Health & Scientific Products Company, a subsidiary of Allied Corporation. Before joining Allied Corporation, Mr. Vincent was with Abbott Laboratories, Inc. where he served in various capacities, including Executive Vice President, Chief Operating Officer and Director of the parent corporation. Mr. Vincent is a director of CuraGen Corporation. 17 18 James R. Tobin was appointed Chief Executive Officer of the Company in February 1997. He has served as President of the Company since February 1994. From February 1994 until February 1997, Mr. Tobin also served as Chief Operating Officer of the Company. Prior to joining the Company, Mr. Tobin served in various capacities at Baxter International, including Executive Vice President from 1988 until 1992 and President and Chief Operating Officer from 1992 until 1994. Mr. Tobin is a director of Creative BioMolecules, Inc. and Genovo, Inc. Burt A. Adelman, M.D. was appointed Vice President - Development Operations of the Company in August 1996 after serving as Vice President - Regulatory Affairs since May 1995. From 1991 until May 1995, Dr. Adelman was Director of Medical Research at Biogen. Dr. Adelman has served as Lecturer of Medicine at Harvard Medical School and Brigham and Women's Hospital since 1992. Michael J. Astrue was appointed Vice President - General Counsel, Secretary and Clerk of the Company in June 1993. Prior to joining the Company, Mr. Astrue was a partner in the Boston law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and a managing director of its wholly-owned consulting firm, ML Strategies, from November 1992 to June 1993. From June 1989 through November 1992, Mr. Astrue served as General Counsel of the United States Department of Health and Human Services. From April 1988 through June 1989, Mr. Astrue served as Associate Counsel to the President of the United States. Frank A. Burke, Jr., was appointed Vice President - Human Resources in May 1986 after serving for 12 years in various human resource management positions at Allied-Signal, Inc., most recently as Director of Compensation and Employee Benefits of the Engineered Materials Sector. Lawrence S. Daniels was appointed Vice President - Strategic Planning of the Company in August 1993 after serving as Vice President - Marketing and Business Development since November 1991. Prior to joining the Company, Mr. Daniels served for nine years in planning and administrative functions for Allied-Signal, Inc., most recently as Vice President, Corporate Strategy Development. Joseph M. Davie, M.D., Ph.D. was appointed Vice President - Research of the Company in April 1993. Prior to joining the Company, Dr. Davie was employed by Searle Corporation where he served as Senior Vice President - Science and Technology from January 1993 to April 1993, President - Research and Development from July 1987 to January 1993 and Senior Vice President - Discovery Research from January 1987 to July 1987. Dr. Davie is a director of Genovo, Inc. David C. Dlesk was appointed Vice President - Operations of the Company in August, 1996 after serving as Senior Director of Manufacturing and Engineering since May 1996. Prior to joining Biogen, Mr. Dlesk was Chief Executive Officer of Medical Media Systems, a developer of software for computer-aided surgery. From 1981 to 1993, Mr. Dlesk held a number of positions with Baxter Healthcare Corporation, including Director of Business Development, Venture Technology, General Manager Bentley Laboratories B.V. and Manager of Drug Delivery Technology Group for the I.V. Systems Division. Irving H. Fox, M.D. was appointed Vice President - Medical Affairs in February 1990. Dr. Fox joined Biogen following a fourteen year career at the University of Michigan, where he held 18 19 professorships in internal medicine and biological chemistry, and from 1978 to 1990, was program director of the Clinical Research Center at the University of Michigan Hospital. Timothy M. Kish was appointed Vice President - Finance and Chief Financial Officer of the Company in August 1993 after serving as Corporate Controller of the Company since 1986. Prior to joining Biogen, Mr. Kish was Director of Finance for Allied Health & Scientific Products Company, a subsidiary of Allied Corporation. Before joining Allied, Mr. Kish served in various capacities at Bendix Corp., most recently as Executive Assistant to the President. Mark W. Leuchtenberger was appointed Vice President - Sales, Marketing and Business Development in January 1998 after serving as Vice President - Marketing and Sales since October 1996. Mr. Leuchtenberger served as Director of Distributor Operations, Europe from September 1996 until October 1996 and Director of Marketing and Program Executive for AVONEX(R) from 1993 until September 1996. From 1992 to 1993, Mr. Leuchtenberger served as a Product Manager of the Company, and from 1990 to 1992, he served as Market Development Manager. Prior to joining Biogen, Mr. Leuchtenberger worked for the consulting firm of Bain & Company from 1987 to 1990. James C. Mullen became Biogen's Vice President - International in August 1996 after serving as Vice President - Operations since December 1991 and as Senior Director - Operations from February 1991 to December 1991. Mr. Mullen joined the Company in 1989. Before coming to Biogen, Mr. Mullen held various positions of responsibility from 1984 through 1988 at SmithKline-Beckman Corporation, most recently as Director, Engineering, SmithKline and French Laboratories, Worldwide. David D. Pendergast, Ph.D. was appointed Vice President - Product Development and Quality Assurance in January 1998 after serving as Vice President - Quality Assurance and Quality Control of the Company since April 1996. Dr. Pendergast joined Biogen from Fisons Pharmaceuticals, Manchester U.K. where he served as Director, Quality Assurance/Quality Control of Fisons PLC from 1992 to 1996. Prior to joining Fisons, Dr. Pendergast served, over a twenty year period, in various capacities at The Upjohn Company, including Vice President - Quality Assurance from 1989 to 1992. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The section entitled "Market for Securities" in the Company's 1997 Annual Report to Shareholders is hereby incorporated by reference. ITEM 6 - SELECTED FINANCIAL DATA The section entitled "Selected Financial Data" in the Company's 1997 Annual Report to Shareholders is hereby incorporated by reference. 19 20 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1997 Annual Report to Shareholders is hereby incorporated by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook" in the Company's 1997 Annual Report to Shareholders is hereby incorporated by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The sections entitled "Consolidated Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Shareholders' Equity," "Notes to Consolidated Financial Statements" and "Report of Independent Accountants" in the Company's 1997 Annual Report to Shareholders are hereby incorporated by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders, which the Company intends to file with the Commission no later than April 30, 1998, are hereby incorporated by reference. Information concerning the Company's Executive Officers is set forth in Part I of this Annual Report on Form 10-K. ITEM 11 - EXECUTIVE COMPENSATION The sections entitled "Election of Directors" and "Executive Compensation", in the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders, which the Company intends to file with the Commission no later than April 30, 1998, are hereby incorporated by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Share Ownership" in the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders, which the Company intends to file with the Commission no later than April 30, 1998, is hereby incorporated by reference. 20 21 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Executive Compensation-Employment Arrangements with the Company and Certain Transactions" in the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders, which the Company intends to file with the Commission no later than April 30, 1998, is hereby incorporated by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements and Financial Statement Schedules. The following documents are filed as a part of this report: (1) Financial Statements, as required by Item 8 of this Form, incorporated by reference herein from the 1997 Annual Report to Shareholders attached hereto as Exhibit 13: Item Location - ---- -------- Consolidated Statements of Income Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated Statements of Income." Consolidated Balance Sheets Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated Balance Sheets." Consolidated Statements of Cash Flows Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated Statements of Cash Flows." Consolidated Statements of Shareholders' Equity Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity." Notes to Consolidated Financial Statements Annual Report under the caption "Biogen, Inc. and Subsidiaries Notes to Consolidated Financial Statements." Reports of Independent Accountants Annual Report under the caption "Report of Independent Accountants." With the exception of the portions of the 1997 Annual Report to Shareholders specifically incorporated herein by reference, such report shall not be deemed filed as part of this Annual Report on Form 10-K. (2) Financial Statement Schedules: None 21 22 (3) Exhibits Exhibit No. Description - ----------- ----------- (3.1) Articles of Organization, as amended (p) (3.2) By-Laws, as amended (g) (4.1) Form of Common Stock Share Certificate (i) (4.2) Certificate of Designation of Series A Junior Participating Preferred Stock (d) (4.3) Rights Agreement dated as of May 8, 1989 between Registrant and The First National Bank of Boston, as Rights Agent (d) (10.1) Independent Consulting and Project Agreement dated as of June 29, 1979 between Registrant and Kenneth Murray (a)** (10.2) Letter Agreement dated September 23, 1995 with Kenneth Murray relating to renewal of Independent Consulting Agreement (o)** (10.3) Minute of Agreement dated February 5, 1981 among Registrant, The University Court of the University of Edinburgh and Kenneth Murray (a)** (10.4) Independent Consulting Agreement dated as of June 29, 1979 between Registrant and Phillip A. Sharp (a)** (10.5) Letter Agreement dated December 15, 1995 with Phillip A. Sharp relating to chairmanship of Scientific Board and renewal of Independent Consulting Agreement (o)** (10.6) Project Agreement dated as of December 15 1979 between Registrant and Phillip A. Sharp (a)** (10.7) Share Restriction and Repurchase Agreement dated as of December 15, 1979 between Registrant and Phillip A. Sharp (a)** (10.8) Consulting Agreement dated as of April 1, 1991, as amended, between Registrant and Alexander G. Bearn (f)** (10.9) Letter Agreement dated April 14, 1995 with Alexander G. Bearn relating to renewal of Independent Consulting Agreement (o)** (10.10) Form of Amendment dated July 1, 1988 to Independent Consulting Agreement between Registrant and Scientific Board Members (c)** 22 23 (10.11) Letter regarding employment of James L. Vincent dated September 23, 1985 (b)** (10.12) Letter agreement amending employment arrangement between the Registrant and James L. Vincent dated as of November 21, 1996 (q)** (10.13) Form of Stock Option Agreement with James L. Vincent under 1985 Non-Qualified Stock Option Plan (g)** (10.14) Form of Stock Option Agreement with James L. Vincent under 1985 Non-Qualified Stock Option Plan (1995) (o)** (10.15) Form of Stock Option Agreement with James L. Vincent under 1985 Non-Qualified Stock Option Plan (1997) (*)** (10.16) Letter dated December 13, 1989 regarding employment of Dr. Irving H. Fox (e)** (10.17) Letter dated April 7, 1993 regarding employment of Dr. Joseph M. Davie (h)** (10.18) Letter dated January 12, 1994 regarding employment of James R. Tobin (j)** (10.19) Form of Indemnification Agreement between Registrant and each Director and Executive Officer (c)** (10.20) Cambridge Center Lease dated October 4, 1982 between Mortimer Zuckerman, Edward H. Linde and David Barrett, as Trustees of Fourteen Cambridge Center Trust, and B. Leasing, Inc. (a) (10.21) First Amendment to Lease dated January 19, 1989 amending Cambridge Center Lease dated October 4, 1982 (g) (10.22) Second Amendment to Lease dated March 8, 1990 amending Cambridge Center Lease dated October 4, 1982 (g) (10.23) Third Amendment to Lease dated September 25, 1991 amending Cambridge Center Lease dated October 4, 1982 (g) (10.24) Fourth Amendment to Lease dated October 6, 1993, amending Cambridge Center Lease dated October 4, 1982 (*) (10.25) Fifth Amendment to Lease dated October 9, 1997, amending Cambridge Center Lease dated October 4, 1982 (*). (10.26) Lease dated October 6, 1993 between North Parcel Limited Partnership and Biogen Realty Limited Partnership (j) (10.27) 1983 Employee Stock Purchase Plan, as amended and restated through September 12, 1997 (*)** 23 24 (10.28) 1982 Incentive Stock Option Plan, as amended through April 25, 1995 and restated with form of Option Agreement (n)** (10.29) 1985 Non-Qualified Stock Option Plan, as amended through December 6, 1996 and restated with form of Option Agreement (r) ** (10.30) 1987 Scientific Board Stock Option Plan, as amended through September 12, 1997 (*)** (10.31) Voluntary Executive Supplemental Savings Plan (m)** (10.32) Amendment No.1 dated April 25, 1997, to Voluntary Executive Supplemental Savings Plan (*)** (10.33) Amended and Restated Supplemental Executive Retirement Plan (*)** (10.34) Voluntary Board of Directors Savings Plan (m)** (10.35) Amendment No. 1 dated April 25, 1997, to Voluntary Board of Directors Savings Plan (*)** (10.36) Exclusive License and Development Agreement dated December 8, 1979 between Registrant and Schering Corporation (a) (10.37) Amendatory Agreement dated May 14, 1985 to Exclusive License and Development Agreement dated December 8, 1979 (b) (10.38) Amendment and Settlement Agreement dated September 29, 1988 to Exclusive License and Development Agreement dated December 8, 1979 (g) (10.39) Amendment dated March 20, 1989 to Exclusive License and Development Agreement dated December 8, 1979 (g) (10.40) License Agreement (United States) dated March 28, 1988 between Registrant and SmithKline Beecham Biologicals, s.a. (as successor to Smith Kline-R.I.T, s.a.) (g) (10.41) License Agreement (International) dated March 28, 1988 between Registrant and SmithKline Beecham Biologicals, s.a. (as successor to Smith Kline-R.I.T., s.a.) (g) (10.42) Sublicense Agreement dated as of February 15, 1990 among Registrant, SmithKline Beecham Biologicals, s.a (as successor to SmithKline Biologicals, s.a.) and Merck and Co., Inc. (g) (10.43) Supplemental Amendment and Agreement dated as of March 1, 1994 between the Registrant and Schering Corporation (l) 24 25 (13) Incorporated portions from Biogen, Inc. 1997 Annual Report to Shareholders * (21) Subsidiaries of the Registrant * (24.1) Consent of Price Waterhouse LLP * (27) Financial Data Schedule (a) Previously filed with the Commission as an exhibit to Registration Statement on Form S-1, File No. 2-81689 and incorporated herein by reference. (b) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985, as amended, File No. 0-12042 and incorporated herein by reference. (c) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 0-12042 and incorporated herein by reference. (d) Previously filed with the Commission as an exhibit to Registration Statement on Form 8-A, File No. 0-12042, filed May 26, 1989 and incorporated herein by reference. (e) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 0-12042, and incorporated herein by reference. (f) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-12042, and incorporated herein by reference. (g) Previously filed with the Commission as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 0-12042, and incorporated herein by reference. (h) Previously filed with the Commission as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, File No. 0-12042, and incorporated herein by reference. (i) Previously filed with the Commission as an exhibit to Registration Statement on Form S-3, File No. 33-51639 filed December 21, 1993, and incorporated herein by reference. (j) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-12042, and incorporated herein by reference. 25 26 (k) Previously filed with the Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-12042, and incorporated herein by reference. (l) Previously filed with the Commission as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, File No. 0-12042, and incorporated herein by reference. (m) Previously filed with the Commission as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File No. 0-12042, and incorporated herein by reference. (n) Previously filed with the Commission as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, File No. 0-12042, and incorporated herein by reference. (o) Previously filed with the Commission as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-12042, and incorporated herein by reference. (p) Previously filed with the Commission as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 0-12042, and incorporated herein by reference. (q) Previously filed with the Commission as an exhibit to an amendment to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996, File No. 0-12042, and incorporated herein by reference. (r) Previously filed with the Commission as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 0-12042, and incorporated herein by reference. * Filed herewith ** Management contract or compensatory plan or arrangement (b) Reports on Form 8-K During the fourth quarter of 1997, the Company filed a report on Form 8-K announcing the authorization by the Company's Board of Directors of a stock repurchase program covering the repurchase of up to 2,500,000 shares of the Company's Common Stock during a two-year period. 26 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIOGEN, INC. By: /s/ James L. Vincent --------------------------------------- James L. Vincent, Chairman of the Board Dated March 6, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE - ---------- ----- ---- /s/ James R. Tobin President, Chief Executive March 6, 1998 - ------------------------- Office and a Director James R. Tobin (principal executive officer) /s/ James L. Vincent Chairman of the Board March 6, 1998 - ------------------------- James L. Vincent /s/ Timothy M. Kish Vice President - Finance and March 6, 1998 - ------------------------- Chief Financial Officer Timothy M. Kish (principal financial and accounting officer) /s/ Alexander G. Bearn Director March 6, 1998 - ------------------------- Alexander G. Bearn /s/ Harold W. Buirkle Director March 6, 1998 - ------------------------- Harold W. Buirkle /s/ Alan Belzer Director March 6, 1998 - ------------------------- Alan Belzer /s/ Mary L. Good Director March 6, 1998 - ------------------------- Mary L. Good /s/ Thomas F. Keller Director March 6, 1998 - ------------------------- Thomas F. Keller /s/ Roger H. Morley Director March 6, 1998 - ------------------------- Roger H. Morley 28 /s/ Kenneth Murray Director March 6, 1998 - ------------------------- Kenneth Murray /s/ Phillip A. Sharp Director March 6, 1998 - ------------------------- Phillip A. Sharp /s/ James W. Stevens Director March 6, 1998 - ------------------------- James W. Stevens 29 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.15 Form of Stock Option Agreement with James L. Vincent under 1985 Non-Qualified Stock Option Plan (1997) 10.24 Fourth Amendment to Lease dated October 6, 1993, amending Cambridge Center Lease dated October 4, 1982. 10.25 Fifth Amendment to Lease dated October 9, 1997, amending Cambridge Center Lease dated October 4, 1982. 10.27 1983 Employee Stock Purchase Plan, as amended and restated through September 12, 1997. 10.30 1987 Scientific Board Stock Option Plan, as amended through September 12, 1997 10.32 Amendment No. 1 dated April 25, 1997, to Voluntary Executive Supplemental Savings Plan 10.33 Amended and Restated Supplemental Executive Retirement Plan 10.35 Amendment No. 1 dated April 25, 1997, to Voluntary Board of Directors Saving Plan (13) Incorporated portions from Biogen, Inc. 1997 Annual Report to Shareholders (21) Subsidiaries of the Registrant (24.1) Consent of Price Waterhouse LLP (27) Financial Data Schedule 29 EX-10.15 2 STOCK OPTION AGREEMENT 1 Exhibit 10.15 ------------- STOCK OPTION AGREEMENT This Agreement is dated as of this 12th day of December, 1997 between Biogen, Inc., a Massachusetts corporation (the "Company"), having its principal office in Cambridge, Massachusetts, and James L. Vincent, an employee and member of the Board of Directors of the Company (the "Employee"). Any capitalized term not defined in this Agreement shall have the meaning set forth in the Company's 1985 Non-Qualified Stock Option Plan, as amended (the "Plan"). WHEREAS, the Company desires to grant to Employee an option (the "Option") to purchase Seventy-five Thousand (75,000) shares of the Company's Common Stock, par value U.S. $0.01 per share, under the Plan; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Employee the right and option to purchase all or any part of an aggregate of Seventy-five Thousand (75,000) shares of its Common Stock, U.S. $0.01 par value, on the terms and conditions and subject to all of the limitations set forth in this Agreement and in the Plan. The Option granted hereby shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. 2. EXERCISE PRICE. The exercise price shall be $35.75 per share. 3. EXERCISE OF OPTION. 3.1 Subject to Section 3.2, the Option granted hereby shall be immediately exercisable for all or any part of the Shares. 3.2 Notwithstanding the provisions of Section 3.1, if the Company terminates Employee's employment or Employee resigns as an employee, and Employee also no longer serves on the Board of Directors, or if Employee resigns or is removed (whether by election of a successor or otherwise) from the Board of Directors and Employee is also no longer an employee of the Company, in either case under circumstances which do not constitute a permanent or total disability as defined in Section 4 hereof, then (i) if such termination, resignation or removal occurs before December 12, 1998 and Employee has exercised the Option for any Shares, the Company may purchase those Shares from Employee at the price paid by Employee upon such exercise, (ii) if such termination, resignation or removal occurs on or after December 12, 1998, but before December 12, 1999, and Employee has exercised the Option for more than 20% of the Shares 2 originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 20% of the Shares originally issuable hereunder at the price paid by Employee upon exercise, (iii) if such termination, resignation or removal occurs on or after December 12, 1999, but before December 12, 2000, and Employee has exercised the Option for more than 40% of the Shares originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 40% of the Shares originally issuable hereunder at the price paid by Employee upon exercise, (iv) if such termination, resignation or removal occurs on or after December 12, 2000, but before December 12, 2001, and Employee has exercised the Option for more than 60% of the Shares originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 60% of the Shares originally issuable hereunder at the price paid by Employee upon exercise, or (v) if such termination or resignation occurs on or after December 12, 2001, but before December 12, 2002, and Employee has exercised the Option for more than 80% of the Shares originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 80% of the Shares originally issuable hereunder at the price paid by the Employee upon exercise. The Option shall cease to be exercisable as to any Shares which, together with Shares previously purchased by the Employee upon exercise of the Option, will exceed the percentages set forth above for the relevant time period. The right of the Company to purchase Shares pursuant to this Section 3.2 is hereinafter referred to as the "Purchase Option". Notwithstanding anything to the contrary contained in this Agreement, a resignation or termination of employment or service as a member of the Board of Directors by reason of total and permanent disability, as determined by the Stock and Option Plan Administration Committee of the Board of Directors (the "Committee"), in its discretion, shall not be deemed a resignation or termination for purposes of the Purchase Option. 4. TERM OF OPTION. (a) The Option shall terminate on December 12, 2007, but shall be subject to earlier termination as provided in this Section 4. (b) If the Company terminates Employee's employment other than for cause (as defined in paragraph 8(e) of the Employment Agreement between Employee and the Company dated September 23, 1985 (the "Employment Agreement")), or Employee resigns, and Employee also no longer serves as a member of the Board of Directors, or if Employee resigns or is removed (whether by election of a successor or otherwise) from the Board of Directors and Employee is also no longer an employee of the Company, in either case under circumstances which do not constitute a permanent or total disability as defined in paragraph (c) of this Section 4, the Option, to the extent not previously exercised, may be exercised within the time period originally prescribed in paragraph (a) of this Section 4, but only as to the number of shares as to which the Option continues to be exercisable under Section 3.2. (c) If Employee's employment is terminated due to the total and permanent disability of Employee (as determined by the Committee, and as to the fact and date of which Employee is 2 3 notified by the Committee in writing), and if Employee also no longer serves as a member of the Board of Directors, or if Employee's service as a member of the Board of Directors ceases due to the total and permanent disability of Employee (as determined by the Committee, and as to the fact and date of which Employee is notified by the Committee in writing), and Employee is also no longer an employee of the Company, the Option, to the extent not previously exercised, shall be exercisable by Employee or his legal representative within the time period originally prescribed in paragraph (a) of this Section 4. In the event of the death of Employee, the Option, to the extent not exercised as of the date of death, may be exercised by the executors, administrators or other legal representatives of the estate of Employee or by any person or persons who acquired Employee's rights to the Option by will or by the laws of descent and distribution as provided in the Plan within time originally prescribed in paragraph (a) of this Section 4. (d) In the event the Company terminates Employee's employment for cause (as defined in paragraph 8 (e) of the Employment Agreement), upon such termination, Employee's right to exercise any unexercised portion of the Option shall immediately terminate. 5. EXERCISE OF OPTION AND ISSUE OF STOCK. The Option may be exercised in whole or in part (to the extent that it is exercisable in accordance with its terms) by giving written notice to the Company, at the address set forth in Section 8 below, and accompanied by the Option exercise price. Such written notice shall be signed by the person exercising the Option, shall state the number of shares with respect to which the Option is being exercised, and shall otherwise comply with the terms and conditions of this Agreement. Payment of the Option price shall be made to the Company as follows: (a) In cash; or (b) By transfer to the Company of shares of Common Stock which have been held by Employee for at least six (6) months prior to being used for payment of the Option price, the transfer value of such shares being their fair market value on the day preceding the date of notice of exercise (determined in accordance with paragraph 8 of the Employment Agreement); or (c) A combination of (a) and (b) above. The Company shall pay all original issue taxes with respect to the issue of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith. The payment of any withholding or other similar taxes shall be made by the Option holder in compliance with Section VI (M) of the Plan. The holder of this Option shall have the rights of a shareholder only with respect to those shares covered by the Option which have been registered in the holder's name in the share register of the Company upon due exercise of the Option. 3 4 6. RESTRICTIONS ON TRANSFER OF SHARES; DETAILS OF THE PURCHASE OPTION 6.1 Any Shares which are subject to the Option shall not be transferred by Employee except as permitted in this Section 6. Until the termination of this Agreement, the Shares which are subject to the Purchase Option may not be transferred by Employee unless and until the transferee agrees, in a form satisfactory to the Company, to be bound by this Agreement and to sell any transferred Shares to the Company should the Company choose to exercise the Purchase Option. 6.2 In the event the Company shall be entitled to and shall elect to exercise the Purchase Option, it shall give to Employee a written notice specifying the number of Shares which it elects to purchase (the "Purchase Stock") and specifying a date for closing of the purchase (the "Closing") which date shall not be more than thirty (30) calendar days after the giving of such notice. The Closing shall take place at the Company's principal offices in Massachusetts or such other location as the Company may reasonably designate in such notice. 6.3 At the Closing, Employee shall deliver the Purchase Stock being purchased by the Company against the simultaneous delivery to Employee of the purchase price (by certified or bank cashier's check), for the number of shares of Purchase Stock then being purchased. In the event that Employee fails to deliver the number of shares of the Purchase Stock to be purchased, the Company may elect (a) to establish a segregated account in the amount of the purchase price, such account to be turned over to Employee upon delivery of such shares of Purchase Stock, and (b) immediately to take such action as is appropriate to transfer record title in such Purchase Stock from Employee to the Company and to treat Employee and such shares of Purchase Stock in all respects as if delivery of such shares of Purchase Stock had been made as required by this Agreement. Employee hereby irrevocably grants the Company a power of attorney for the purposes of effectuating the preceding sentence. 6.4 If the Company shall pay a stock dividend or declare a stock split on or with respect to any of the Company's Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, whether before or after the exercise of the Option, the number of Shares of stock or other securities of the Company issued with respect to the Purchase Stock then subject to the Purchase Option shall be added to the Purchase Stock then subject to the Purchase Option without any change in the aggregate purchase price. If the Company shall distribute to its stockholders shares of stock of another corporation, the shares of stock of such other corporation distributed with respect to the Purchase Stock then subject to the Purchase Option shall be added to the Purchase Stock covered by the Purchase Option without any change in the aggregate purchase price. Without limiting the generality of the foregoing, Employee shall be entitled to retain any and all cash dividends paid by the Company on the Shares of Purchase Stock prior to the Closing. 4 5 6.5 If the outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of the outstanding shares of Common Stock of the Company, or if the Company shall be a party to any capital reorganization, whether before or after the exercise of the Option, there shall be substituted for the Purchase Stock then covered by the Purchase Option such amount and kind of securities as are issued in such subdivision, combination, reclassification, or capital reorganization in respect of the Purchase Stock subject to the Purchase Option immediately prior thereto, without any change in the aggregate purchase price, although the purchase price will be based on the adjusted exercise price of the Option, if any. 6.6 If the Company shall be completely liquidated, then the Purchase Option shall cease and terminate as of the date of such liquidation and Employee shall hold the Shares free of the Purchase Option. 6.7 The Company shall not be required to transfer any Shares on its books which shall have been sold, assigned or otherwise transferred in violation of this Agreement, or to treat as owner of such Shares, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Shares shall have been sold, assigned or otherwise transferred, from and after any sale, assignment or transfer of any Shares made in violation of this Agreement. 6.8 All certificates representing any Shares to be issued to Employee pursuant to the exercise of the Option which are subject to the Purchase Option shall have endorsed thereon a legend substantially as follows: "The shares represented by this certificate are subject to a Stock Option Agreement dated December 12, 1997 between Biogen, Inc. and James L. Vincent, a copy of which Agreement is available for inspection at the principal offices of the Company or will be made available upon request." 6.9 This Agreement shall not restrict the transfer by Employee of shares, if any, which are not acquired pursuant to the exercise of the Option or which are not, or cease to be, subject to the Purchase Option in accordance with the terms hereof. 7. NON-ASSIGNMENT. This Option shall not be transferable by Employee other than (i) by will or by the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order as defined by the Code or Title 1 of the Employee Retirement Income Security Act or the rules thereunder, or (iii) as otherwise permitted by the Committee. Except as provided in the preceding sentence, the Option shall be exercisable during Employee's lifetime only by Employee. 8. NOTICES. 5 6 Any notice required or permitted by the terms of this Agreement shall be given by registered or certified mail, return receipt requested, addressed as follows: To the Company: Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 Attention: Vice President - General Counsel To Employee: James L. Vincent Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given when mailed in accordance with the foregoing provisions. 9. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 10. BENEFIT OF AGREEMENT. This Agreement shall be for the benefit of and shall be binding upon heirs, executors, administrators and successors of the parties hereto. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized representative and Employee has hereunto set his hand as of the day and year first above written. BIOGEN, INC. EMPLOYEE: By: ------------------------------- -------------------------------- Roger H. Morley James L. Vincent Member of the Stock and Option Plan Administration Committee By: ------------------------------ Harold W. Buirkle 6 7 Member of the Stock and Option Plan Administration Committee 7 8 STOCK OPTION AGREEMENT This Agreement is dated as of this 12th day of December, 1997 between Biogen, Inc., a Massachusetts corporation (the "Company"), having its principal office in Cambridge, Massachusetts, and James L. Vincent, an employee and member of the Board of Directors of the Company (the "Employee"). Any capitalized term not defined in this Agreement shall have the meaning set forth in the Company's 1985 Non-Qualified Stock Option Plan, as amended (the "Plan"). WHEREAS, the Company desires to grant to Employee an option (the "Option") to purchase Seventy-five Thousand (75,000) shares of the Company's Common Stock, par value U.S. $0.01 per share, under the Plan; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows: 1. GRANT OF OPTION. The Company hereby grants to Employee the right and option to purchase all or any part of an aggregate of Seventy-five Thousand (75,000) shares of its Common Stock, U.S. $0.01 par value, on the terms and conditions and subject to all of the limitations set forth in this Agreement and in the Plan. The Option granted hereby shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. 2. EXERCISE PRICE. The exercise price shall be $35.75 per share. 3. EXERCISE OF OPTION. 3.1 Subject to Section 3.2, the Option granted hereby shall be immediately exercisable for all or any part of the Shares. 3.2 Notwithstanding the provisions of Section 3.1, if the Company terminates Employee's employment or Employee resigns as an employee, and Employee also no longer serves on the Board of Directors, or if Employee resigns or is removed (whether by election of a successor or otherwise) from the Board of Directors and Employee is also no longer an employee of the Company, in either case under circumstances which do not constitute a permanent or total disability as defined in Section 4 hereof, then (i) if such termination, resignation or removal occurs before December 12, 1998 and Employee has exercised the Option for any Shares, the Company may 8 9 purchase those Shares from Employee at the price paid by Employee upon such exercise, (ii) if such termination, resignation or removal occurs on or after December 12, 1998, but before December 12, 1999, and Employee has exercised the Option for more than 33 1/3% of the Shares originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 33 1/3% of the Shares originally issuable hereunder at the price paid by Employee upon exercise, or (iii) if such termination, resignation or removal occurs on or after December 12, 1999, but before December 12, 2000, and Employee has exercised the Option for more than 66 2/3% of the Shares originally issuable hereunder, the Company may purchase the number of Shares for which the Option has been exercised in excess of 66 2/3% of the Shares originally issuable hereunder at the price paid by Employee upon exercise. The Option shall cease to be exercisable as to any Shares which, together with Shares previously purchased by the Employee upon exercise of the Option, will exceed the percentages set forth above for the relevant time period. The right of the Company to purchase Shares pursuant to this Section 3.2 is hereinafter referred to as the "Purchase Option". Notwithstanding anything to the contrary contained in this Agreement, a resignation or termination of employment or service as a member of the Board of Directors by reason of total and permanent disability, as determined by the Stock and Option Plan Administration Committee of the Board of Directors (the "Committee"), in its discretion, shall not be deemed a resignation or termination for purposes of the Purchase Option. 4. TERM OF OPTION. (a) The Option shall terminate on December 12, 2007, but shall be subject to earlier termination as provided in this Section 4. (b) If the Company terminates Employee's employment other than for cause (as defined in paragraph 8(e) of the Employment Agreement between Employee and the Company dated September 23, 1985 (the "Employment Agreement")), or Employee resigns, and Employee also no longer serves as a member of the Board of Directors, or if Employee resigns or is removed (whether by election of a successor or otherwise) from the Board of Directors and Employee is also no longer an employee of the Company, in either case under circumstances which do not constitute a permanent or total disability as defined in paragraph (c) of this Section 4, the Option, to the extent not previously exercised, may be exercised within the time period originally prescribed in paragraph (a) of this Section 4, but only as to the number of shares as to which the Option continues to be exercisable under Section 3.2. (c) If Employee's employment is terminated due to the total and permanent disability of Employee (as determined by the Committee, and as to the fact and date of which Employee is notified by the Committee in writing), and if Employee also no longer serves as a member of the Board of Directors, or if Employee's service as a member of the Board of Directors ceases due to the total and permanent disability of Employee (as determined by the Committee, and as to the fact and date of which Employee is notified by the Committee in writing), and Employee is also no longer an employee of the Company, the Option, to the extent not previously exercised, shall be 9 10 exercisable by Employee or his legal representative within the time period originally prescribed in paragraph (a) of this Section 4. In the event of the death of Employee, the Option, to the extent not exercised as of the date of death, may be exercised by the executors, administrators or other legal representatives of the estate of Employee or by any person or persons who acquired Employee's rights to the Option by will or by the laws of descent and distribution as provided in the Plan within time originally prescribed in paragraph (a) of this Section 4. (d) In the event the Company terminates Employee's employment for cause (as defined in paragraph 8 (e) of the Employment Agreement), upon such termination, Employee's right to exercise any unexercised portion of the Option shall immediately terminate. 5. EXERCISE OF OPTION AND ISSUE OF STOCK. The Option may be exercised in whole or in part (to the extent that it is exercisable in accordance with its terms) by giving written notice to the Company, at the address set forth in Section 8 below, and accompanied by the Option exercise price. Such written notice shall be signed by the person exercising the Option, shall state the number of shares with respect to which the Option is being exercised, and shall otherwise comply with the terms and conditions of this Agreement. Payment of the Option price shall be made to the Company as follows: (a) In cash; or (b) By transfer to the Company of shares of Common Stock which have been held by Employee for at least six (6) months prior to being used for payment of the Option price, the transfer value of such shares being their fair market value on the day preceding the date of notice of exercise (determined in accordance with paragraph 8 of the Employment Agreement); or (c) A combination of (a) and (b) above. The Company shall pay all original issue taxes with respect to the issue of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith. The payment of any withholding or other similar taxes shall be made by the Option holder in compliance with Section VI (M) of the Plan. The holder of this Option shall have the rights of a shareholder only with respect to those shares covered by the Option which have been registered in the holder's name in the share register of the Company upon due exercise of the Option. 6. RESTRICTIONS ON TRANSFER OF SHARES; DETAILS OF THE PURCHASE OPTION 6.1 Any Shares which are subject to the Option shall not be transferred by Employee except as permitted in this Section 6. Until the termination of this Agreement, the Shares which are subject to the Purchase Option may not be transferred by Employee unless and 10 11 until the transferee agrees, in a form satisfactory to the Company, to be bound by this Agreement and to sell any transferred Shares to the Company should the Company choose to exercise the Purchase Option. 6.2 In the event the Company shall be entitled to and shall elect to exercise the Purchase Option, it shall give to Employee a written notice specifying the number of Shares which it elects to purchase (the "Purchase Stock") and specifying a date for closing of the purchase (the "Closing") which date shall not be more than thirty (30) calendar days after the giving of such notice. The Closing shall take place at the Company's principal offices in Massachusetts or such other location as the Company may reasonably designate in such notice. 6.3 At the Closing, Employee shall deliver the Purchase Stock being purchased by the Company against the simultaneous delivery to Employee of the purchase price (by certified or bank cashier's check), for the number of shares of Purchase Stock then being purchased. In the event that Employee fails to deliver the number of shares of the Purchase Stock to be purchased, the Company may elect (a) to establish a segregated account in the amount of the purchase price, such account to be turned over to Employee upon delivery of such shares of Purchase Stock, and (b) immediately to take such action as is appropriate to transfer record title in such Purchase Stock from Employee to the Company and to treat Employee and such shares of Purchase Stock in all respects as if delivery of such shares of Purchase Stock had been made as required by this Agreement. Employee hereby irrevocably grants the Company a power of attorney for the purposes of effectuating the preceding sentence. 6.4 If the Company shall pay a stock dividend or declare a stock split on or with respect to any of the Company's Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, whether before or after the exercise of the Option, the number of Shares of stock or other securities of the Company issued with respect to the Purchase Stock then subject to the Purchase Option shall be added to the Purchase Stock then subject to the Purchase Option without any change in the aggregate purchase price. If the Company shall distribute to its stockholders shares of stock of another corporation, the shares of stock of such other corporation distributed with respect to the Purchase Stock then subject to the Purchase Option shall be added to the Purchase Stock covered by the Purchase Option without any change in the aggregate purchase price. Without limiting the generality of the foregoing, Employee shall be entitled to retain any and all cash dividends paid by the Company on the Shares of Purchase Stock prior to the Closing. 6.5 If the outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of the outstanding shares of Common Stock of the Company, or if the Company shall be a party to any capital reorganization, whether before or after the exercise of the Option, there shall be substituted for the Purchase Stock then covered by the Purchase Option such amount and kind of securities as are issued in such subdivision, combination, reclassification, or capital reorganization in respect of the Purchase Stock subject to the Purchase Option immediately prior 11 12 thereto, without any change in the aggregate purchase price, although the purchase price will be based on the adjusted exercise price of the Option, if any. 6.6 If the Company shall be completely liquidated, then the Purchase Option shall cease and terminate as of the date of such liquidation and Employee shall hold the Shares free of the Purchase Option. 6.7 The Company shall not be required to transfer any Shares on its books which shall have been sold, assigned or otherwise transferred in violation of this Agreement, or to treat as owner of such Shares, or to accord the right to vote as such owner or to pay dividends to, any person or organization to which any such Shares shall have been sold, assigned or otherwise transferred, from and after any sale, assignment or transfer of any Shares made in violation of this Agreement. 6.8 All certificates representing any Shares to be issued to Employee pursuant to the exercise of the Option which are subject to the Purchase Option shall have endorsed thereon a legend substantially as follows: "The shares represented by this certificate are subject to a Stock Option Agreement dated December 12, 1997 between Biogen, Inc. and James L. Vincent, a copy of which Agreement is available for inspection at the principal offices of the Company or will be made available upon request." 6.9 This Agreement shall not restrict the transfer by Employee of shares, if any, which are not acquired pursuant to the exercise of the Option or which are not, or cease to be, subject to the Purchase Option in accordance with the terms hereof. 7. NON-ASSIGNMENT. This Option shall not be transferable by Employee other than (i) by will or by the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order as defined by the Code or Title 1 of the Employee Retirement Income Security Act or the rules thereunder, or (iii) as otherwise permitted by the Committee. Except as provided in the preceding sentence, the Option shall be exercisable during Employee's lifetime only by Employee. 8. NOTICES. Any notice required or permitted by the terms of this Agreement shall be given by registered or certified mail, return receipt requested, addressed as follows: To the Company: Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 Attention: Vice President - General Counsel 12 13 To Employee: James L. Vincent Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given when mailed in accordance with the foregoing provisions. 9. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 10. BENEFIT OF AGREEMENT. This Agreement shall be for the benefit of and shall be binding upon heirs, executors, administrators and successors of the parties hereto. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized representative and Employee has hereunto set his hand as of the day and year first above written. BIOGEN, INC. EMPLOYEE: By: ------------------------------- -------------------------------- Roger H. Morley James L. Vincent Member of the Stock and Option Plan Administration Committee By: ------------------------------ Harold W. Buirkle Member of the Stock and Option Plan Administration Committee 13 EX-10.24 3 FOURTH AMENDMENT TO LEASE DATED OCTOBER 6, 1993 1 Exhibit 10.24 ------------- FOURTH AMENDMENT TO LEASE FOURTH AMENDMENT TO LEASE dated as of the 6th day of October, 1993 by and between Mortimer B. Zuckerman, Edward H. Linde and David Barrett, Trustees of Fourteen Cambridge Center Trust under Declaration of Trust dated February 4, 1982 and recorded with the Middlesex South District Registry of Deeds in Book 14707, Page 96 and not individually (hereinafter called the "Landlord") and Biogen, Inc. (successor to Biogen Research Corp., successor to B. Leasing, Inc.). Biogen, Inc., is the Tenant under the Lease and is (hereinafter called "Tenant"). R E C I T A L S By lease dated October 4, 1982, as amended by First Amendment To Lease dated January 19, 1989, by Second Amendment To Lease dated March 8, 1990 and by Third Amendment To Lease dated September 25, 1991 (said Lease as so amended being hereinafter called the "Lease"), Landlord did lease to Tenant and Tenant did hire and lease from Landlord the "Site" and "Building" known as and numbered Fourteen Cambridge Center, Cambridge, Massachusetts. The Site and the Building are defined in Section 1.2 of the Lease and are collectively therein and herein interchangeably called the "Demised Premises" or the "Premises". The Lease provides for an original Lease Term which Landlord and Tenant acknowledge and agree is to expire on February 28, 1998 (herein sometimes called the "Original Term"). Pursuant to Section 3.2 of the Lease, Tenant has the right to extend the Lease Term for three (3) successive periods of five (5) years each on the terms and conditions set forth in said Section 3.2. Landlord and Tenant have now reached agreement on the present exercise of Tenant's first, five (5) year extension option and on other modifications to the Lease and desire to set forth the same. NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration paid by each of the parties hereto to the other, the receipt and sufficiency of which is hereby acknowledged, and in further consideration of the provisions herein, Landlord and Tenant hereby agree as follows: 2 1. The Lease Term (also in the Lease sometimes called the "Term"), which but for this Amendment is scheduled to expire on February 28, 1998, is hereby presently extended for one (1) period of five (5) years from March 1, 1998 to February 28, 2003 (herein called the "First Extended Term") unless extended or sooner terminated in accordance with the provisions of the Lease (as herein amended). The present extension of the Lease Term for the First Extended Term shall be deemed to be the exercise of the first, five (5) year extension option provided for in Section 3.2 of the Lease, leaving only the second extension option (the "Second Extension Option") and third extension option (the "Third Extension Option") pursuant to said Section 3.2. The present extension of the Lease Term for the First Extended Term shall be on all of the same terms and conditions set forth in the Lease except as otherwise provided in this Amendment. All references in the Lease (as herein amended) to the "Term" or "Lease Term" shall mean and be references to the Original Term as presently extended by the First Extended Term. 2. (A) For the Original Term, Tenant shall continue to pay Annual Fixed Rent as provided in the Lease. (B) During the First Extended Term (being the period from March 1, 1998 to February 28, 2003), Annual Fixed Rent shall be at the annual rate equal to the product of (i) $19.71 and (ii) the 67,362 square feet of Gross Building Area of the Building. (C) During the second and third extension option periods (if exercised), Annual Fixed Rent shall be payable by Tenant as provided in Section 3.2 of the Lease. 3. (A) Landlord and Tenant acknowledge and agree that Landlord has completed the North Garage and that Tenant's parking privileges pursuant to Section 16.5 of the Lease and Section 3 of the Second Amendment to Lease are being and shall be provided in the North Garage. The term "North Garage" as used in this Amendment and the Lease shall include both (i) the parking garage and other improvements (collectively, the "North Garage Improvements") located on the parcel of land known as Tract IV of the Parcel 2 Development -2- 3 Area (the "North Garage Site") and (ii) the North Garage Site. Landlord and Tenant acknowledge that affiliates of Landlord and Tenant are concurrently herewith entering into a transaction that has as its objective the construction of a new building, on a site including part or all of the Expansion Parcel as defined in Section 16.27 of the Lease, to be known as Twelve Cambridge Center, to be owned by an affiliate of Tenant (the 12CC Owner") and occupied by Tenant, and that such transaction would include the execution of a parking lease between the 12CC Owner, as tenant, and Cambridge Center North Trust, an affiliate of Landlord that is the owner of the North Garage, as landlord, to provide parking rights for the 12CC Owner in the North Garage (the "12CC Parking Lease"). For the portion of the Lease Term prior to the Commencement Date of the 12CC Parking Lease, the monthly rates per vehicle for Tenant's parking privileges under this Lease shall be the rates provided in Section 3(b) of the Second Amendment to Lease. For the portion of the Lease Term on and after the Commencement Date of the 12CC Parking Lease, Section 3(b) of the Second Amendment is hereby amended so that the monthly rates per vehicle for Tenant's parking charges shall be as follows: (i) Period Monthly Rate Per Car From the Commencement Date $105.00, subject to escalation of the 12CC Parking Lease as provided in Sections 3(B) through December 31, 1999 and 3(C) below and subject to the limitation as provided in Section 3(D) below. From January 1, 2000 through $140.00, subject to escalation February 28, 2003 as provided in Sections 3(B) and 3(C) below and subject to the limitation as provided in Section 3(D) below. -3- 4 (ii) Further, if Tenant shall exercise its Second Extension Option pursuant to Section 3.2 of the Lease, then the monthly rates per vehicle for Tenant's parking charges shall be as follows: -4- 5 Period Monthly Rate Per Car ------ -------------------- From March 1, 2003 through $140.00, subject to escalation December 31, 2004 as provided in Sections 3(B) and 3(C) below. From January 1, 2005 through $180.00, subject to escalation February 28, 2008 as provided in Sections 3(B) and 3(C) below. (iii) In addition, if Tenant shall exercise its Third Extension Option pursuant to Section 3.2 of the Lease, then the monthly rates per vehicle for Tenant's parking charges shall be as follows: Period Monthly Rate Per Car ------ -------------------- From March 1, 2008 through $180.00, subject to escalation December 31, 2009 as provided in Sections 3(B) and 3(C) below. From January 1, 2010 through $215.00, subject to escalation February 28, 2013 as provided in Sections 3(B) and 3(C) below. (B) With reference to the real estate taxes for the North Garage referred to in this Section 3(B), it is agreed that terms used herein are defined as follows: (a) "Tax Year" means the 12-month period beginning July 1 each year during the Lease Term or if the appropriate Governmental tax fiscal period shall begin on any date other than July 1, such other date. (b) "Tax Expenses for the North Garage" with respect to any Tax Year means the aggregate "North Garage Real Estate Taxes" (as hereinafter defined) with respect to that Tax -5- 6 Year, reduced by any net abatement receipts with respect to that Tax Year. (c) "Tax Expenses Allocable to Each Parking Space" means the quotient of (i) Tax Expenses for the North Garage divided by (ii) the total number of parking spaces in the North Garage, being 1,170. (d) "Monthly Tax Expenses Allocable to Each Parking Space" means the quotient of (i) Tax Expenses Allocable to Each Parking Space, divided by (ii) twelve (12). (e) "North Garage Real Estate Taxes" means all taxes and special assessments of every kind and nature assessed by any Governmental authority on the North Garage Site or the North Garage Improvements or both the North Garage Site and the North Garage Improvements which the owner of the North Garage shall be obligated to pay because of or in connection with the ownership, leasing and operation of the North Garage Site and the North Garage Improvements and reasonable expenses of any proceedings for abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest other than penalty interest payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Lease Term the present system of ad valorem taxation of real property shall be changed so that in lieu of, or in addition to, the whole or any part of the ad valorem tax on real property, there shall be assessed on the owner of the North Garage a capital levy or other tax on the gross income and/or parking receipts received with respect to the North Garage Site or the North Garage Improvements, or a Federal, State, County, Municipal, or -6- 7 other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the North Garage is located) measured by or based, in whole or in part, upon any such gross income and/or parking receipts, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term "North Garage Real Estate Taxes" but only to the extent that the same would be payable if the North Garage Site or the North Garage Improvements were the only property of the owner of the North Garage. (f) "Base Taxes for the North Garage" means Tax Expenses for the North Garage (hereinbefore defined) for fiscal tax year 1993 (that is the period beginning July 1, 1992 and ending June 30, 1993), being $269,147.00. (g) "Base Taxes Allocable to Each Parking Space" means the quotient of (i) Base Taxes for the North Garage divided by (ii) the total number of parking spaces in the North Garage, being 1,170, which quotient is $230.04 per parking space. (h) "Monthly Base Taxes Allocable to Each Parking Space" means the quotient of (i) "Base Taxes Allocable to Each Parking Space", divided by (ii) twelve (12), which quotient is $19.17 per parking space. If with respect to any full calendar month or fraction thereof falling within the Term after the Commencement Date of the 12CC Parking Lease, Monthly Tax Expenses Allocable to Each Parking Space for a full month exceed Monthly Base Taxes Allocable to Each Parking Space or for any such fraction of a calendar month exceed the corresponding fraction of Monthly Base Taxes Allocable to Each Parking Space (such amount being hereinafter referred to as the "North Garage Tax Excess"), then Tenant shall pay to Landlord, as Additional Rent, the product of (i) such North Garage Tax Excess and (ii) the total number automobiles for which Tenant has -7- 8 parking privileges in the North Garage under the terms of the Lease during such calendar month (the "North Garage Tax Excess Payment"). Payments by Tenant on account of the North Garage Tax Excess Payment shall be made monthly at the time and in the fashion herein provided for the payment of Annual Fixed Rent. The amount so to be paid to Landlord shall be an amount from time to time reasonably estimated by Landlord to be sufficient to provide Landlord, in the aggregate, a sum equal to the North Garage Tax Excess Payment for each Tax Year during the Lease Term, ten (10) days at least before the day on which tax payments by the owner of the North Garage would become delinquent. Promptly after Tax Expenses Allocable to Each Parking Space are determinable for the first such Tax Year or fraction thereof and for each succeeding Tax Year or fraction thereof during the Lease Term, Landlord shall render to Tenant a statement in reasonable detail certified by a representative of Landlord showing North Garage Real Estate Taxes for such Tax Year or fraction thereof, abatements and refunds, if any, of any such taxes and assessments, expenditures incurred in obtaining such abatement or refund, the amount of the North Garage Tax Excess and the North Garage Tax Excess Payment for each calendar month during such Tax Year or fraction thereof, the amount thereof already paid by Tenant and the amount thereof overpaid by, or remaining due from Tenant for the period covered by such statement. Within thirty (30) days after the receipt of such statement, Tenant shall pay any sum remaining due. Any balance shown as due to Tenant shall be credited against Annual Fixed Rent next due, or refunded to Tenant if the Lease Term has then expired and Tenant has no further obligation to Landlord. Expenditures for reasonable legal fees, reasonable costs charged by affiliates of Landlord and other expenses incurred in obtaining an abatement or refund may be charged against the abatement or refund before the adjustments are made for the Tax Year. To the extent that real estate taxes shall be payable to the taxing authority in installments with respect to periods less than a Tax Year, the statement to be furnished by Landlord shall be rendered and payments made on account of such installments. -8- 9 (C) With reference to the operating expenses for the North Garage referred to in this Section 3(C), it is agreed that terms used herein are defined as follows: (a) "Operating Expenses Allocable to Each Parking Space" means the quotient of (i) "Operating Expenses for the North Garage" (as hereinafter defined) divided by (ii) the total number of parking spaces in the North Garage, being 1,170. (b) "Monthly Operating Expenses Allocable to Each Parking Space" means the quotient of (i) Operating Expenses Allocable to Each Parking Space, divided by (ii) twelve (12). (c) "Base Operating Expenses for the North Garage" (as defined below) means Operating Expenses for the North Garage for calendar year 1993 (that is the period beginning January 1, 1993 and ending December 31, 1993). (d) "Base Operating Expenses Allocable to Each Parking Space" means the quotient of (i) Base Operating Expenses for the North Garage divided by (ii) the total number of parking spaces in the North Garage, being, 1,170. (e) "Monthly Base Operating Expenses Allocable to Each Parking Space" means the quotient of (i) Base Operating Expenses Allocable to Each Parking Space, divided by (ii) twelve (12). (f) "Operating Expenses for the North Garage" means the cost of operation of the North Garage incurred by the owner of the North Garage. Such costs charged by affiliates of Landlord shall be limited to reasonable costs and such costs shall exclude payments of debt service and any other mortgage charges, brokerage commissions, salaries of executives and owners not directly employed in the management or operation of the North Garage and the general overhead and administrative expenses of the home office of the owner of -9- 10 the North Garage or such owner's managing agent, but shall include, without limitation: (i) compensation, wages and all fringe benefits, workmen's compensation insurance premiums and payroll taxes paid to, for or with respect to all persons for their services in the operating, maintaining or cleaning of the North Garage Improvements or the North Garage Site; (ii) payments under service contracts with independent contractors for operating, maintaining or cleaning of the North Garage Improvements or the North Garage Site; (iii) steam, water, sewer, gas, oil, electricity and telephone charges and costs of maintaining letters of credit or other security as may be required by utility companies as a condition of providing such services; (iv) cost of maintenance, cleaning and repairs (other than repairs not properly chargeable against income or reimbursed from contractors under guarantees); (v) cost of snow removal and care of landscaping; (vi) cost of building and cleaning supplies and equipment; (vii) premiums for insurance carried with respect to the North Garage (including, without limitation, liability insurance, insurance against loss in case of fire or casualty and business interruption insurance and, if there be any first mortgage on the North Garage, -10- 11 including such insurance as may be required by the holder of such first mortgage); (viii) management fees at reasonable rates consistent with the services rendered; (ix) the North Garage's share of operating expenses related to the common areas and facilities within the Parcel 2 Development Area for use of tenants of the Building in common with tenants of other buildings in the Parcel 2 Development Area; (x) depreciation for capital expenditures made by the owner of the Garage (x) to reduce Operating Expenses for the North Garage if the owner of the North Garage reasonably shall have determined that the annual reduction in Operating Expenses for the North Garage shall exceed depreciation therefor or (y) to comply with applicable laws, rules, regulations, requirements, statutes, ordinances, by-laws and court decisions of all public authorities which are now or hereafter in force (herein collectively called "Legal Requirements"), (plus, in the case of both (x) and (y), an interest factor, reasonably determined by the owner of the North Garage, as being the interest rate then charged for long term mortgages by institutional lenders on like properties within the general locality in which the North Garage is located), and in the case of both (x) and (y) depreciation shall be determined by dividing the original cost of such capital -11- 12 expenditure by the number of years of useful life of the capital item acquired, which useful life shall be determined reasonably by the owner of the North Garage in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item; and (xi) all other reasonable and necessary expenses paid in connection with the operating, cleaning and maintenance of the North Garage Improvement, the North Garage Site and said common areas and facilities and properly chargeable against income. If with respect to any full calendar month or fraction thereof falling within the Term after the Commencement Date of the 12CC Parking Lease, Monthly Operating Expenses Allocable to Each Parking Space for a full calendar month exceed Monthly Base Operating Expenses Allocable to Each Parking Space or for any such fraction of a calendar month exceed the corresponding fraction of Monthly Base Operating Expenses Allocable to Each Parking Space (such amount being hereinafter referred to as the "North Garage Operating Cost Excess"), then Tenant shall pay to Landlord, as Additional Rent, the product of (i) such North Garage Operating Cost Excess and (ii) the total number of automobiles for which Tenant has parking privileges in the North Garage under the terms of the Lease during such calendar month (the "North Garage Operating Cost Excess Payment"). Payments by Tenant on account of the North Garage Operating Cost Excess Payment shall be made monthly at the time and in the fashion herein provided for the payment of Annual Fixed Rent. The amount so to be paid to Landlord shall be an amount from time to time reasonably estimated by Landlord to be sufficient to cover, in the aggregate, a sum equal to the North Garage Operating Cost Excess Payment for each calendar year during the Lease Term. -12- 13 No later than sixty (60) days after the end of each calendar year during the Lease Term or fraction thereof at the end of the Lease Term, Landlord shall render Tenant a statement in reasonable detail and according to usual accounting practices certified by a representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, the Operating Expenses for the North Garage for such calendar year or fraction thereof and the Operating Expenses Allocable to Each Parking Space for each calendar month during such calendar year or fraction thereof. Said statement to be rendered to Tenant also shall show for the preceding year or fraction thereof, as the case may be, the amounts already paid by Tenant on account of the North Garage Operating Cost Excess Payment and the amount of the North Garage Operating Cost Excess Payment remaining due from, or overpaid by, Tenant for the year or other period covered by the statement. If such statement shows a balance remaining due to Landlord, Tenant shall pay same to Landlord on or before the thirtieth (30th) day following receipt by Tenant of said statement. Any balance shown as due to Tenant shall be credited against Annual Fixed Rent next due, or refunded to Tenant if the Lease Term has then expired and Tenant has no further obligation to Landlord. Within sixty (60) days after receipt of such statement, time being of the essence, Tenant may notify ("Tenant's Operating Cost Notice") Landlord that Tenant reasonably believes that any of the costs included in such statement described in subparagraphs (i), (ii), (iv), (v), (vi) or (viii) of the definition of "Operating Expenses for the North Garage" are unreasonable when compared to the actual costs for the same items for other comparable garages in the City of Cambridge and Tenant shall, if available, include with Tenant's Operating Cost Notice reasonable evidence of such actual costs incurred by such other garage (the "Other Garage Costs"). If upon Landlord's receipt of Tenant's Operating Cost Notice and the Other Garage Costs (i) Tenant is not in default under the terms of this Lease, and (ii) Tenant shall have paid Landlord the full amount due under such statement, Landlord shall review the Other Garage Costs with Tenant. If upon such review, Landlord and Tenant agree that costs -13- 14 reflected in such statement are unreasonable, Landlord shall take such reasonable actions as may be appropriate to reduce the costs so identified. (D) Notwithstanding the foregoing provisions of Sections 3 (A), 3 (B) and 3 (C), in no event shall the monthly parking charge per vehicle set forth in Section 3 (A) (as escalated pursuant to Sections 3 (B) and 3 (C) for any month during the period from the Commencement Date of the 12CC Parking Lease to February 28, 2003 exceed the monthly amount charged per space during such month by the operator of the North Garage (whether or not such operator is an affiliate of Landlord) to any single tenant leasing parking rights for fifty (50) or more vehicles in the North Garage. 4. There is added to the Lease a new Section 16.31 as follows: "16.31 TENANT'S OPTION TO PURCHASE DEMISED PREMISES. (A) Upon and subject to the terms and conditions contained in this Section and provided that (i) the Lease (as herein amended) shall be in full force and effect, (ii) there shall be no "Event of Default" (defined in Section 15.1 of the Lease) either at the time of the giving of the "Tenant's Option Exercise Notice" (defined below) or on the Closing Date (as it may be extended hereunder) and (iii) Tenant has neither assigned the Lease nor sublet the Demised Premises (except only as provided in Subsection (L) below) Landlord hereby grants to Tenant the right and option to purchase the Demised Premises. Landlord and Tenant hereby agree that, subject to compliance with the terms and conditions contained in this Section (including, but not limited to Items (i), (ii) and (iii) set forth immediately above), the within granted option to purchase the Demised Premises shall remain superior to the rights of any other person to purchase or otherwise acquire the Demised Premises until February 28, 1998, it being covenanted and agreed (a) that the within granted option to purchase the Demised Premises shall not prevent any sale, conveyance or other transfer of the Demised Premises or any interest therein but any such sale, conveyance or other -14- 15 transfer shall be subject to the within granted option to purchase the Demised Premises upon and subject to the terms and conditions hereof and (b) that the within granted option to purchase the Demised Premises shall not prevent any foreclosure, deed in lieu of foreclosure or the exercise of any other rights under any mortgage now or hereafter encumbering the Demised Premises but that any person acquiring title to the Demised Premises as a result of foreclosure, deed in lieu of foreclosure or by the exercise of any such other rights shall be subject to the within granted option to purchase the Demised Premises upon and subject to the terms and conditions hereof. (B) (i) In order to exercise the within granted option to purchase the Demised Premises, Tenant shall give written notice to Landlord ("Tenant's Option Exercise Notice") at any time on or before February 28, 1998 (time being of the essence). In order for Tenant's Option Exercise Notice to be effective, it shall be accompanied by, and Tenant shall pay together therewith, a deposit in the amount of $1,347,240.00 in good funds payable to Landlord (the "Deposit"); provided, however, that the Deposit shall be promptly endorsed or otherwise paid over to the "Escrow Agent" (defined in subsection (B)(ii) hereof and shall be held and applied by the Escrow Agent in accordance with the provisions of said subsection (B)(ii) hereof. It is hereby covenanted and agreed that if Tenant shall not give to Landlord Tenant's Option Exercise Notice (together with the Deposit) on or before February 28, 1998 (time being of the essence), the within granted option to purchase the Demised Premises shall automatically cease, expire and be null and void without any action of the parties and without any liability or obligation to or against any of the parties. If Tenant shall -15- 16 timely give to Landlord Tenant's Option Exercise Notice (together with the Deposit), the Closing Date shall be as set forth in subsection (D) hereof. (B) (ii) The "Escrow Agent" shall be the General Counsel of Boston Properties, Inc., or such law firm, title insurance company or other institutional escrow agent as Landlord shall select. Landlord shall promptly pay over the Deposit to the Escrow Agent so selected and shall cause the Escrow Agent holding the Deposit to acknowledge to Tenant receipt of the Deposit within a reasonable period of time after the Escrow Agent receives the Deposit. The Deposit shall be held in such interest bearing account in such banking institution in the City of Boston and upon such terms and conditions relating to the deposit of funds and maintenance of accounts as the Escrow Agent shall determine. The type of account, the rate of interest, the terms and conditions relating to the deposit of funds and maintenance of accounts and the banking institution shall be as solely selected by the Escrow Agent and the Escrow Agent shall have no liability to Landlord or Tenant respecting the selection of the type of account, the rate of interest, the terms and conditions relating to the deposit of funds and maintenance of accounts and/or the banking institution. Further, the Deposit shall be held by the Escrow Agent subject to the terms of this Section 16.31 and shall be duly accounted for on the "Closing Date" (hereinafter defined) as it may be extended pursuant to this Section 16.31 or on the earlier termination of this Section 16.31. All interest earned on the Deposit shall be paid to Landlord with no credit against the purchase price for such interest being given to Tenant; provided, however, that if pursuant to the terms of this Section 16.31 the Deposit shall be returned to Tenant, the interest earned on the Deposit at the time of such return of the Deposit shall be paid over to Tenant. -16- 17 If for any reason the closing does not occur and either party makes a written demand upon the Escrow Agent for delivery of the Deposit and the interest earned thereon, the Escrow Agent shall give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection from the other party to the proposed payment within ten (10) days after the giving of such notice, the Escrow Agent is hereby authorized to make such delivery or payment. If the Escrow Agent does receive such written objection within such ten (10) business day period or if for any other reason the Escrow Agent in good faith shall elect not to make such payment, the Escrow Agent shall continue to hold the Deposit until otherwise directed by written instructions from both Landlord and Tenant or a final judgment of a court. However, the Escrow Agent shall have the right at any time to deposit the Deposit with the clerk of such court of competent jurisdiction in the Commonwealth of Massachusetts that the Escrow Agent shall select. The Escrow Agent shall give written notice of such deposit to Landlord and Tenant. Upon such deposit the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder. The Landlord and Tenant acknowledge that the Escrow Agent shall act solely as a stakeholder at Landlord's and Tenant's request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and the Escrow Agent shall not be liable to either of the parties for any act or omission on its part unless taken or suffered in bad faith, in willful disregard of this Section 16.31 or involving gross negligence. Landlord and Tenant shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs,claims and expenses, including reasonable attorneys' fees, -17- 18 incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or suffered by the Escrow Agent in bad faith, in willful disregard of this Section 16.31 or involving gross negligence on the part of the Escrow Agent. The parties agree that notwithstanding the obligations of the Escrow Agent under this Agreement, the Escrow Agent (if an attorney or law firm) shall be permitted to represent Landlord or Tenant (as the case may be) in connection with the transaction evidenced by this Section 16.31 or in connection with any matters arising from or related to this Section 16.31, the consummation of this Section 16.31 or any claimed breach of this Section 16.31 by any party. (C) (i) The purchase price payable for the Demised Premises (the "Purchase Price") shall be THIRTEEN MILLION FOUR HUNDRED SEVENTY TWO THOUSAND FOUR HUNDRED DOLLARS ($13,472,400.00) payable on the closing by Federal Funds immediately available to the Landlord at The First National Bank of Boston, Boston, Massachusetts or such other bank as may be stipulated by Landlord by written notice to Tenant. Upon closing, credit shall be given by Landlord to Tenant for and in the amount of the Deposit (but not for the interest earned thereon). The parties acknowledge and agree that "Impositions" (as defined in Article VI of the Lease) are and shall continue to be paid entirely by Tenant. Accordingly, no credit or adjustment shall be given to Tenant at closing (or otherwise) respecting Impositions. (C) (ii) Fixed Rent and all Additional Rent (except respecting Impositions, provision for which is made in Section 16.31 (C)(i) above) shall be paid through the "Closing Date" (referred to in Section 16.31 (D) as it may be extended pursuant to the provisions of this Section 16.31 and in the event that -18- 19 Tenant has prepaid amounts of the foregoing (excluding Impositions) for periods extending beyond said Closing Date (as it may be so extended), appropriate credit shall be given to Tenant for amounts thereof (excluding Impositions) prepaid for periods extending beyond said Closing Date (as it may be so extended). (D) The closing (the "Closing") shall be held at the Middlesex South District Registry of Deeds, 208 Cambridge Street, Cambridge, Massachusetts 02141 (or at such other location in which said Registry of Deeds may be located), or at such other place in the City of Boston as the parties may agree, at 10:30 A.M. on that date (the "Closing Date") which is thirty (30) days after Landlord's receipt of Tenant's Option Exercise Notice (accompanied by the Deposit); provided, however, if said thirtieth (30th) day shall be a Saturday, Sunday or Legal Holiday, the Closing Date shall be the next following business day on which the Middlesex South District Registry of Deeds shall be open for the transaction of business. In addition to the provisions of Section 16.31 (A) above, Landlord covenants that, so long as this Section 16.31 shall be in full force and effect and Tenant has not assigned this Lease nor sublet the Premises (except only as provided in Subsection (L) below) and Tenant shall not have wrongfully failed to close on its purchase of the Demised Premises and there shall be no "Event of Default" (defined in Section 15.1 (a) of the Lease (as herein amended), Landlord shall not encumber the Demised Premises from time to time with any mortgages (and other financing documents) in the aggregate principal amount greater than the purchase price. It is agreed that time is of the essence with respect to the provisions and agreements in this Section 16.31. (E) The Demised Premises shall be sold and conveyed in as-is condition and subject to -19- 20 the following (collectively, the "Permitted Encumbrances"): (i) the provisions of all laws, statutes, ordinances, rules and regulations (including, but not limited to, the Kendall Square Urban Renewal Plan (as amended and as it may hereafter be amended), building codes, zoning ordinances and regulations, and environmental laws and regulations) and the orders, rules, regulations and requirements of all Federal, state and municipal governments, and the appropriate agencies, officers, departments, boards and commissions thereof, whether now or hereafter in force, which may be applicable to the Demised Premises or the use or manner of use of the Demised Premises (herein collectively called "Legal Requirements"); (ii) all leases, subleases and other occupancy agreements and arrangements for space in the Building of which Tenant has knowledge or which were entered into or arranged by Tenant (but nothing herein shall be construed as a waiver or modification of the provisions of Article XI of this Lease); (iii) any state of facts an accurate survey and/or inspection and/or review of any and all public records would disclose (including, without limitation, the condition of the Demised Premises and/or the presence , removal, containment, investigation, monitoring or permit conditions of or respecting hazardous materials in, on, under or with respect to the Demised Premises); -20- 21 (iv) real estate taxes and assessments, water and sewer charges, other municipal charges and assessments and all other Impositions for the fiscal tax year in which the closing shall occur and for all prior and subsequent fiscal tax years; (v) orders, agreements, decrees, license or permit conditions relating to, and notices of violation of, any Legal Requirements issued by any Federal, State or municipal or other governmental authorities, agencies, boards, departments or other instrumentalities having jurisdiction, against or affecting the Site, the Building or the use of the Site or Building including, without limitation, any of the foregoing arising out of or in any way related to the presence, removal, containment, investigation, monitoring or permit conditions of or respecting hazardous materials in, on, under or relating to the Demised Premises (herein collectively called "Governmental Directives"); (vi) any lien or encumbrance placed on the Demised Premises (i) with the written consent of the Tenant (which consent shall not be unreasonably withheld or delayed), (ii) arising out of the use, occupancy or maintaining of the Site and/or the Building or any breach or default of the Tenant or (iii) resulting from any cause created by the act or omission of the Tenant; -21- 22 (vii) that certain unrecorded instrument entitled "Agreement For The Creation Of Certain Easements" dated September 19, 1983 by and between COM/Energy Steam Company and Cambridge Center Associates and all easements, rights, grants and other agreements from time to time executed and/or granted pursuant to said Agreement; (viii) those matters set forth in Exhibit I attached hereto and hereby incorporated herein by reference; (ix) such other easements, agreements and restrictions of record insofar as in force (on the Closing Date as it may be extended hereunder) and applicable to the Site and/or Building, provided the same do not materially interfere with the use of the Demised Premises for the "Permitted Uses" (as defined in Section 1.2 of the Lease). (x) The "Printed Exclusions" and the "Deemed Approved Matters" (both referred to in Section 16.31 I (2) hereof). (F) In the event of (i) a taking of the Demised Premises, or any part thereof, by the exercise of a right of condemnation or eminent domain, or (ii) damage to the Building by fire or other casualty, or (iii) a taking ,by the exercise of a right of condemnation or eminent domain, of the "Garage" (defined in the "Parking Garage Lease" hereinafter referred to at the end of this subsection) which taking pursuant to the provisions of Section 7 (b) of the Parking Garage Lease results in a termination of the Parking Garage Lease (a "Parking Garage Taking Termination"), and if any of the events referred to in items (i), (ii) and -22- 23 (iii) above occur between the date of Landlord's receipt of Tenant's Option Exercise Notice (given pursuant to and in compliance with the foregoing provisions hereof) and the Closing, then Tenant, by written notice to Landlord given within fifteen (15) days after such taking of the Demised Premises or any part thereof, a Parking Garage Taking Termination or the occurrence of such fire or casualty, as the case may be (but in no case given after the time of closing), shall elect one (1) but only one (1) of the following: (x) to cancel Tenant's exercise of the option to purchase the Demised Premises in which case the Deposit (and all interest then earned thereon) shall be promptly refunded to Tenant (provided the Deposit has previously been paid by Tenant) in which case the provisions of this Section 16.31 shall be void without further recourse or liability to or against either Landlord or Tenant provided, however, that the Lease (as amended by this Amendment but without this Section 16.31) shall remain in full force and effect in accordance with the terms of the Lease as amended by this Amendment but without this Section 16.31 or (y) to proceed to close regardless of the extent of such taking, damage or destruction (the "Closing Election").If Tenant shall make the Closing Election, the agreements contained in this Section 16.31 shall remain unaffected thereby (except only as hereinafter specifically set forth in this Section 16.31 (F)) and the parties shall close the transaction as herein provided notwithstanding such occurrence, without any diminution or abatement of the purchase price; except, however, that unless Landlord has previously restored the Demised Premises to its former condition (Landlord having the right but not the obligation to do so), Landlord shall (i)(a) in the case of fire or casualty to the Building pay over or assign to Tenant, on delivery of the Deed, all amounts recovered or recoverable on account of an insured fire or casualty less any -23- 24 amounts reasonably expended by Landlord for any partial restoration or (i)(b) in the case of a taking of the Demised Premises (in whole or in part) under the power of eminent domain pay over or assign to Tenant, on delivery of the Deed, all amounts recovered on account of such taking and/or Landlord's claim in any such eminent domain or condemnation proceeding less any amounts reasonably expended by Landlord for any partial restoration, or (ii) if the holder of a mortgage on the Demised Premises shall require that fire or casualty proceeds or eminent domain (or condemnation) awards be applied on account of the mortgage indebtedness, give to Tenant a credit against the Purchase Price, on delivery of the Deed, equal to the insured fire or casualty proceeds received or recoverable or the eminent domain (or condemnation) awards respecting the Demised Premises, as the case may be, and retained by the holder of said mortgage less any amounts reasonably expended by Landlord for any partial restoration. In the event that Tenant shall fail to give any notice or to give timely notice pursuant to this Section 16.31 (F) (time being of the essence), Tenant shall be deemed to have conclusively elected the Closing Election. The "Parking Garage Lease" is that certain Lease entitled "Cambridge Center North Garage Parking Lease" dated March 19, 1990 between David Barrett, Edward H. Linde and Mortimer B. Zuckerman, Trustees of Cambridge Center North Trust u/d/t dated August 7, 1988 recorded with the Middlesex South District Registry of Deeds in Book 19383, Page 203, as landlord, and David Barrett, Edward H. Linde and Mortimer B. Zuckerman, Trustees of Fourteen Cambridge Center Trust u/d/t dated February 4, 1982 recorded with said Registry in Book 14707, Page 96, as tenant, a Notice of which is recorded with said Registry in Book 20450, Page 211. (G) The following deliveries shall be made at the Closing: -24- 25 (i) Landlord shall execute, acknowledge and deliver a Massachusetts quitclaim deed to the Demised Premises in recordable form, so as to convey to Tenant good and clear record and marketable fee simple title to the Demised Premises, free and clear of all liens and encumbrances, except for, and subject to, the Permitted Encumbrances. (ii) Each of Landlord and Tenant shall pay one half (1/2) of all transfer taxes and stamp costs and all other federal, state, county or municipal taxes excises, impositions or levies applicable to or imposed on the transfer of real property, the conveyance of the Demised Premises or the delivery or recording of the deed (whether now or hereafter in effect) and whether assessed to sellers or buyers of real property (excluding, however, any income taxes of Landlord which Landlord shall be obligated to pay and any franchise, corporation or income taxes of Tenant which Tenant shall be obligated to pay and excluding all Impositions, provision for which is made in Section 16.31 (C)(i) hereof) and Tenant shall pay all recording costs by reason of the delivery or recording of the deed. (iii) Landlord shall execute, acknowledge and deliver to Tenant an assignment of all insurance proceeds and condemnation awards or claims or rights thereto, if any there be, then payable to the Landlord, but as required by and subject to the provisions of subsection (F) above, all without representation or -25- 26 warranty by or recourse against Landlord. (iv) The Tenant shall deliver the Purchase Price described in subsection (C) above in the manner specified therein. (v) The parties shall execute and deliver to each other such other instruments and documents, and shall pay or cause to be paid such sums of money, to which either may be entitled pursuant to any of the other provisions of this Section or which may be required reasonably in connection with the Closing and consistent with the provisions of this Section. Each such instrument and document to be delivered at the Closing shall be consistent with the applicable provisions of this Section, shall be in the form or contain the information or provisions provided for in this Section, and shall otherwise be reasonably satisfactory in form and substance to the parties. (vi) Landlord shall cause its counsel to deliver an opinion in form and substance reasonably satisfactory to Tenant relating to the power and authority of Landlord to execute and deliver the Deed and other instruments at the Closing. (vii) Tenant shall cause its counsel to deliver an opinion in form and substance reasonably satisfactory to Landlord relating to the power and authority of Tenant to purchase the Demised Premises and to execute and deliver any instruments as are executed by the Tenant or its nominee at the Closing. -26- 27 (viii) To the extent same are in Landlord's possession or subject to Landlord's custody and control, Landlord shall deliver to Tenant all licenses, permits, authorizations and approvals of any Governmental authorities relating to the Demised Premises. (H) Tenant represents and warrants to the Landlord that: (i) it has examined, inspected and investigated, to its full satisfaction,the physical nature and condition of the Demised Premises; (ii) neither Landlord nor any agent, officer, director, employee, trustee, beneficiary, partner, representative or affiliate of Landlord (including, without limitation, Boston Properties, Inc., and its officers, directors and employees) has made any representation whatsoever regarding the Demised Premises or any part thereof, or anything relating to the subject matter of the agreements contained in this Section 16.31 including, without limiting the generality of the foregoing, representations as to the present or future physical nature or condition of the Demised Premises (including the presence, removal, containment, investigation, monitoring or permit conditions of or respecting hazardous materials), operation, size or zoning of the Demised Premises, operating expenses, carrying charges or real estate taxes and assessments, water and sewer charges, other municipal charges and assessments and all other Impositions affecting the Demised Premises; and (iii) it will take ownership of the Demised Premises in its "as is" condition on the Closing Date. The acceptance of a deed to the Demised Premises by Tenant shall be deemed to be a reaffirmation of the provisions of this Section 16.31 (H). (I) (1) (a) As of the Closing Date, Landlord shall be the owner of good and clear record and marketable fee simple title to the -27- 28 Demised Premises, subject only to those matters defined as Permitted Encumbrances in subsection (E) hereof. However, if on the Closing Date (i) the title to the Demised Premises is not as aforesaid or becomes additionally encumbered, in either case by an act or omission not attributable to Tenant, Tenant's affiliates or Tenant's subtenants, occupants, licensees, agents, contractors, subcontractors, tradesmen or materialmen or (ii) the Demised Premises do not comply in all material respects with applicable Legal Requirements or Governmental Directives or (iii) there is any material state of facts disclosed by an on the ground instrument survey of the Site performed and prepared for Tenant by the "Surveying Firm" (hereinafter defined) which renders title to the Site unmarketable (herein called "Survey Defects"), but in any of such cases not attributable to "Tenant's Operation Of The Demised Premises" (hereinafter defined), then Tenant, by written notice to Landlord given on or before the Closing Date (but in no event after the Closing Date) shall elect one (1) but only one (1) of the following: (x) to cancel Tenant's exercise of the option to purchase the Demised Premises in which case the Deposit (and all interest then earned thereon) shall be promptly refunded to Tenant (provided the Deposit has previously been paid by Tenant) and the provisions of this Section 16.31 shall be void and shall wholly cease and terminate and neither party shall have any claim against or liability to the other provided, however, that the Lease (as amended by this Amendment but excluding this Section 16.31) shall remain in full force and effect in accordance with the terms of the Lease as amended by this Amendment but without this Section 16.31 or (y) to extend the Closing Date for a period of ninety (90) days (the "Extension Election") in which case Landlord shall use reasonable efforts, but at Tenant's sole cost, expense and liability (collectively "Tenant's Cost And Liability") to attempt to bring the Demised Premises into -28- 29 material compliance with applicable Legal Requirements or Governmental Directives or to cure the Survey Defects, as the case may be, but in any of such cases Landlord shall have no obligation if any such non-compliance and/or Survey Defects is (are) the result of Tenant's Operation Of The Demised Premises. If Tenant shall make the Extension Election, the same shall only be effective if Tenant, in its notice to Landlord, shall agree to the provisions of item (y) hereof which shall survive the delivery of the deed and shall survive as elsewhere provided in this Section 16.31. For purposes hereof, "Tenant's Operation Of The Demised Premises" shall mean the manner and operation or use of the Demised Premises (or any portion or component thereof or equipment or process therein) by Tenant and/or those claiming by, through or under Tenant. For purposes hereof, the term "Surveying Firm" shall mean a duly licensed and qualified registered professional land surveying firm in the Commonwealth of Massachusetts first approved by Landlord, which approval shall not be unreasonably withheld or delayed. For purposes hereof, Landlord hereby approves the firm of Allen & Major presently located in Woburn, Massachusetts. (I) (1) (b) In addition to the foregoing provisions of Section 16.31 (I)(1)(a), if on the Closing Date a hazardous materials analysis and study of the Site and its component materials performed by a geotechnical or other engineering first approved by Landlord (which approval shall not be unreasonably withheld or delayed) discloses the presence of hazardous materials in such quantities or amounts as to constitute a material violation or material non-compliance with the standards therefor set forth in applicable environmental laws, then Tenant, by written notice to Landlord given on or before the Closing Date (but in no event after the Closing Date) shall elect one (1) but only one (1) of the following: -29- 30 (x) to cancel Tenant's exercise of the option to purchase the Demised Premises (the "Termination Election") in which case the Deposit (and all interest then earned thereon) shall be promptly refunded to Tenant (provided the Deposit has previously been paid by Tenant) and the provisions of this Section 16.31 shall be void and shall wholly cease and terminate and neither party shall have any claim against or liability to the other provided, however, that the Lease (as amended by this Amendment but excluding this Section 16.31) shall remain in full force and effect in accordance with the terms of the Lease as amended by this Amendment but without this Section 16.31 or (y) to close the purchase of the Demised Premises on the Closing Date without any deduction, offset or other reduction in the purchase price. In the case of an election to close under item (y), such election shall be conditioned upon Tenant executing a written instrument in favor of Landlord pursuant to which Tenant and its successors and assigns releases Landlord from liability respecting the presence, release, threat of release, removal and remediation of hazardous materials (herein called "Tenant's Release"). (I) (1) (c) Subject to the provisions of Section 16.31 (I) (1)(a) above, to enable Landlord to make conveyance of the Demised Premises as herein provided, Landlord may, on the Closing Date (as it may be extended as above provided) use the purchase price or any portion thereof to clear the title to the Premises of any or all interests not permitted by this Section 16.31 provided that all instruments so procured which affect title to the Demised Premises are recorded on the Closing Date (as it may be so extended) except, however, that Landlord shall have the right in lieu of payment and discharge to have deposited with Tenant's title insurer out of the purchase price such funds or assurances as will provide for the full payoff of all of such interests and the deletion of any exceptions for items other -30- 31 than the Permitted Exceptions, those matters deemed approved pursuant to Section 16.31 (I) (2) and the Printed Exclusions in the owner's policy of title insurance issued (or to be issued) to Tenant upon the acquisition of the Demised Premises by Tenant, in which case such interests shall not be considered objections to title to the Demised Premises. (I) (2) The Tenant agrees that it will obtain, not earlier than twenty (20) days prior to the date of Tenant's Option Exercise Notice nor later than ten (10) days prior to the Closing, a preliminary commitment from a recognized title insurance company reasonably selected by Tenant (the "Title Insurer"), covering the Demised Premises, pursuant to which the Title Insurer shall commit to issue to Tenant an Owner's Fee Title Insurance Policy insuring Tenant's title to the Demised Premises in the amount of the Purchase Price, subject only to the Permitted Encumbrances and the printed exclusions from coverage and other matters set forth in said preliminary commitment and the Owner's Policy of issue (the "Printed Exclusions"). A copy of title commitment shall be furnished to Landlord within seven (7) days after its receipt by the Tenant, accompanied by a written statement as to any objections to title set forth therein which are not Permitted Encumbrances or Printed Exclusions. Any objections to title then existing but not then raised in such written statement shall be deemed waived, accepted and approved by Tenant (the "Deemed Approved Matters"). If Tenant shall have elected to extend the Closing Date as provided in and on the terms set forth in Section 16.31 (I)(1)(a) and if, at the extended Closing Date, title to the Demised Premises shall not be as provided in this Section 16.31 or if the Demised Premises are not in material compliance with the applicable Legal Requirements and Governmental Directives or if there shall be any Survey Defects, Tenant shall elect one -31- 32 (1) but only one (1) of the following: (a) to cancel its agreement to purchase the Demised Premises contained in this Section 16.31, in which event the Deposit (and all interest then earned thereon) shall be promptly refunded to Tenant (provided the Deposit shall have previously been paid by Tenant) and the provisions of this Section 16.31 shall be void and shall wholly cease and terminate, and neither party shall have any claim against or liability to the other provided, however, that the Lease as amended by this Amendment (but excluding the provisions of this Section 16.31) shall remain in full force and effect in accordance with the terms of this Lease as amended by this Amendment but without this Section 16.31; provided, however, that notwithstanding the foregoing Tenant's Cost And Liability shall survive, or (b) to consummate the Closing without any reduction of the purchase price or allowance against the same and without any liability on the part of the Landlord on account of the agreements or matters contained in this Section 16.31 including, without limitation, any non-compliance with applicable Legal Requirements, any non-compliance with Governmental Directives, the existence of any Survey Defects, the existence of any Deemed Approved Matters and/or the existence or presence of any matters for which Tenant's Release is given. (J) If, on the Closing Date (as it may be extended pursuant to subsection (I) (1)(a) hereof), the Tenant shall fail to perform its obligation to purchase the Demised Premises, as herein provided, (i) the Landlord shall as its sole remedy therefor retain the Deposit (and all interest earned thereon) and (ii) the terms, conditions and provisions of both this Section 16.31 and Section 16.32 shall wholly cease and terminate and neither party shall have any further claim against or liability to the other by reason of the provisions of this Section 16.31 and Section 16.32 (it being acknowledged that Landlord shall retain the Deposit and said interest); provided, however, that the Lease as amended by this Amendment (but excluding the provisions of this Section 16.31 and Section -32- 33 16.32) shall remain in full force and effect in accordance with the terms of the Lease as amended by this Amendment but without this Section 16.31 and Section 16.32; provided, however, that notwithstanding the foregoing Tenant's Cost And Liability shall survive. (K) All notices, demands, requests, consents, approvals or other communications (for the purposes of this subsection collectively called "Notices") required or permitted to be given under this Section shall be in writing and shall be sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the party to be notified at its address first above set forth or to such other address as such party shall have specified most recently by like Notice. At the same time any Notice is given to Landlord, a copy thereof shall be sent to Boston Properties, Inc., 8 Arlington Street, Boston, Massachusetts 02116, Attention: General Counsel. At the same time any Notice is given to Tenant a copy thereof shall be sent to Mintz, Levin, Cohn, Ferris, Glovsky And Popeo, P.C., One Financial Center, Boston, Massachusetts 02111, Attention: Joel R. Bloom, Esquire. Notices given as provided above shall be deemed given on the date of delivery except that if delivery is refused notice shall be deemed given on the date that delivery is first attempted to be made. (L) This Section 16.31, and Tenant's rights hereunder, shall not be assigned, pledged, hypothecated, mortgaged or otherwise transferred (collectively called "Transfer") and any purported Transfer shall be null and void and of no force or effect. However, Tenant shall have the right to assign this Section 16.31 but only as part of an assignment of the entire Lease (as amended by this Amendment) to an -33- 34 assignee permitted under Section 11.1 B of the Lease or consented to under Section 11.1 D of the Lease. (M) (1) With respect only to this Section 16.31, Landlord warrants and represents to Tenant that as of the date of this Amendment (a) Landlord is a nominee trust under the laws of the Commonwealth of Massachusetts and that it has the necessary power and authority under its Declaration of Trust to enter into this Fourth Amendment, (b) Landlord has no actual knowledge of any litigation pending against Landlord or the Demised Premises (excluding Tenant's Operation Of The Demised Premises as to which no representation or warranty is made) which would have a materially adverse effect on the obligations of Landlord under this Section 16.31, (c) the Lease (as amended by this Amendment) and those leases and subleases set forth in Exhibit I are the only leases entered into by Landlord respecting the Demised Premises (no warranty or representation being made as to any subleases or other occupancy agreements or arrangements made by Tenant or as to any matters set forth in Section 16.31 (E)(ii) hereof), (d) Landlord has not entered into any service contracts respecting the Demised Premises which will continue in effect beyond the conveyance of the Demised Premises to Tenant (or if any service contracts entered into by Landlord respecting the Demised Premises exist, the same shall be terminated on or before closing hereunder), (e) no consent, authorization or approval of any governmental body, authority or court is required in connection with Landlord's agreements set forth in this Section 16.31 (or if any of the same shall be required, Landlord has obtained or will obtain same) and (f) Landlord has not entered into any options to sell, nor granted rights of first offer or first refusal to sell nor entered into any other written agreements to sell the -34- 35 Demised Premises which would deprive Tenant of its option to purchase the Demised Premises under this Section 16.31; provided, however, Tenant acknowledges that Landlord's mortgage lender must approve and consent to this Amendment and the existence of any mortgages does not contravene the foregoing. At the time of closing, the then owner of the Demised Premises shall reaffirm the foregoing warranties and representations or state in what respects the same are not then true and correct. The provisions hereof shall not survive the delivery of the deed of the Demised Premises. (M)(M) (2) If any of the warranties and representations set forth in subsection (M) (1) above shall not be complied with in material respects as of the Closing Date (as it may be extended pursuant to the applicable provisions hereof), Tenant shall elect one (1) but only one (1) of the following: (a) to cancel its agreement to purchase the Demised Premises contained in this Section 16.31 in which event the Deposit (and all interest then earned thereon) shall be promptly refunded to Tenant (provided the Deposit shall have been paid by Tenant) and the provisions of this Section 16.31 shall be void and shall wholly cease and terminate, and neither party shall have any claim against or liability to the other provided, however, that the Lease as amended by this Amendment (but excluding the provisions of this Section 16.31) shall remain in full force and effect in accordance with the terms of this Lease as amended by this Amendment but without this Section 16.31, or (b) to consummate the Closing without any reduction of the purchase price or allowance against same and without any liability on the part of Landlord on account of the matters set forth in subsection (M) (1) above. (N) It is understood and agreed that all understandings and agreements heretofore had between the parties hereto with respect to -35- 36 the subject matter of this Section 16.31 are merged herewith, and this Section 16.31 alone fully and completely expresses their agreement. (O) The delivery and acceptance of the Deed conveying fee title to the Demised Premises shall be deemed to be an acknowledgement, for all purposes, of the full performance and discharge of every representation, warranty, agreement and obligation on the part of each of the parties to be performed pursuant to the provisions of this Section 16.31, except those which are herein specifically stated to survive the Closing and the delivery of the Deed. (P) If the Lease is terminated on account of an Event of Default specified in Section 15.1 of the Lease, the provisions contained in this Section 16.31 shall terminate and shall not survive the termination of the Lease. (Q) The Tenant acknowledges that a reference to the Landlord herein is a reference to the Trustees of Fourteen Cambridge Center Trust under Declaration of Trust identified on the first page of this Amendment, and that no trustee, nor any beneficiary of said trust, nor any officer, director, employee or agent of said trust or any affiliate of said trust (including, but not limited to, Boston Properties, Inc., Mortimer B. Zuckerman, Edward H.Linde and/or any affiliates of said Mortimer B. Zuckerman and/or Edward H. Linde) nor any successor holder of Landlord's interest in the Lease (as amended) and/or in the Demised Premises, shall be held to any personal liability hereunder, nor shall resort be had to their private property for the satisfaction of any claim hereunder, and Tenant agrees to look solely to the Demised Premises in satisfaction of any liability of the Landlord or any such successor under this Section 16.31. In no event shall any of the aforesaid persons or parties (including, without limitation, Landlord and its -36- 37 successors) be liable for indirect or consequential damages. (R) The unenforceability of invalidity of any one or more provisions hereof shall not affect the validity or enforceability of any of the other provisions hereof. (S) This Section shall be governed by, and construed and enforced in accordance with the law of, The Commonwealth of Massachusetts, as the same may from time to time exist. (T) The Lease (as herein amended) shall terminate upon and as of the date of the acquisition by Tenant of title to the Demised Premises pursuant to this Section 16.31". 5. There is added to the Lease a new Section 16.32 as set forth in Exhibit II attached hereto and hereby incorporated herein by reference. 6. The existing Section 16.32 of the Lease is hereby renumbered as Section 16.33. 7. For purposes of Section 11.1 D(a) of the Lease, the proposed assignee shall be deemed to possess "adequate financial capability to meet the tenant obligations" under the Lease (as herein amended) if the proposed assignee (a) has a shareholder's or owner's (as applicable) equity as determined in accordance with "GAAP" (hereinafter defined) at least equal to One Hundred Twenty Five Million Dollars ($125,000,000.00) plus the "CPI Amount" (hereinafter defined), (b) has Net Income (as determined in accordance with GAAP), but excluding interest and investment income and income from extraordinary events, of at least (1) Seven Million Dollars ($7,000,000.00) plus the CPI Amount for the fiscal year immediately prior to such proposed assignment, (2) One Dollar ($1.00) for each of at least two of the last three fiscal years prior to such proposed assignment and (3) Twenty Million Dollars ($20,000,000.00) plus the CPI Amount in the aggregate for the last three fiscal years prior to such proposed assignment and (c) has Fifty Million Dollars ($50,000,000.00) plus the CPI Amount in cash or marketable securities at the time of such proposed -37- 38 assignment. For purposes hereof, "GAAP" shall mean generally accepted accounting principles consistently applied throughout (and/or with respect to) the relevant period. In addition and for purposes hereof, the "CPI Amount" shall be and mean an amount equal to the product of the amount in question times the percentage increase, if any, in the Consumer Price Index (1982-1984 = 100) of all items for urban wage earners and clerical workers published by the Bureau of Labor Statistics of the U.S. Department of Labor for Boston, Massachusetts (the "Index") (or if there ceases to be any such publication, any other substantially equivalent index generally recognized to measure changes in the cost of living for Boston, Massachusetts) between the Index last published prior to the date of this Amendment and the Index last published prior to the change contemplated by this Section. 8. Reference is made to the "East Garage Sublease" (referred to in Item 5 of Exhibit I attached hereto). Notwithstanding anything contained in the Lease as amended by this Amendment, Tenant acknowledges, covenants and agrees that Landlord shall have the right, in its sole and absolute discretion, to terminate the East Garage Sublease or to cause the East Garage Sublease to be terminated at such time (whether during the Term of the Lease as amended hereby (as it may be extended) or after any conveyance of the Demised Premises to Tenant pursuant to Section 16.31 or Section 16.32 or otherwise) as Landlord, in its sole and absolute discretion, shall determine. 9. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate brokers or other persons or entities which have been, are or will be entitled to any broker's or finder's fee or any similar commission or fee in connection with this Lease Amendment (including, without limitation, the transactions contemplated by Sections 16.31 and 16.32 of the Lease and added to the Lease pursuant to this Lease Amendment) except Fallon, Hines & O'Connor (the "Recognized Broker"). Landlord and Tenant each agree to indemnify, hold harmless, protect and defend the other from and against any and all loss, damage, liability and expense, including costs and reasonable attorneys' fees which such other party incurs or -38- 39 sustains by reason of the breach by the indemnifying party of its foregoing warranties and representations. Tenant covenants and agrees that it shall be solely responsible for and shall pay to the Recognized Broker such fee or commission as shall be due to the Recognized Broker. Tenant shall defend, hold harmless and indemnify Landlord (and its affiliates including, without limitation, Boston Properties, Inc.) from and against any claims by the Recognized Broker. The provisions hereof shall survive the expiration or any termination of this Lease (as herein amended), the termination of this Fourth Amendment To Lease pursuant to the provisions of Section 11 hereof, the expiration or any termination of Section 16.31 and/or Section 16.32 hereof and/or the delivery of any deed of the Demised Premises to Tenant pursuant to Section 16.31 hereof, Section 16.32 hereof or otherwise. 10. Concurrently with the execution of this Fourth Amendment to Lease, Landlord shall deliver to Tenant a Trustees' Certificate respecting the authority to enter into this Fourth Amendment To Lease and Tenant shall deliver to Landlord a corporate vote evidencing the authority of Tenant to enter into this Fourth Amendment to Lease. 11. Reference is made to that certain lease of even date herewith between North Parcel Limited Partnership, a Massachusetts Limited Partnership ("NPLP"), as landlord, and Biogen Realty Limited Partnership, a Massachusetts Limited Partnership ("BRLP") that is an affiliate of Tenant, as tenant (the "Tract V Lease"), pursuant to which Tract V Lease NPLP leased to BRLP that certain parcel of unimproved land therein referred to as Tract V. BRLP is to construct the "Improvements" (as therein defined) on said Tract V in accordance with the requirements of the Tract V Lease and the "Land Disposition Agreement" (hereinafter defined). The Land Disposition Agreement is that certain Supplemental Land Disposition Agreement dated October 6, 1993 between the Cambridge Redevelopment Authority (the "Authority") and NPLP. The parties acknowledge that the transaction contemplated by the Tract V Lease was and is a material inducement to the parties to enter into this Fourth Amendment To Lease, and that their agreement herein is dependent on the successful completion of said Tract V transaction. Therefore, notwithstanding anything to -39- 40 the contrary set forth in this Fourth Amendment To Lease, (i) this Fourth Amendment To Lease shall automatically terminate, cease and expire if construction of the Improvements on Tract V is not commenced on or before October 1, 1994 or (ii) if construction of the Improvements on Tract V is so commenced on or before said October 1, 1994, this Fourth Amendment To Lease shall automatically terminate, cease and expire if construction of the Improvements is not completed and a Certificate of Completion is not issued by the Authority for the Improvements on or before the date set forth for completion of the Improvements on Tract V pursuant to the Land Disposition Agreement. In the event of any such termination of this Fourth Amendment To Lease, the Lease (excepting this Fourth Amendment To Lease) shall remain unchanged and in full force and effect in accordance with its terms (excepting this Fourth Amendment To Lease). 12. All capitalized terms and words used in this Amendment shall have the same meaning as set forth in the Lease unless a contrary meaning is expressly set forth herein. 13. Except as expressly amended hereby, the Lease and its terms and provisions shall remain unchanged and in full force and effect. -40- 41 EXECUTED under seal as of the date and year first above written. WITNESS: LANDLORD: - -------------------------------- ------------------------------------- EDWARD H. LINDE, TRUSTEE OF FOURTEEN CAMBRIDGE CENTER TRUST AND NOT INDIVIDUALLY TENANT: BIOGEN, INC. By: ---------------------------------- Name: James C. Mullen Title: PRESIDENT (VICE PRESIDENT) ATTEST: By: By: ------------------------------ ------------------------------------ Name: Michael J. Astrue Name: Timothy M. Kish Title: ASSISTANT CLERK Title: TREASURER (ASSISTANT TREASURER) EX-10.25 4 FIFTH AMENDMENT TO LEASE DATED OCTOBER 9. 1997 1 EXHIBIT 10.25 FIFTH AMENDMENT TO LEASE FIFTH AMENDMENT TO LEASE (the "Fifth Amendment") dated as of the 9th day of October, 1997 by and between Mortimer B. Zuckerman, Edward H. Linde and David Barrett, Trustees of Fourteen Cambridge Center Trust under Declaration of Trust dated February 4, 1982 and recorded with the Middlesex South District Registry of Deeds in Book 14707, Page 96 and not individually (hereinafter called the "Landlord") and Biogen, Inc. (successor to Biogen Research Corp., successor to B. Leasing, Inc.). Biogen, Inc., is the Tenant under the Lease and is (hereinafter called "Tenant"). R E C I T A L S By lease dated October 4, 1982, as amended by First Amendment To Lease dated January 19, 1989 (the "First Amendment"), by Second Amendment To Lease dated March 8, 1990 (the "Second Amendment"), by Third Amendment To Lease dated September 25, 1991 (the "Third Amendment") and by Fourth Amendment to Lease dated October 6, 1993 (the "Fourth Amendment") (said Lease as so amended being hereinafter called the "Lease"), Landlord did lease to Tenant and Tenant did hire and lease from Landlord the "Site" and "Building" known as and numbered Fourteen Cambridge Center, Cambridge, Massachusetts. The Site and the Building are defined in Section 1.2 of the Lease and are collectively therein and herein interchangeably called the "Demised Premises" or the "Premises". The Lease provided for an Original Lease Term which was scheduled to expire on February 28, 1998. Pursuant to Section 1 of the Fourth Amendment, the Term was extended for one (1) period of five (5) years (the "First Extended Term") expiring on February 28, 2003. Landlord and Tenant have agreed to extend the Term of the Lease, to restructure certain obligations of Landlord and Tenant under the Lease and to make certain other modifications to the Lease and are entering into this instrument to set forth the same. NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration paid by each of the parties hereto to the other, the receipt and sufficiency of which is hereby acknowledged, and in further consideration of the provisions herein, Landlord and Tenant hereby agree as follows: 1. The Lease Term (also in the Lease sometimes called the "Term"), which but for this Fifth Amendment is scheduled to expire on February 28, 2003, is hereby presently extended for a period commencing on March 1, 2003 and expiring on the date which is fifteen (15) years subsequent to the date (such date being hereinafter referred to as the "Fifth Amendment Effective Date") that this Fifth 2 Amendment has been executed on behalf of both Landlord and Tenant (plus the partial month, if any, at the end of such fifteen (15) year period) (herein called the "Second Extended Term") unless extended or sooner terminated in accordance with the provisions of the Lease (as herein amended). The present extension of the Lease Term for the Second Extended Term shall be on all of the same terms and conditions set forth in the Lease except as otherwise provided in this Fifth Amendment. All references in the Lease (as herein amended) to the "Term" or "Lease Term" shall mean and be references to the Original Term as extended by the First Extended Term and as herein presently extended by the Second Extended Term. 2. Section 3.2 of the Lease is hereby deleted in its entirety and Landlord and Tenant acknowledge and agree that Tenant's only options to extend the Term beyond the expiration of the Second Extended Term shall be as provided in Section 3 of this Fifth Amendment. 3. Provided that at the time of the exercise there exists no "Event of Default" (defined in Section 15.1 of the Lease) and that the Lease is still in full force and effect, Tenant shall have the right to extend the Lease Term upon all of the same terms, conditions and provisions contained in the Lease (except for the Annual Fixed Rent which shall be adjusted during option periods as hereinafter set forth) for four (4) successive periods of five (5) years each as hereinafter set forth. Each of the four (4) option periods is sometimes herein referred to as an Extended Term. If Tenant desires to exercise any one of the aforementioned options to extend the then current term of the Lease, then Tenant shall give notice to Landlord, not earlier than eighteen (18) months nor later than fourteen (14) months prior to the expiration of the then current term of the Lease of Tenant's request for Landlord's quotation as of the commencement date of the applicable extension period of the annual fair market rental rate of the Demised Premises for the applicable Extended Term, such quotation to be based on the use of the Demised Premises as a first class office building of comparable age in the Cambridge Center Development Area (including such inflation indicators as may from time to time be in effect but determined without regard to any right to extend but taking into account Tenant's payments of Impositions and Tenant's obligations to maintain and pay for the maintenance of the Demised Premises as set forth in the Lease as herein amended). Within one hundred five (105) days after Landlord's receipt of Tenant's notice requesting such a quotation, Landlord shall notify Tenant of Landlord's quotation. In order to exercise its rights hereunder, Tenant shall, within fifteen (15) days after receipt of Landlord's quotation, by written notice to Landlord either (i) accept such quotation and give notice that it exercises its option to extend the Lease Term (as it may previously have been extended), in which case the Lease Term (as it may previously have been extended) shall be -2- 3 extended for the applicable Extended Term or (ii) make a request to Landlord for a broker determination of the Annual Fixed Rent for the applicable Extended Term (based on the criteria set forth in this Section 3), which determination shall be made as follows: Tenant's notice requesting a broker determination of the Annual Fixed Rent shall include the name of a commercial real estate brokerage firm selected by Tenant with at least ten (10) years experience dealing in properties of a nature and type generally similar to the Demised Premises located in the Downtown Boston-Cambridge area ("Tenant's Extended Term Broker"). Within ten (10) days after Landlord's receipt of Tenant's notice requesting a broker determination and stating the name of such a commercial real estate brokerage firm, Landlord shall give written notice to Tenant of Landlord's selection of a commercial real estate brokerage firm having at least the experience referred to above ("Landlord's Extended Term Broker"). Within ten (10) days thereafter the two (2) firms so selected shall select a third such commercial real estate brokerage firm also having at least the experience referred to above (the "Third Extended Term Broker"). Within ten (10) days after the selection of the third commercial real estate brokerage firm, the three (3) firms so selected, by majority opinion, shall attempt to determine the Annual Fixed Rent on the basis of the criteria set forth above in this Section 3. If the brokers are able to agree at least by majority on a determination of such Annual Fixed Rent the brokers shall send a notice to Landlord and Tenant by the end of such ten (10) day period of such determination which shall be hereinafter called the "Broker Determination." If the brokers are unable to agree at least by majority on a determination of such Annual Fixed Rent, the brokers shall send a notice to Landlord and Tenant by the end of such ten (10) day period of such inability and within fourteen (14) days after the selection of the Third Extended Term Broker, both Tenant's Extended Term Broker and Landlord's Extended Term Broker shall make separate determinations of the Annual Fixed Rent on the basis of the criteria set forth above in this Section 3 ("Tenant's Broker's Rent Determination" and "Landlord's Broker's Rent Determination" respectively). Within fourteen (14) days after both Tenant's Broker's Rent Determination and Landlord's Broker's Rent Determination have been made, the Third Extended Term Broker shall select either Landlord's Broker's Rent Determination or Tenant's Broker's Rent Determination (the "Third Broker's Rental Selection") and the Third Broker's Rental Selection shall, in its entirety and without regard to the other Rent Determinations, constitute the "Broker Determination." In making the selection, in no event shall the Third Extended Term Broker have any power to amend, modify, compromise, average or blend either Landlord's Broker's Rent Determination or Tenant's Broker's Determination, it being the intent of Landlord and Tenant that the Third -3- 4 Extended Term Broker shall simply select one of either Landlord's Broker's Rent Determination or Tenant's Broker's Rent Determination which, in the Third Extended Term Broker's judgement, most accurately and fairly defines the Annual Fixed Rent for the Premises for the Extended Term based on the requirements of this Section 3. The Third Extended Term Broker shall advise Landlord and Tenant in writing by the expiration of said fourteen (14) day period of the Third Broker's Rental Selection as so determined. In no event shall the Annual Fixed Rent as determined in any manner pursuant to this Section be less than the Annual Fixed Rent for the Lease Year immediately preceding the commencement of the applicable Extended Term. Tenant shall have the right to extend the Lease Term for the applicable Extended Term by written notice to Landlord given within fifteen (15) days after Tenant's receipt of the Broker Determination. Upon the giving of notice by Tenant to Landlord either (i) within the fifteen (15) day period hereinbefore referred to accepting Landlord's quotation of the Annual Fixed Rent for the then applicable Extended Term and exercising Tenant's option to extend or (ii) within the fifteen (15) day period also hereinbefore referred to accepting the Broker Determination and exercising Tenant's option to extend, then this Lease and the Lease Term hereof shall be extended, for an additional term of five (5) years, without the necessity for the execution of any additional documents (except that Landlord and Tenant agree to enter into an instrument in writing setting forth the Annual Fixed Rent as determined in the relevant manner set forth above); and in such event all references herein to the Lease Term or the term of the Lease shall be construed as referring to the Lease Term, as so extended, unless the context clearly otherwise requires, and except that in no event shall the Lease Term be extended for more than twenty (20) years after the expiration of the Second Extended Term. In no event shall Tenant have the right to exercise its second five (5) year extension option unless it has timely exercised its first five (5) year extension option, nor shall Tenant have the right to exercise its third five (5) year extension option unless it has timely exercised its first and second five (5) year extension options, nor shall Tenant have the right to exercise its fourth five (5) year extension option unless its has timely exercised its first, second and third extension options, nor shall Tenant have the right to exercise more than one (1) option at a time. 4. (A) For the period prior to the Fifth Amendment Effective Date, Tenant shall continue to pay Annual Fixed Rent as provided in the Lease as previously amended. (B) During the period commencing on the Fifth Amendment Effective Date and ending on the last day of the sixtieth (60th) month following the Fifth -4- 5 Amendment Effective Date, Annual Fixed Rent shall be payable at the annual rate equal to the product of (i) $18.95 and (ii) the 67,362 square feet of Gross Building Area of the Building, being a total of $1,276,509.90 per year. (C) During the period commencing on the first day of the sixty-first (61st) month following the Fifth Amendment Effective Date and ending on the last day of the one hundred and twentieth (120th) month following the Fifth Amendment Effective Date, Annual Fixed Rent shall be payable at the annual rate equal to the product of (i) $21.25 and (ii) the 67,362 square feet of Gross Building Area of the Building, being a total of $1,431,442.50 per year. (D) During the period commencing on the first day of the one hundred and twenty-first (121st) month following the Fifth Amendment Effective Date and ending on the last day of the one hundred eightieth (180th) month following the Fifth Amendment Effective Date, being the expiration of the Second Extended Term, Annual Fixed Rent shall be payable at the annual rate equal to the product of (i) $23.50 and (ii) the 67,362 square feet of Gross Building Area of the Building, being a total of $1,583,007.00 per year. (E) During the extension option periods (if exercised), Annual Fixed Rent shall be payable by Tenant as provided in Section 3 hereinabove. 5. For the portion of the Lease Term prior to the Fifth Amendment Effective Date, Section 3 of the Fourth Amendment shall be unchanged. For the portion of the Lease Term on and after the Fifth Amendment Effective Date, Sections 3(A) and 3(D) of the Fourth Amendment are hereby deleted in their entirety (except for the first paragraph of said Section 3(A) which shall remain in full force and effect) and Section 3(b) of the Second Amendment (as amended by Section 3(A) of the Fourth Amendment) is hereby amended so that the monthly rates per vehicle for Tenant's parking charges shall be as follows: PERIOD MONTHLY RATE PER CAR From the Fifth Amendment Effective The lesser of (i) $105.00, subject to Date through December 31, 1999 escalation as provided in Section 3(B) and 3(C) of the Fourth Amendment or (ii) the monthly amount (hereinafter the "Specified Monthly Garage Rate") charged per space by the operator of the North Garage (whether or not such operator is an affiliate of Landlord) to any single tenant leasing parking rights -5- 6 for fifty (50) or more vehicles in the North Garage. From January 1, 2000 through The lesser of (i) $140.00, subject to December 31, 2004 escalation as provided in Section 3(B) and 3(C) of the Fourth Amendment or (ii) the Specified Monthly Garage Rate. From January 1, 2005 through The lesser of (i) $180.00, subject to December 31, 2009 to escalation as provided in Section 3(B) and 3(C) of the Fourth Amendment or (ii) the Specified Monthly Garage Rate. From January 1, 2010 through the The lesser of (i) $215.00, subject to expiration of the Second Extended escalation as provided in Section Term 3(B) and 3(C) of the Fourth Amendment or (ii) the Specified Monthly Garage Rate. During the extension option periods, if exercised, the parking charges shall be the prevailing monthly rates per space charged by the operator of the North Garage (whether or not such operator is an affiliate of Landlord). 6. Sections (A) (B), (C) and (D) of Section 16.31 of the Lease added by Section 4 of the Fourth Amendment are hereby deleted in their entirety and replaced with the correspondingly lettered Sections as follows: (A) Upon and subject to the terms and conditions contained in this Section and provided that (i) the Lease (as herein amended) shall be in full force and effect, (ii) there shall be no "Event of Default" (defined in Section 15.1 of the Lease) either at the time of the giving of the "Tenant's Option Exercise Notice" (defined below) or on the "Closing Date" (as hereinafter defined and as it may be extended hereunder) and (iii) Tenant has neither assigned the Lease nor sublet the Demised Premises (except only as provided in Subsection (L) below) Landlord hereby grants to Tenant the right and option to purchase the Demised Premises. Landlord and Tenant hereby agree that, subject to compliance with the terms and conditions contained in this Section (including, but not limited to Items (i), (ii) and (iii) set forth immediately above), the within granted option to purchase the Demised Premises shall remain superior to the rights of any other person to purchase or otherwise acquire the Demised Premises through the expiration of the Second Extended Term whether or not -6- 7 Tenant's option has been exercised as of such purchase or acquisition, it being covenanted and agreed (a) that the within granted option to purchase the Demised Premises shall not prevent any sale, conveyance or other transfer of the Demised Premises or any interest therein but any such sale, conveyance or other transfer shall be subject to the within granted option to purchase the Demised Premises upon and subject to the terms and conditions hereof and (b) that the within granted option to purchase the Demised Premises shall not prevent any foreclosure, deed in lieu of foreclosure or the exercise of any other rights under any mortgage now or hereafter encumbering the Demised Premises but that any person acquiring title to the Demised Premises as a result of foreclosure, deed in lieu of foreclosure or by the exercise of any such other rights shall be subject to the within granted option to purchase the Demised Premises upon and subject to the terms and conditions hereof. (B) (i) In order to exercise the within granted option to purchase the Demised Premises, Tenant shall give written notice to Landlord ("Tenant's Option Exercise Notice") at any time on or before the date which is eighteen (18) months prior to the expiration of the Second Extended Term (time being of the essence) of Tenant's exercise of its purchase option hereunder and its request for Landlord's quotation of the annual fair market purchase price of the Demised Premises as of the Closing Date, such quotation to be based on the use of the Demised Premises as a first class office building of comparable age in the Cambridge Center Development Area. Within forty-five (45) days after Landlord's receipt of Tenant's notice requesting such a quotation, Landlord shall notify Tenant of Landlord's quotation. If Tenant desires to exercise its option to purchase the Demised Premises, Tenant shall, within fifteen (15) days after receipt of Landlord's quotation, by written notice to Landlord ("Tenant's Purchase Price Notice") either (x) accept such quotation, in which case the "Purchase Price" for the Demised Premises shall be the price as quoted by Landlord or (y) make a request to Landlord for a broker determination of the purchase price for the Demised Premises, which determination shall be made as follows: Tenant's notice requesting a broker determination of the purchase price shall include the name of a commercial real estate brokerage firm selected by Tenant with at least ten (10) years experience dealing in properties of a nature and type generally similar to the Demised Premises located in the Downtown Boston-Cambridge area ("Tenant's Sale Broker"). Within ten (10) days after Landlord's receipt of Tenant's notice requesting a broker determination and stating the name of such a commercial real estate brokerage firm, Landlord shall give written notice to Tenant -7- 8 of Landlord's selection of a commercial real estate brokerage firm having at least the experience referred to above ("Landlord's Sale Broker"). Within ten (10) days thereafter the two (2) firms so selected shall select a third such commercial real estate brokerage firm also having at least the experience referred to above (the "Third Sale Broker"). Within ten (10) days after the selection of the third commercial real estate brokerage firm, the three (3) firms so selected, by majority opinion, shall attempt to determine the purchase price for the Demised Premises on the basis of the criteria set forth hereinabove. If the brokers are able to agree at least by majority on a determination of such purchase price the brokers shall send a notice to Landlord and Tenant by the end of such ten (10) day period of such determination which shall constitute the "Purchase Price" hereunder. If the brokers are unable to agree at least by majority on a determination of such purchase price, the brokers shall send a notice to Landlord and Tenant by the end of such ten (10) day period of such inability and within fourteen (14) days after the selection of the Third Sale Broker, both Tenant's Sale Broker and Landlord's Sale Broker shall make separate determinations of the purchase price for the Demised Premises on the basis of the criteria set forth hereinabove ("Tenant's Broker's Sale Determination" and "Landlord's Broker's Sale Determination" respectively). Within fourteen (14) days after both Tenant's Broker's Sale Determination and Landlord's Broker's Sale Determination have been made, the Third Sale Broker shall select either Landlord's Broker's Sale Determination or Tenant's Broker's Sale Determination (the "Third Broker's Sale Selection") and the Third Broker's Sale Selection shall, in its entirety and without regard to the other Sale Determinations, constitute the "Purchase Price" hereunder. In making the selection, in no event shall the Third Sale Broker have any power to amend, modify, compromise, average or blend either Landlord's Broker's Sale Determination or Tenant's Broker's Sale Determination, it being the intent of Landlord and Tenant that the Third Sale Broker shall simply select one of either Landlord's Broker's Sale Determination or Tenant's Broker's Sale Determination which, in the Third Sale Broker's judgement, most accurately and fairly defines the purchase price for the Demand Premises based on the criteria set forth hereinabove. The Third Sale Broker shall advise Landlord and Tenant in writing by the expiration of said fourteen (14) day period of the Third Broker's Sale Selection as so determined. Within five (5) days after the date either (i) Tenant notifies Landlord that it accepts Landlord's quotation of the Purchase Price pursuant to (x) hereinabove or (ii) the date of Tenant's receipt of notification from the -8- 9 brokers of the Purchase Price as provided in (y) hereinabove, Tenant shall pay to Landlord a deposit in the amount equal to ten percent (10%) of the Purchase Price in good funds payable to Landlord (the "Deposit"); provided, however, that the Deposit shall be promptly endorsed or otherwise paid over to the "Escrow Agent" (defined in subsection (B)(ii) hereof) and shall be held and applied by the Escrow Agent in accordance with the provisions of said subsection (B)(ii) hereof. It is hereby covenanted and agreed that if Tenant shall not give to Landlord Tenant's Option Exercise Notice or Tenant's Purchase Price Notice or pay the Deposit to Landlord within the time periods referenced above (time being of the essence), the within granted option to purchase the Demised Premises shall automatically cease, expire and be null and void without any action of the parties and without any liability or obligation to or against any of the parties, provided, however, that the Lease shall remain in full force and effect in accordance with its terms for the remainder of the Term. If Tenant shall timely give to Landlord Tenant's Option Exercise Notice and Tenant's Purchase Price Notice and pay the Deposit to Landlord, the Closing Date shall be as set forth in subsection (D) hereof. (B) (iii) The "Escrow Agent" shall be the General Counsel of Boston Properties, Inc., or such law firm, title insurance company or other institutional escrow agent as Landlord shall select. Landlord shall promptly pay over the Deposit to the Escrow Agent so selected and shall cause the Escrow Agent holding the Deposit to acknowledge to Tenant receipt of the Deposit within a reasonable period of time after the Escrow Agent receives the Deposit. The Deposit shall be held in such interest bearing account in such banking institution in the City of Boston and upon such terms and conditions relating to the deposit of funds and maintenance of accounts as the Escrow Agent shall determine. The type of account, the rate of interest, the terms and conditions relating to the deposit of funds and maintenance of accounts and the banking institution shall be as solely selected by the Escrow Agent and the Escrow Agent shall have no liability to Landlord or Tenant respecting the selection of the type of account, the rate of interest, the terms and conditions relating to the deposit of funds and maintenance of accounts and/or the banking institution. Further, the Deposit shall be held by the Escrow Agent subject to the terms of this Section 16.31 and shall be duly accounted for on the "Closing Date" (hereinafter defined) as it may be extended pursuant to this Section 16.31 or on the earlier termination of this Section 16.31. All interest earned on the Deposit shall be paid to Landlord with no credit against the purchase price for such interest being given to Tenant; provided, however, that if pursuant to the terms of this Section 16.31 the Deposit shall be returned to -9- 10 Tenant, the interest earned on the Deposit at the time of such return of the Deposit shall be paid over to Tenant. If for any reason the closing does not occur and either party makes a written demand upon the Escrow Agent for delivery of the Deposit and the interest earned thereon, the Escrow Agent shall give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection from the other party to the proposed payment within ten (10) days after the giving of such notice, the Escrow Agent is hereby authorized to make such delivery or payment. If the Escrow Agent does receive such written objection within such ten (10) business day period or if for any other reason the Escrow Agent in good faith shall elect not to make such payment, the Escrow Agent shall continue to hold the Deposit until otherwise directed by written instructions from both Landlord and Tenant or a final judgment of a court. However, the Escrow Agent shall have the right at any time to deposit the Deposit with the clerk of such court of competent jurisdiction in the Commonwealth of Massachusetts that the Escrow Agent shall select. The Escrow Agent shall give written notice of such deposit to Landlord and Tenant. Upon such deposit the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder. The Landlord and Tenant acknowledge that the Escrow Agent shall act solely as a stakeholder at Landlord's and Tenant's request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and the Escrow Agent shall not be liable to either of the parties for any act or omission on its part unless taken or suffered in bad faith, in willful disregard of this Section 16.31 or involving gross negligence. Landlord and Tenant shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys' fees, incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or suffered by the Escrow Agent in bad faith, in willful disregard of this Section 16.31 or involving gross negligence on the part of the Escrow Agent. The parties agree that notwithstanding the obligations of the Escrow Agent under this Agreement, the Escrow Agent (if an attorney or law firm) shall be permitted to represent Landlord or Tenant (as the case may be) in connection with the transaction evidenced by this Section 16.31 or in connection with any matters arising from or related to this Section 16.31, the consummation of this Section 16.31 or any claimed breach of this Section 16.31 by any party. -10- 11 (C) (i) The Purchase Price payable for the Demised Premises shall be payable on the closing by Federal Funds immediately available to the Landlord at BankBoston, Boston, Massachusetts or such other bank as may be stipulated by Landlord by written notice to Tenant. Upon closing, credit shall be given by Landlord to Tenant for and in the amount of the Deposit (but not for the interest earned thereon). The parties acknowledge and agree that "Impositions" (as defined in Article VI of the Lease) and the cost of the maintenance, repair and replacement of the Demised Premises pursuant to Sections 8.1 and 10.1 of the Lease, as such Sections are amended by this Fifth Amendment, are and shall continue to be paid entirely by Tenant. Accordingly, no credit or adjustment shall be given to Tenant at closing (or otherwise) respecting Impositions and such maintenance, repair and replacement obligations. (C) (ii) Fixed Rent and all Additional Rent (except respecting Impositions and certain maintenance, repair and replacement obligations, provision for which is made in Section 16.31 (C)(i) above) shall be paid through the "Closing Date" (referred to in Section 16.31 (D)) as it may be extended pursuant to the provisions of this Section 16.31 and in the event that Tenant has prepaid amounts of the foregoing (excluding Impositions) for periods extending beyond said Closing Date (as it may be so extended), appropriate credit shall be given to Tenant for amounts thereof (excluding Impositions and such maintenance, repair and replacement obligations) prepaid for periods extending beyond said Closing Date (as it may be so extended). (D) The closing (the "Closing") shall be held at the Middlesex South District Registry of Deeds, 208 Cambridge Street, Cambridge, Massachusetts 02141 (or at such other location in which said Registry of Deeds may be located), or at such other place in the City of Boston as the parties may agree, at 10:30 A.M. on that date (the "Closing Date") which is the expiration date of the Second Extended Term; provided, however, if said day shall be a Saturday, Sunday or Legal Holiday, the Closing Date shall be the next following business day on which the Middlesex South District Registry of Deeds shall be open for the transaction of business. In addition to the provisions of Section 16.31 (A) above, Landlord covenants that, so long as this Section 16.31 shall be in full force and effect and Tenant has not assigned this Lease nor sublet the Premises (except only as provided in Subsection (L) below) and Tenant shall not have wrongfully failed to close on its purchase of the Demised Premises and there shall be no "Event of Default" (defined in Section 15.1 (a) of the Lease (as herein amended), Landlord shall not encumber the Demised Premises from time to time with any mortgages (and other financing documents) in the aggregate principal amount greater than the purchase price. It is agreed -11- 12 that time is of the essence with respect to the provisions and agreements in this Section 16.31. 6.1 Section (E) of Section 16.31 of the Lease added by Section 4 of the Fourth Amendment is hereby amended as follows: (A) the words "and with the benefit of" are inserted after the words "subject to" in the second line of the introductory paragraph; (B) the following words are added at the end of subsection (viii):", provided, that Landlord, in Landlord's sole discretion, may elect at any time to terminate the "East Garage Sublease;" 6.2 Section (L) of Section 16.31 of the Lease added by Section 4 of the Fourth Amendment is hereby amended by adding the following at the end thereof: Notwithstanding the foregoing, if Tenant shall have timely given Tenant's Option Exercise Notice and Tenant's Purchase Price Notice as provided in Subsection (B) of this Section 16.31, as amended by Section 6 of the Fifth Amendment, Tenant may designate a nominee to take title to the Demised Premises by notice given to Landlord at least seven (7) days prior to the Closing Date, provided that all terms and conditions of this Section 16.31, as amended, and the Lease applicable to such sale of the Demised Premises shall apply to such nominee in addition to Tenant. 7. Exhibit I attached to the Fourth Amendment to Lease is hereby deleted in its entirety and replaced with Exhibit I attached hereto. 8. The time period of "March 1, 1998 through February 28, 2002" referenced in the third (3rd) and fourth (4th) lines of Section (A)(1) of Section 16.32 of the Lease added by Exhibit II of the Fourth Amendment is hereby deleted and replaced with the "Fifth Amendment Effective Date through the date which is twelve (12) months prior to the expiration of the Second Extended Term." 9. (A) It is the purpose and intent of Landlord and Tenant that the Lease as hereby amended shall constitute, and be construed as, an absolutely net lease, whereby under all circumstances and conditions (whether or not now or hereafter existing or within the contemplation of the parties) the Annual Fixed Rent shall be a completely net return to Landlord throughout the Term of the Lease and Tenant shall be responsible for all costs of keeping and maintaining the Demised Premises, the Building and the Site in first class condition and in compliance with all existing and future laws, including, without limitation, all costs of capital and operating repairs and replacements, including the roof, structural, mechanical and other systems of the Building; and unless and to the extent specifically otherwise -12- 13 provided in the Lease as herein amended Tenant shall indemnify and hold harmless Landlord from and against any and all expenses, costs, liabilities, obligations and charges whatsoever, which shall arise or be incurred or become due, during the Term of the Lease, with respect to or in connection with, the Demised Premises, the Building and the Site, and the operation, management, maintenance and repair and replacement thereof. (B) Unless expressly otherwise provided in the Lease, the Lease shall not terminate, nor shall Tenant have any right to terminate this Lease, nor shall Tenant be entitled to any abatement or reduction of Annual Fixed Rent, Additional Rent or any other sums payable by Tenant under the Lease, nor shall the obligations of Tenant hereunder be affected by reason of (i) any damage to or destruction of all or any part of the Demised Premises, the Building or the Site, from whatever cause (except only and to the extent specifically otherwise provided in Article XIV of the Lease), (ii) the taking of the Demised Premises, the Building or the Site, or any portion thereof, by eminent domain or otherwise for any reason (except only and to the extent specifically otherwise provided in Article XIV of the Lease), (iii) the prohibition, limitation or restriction of Tenant's use of all or any part of the Demised Premises, the Building or the Site, from whatever cause, or any interference with such use, or (iv) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties that Landlord shall have no obligation or covenant under the Lease with respect to or in connection with the operation, management, maintenance, repair and replacement of the Demised Premises, the Building and the Site except for (i) the obligation to provide the services set forth in Section 7.1 of the Lease, as amended by Section 2 of the Third Amendment and Section 10 of this Fifth Amendment, subject to reimbursement by Tenant as provided in Section 7.1.1 of the Lease, as amended by Section 3 of the Third Amendment and Section 10 of this Fifth Amendment, (ii) the obligation to provide Tenant the right to use, in common with others, the common internal roadways, sidewalks and pedestrian walks in the Parcel 2 Development Area as provided in Section 7.2 of the Lease, subject to reimbursement by Tenant as provided in Section 7.1.1 of the Lease, as amended by Section 3 of the Third Amendment and Section 10 of this Fifth Amendment, (iii) the obligation to maintain insurance as provided in Section 13.2 of the Lease, subject to reimbursement from Tenant as provided in Section 7.1.1 of the Lease, as amended by Section 3 of the Third Amendment and Section 10 of the Fifth Amendment and (iv) the obligation to provide Tenant's parking rights in the North Garage as provided in Section 16.5 of the Lease, as amended by Section 3 of the Second Amendment, Section 3 of the Fourth Amendment and Section 5 of the Fifth Amendment and (v) Landlord's obligations set forth in Section 13.1 (B) of this Fifth Amendment respecting certain "Hazardous Materials" (as defined in said Section 13.1) at the Site. Subsections (i), (ii) and (v) above are herein collectively referred to as "Landlord's Repair Obligations". In addition, it is the -13- 14 intention of the parties hereto that the obligations of Tenant under the Lease shall be separate and independent covenants and agreements, that Annual Fixed Rent, Additional Rent and all other sums payable by Tenant under the Lease shall continue to be payable in all events and that the obligations of Tenant under the Lease shall continue unaffected, unless the requirement to pay or to perform the same shall have been excused pursuant to an express provision of the Lease. (C) In order to effectuate the intention of Landlord and Tenant as set forth in this Section 9, the Lease shall be amended as provided in Sections 10, 11, 12, 13 and 13.1 below. 10. (A) For purposes of calculating Tenant's payments for operating costs pursuant to Section 7.1.1 of the Lease, as amended by Section 3 of the Third Amendment, for that portion of the Lease Term prior to the Fifth Amendment Effective Date, the terms of said Section 7.1.1, as amended by Section 3 of the Third Amendment, shall be unchanged. (B) For the purposes of calculating Tenant's payments for the operating costs for that portion of the Lease Term on and after the Fifth Amendment Effective Date, said Section 7.1.1, as amended by Section 3 of the Third Amendment, shall be amended by deleting the definition of "Operating Expenses" in its entirety and substituting the following therefor: "Operating Expenses" means the cost of operation of the Demised Premises reasonably and necessarily incurred by Landlord in performing Landlord's obligations under the Lease, as amended; including without limitation, all costs of performing Landlord's obligations under Section 7.1 of the Lease, as amended by Section 2 of the Third Amendment; premiums for insurance carried with respect to the Demised Premises as set forth in Section 13.2 of the Lease; compensation and all fringe benefits, workmen's compensation insurance premiums and payroll taxes paid to, for or with respect to all persons engaged in the operating, maintaining or cleaning of the exterior of the Building (exclusive of cleaning the windows of the Building) or the Site; the cost of any letters of credit or deposits necessary to secure any utility services if required and to the extent not otherwise paid for by Tenant; cost of building and cleaning supplies and equipment; cost of maintenance, repairs and replacements (other than reimbursement from contractors under guarantees); cost of snow removal and care of landscaping, cost of carrying insurance with respect to and of providing streetlights and electricity therefor, repairing, and otherwise maintaining and replacing roadways, sidewalks and pedestrian ways within or abutting the Site or the Parcel 2 Development Area; payments under service contracts with independent contractors; and all other reasonable and necessary amounts paid in connection with performing -14- 15 Landlord's obligations under the Lease, as amended, respecting the operation, maintenance and cleaning of the exterior of the Building, the Site and areas outside of the Site but within the Parcel 2 Development Area , including, without limitation, the cost of all capital expenditures; provided, however, with respect to the insuring, repairing, removing snow from, landscaping and otherwise maintaining and replacing roadways, sidewalks and pedestrian walks or ways outside of the Site but within the Parcel 2 Development Area there only shall be included within Operating Expenses "Tenant's Proportionate Share" (hereinafter defined) thereof. "Tenant's Proportionate Share" shall be a fraction, the numerator of which shall be the Gross Building Area of the Building and the denominator of which shall be the sum of (i) the Gross Building Area of the Building plus (ii) the gross building area of other buildings under construction or completed from time to time in the Parcel 2 Development Area. Notwithstanding the foregoing, there shall be excluded from "Operating Expenses" the cost of performing Landlord's obligations under Section 13.1 (B) of the Fifth Amendment respecting certain Hazardous Materials at the Site. 11. (A) For the portion of the Lease Term prior to the Fifth Amendment Effective Date, Tenant shall continue to perform the repairs and maintenance set forth in Section 8.1 of the Lease as amended by Section 4 of the Third Amendment. (B) For the portion of the Lease Term on and after the Fifth Amendment Effective Date, said Section 8.1, as amended by Section 4 of the Third Amendment, shall be amended and restated as follows: Tenant shall, throughout the Lease Term, at Tenant's sole cost and expense, keep and maintain the Demised Premises and every part thereof including, without limitation, all mechanical, utility and other systems and appurtenances of the Building and the structural and nonstructural elements of the roof, interior and exterior walls, foundation, floor slabs and all other elements of the Building and all above ground and below ground storage tanks in, on or under the Building, the Site or the Demised Premises in first class condition and repair and in compliance with all applicable existing and future laws, excepting only (i) normal and reasonable wear and use, (ii) damage caused by fire or other casualty or as a consequence of the exercise of the power of eminent domain to the extent Tenant is relieved of its obligations pursuant to Article XIV of the Lease, and (iii) those repairs (or services) to be made by Landlord as "Landlord's Repair Obligations" (as defined in Section 9 of the Fifth Amendment). In addition to the foregoing, Tenant shall, throughout the Lease Term, at Tenant's sole cost and expense (x) provide to the Demised Premise steam, water, sewer, electricity, gas, oil, elevator service, rubbish -15- 16 removal, security systems and service, telephone service and pest control services, (y) provide to the interior of the Building cleaning service and (z) clean the windows of the Building. Landlord shall have no responsibility for providing any of (x), (y) and (z) above. Tenant shall not commit or suffer to be committed any waste upon or about the Demised Premises, and except for Landlord's Repair Obligations, shall promptly at its cost and expense make all necessary replacements, restorations, renewals and repairs to the Demised Premises and appurtenances thereto, whether interior or exterior, ordinary or extraordinary, foreseen as well as unforeseen, necessary to keep the Demised Premises in good and lawful order and condition, and such repairs, replacements, restorations and renewals shall, to the maximum extent possible, be at least equivalent in quality to the quality of the original work or the property replaced, as the case my be. Tenant shall undertake preventive maintenance as well, and a reasonable policy of inspection to ascertain the need for repairs and replacements shall be adhered to by Tenant throughout the entire Lease Term. Tenant specifically covenants and agrees to replace all glass damaged with glass of the same kind and quality. Except for Landlord's Repair Obligations, and except to the extent Tenant is relieved of its obligations for damage caused by fire or other casualty or by eminent domain pursuant to Article XIV of the Lease, Tenant's obligations to maintain the Demised Premises is absolute and without limitation. Except for Landlord's Repair Obligations, Landlord shall have absolutely no liability or obligation whatsoever to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Demised Premises (including the improvements thereon). Landlord, at Landlord's expense, shall cooperate with Tenant in Tenant's performance of its obligations under this Section 8.1 to the extent necessary because of Landlord's ownership of the fee interest in the Demised Premises. Landlord and Tenant represent to the other that as of the date of this Fifth Amendment that they have not received written notice from any governmental authority or any insurer of the Demised Premises that the Demised Premises is currently in violation of any applicable law or insurance underwriting standard. Landlord and Tenant shall promptly forward to the other party any written notice they receive after the date of this Fifth Amendment from any governmental authority or any insurer of the Demised Premises that the Demised Premises is in violation of any applicable law. Prior to Tenant making any submission or filing or sending any notice to any governmental authority in connection with the performance of its obligations under this Section 8.1, Tenant shall first submit such submission, filing or notice to Landlord for Landlord's approval, which approval shall not be unreasonably withheld or delayed. -16- 17 12. (A) For the portion of the Lease Term prior to the Fifth Amendment Effective Date, Landlord shall continue to perform its obligations set forth in Section 8.2 of the Lease. (B) For the portion of the Lease Term on and after the said Fifth Amendment Effective Date, Section 8.2 of the Lease shall be deleted in its entirety and Landlord shall have no obligation to perform any of its obligations formerly set forth therein. At the request of Tenant (i) Landlord shall make available to Tenant the plans of the Demised Premises in Landlord's possession which are useful or necessary for Tenant to perform its maintenance, repair and replacement obligations under the Lease and (ii) Landlord shall make available to and assign to Tenant, to the extent assignable, Landlord's interest in any warranties covering portions of the Demised Premises which Tenant is required to maintain, repair or replace under the Lease, provided that Landlord shall also retain the benefit of such warranties. 13. (A) For the portion of the Lease Term prior to the Fifth Amendment Effective Date, Section 10.1 of the Lease shall be unchanged. (B) For the portion of the Lease Term on and after the Fifth Amendment Effective Date, Section 10.1 of the Lease shall be amended and restated as follows: Tenant shall, at its sole cost and expense, all during the Lease Term, promptly comply with all present and future laws, ordinances, rules and regulations of any duly constituted governmental authority ("Governmental Authority") relating to the use or occupancy of the Demised Premises. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed because of its failure to comply with the provisions of this Section 10.1. 13.1 (A) Tenant covenants during the Lease Term and for such further time as Tenant occupies any part of the Demised Premises, (i) Tenant shall not, nor shall Tenant permit its employees, invitees, agents, independent contractors, contractors, assignees or subtenants to, keep, maintain, store or dispose of (into the sewage or waste disposal system or otherwise) or engage in any activity which might produce or generate any substance which is or may hereafter be classified as a hazardous material, waste or substance (collectively "Hazardous Materials"), under federal, state or local laws, rules and regulations, including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and regulations promulgated under any of the foregoing, as such laws, rules and regulations may be amended from time to time (collectively "Hazardous Materials Laws") in violation of Hazardous -17- 18 Materials Laws, (ii) Tenant shall immediately notify Landlord of any incident in, on or about the Premises, the Building or the Site that would require the filing of a notice under any Hazardous Materials Laws, (iii) Tenant shall comply and shall cause its employees, invitees, agents, independent contractors, contractors, assignees and subtenants to comply with each of the foregoing and (iv) Landlord shall have the right to make such inspections (including testing) as Landlord shall elect from time to time to determine that Tenant is complying with the foregoing. (B) Landlord covenants during the Lease Term, at Landlord's cost and expense, to comply with the requirements of Hazardous Materials Laws arising because of Hazardous Materials (a) which are in, on, under or about the Site as of the Commencement Date, (b) which migrate to the Site after the Commencement Date from any adjoining property or (c) which are caused or created by Landlord, its agents, contractor or employees. Notwithstanding the first sentence of this Subsection 13.1(B), (i) if Tenant exercises Tenant's option to purchase the Demised Premises pursuant to Section 16.31 of the Lease, as added to the Lease by Section 4 of the Fourth Amendment and amended by Section 6 of this Fifth Amendment, as provided in said Section 16.31 the Demised Premises shall be conveyed in "as is" condition and Landlord and Tenant's rights and obligations with respect to the presence of Hazardous Materials in, on, under or about the Demised Premises in connection with such purchase and after such purchase shall be as set forth in said Section 16.31, (ii) Tenant, at Tenant's cost and expense shall be responsible for compliance with Hazardous Materials Laws required because of Hazardous Materials which migrate to the Demised Premises from another site where (x) Tenant or an affiliate of Tenant or their agents, contractors or employees caused or created the contamination on such other site or (y) Tenant or an affiliate of Tenant own or previously owned such other site and (iii) Landlord and Tenant do not intend for the first sentence of this Subsection 13.1(B) to amend or alter any of the rights or obligations of Landlord or any affiliate of Landlord or Tenant or any affiliate of Tenant under the "Option Documents" (as hereinafter defined), and in the event of any conflict between the first sentence of this Subsection 13.1(B) and the Option Documents, the terms of the Option Documents shall control. The "Option Documents" shall be deemed to be the Acquisition, Option and Cooperation Agreement dated as of October 6, 1993 between North Parcel Limited Partnership (an affiliate of Landlord and Tenant) and Tenant (the "Option Agreement") and the "Transaction Documents" (as defined in the Option Agreement) defined therein, including, without limitation, the Indemnity Agreement Regarding Hazardous Materials dated October 6, 1993 from Biogen, Inc. and Biogen Realty Limited Partnership (an affiliate of Tenant), the ground Lease dated October 6, 1993 between Biogen Realty Limited Partnership and North Parcel Limited Partnership respecting Tract V of Parcel 2 of the Kendall Square Urban Renewal Area, the Exclusive Easement and Option Agreement dated October 6, 1993 between the Cambridge Redevelopment Authority and North Parcel Limited Partnership respecting Tract -18- 19 VI of Parcel 2 of the Kendall Square Urban Renewal Area and the Unconditional Guaranty and Indemnity of Biogen, Inc. dated October 6, 1993. 14. Tenant acknowledges that the beneficial interest in Landlord has been transferred to Boston Properties Limited Partnership, a Delaware limited partnership, the sole general partner of which is Boston Properties, Inc., a Delaware corporation which is a publicly traded real estate investment trust and such transfer is a "REIT Transaction" (as defined in Section 16.32 (A) (2) of the Lease added to the Lease pursuant to Section 5 of the Fourth Amendment) and is not subject to Tenant's rights under said Section 16.32. To reflect such transfer the following amendments are made to the Lease: (A) The words "(including, without limitation, Boston Properties Limited Partnership, Boston Properties, Inc. and their officers, directors and employees)" are substituted in the place of the following: (i) the parenthetical in the ninth (9th) and tenth (10th) lines of Section 16.31 (H) of the Lease added to the Lease pursuant to Section 4 of the Fourth Amendment, and (ii) the parenthetical in the tenth (10th) and eleventh (11th) lines from the end of Section 9 of the Fourth Amendment. (B) The words "(including, but not limited to, Boston Properties Limited Partnership, Boston Properties, Inc., Mortimer B. Zuckerman, Edward H. Linde and/or affiliates of any of the foregoing)" are substituted in place of the following: (i) the parenthetical in the ninth (9th) through twelfth (12th) lines of Section 16.31 (Q) of the Lease; (ii) the parenthetical in third (3rd) through sixth (6th) lines of Section 16.32 (A) (2) of the Lease, and (iii) the parenthetical in the fifth (5th) through the eighth (8th) lines from the end of Section 16.32 (A) (3) of the Lease. (C) The words "(or any affiliates of Landlord, including, but not limited to, Boston Properties Limited Partnership, Boston Properties, Inc., Mortimer B. Zuckerman, Edward H. Linde and other affiliates of any of the foregoing)" are substituted in place of the following: (i) the parenthetical in the seventh (7th) through the eleventh (11th) lines of Section 16.32 (D) (1) of the Lease; -19- 20 (ii) the parenthetical on the sixth (6th) line through the tenth (10th) lines from the end of Section 16.32 (D) (3) (a) of the Lease; and (iii) the parenthetical on the fifth (5th) through the ninth (9th) lines from the end of Section 16.32 (D) (3) (b) of the Lease. (D) Subsection (iii) of both Sections 16.32 (D) (4) (a) and 16.32 (D) (4) (b) of the Lease are deleted in their entirety and replaced with the following: "(iii) any offer to sell, sale or transfer of the Demised Premises or any interest in the Demised Premises to any firm, entity, or business organization in which at the time of the sale or transfer Boston Properties, Inc. and/or Boston Properties Limited Partnership directly or indirectly own(s) at least fifty percent(50%) of or otherwise controls. 15. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate brokers or other persons or entities which have been, are or will be entitled to any broker's or finder's fee or any similar commission or fee in connection with this Fifth Amendment (including, without limitation, the transactions contemplated by Sections 16.31 and 16.32 of the Lease and added to the Lease pursuant to the Fourth Amendment and as herein amended) except Fallon, Hines & O'Connor (the "Recognized Broker"). Landlord and Tenant each agree to indemnify, hold harmless, protect and defend the other from and against any and all loss, damage, liability and expense, including costs and reasonable attorneys' fees which such other party incurs or sustains by reason of the breach by the indemnifying party of its foregoing warranties and representations. Landlord covenants and agrees that it shall be solely responsible for and shall pay to the Recognized Brokerage a commission in the amount of One Hundred Thirty Five Thousand Dollars ($135,000.00) in connection with this Fifth Amendment which shall be the sole fee or commission due the Recognized Broker for the transaction evidenced by this Fifth Amendment. The provisions hereof shall survive the expiration or any termination of this Lease (as herein amended), the expiration or any termination of Section 16.31 and/or Section 16.32 of the Lease and/or the delivery of any deed of the Demised Premises to Tenant pursuant to Section 16.31 of the Lease, Section 16.32 of the Lease or otherwise. 16. Concurrently with the execution of this Fifth Amendment to Lease, Landlord shall deliver to Tenant a Trustees' Certificate respecting the authority to enter into this Fifth Amendment To Lease and Tenant shall deliver to Landlord a corporate vote evidencing the authority of Tenant to enter into this Fifth Amendment to Lease. -20- 21 17. All capitalized terms and words used in this Amendment shall have the same meaning as set forth in the Lease unless a contrary meaning is expressly set forth herein. 18. Except as expressly amended hereby, the Lease and its terms and provisions shall remain unchanged and in full force and effect. EXECUTED under seal as of the date and year first above written. WITNESS: LANDLORD: - -------------------- --------------------------- EDWARD H. LINDE, TRUSTEE OF FOURTEEN CAMBRIDGE CENTER TRUST AND NOT INDIVIDUALLY TENANT: BIOGEN, INC. By: _______________________ Name: DAVID C. DLESK Title: (VICE PRESIDENT) --------------------- ATTEST: By:______________________________ By:________________________ Name:____________________________ Name:_________________________ Title: CLERK (ASSISTANT CLERK) Title: TREASURER (OR ASSISTANT --------------------------- ------------------------ TREASURER) ------------------------------ -21- EX-10.27 5 1983 EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10.27 ------------- BIOGEN, INC. 1983 EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED THROUGH SEPTEMBER 12, 1997 AND RESTATED) I. PURPOSE AND DEFINITIONS A. Purpose of the Plan: The Plan is intended to encourage ownership of Shares by all employees of the Company and its Affiliates, as hereinafter defined. B. Definitions: Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Employee Stock Purchase Plan, have the following meanings: 1. "Affiliate" means a corporation which is a direct or indirect fifty percent (50%) or more owned parent or subsidiary of the Company. 2. "Board" means the Board of Directors of the Company. 3. "Code" means the United States Internal Revenue Code of 1986, as amended. 4. "Committee" means the Company's Stock and Option Plan Administration Committee to which the Board of Directors has delegated power to act under and pursuant to the provisions of this Plan. 5. "Company" means Biogen, Inc., a Massachusetts Corporation. 6. "Compensation" means salary and wages, including overtime pay, received by an employee before any salary reduction by the employee under Code Sections 401(k) or 125, but excluding bonus, incentive and similar payments and all other forms of non-cash remuneration. 7. "Employee" means any individual who performs services for the Company or its Affiliates pursuant to an employment relationship other than those persons whose customary employment is 20 hours or less per week, excluding employees of non-U.S. Affiliates of the Company, except as is otherwise determined by the Committee. 8. "Enrollment Dates" are the earliest date participation is permitted hereunder by the Committee when the Plan is first made operative and each successive January 1 and July 1 thereafter. 9. "Fair Market Value" Page 1 of 10 2 (i) If Shares are purchased by the Plan on a U.S. securities exchange, the actual purchase price of such Shares shall be such Shares' Fair Market Value. (ii) In all other circumstances including if Shares are purchased by the Plan from the Company, in determining such Shares' Fair Market Value, if such Shares are then listed on any U.S. securities exchange, or the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market System, the Fair Market Value shall be the average between the high and low sale prices, if any, on the largest such exchange or on the NASDAQ National Market System, as the case may be, on the applicable date, or, if none, on the most recent trade date thirty (30) days or less prior to such date. If the Shares are not then listed on any such exchange or on the NASDAQ National Market System, the Fair Market Value of such Shares shall be the average of the closing "Bid" and the closing "Ask" prices, if any, as reported in NASDAQ for such date, or if none, on the most recent trade date thirty (30) days or less prior to such date for which such quotations are reported. If the Fair Market Value cannot be determined under the preceding two sentences, it shall be determined in good faith by the Committee. 10. "Option" means a right or option granted under the Plan. 11. "Participant" means an Employee who is enrolled in the Plan, provided however that no Employee may be granted an Option under this Plan if, immediately after the Option is granted, such Employee owns stock possessing five percent (5%) or more of the total combined voting power, (or in the case of non-voting stock, value) of all classes of issued and outstanding stock of the Company or Affiliate(s) (other than wholly owned subsidiaries of the Company.) For purposes of determining stock ownership the applicable rules of the Code (including attribution) shall control. 12. "Participant's Survivors" means a deceased Participant's legal representatives and/or any person or persons who acquired the Participant's rights to an Option by will or by the laws of descent and distribution including where appropriate his/her estate. 13. "Plan" means this Employee Stock Purchase Plan. 14. "Shares" means the Common Stock, $.01 par value, of the Company as to which Options have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Article VI of the Plan. II. SHARES SUBJECT TO THE PLAN A. Subject to the terms of Article VI the maximum aggregate number of Shares which may be optioned and purchased from time to time shall be Five Hundred Thousand (500,000) Shares. Page 2 of 10 3 If an Option ceases to be "outstanding", in whole or in part, the Shares which were subject to such Option but not purchased shall be available for the granting of the other Options. An Option shall be treated as "outstanding" until such Option is exercised in full, or terminates or expires under the provisions of the Plan. B. No options shall be granted after December 31, 2007. III. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee is authorized to interpret the provisions of the Plan and each Option, and to make any rules and determinations which it deems necessary or advisable for the administration of the Plan provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status of the Options under the Plan granted to Employees subject to United States Federal Income Taxation, and the Plan itself within the Meaning of Section 423 of the Code. In addition, the Plan is intended to comply in all respects with Rule 16b-3 or its successors promulgated under the Securities Exchange Act of 1934, as amended ("1934 Act"), with respect to participants who are subject to Section 16 of the 1934 Act. The Plan will be interpreted in a manner which comports with this intention. IV. ELIGIBILITY FOR PARTICIPATION A. Subject to the limits in Article II, on the January 1 Enrollment Date of each year in the case of an Employee who is a Participant on such January 1 Enrollment Date and on the July 1 Enrollment Date of each year in the case of an Employee who is a Participant on such July 1 Enrollment Date, the Company will be deemed to have granted to each such Participant an Option to purchase, during a six-month period commencing on the Enrollment Date on which such Option is granted and in the manner provided hereunder, such number of Shares as have an aggregate Employee Share Price (as determined under Article V(A)) equal to $2,500. If, on any Enrollment Date, an insufficient number of Shares remains available under the Plan to grant to each Participant an Option to purchase such number of Shares, then the number of Shares subject to each Option to be granted on such Enrollment Date shall be reduced equally so that the aggregate number of Share subject to all Options granted on such Enrollment Date shall not exceed the number of Shares then available under the Plan. B. Employee Contributions: Each eligible Employee may, on an Enrollment Application and Payroll Withholding Form filed with his/her employer's payroll department no later than thirty (30) days prior to a January or July Enrollment Date (and with respect to the Plan's first enrollment date specified at Article 1(B)(8), no later than five days prior to such first Enrollment Date), elect to participate and make contributions by payroll deduction of any whole percentage form 1% to 10% of such Employee's Compensation payable on each payroll period. In the event that the amount contributed by a Participant during an Option exercise period (i.e., the six-month periods commencing on an Enrollment Date) is in excess of the maximum Page 3 of 10 4 amount which may be applied to purchase shares for such Participant, such excess shall be reimbursed to the Participant. No interest shall accrue or be payable to any Participant in the Plan with respect to any amount contributed by the Participant, whether such sums are applied to purchase Shares or are returned to the Participant. Payroll deductions may only be increased by a Participant effective as of an Enrollment Date, but may be decreased effective with respect to any payroll period, provided written election on a Change Authorization and Payroll Withholding Form is received by the Participant's employer's payroll department no later than thirty (30) days prior thereto. C. Application of Payroll Contributions: 1. The employer will remit to a bank, stock brokerage firm or other custodian (the "Custodian") selected by the Company, the accumulated withheld funds of all electing Participants together with employer contributions pursuant to Article IV(G), if any, as soon as reasonably possible following the end of the month in which the deductions were made. Prior to such remittance, Participant contributions may be commingled with other Company funds. Not less frequently than monthly, the Custodian shall buy from the Company or, if the Committee prior thereto approves, give an order to the stock broker selected by the Company to purchase (or if the Custodian shall be such stock broker, shall itself purchase) in the open market, the total number of Shares purchasable with the monies available from such remittance. The date on which Shares are so acquired shall be referred to as the "Monthly Share Purchase Date." The Committee shall instruct the Custodian whether to purchase Shares from the Company or on the open market, after giving due consideration to any applicable securities laws and the advice of the chief financial officer of the Company. A Participant shall be deemed to have exercised his/her Options on the Monthly Share Purchase Date to the extent of such purchase unless prior thereto the Participant shall have effectively withdrawn pursuant to the terms hereof. The Company may, in its sole and absolute discretion, refuse to sell Shares to the Custodian under the Plan if to do so would be violative of any commitment or restriction (whether legally binding or otherwise) not to issue or sell its own shares, as from time to time exists, and whether such commitment or restriction existed prior to or subsequent to the adoption of the Plan or for any other reason the Company deems appropriate. The refusal of the Company to sell Shares to the Custodian under the Plan shall not adversely affect the Plan's right and power to acquire such Shares from any other source the Committee deems appropriate. 2. The certificates representing the Shares so purchased shall be issued in the name of and delivered to the Custodian and the account of electing Participant shall be credited with the number of Shares to which he/she shall be entitled on the basis of his/her proportion of the aggregate remittance. Page 4 of 10 5 3. Any cash dividends paid on Shares shall automatically be used to purchase additional shares of the Common Stock of the Company, unless a Participant in writing instructs the Custodian to the contrary. The purchases described in the preceding sentence, whether purchased by the Custodian from the Company or in the open market, shall be in addition to the number of Shares purchasable pursuant to Article II(A) and Article IV(A) and shall not be of Shares optioned under the Plan. Article IV(G) with respect to employer's contribution shall be inapplicable with respect to shares of the Common Stock of the Company acquired under this Article IV(C) (3). 4. By enrolling in the Plan, each Participant is deemed to have authorized the establishment of a brokerage account in his/her name at a securities brokerage firm selected by or approved of by the Committee. D. Transfer of Certificates to Electing Participants: 1. Upon request by a Participant and receipt by the Custodian of written notice to such effect from the Company, all or any portion of the Shares in the Participant's account shall be transferred by the Custodian out of its name into the name of the Participant and a certificate evidencing them shall be issued in the name of and delivered to such Participant. 2. In order to preserve the intended purposes of the Plan as set forth in Article 1(A) Employees who become Participants in the Plan agree not to transfer or otherwise dispose of Shares acquired on their behalf under the Plan (other than in the case of an Employee's death or total and permanent disability as determined by the Committee) prior to one year from the date of acquisition of such Shares on their behalf. E. Shares Retained by the Custodian: Accumulation of Shares not transferred to Participants under Article IV(D) shall be held by the Custodian for the account of the Participant entitled thereto but all rights accruing to an owner of record on such Shares shall belong to and be vested in the Participant for whose account it is being held, including the right to receive any and all dividend payable in respect of such Shares whether in cash, shares of the Company's Common Stock or otherwise, and the right to receive all notices of shareholders' meetings (which shall be forwarded to the Participant by the Custodian without delay) and direct the Custodian how to vote thereat to the same extent as if such Shares were held in street name by a brokerage firm or otherwise. F. Withdrawal: 1. An electing Participant may discontinue his/her election and withdraw from the Plan as of the payroll period next following 30 days from the date written notice on a Change Authorization and Payroll Withholding Form is received by his/her employer's payroll department; provided, however, that an electing Participant who shall have discontinued his/her election and withdrawn from the Plan may not resubscribe to the Page 5 of 10 6 Plan prior to the Enrollment Date coincident with or next following twelve (12) months from the effective date of such discontinuance. 2. A Participant shall be deemed to have discontinued his/her election and withdrawn from the Plan immediately upon the occurrence of any of the following: a. The termination for any reason of the Participant by the Company or an Affiliate. A Participant's employment shall not be deemed terminated by reason of a transfer to another employer which is the Company or an Affiliate. A Participant who has elected participation under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a permanent or total disability) or who is on leave of absence for any purpose authorized by his/her employer and permitted by an authoritative interpretation (e.g., regulation, ruling, case law, etc.) of Section 423 of the Code, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant's employment with the Company or with an Affiliate, except as the Committee may otherwise expressly provide or determine. b. Death of the Participant; c. The filing with or levying upon the Company or the Custodian of any judgment, attachment, garnishment, or other court order affecting either the Participant's earnings or his/her account under the Plan; d. Termination of the Plan prior to its expiration; e. Expiration of the Plan. 3. Upon the discontinuance of an election and withdrawal from the Plan by a Participant, all Shares in the account of the Participant shall be transferred out of the Custodian's name and into the name of the Participant and a certificate evidencing such Shares shall be issued in the name of and delivered to the Participant; and all dividends and remaining cash if any credited to his/her account shall be paid to the Participant. G. Employer Contribution: Each Participant's employer will, as frequently as is necessary contribute an amount equal to the difference between the Employee's Share Price as determined at Article V(A) and the cost per share to the Custodian if the Shares are not acquired from the Company. If the Shares are acquired from the Company, the Company shall sell such Shares to the Custodian at a price equal to the Employee's Share Price determined pursuant to Article V(A). V. TERMS AND CONDITIONS OF OPTIONS AND ISSUANCE OF SHARES Page 6 of 10 7 No Option shall be granted to a Participant, and no purported grant of any Option shall be effective, until an Enrollment Application and Payroll Withholding Form shall have been duly executed on behalf of the Company and by the Participant. Such Enrollment Application and Payroll Withholding Form and the agreement constituted thereby shall be subject to at least the following terms and conditions: A. Employee's Share Price: The "Employee's Share Price" as of a Monthly Share Purchase Date as determined at Article IV (C)(1) shall be eighty-five percent (85%) of the lower of the: 1. Fair Market Value of the Shares at the date of grant of the Option (i.e., the applicable January 1 or July 1 Enrollment Date); or 2. Fair Market Value of the Shares at the Monthly Share Purchase Date. B. Effect of Death and Participant's Survivors: In the event that a Participant to whom an Option has been granted ceases to be an employee of the Company or of an Affiliate by reason of such Participant's death, such Option to the extent exercisable but not exercised on the date of death shall be deemed exercised by the Participant's Survivors to the extent of any monies contributed by the Participant and his/her employer prior to the Participant's death. A Participant may determine that a designated person shall become the Participant's Survivor either by selecting a joint account (with a right of survivorship running to such designated joint owner), or by so designating in his/her will or otherwise as controlled under the applicable law with respect to testamentary dispositions. In the absence of a valid disposition the applicable laws of descent and distribution shall control. The Custodian may require such proof and indemnification (documentary or otherwise) as it deems necessary and appropriate before releasing any Shares and/or funds in a Participant's account to a person other than the Participant. C. Assignability and Transferability of Options: By its terms, an Option granted to a Participant shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as interpreted under Rule 16b-3 promulgated under the 1934 Act, and shall be exercisable, during the Participant's lifetime, only by such Participant. Such Option shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise). Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Option or of any rights granted hereunder contrary to the provisions of this Article V(C) shall be null and void. D. All Participants to Have Equal Rights and Privileges: All Participants shall have equal rights and privileges under the Plan. The fact that the maximum number of Shares which may be acquired by Participants bears a uniform relationship to compensation or is limited by a maximum purchase restriction shall not be deemed to be violative of the foregoing sentence. VI. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION Page 7 of 10 8 In the event that the outstanding shares of the Company's Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, recapitalization, reclassification, change in par value, stock split-up, combination of shares or dividend payable in capital stock, or the like, appropriate adjustment shall be made in the number and kind of Shares for the purchase of which Options may be granted under the Plan and, in addition, appropriate adjustment to prevent dilution or enlargement of the rights granted to or available for Participants, shall be made in the number and kind of Shares and in the Option price per Share subject to outstanding Options so that each Option holder shall be in a position equivalent to the position the Option holder would have been in had the Option holder exercised the Options immediately prior to the applicable event. No such adjustment shall be made which shall, within the meaning of the applicable provisions of the Code, constitute such a modification, extension or renewal of an Option as to cause it to be considered as the grant of a new Option. VII. EFFECT OF DISSOLUTION OR LIQUIDATION OF THE COMPANY Upon the dissolution or liquidation of the Company other than in connection with a transaction to which the preceding Article VI is applicable, all Options granted hereunder shall terminate and become null and void; provided, however, that if the rights of a Participant or a Participant's Survivors hereunder have not otherwise terminated and expired, the Participant or the Participant's Survivors shall be deemed to have exercised such Options to the extent of any monies contributed by the Participant or his/her employer as of the date immediately prior to such dissolution or liquidation. VIII. TERMINATION OF THE PLAN No Options shall be granted after December 31, 2007. The Plan may be terminated at an earlier date by vote of either the stockholders or the Board. The termination of the Plan shall not affect any Options granted or Shares acquired prior to the effective date of such termination. IX. AMENDMENT OF THE PLAN Except as provided in the following sentence, the Plan may be amended by the stockholders, by the Board, or by the Committee, including amendment of the Plan from time to time to designate corporations whose employees may be offered Options under the Plan from among a group consisting of the Company and any corporation which is or becomes its parent or subsidiary. Amendments effecting: (i) any increase in the aggregate number of Shares which may be issued under the Plan (other than an increase merely reflecting a change in capitalization such as stock dividend or stock split) or (ii) changing the designation of corporations whose employees may be offered options under the Plan, except designations described in the preceding sentence, must be approved by the stockholders within twelve (12) months after such amendment is adopted by the Board or by the Committee or such amendment is void ab initio. In addition, if the scope of any amendment is such as to require stockholder approval in order to comply with Page 8 of 10 9 Rule 16b-3 under the 1934 Act, such amendment shall also require approval by the stockholders. No amendment shall affect any Options theretofore granted or any Shares theretofore acquired by a Participant, unless such amendment shall expressly so provide and unless any Participant to whom an Option has been granted who would be adversely affected by such amendment consents in writing thereto. X. EMPLOYMENT RELATIONSHIP Nothing herein contained shall be deemed to prevent the Company or an Affiliate from terminating the employment of a Participant, nor to prevent a Participant from terminating his/her employment with the Company or an Affiliate. XI. OPTIONEES NOT STOCKHOLDERS Neither the granting of an Option nor the deduction from payroll shall constitute an Employee the owner of Shares covered by an Option until such Shares have been purchased on his/her behalf pursuant to Article IV. XII. WITHHOLDING TAXES Any taxes subject to withholding payable with respect to the amounts to be paid to the Custodian pursuant to the provisions hereof will be deducted by a Participant's employer from the balance of the Participant's salary, and not reduce the amounts so to be paid to the Custodian. XIII. USE OF FUNDS BY THE COMPANY The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes. XIV. STATEMENT OF ACCOUNT Following each purchase of Shares on behalf of a Participant, such Participant will receive from the Custodian a statement of his/her account showing (i) the respective total amounts of payments (by the Participant and if applicable the employer) made to the Custodian on behalf of such Participant under Article IV (C)(1) hereof, (ii) the Participant's share of any cash dividends and other cash distributions and of the amount and proceeds of sale of any other distributions or rights received by the Custodian, (iii) the total cost of all Shares purchased by the Custodian for the account of such Participant, (iv) such Participant's share of any stock dividends on the Shares, and (v) the number of shares delivered, or to be delivered, to such Participant with respect to the period since the last statement. XI. BROKERAGE COMMISSIONS AND OTHER COSTS Page 9 of 10 10 Brokerage commissions, if any, payable in connection with the purchase of Shares hereunder (and shares acquired through dividend reinvestment, if any) and transfer taxes payable in connection with the delivery to Participants of Shares acquired hereunder (and shares acquired through dividend reinvestment, if any) together with the other costs and expenses incurred in administering the Plan, including the fees and expenses of the Custodian, will be borne by the Company and its affiliates. XIV. EFFECTIVE DATE This plan became effective on October 1, 1983. Page 10 of 10 EX-10.30 6 1987 SCIENTIFIC BOARD STOCK OPTION PLAN 1 Exhibit 10.30 ------------- BIOGEN, INC. 1987 SCIENTIFIC BOARD STOCK OPTION PLAN (AS AMENDED THROUGH SEPTEMBER 12, 1997) 1. PURPOSE OF THE PLAN The Biogen, Inc. 1987 Scientific Board Stock Option Plan (the "Plan") is intended to encourage ownership of shares of the common stock, $.01 par value (the "Common Stock"), of the Company by members of the Scientific Board of the Company and to provide an additional incentive to those Scientific Board members to promote the success of the Company and its Affiliates. 2. DEFINITIONS 2.1 "Company" means Biogen, Inc. and any successor to its business. 2.2 "Affiliate" means a corporation in respect of which the Company owns directly or indirectly fifty percent (50%) or more of the voting shares thereof or which is otherwise controlled by the Company. 2.3 "Committee" means the Stock and Option Plan Administration Committee of the Board of Directors of the Company. 2.4 "Option" means a stock option granted under this Plan. 3. SHARES SUBJECT TO THE PLAN The aggregate number of shares as to which Options may be granted from time to time under this Plan shall be 3,000,000 of the shares of Common Stock. If an Option ceases to be "outstanding", in whole or in part, other than by reason of the exercise of such Option, the shares which were subject to such Option shall be available for the granting of other Options. Any Option shall be treated as "outstanding" until such Option is exercised in full, terminates under the provisions of the Plan or expires by reason of lapse of time. The aggregate number of shares as to which Options may be granted shall be subject to change only by means of an amendment of the Plan in accordance with Article 11 below or pursuant to the provisions of Article 8 below. 4. ADMINISTRATION OF THE PLAN 2 The Plan shall be administered by the Committee. The membership of the Committee shall be determined, and shall be subject to change without cause and without notice from time to time, by the Board of Directors of the Company. The Committee is authorized to interpret the provisions of the Plan or of any Option and to make all rules and determinations necessary or advisable for the administration of the Plan. Subject to the provisions of the Plan, Options may be granted upon such terms and conditions as the Committee may prescribe. This Plan is intended to comply in all respects with Rule 16b-3 or its successors promulgated under the Securities Exchange Act of 1934 ("1934 Act") with respect to participants who are subject to Section 16 of the 1934 Act, and any provision in this Plan with respect to such persons contrary to Rule 16b-3 shall be deemed null and void to the extent permissible by law and deemed appropriate by the Committee. 5. ELIGIBILITY FOR PARTICIPATION The Committee shall determine which Scientific Board members shall be eligible to participate in the Plan, may grant to one or more such Scientific Board members one or more Options, and shall designate the number of shares to be optioned under each Option so granted; provided, however, that no Options shall be granted after December 31, 2002. 6. TERMS AND CONDITIONS OF OPTIONS No Option issued pursuant to this Plan shall be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Each Option shall be set forth in an Option agreement, duly executed on behalf of the Company and by the person to whom such Option is granted. No Option shall be deemed to have been granted and no purported grant of any Option shall be effective until such Option shall have been approved by the Committee. The Committee shall determine the terms and conditions of Options granted, including provisions relating to termination of the Option holder's consultancy, death and disability; provided, however, that each such Option agreement shall be subject to at least the following terms and conditions: 6.1 Option Price: Except as otherwise determined by the Committee, the Option price per share for Options granted under the Plan shall be equal to the fair market value per share of Common Stock on the date of grant of the Option; provided, however, that in no event shall the Option price be less than the par value per share of the Common Stock. Fair market value shall be the average of the "high" and "low" sale prices as reported in the National Association of Securities Dealers Automated Quotation System ("NASDAQ") for the date of grant of the Option or, if none, for the most recent trading date thirty (30) days or less prior to the date of grant of the Option on which the Common Stock was traded. 3 6.2 Term of Option: Each Option shall terminate upon a date determined at the time of grant by the Committee, but not later than ten (10) years from the date of the grant thereof. 6.3 Date of Exercise: The Committee may prescribe the date or dates on which the Option becomes exercisable, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the attainment of stated goals. The Committee may stipulate that any Option which becomes exercisable shall be subject to cancellation or that shares purchased upon the exercise of such Option shall be subject to repurchase rights in favor of the Company. In such event the Committee shall determine the date or dates, or event or events, upon which such cancellation or repurchase rights shall become effective or shall lapse, as the case may be. 6.4 Medium of Payment: The option price shall be payable upon the exercise of the Option. It shall be payable in cash or, if permitted by the Committee and permitted by law, in shares or other consideration. 6.5 Exercise of Option and Issue of Shares: Options shall be exercised by giving written notice to the Company, addressed to the Company at the address specified in the Option agreement, with which the Option holder shall tender the Option price. Such written notice shall be signed by the person exercising the Option, shall state the number of shares with respect to which the Option is being exercised, and shall contain any warranty required by Article 7 of the Plan. The issuance of the Option shares may be delayed by the Company if any law or regulation requires the Company to take any action with respect to the Option shares prior to the issuance thereof. Without limiting the generality of the foregoing, nothing contained herein shall be deemed to require the Company to issue any Option shares if prohibited by law or applicable regulation. The shares shall, upon issuance, be evidenced by an appropriate certificate or certificates in respect of paid-up, non-assessable shares. 6.6 Assignability and Transferability of Option: By its terms, an Option granted to an Option holder shall not be transferable by such Option holder other than (i) by will or by the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order, as defined by the Code or Title 1 of the Employee Retirement Income Security Act or the rules thereunder, or (iii) as otherwise determined by the Committee and set forth in the applicable Option agreement. The designation of a beneficiary of an Option holder shall not be deemed a transfer prohibited by this paragraph. Except as provided in the preceding sentences of this paragraph, an Option shall be exercisable, during an Option holder's lifetime, only by the Option holder (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation, or other disposition of any Option or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon an Option or other such rights shall be null and void. 4 6.7 Other Provisions: The Option agreements authorized under the Plan shall be subject to such additional terms and conditions, including, without limitation, restrictions upon the exercise of the Option, as the Committee shall deem advisable. 6.8 Tax Withholding: In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Option holder's salary in connection with the exercise of an Option, the Option holder shall advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Option holder, the amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company's Common Stock, is authorized by the Committee (and permitted by law), provided, however, that with respect to persons subject to Section 16 of the 1934 Act, any such withholding arrangement shall be in compliance with any applicable provisions of Rule 16b-3 promulgated under Section 16 of the 1934 Act. For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner provided in Article 6.1. above, as of the most recent practicable date prior to the date of exercise. If the fair market value of the shares withheld is less than the amount of payroll withholdings required, the Option holder may be required to advance the difference in cash to the Company or the Affiliate employer. 6.9 Reload Options: The Committee may authorize reload options ("Reload Options") to purchase for cash or shares a number of shares of Common Stock. The number of Reload Options shall equal (i) the number of shares of Common Stock used to exercise the underlying Options and (ii) to the extent authorized by the Committee, the number of shares of Common Stock used to satisfy any tax withholding requirement incident to the exercise of the underlying Options. The grant of a Reload Option will become effective upon the exercise of underlying Options through the use of shares of Common Stock held by the optionee for at least 6 months. Reload Options must be evidenced in Option agreements or amendments to those agreements. The Option price per share of Common Stock deliverable upon the exercise of a Reload Option shall be the fair market value of a share of Common Stock on the date the grant of the Reload Option becomes effective. The term of each Reload Option shall be equal to the remaining option term of the underlying Option. No additional Reload Options shall be granted to Option holders when Options and/or Reload Options are exercised pursuant to the terms of this Plan following termination of the Option holder's employment or on account of death or total and permanent disability. All other provisions of this Plan with respect to Options shall apply equally to Reload Options. 6.10 Rights as a Shareholder: No Option holder shall have rights as a shareholder with respect to any shares covered by such Option except as to such shares as have been registered in the Company's share register in the name of such person upon the due exercise of the Option. 7. PURCHASE FOR INVESTMENT If and to the extent that the issuance of shares pursuant to the exercise of Options is deemed by the Company to be subject to the United States Securities Act of 1933, as now in force or 5 hereafter amended (the "Act"), or to the securities law of any other jurisdiction, the Company shall be under no obligation to issue shares covered by such exercise unless the person or persons who exercises or who exercise such Option shall make such warranty or take such action as may be required by any applicable securities law or shall, in the case of the applicability of the Act, in the absence of an effective registration under the Act with respect to such shares, warrant to the Company, at the time of such exercise, that such person is or that they are acquiring the shares to be issued to such person or to them, pursuant to such exercise of the Option, for investment and not with a view to, or for sale in connection with, the distribution of any such shares; and in such events the person or persons acquiring such shares shall be bound by the provisions of a legend endorsed upon any share certificates expressing the requirements of any applicable non-United States securities law, or, in cases deemed governed by the Act, substantially the following legend, or such other legend as counsel for the Company shall deem appropriate, which shall be endorsed upon the certificate or certificates evidencing the shares issued by the Company pursuant to such exercise: "The securities represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, assigned or transferred in the absence of an effective registration statement under said Act or an opinion of counsel satisfactory to the Company that such registration is not, in the circumstances, required." Without limiting the generality of the foregoing, the Company may delay issuance of the shares until completion of any action or obtaining of any consent which the Company deems necessary under any applicable law (including without limitation state securities or "blue sky" laws and federal or state payroll tax withholding laws). 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event that the outstanding Common Stock, $.01 par value, of the Company is changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, recapitalization, reclassification, change in par value, stock split-up, combination of shares or dividend payable in capital stock, or the like, appropriate adjustment shall be made in the number and kind of shares for the purchase of which Options may be granted under the Plan, and, in addition, appropriate adjustment shall be made in the number and kind of shares and in the option price per share subject to outstanding Options so that each Option holder shall be in a position equivalent to the position the Option holder would have been in had the Option holder exercised the Options immediately prior to the applicable event. 9. DISSOLUTION OR LIQUIDATION OF THE COMPANY Upon the dissolution or liquidation of the Company other than in connection with a transaction to which the preceding Article 8 is applicable, all Options granted hereunder shall 6 terminate and become null and void; provided, however, that if the rights hereunder of an Option holder or one who acquired an Option by will or by the laws of descent and distribution have not otherwise terminated and expired, the Option holder or such person shall have the right immediately prior to such dissolution or liquidation to exercise any Option granted hereunder to the extent that the right to purchase shares thereunder has accrued as of the date of exercise immediately prior to such dissolution or liquidation. 10. TERMINATION OF THE PLAN Unless the Committee shall decide to reduce or, subject to shareholder approval if required under Section 11, extend the duration of the Plan, the Plan shall terminate on December 31, 2002. Termination of the Plan shall not affect any Options granted or any Option agreements executed prior to the effective date of termination. 11. AMENDMENT OF THE PLAN The Plan may be amended by the Committee or the Board of Directors of the Company, provided, however, that if the scope of any amendment is such as to require shareholder approval in order to comply with Rule 16b-3 under the 1934 Act, then such amendment shall require approval by the shareholders. Any amendment shall not affect any Options theretofore granted and any Option agreements theretofore executed by the Company and any Option holder unless such amendment shall expressly so provide. No amendment shall adversely affect any Option holder with respect to an outstanding Option without the written consent of such Option holder. With the consent of the Option holder affected, the Committee may amend any outstanding Option agreement in a manner not inconsistent with the Plan, including, without limitation, to accelerate the date of exercise of any installment of any Option. 12. EMPLOYMENT RELATIONSHIP Nothing herein contained shall be deemed to prevent the Company or an Affiliate from terminating the employment or consultancy of any Option holder, nor to present any Option holder from terminating his/her employment or consultancy with the Company or an Affiliate. 13. EFFECTIVE DATE This Plan became effective as of March 6, 1987. EX-10.32 7 AMENDMENT NO.1 DATED APRIL 25, 1997 1 Exhibit 10.32 ------------- BIOGEN, INC. VOLUNTARY EXECUTIVE SUPPLEMENTAL SAVINGS PLAN AMENDMENT NO. 1 WHEREAS, Biogen, Inc. ("Biogen") adopted the Biogen, Inc. Voluntary Executive Supplemental Savings Plan (the "Plan") effective April 18, 1994, and WHEREAS, Section 7.1 of the Plan permits Biogen, by action of the Board of Directors of Biogen (or its delegate) to amend the Plan; and WHEREAS, Biogen desires to amend the Plan to increase the frequency by which a participant may change his designation of mutual funds with respect to which deemed investment results are determined; NOW, THEREFORE, the Plan is hereby amended effective May 1, 1997 as follows: Section 5.1 (Participant Accounts) is amended by deleting the second sentence of the second paragraph of subsection (c) thereof and replacing it with the following: "Thereafter, a participant may change his designation either with respect to the deemed investment of future savings deposits and matching credits or the deemed transfer of amounts from a previously designated mutual fund to another fund. The Committee shall establish the frequency by which such a change may be made, the method of making such a change, and the effective date of such a change and shall prescribe such other rules and procedures as it deems appropriate." IN WITNESS WHEREOF, Biogen has caused this instrument to be executed by the individual duly authorized as of the 25th day of April, 1997. BIOGEN, INC. By: ----------------------------------- Frank A. Burke, Jr. Vice President - Human Resources EX-10.33 8 AMENDED AND RESTATED SUPP. EXECUTIVE RETIRE. PLAN 1 Exhibit 10.33 ------------- BIOGEN, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -1- 2 July 1997 Execution Copy SECTION 1. PURPOSE AND EFFECTIVE DATE The purpose of this plan is to provide certain key executives of Biogen (or its subsidiaries) with additional retirement income by supplementing the retirement benefits provided under the Biogen Retirement Plan. In addition, this plan provides benefits to participants whose benefit under the Biogen Retirement Plan is affected by Internal Revenue Code limits on the amount of compensation that may be taken into account under the Retirement Plan for any plan year (Code Section 401(a)(17)) or on the amount of benefits that may be provided from the Retirement Plan (Code Section 415). The effective date of this plan is January 1, 1991. The plan was amended and restated effective April 1, 1996 in conjunction with the amendment and restatement of the Biogen Retirement Plan. -2- 3 SECTION 2. DEFINITIONS This section contains definitions of terms used in the plan. Where the context so requires, the masculine includes the feminine, the singular includes the plural, and the plural includes the singular. 2.1 APPLICABLE COMPENSATION has the same meaning as in the Retirement Plan, without regard, however, to either (a) any dollar limitation on applicable compensation that may be imposed under the Retirement Plan, or (b) any amount excluded from a participant's applicable compensation under the Retirement Plan by reason of the participant's reducing his salary and/or bonus under any non-qualified deferred compensation plan or arrangement maintained by Biogen (or a subsidiary). 2.2 BIOGEN means Biogen, Inc., a Massachusetts corporation, or any successor to all or the major portion of its assets or business which assumes the obligations of Biogen, Inc. under this plan. 2.3 BOARD means the Board of Directors of Biogen. 2.4 COMMITTEE means the Retirement Plan committee constituted under the Retirement Plan. 2.5 PARTICIPANT means an employee of Biogen (or a subsidiary) who has been designated a participant in this plan in accordance with Section 3 hereof. 2.6 PLAN means the Biogen, Inc. Supplemental Executive Retirement Plan, as set forth in this plan instrument, and as it may be amended from time to time. -3- 4 2.7 PLAN YEAR means the 12-month period beginning each January 1 during the continuation of the plan. 2.8 RETIREMENT PLAN means the Biogen Retirement Plan, as amended from time to time. Any term defined in the Biogen Retirement Plan will have the same meaning when used in this plan unless otherwise defined herein. 2.9 SINGLE SUM CONVERSION BASIS means the assumptions set forth in Section 2.1(b) of the Retirement Plan. -4- 5 SECTION 3. PARTICIPATION 3.1 PARTICIPATION IN SUPPLEMENTAL PENSION FORMULA. Each person listed on Appendix A is a participant in the supplemental pension formula under Section 4.1 as of January 1, 1991. 3.2 PARTICIPATION IN EXCESS BENEFIT FORMULAS. Each participant in the Retirement Plan (other than a person listed on Appendix A) (a) whose applicable compensation for any plan year exceeds the dollar limitation on applicable compensation imposed under Code Section 401(a)(17) for such plan year, (b) whose benefit under the Retirement Plan is reduced upon his retirement or other termination of employment by the limitations imposed under Code Section 415, or (c) who has reduced his salary and/or bonus under any non-qualified deferred compensation plan or arrangement maintained by Biogen (or a subsidiary) will be a participant in the excess benefit formula under Section 4.2. 3.3 END OF PARTICIPATION. Except as specifically provided in an appendix, an employee's active participation in this plan accruing additional benefits under the applicable provisions of the plan will end when his participation in the Retirement Plan ends. -5- 6 SECTION 4. BENEFIT FORMULAS 4.1 SUPPLEMENTAL PENSION FORMULA. (a) For each plan year during the existence of this plan, a participant in the supplemental pension formula will be credited with a supplemental pension amount equal to 1 1/2% of his applicable compensation during such year up to the Social Security taxable wage base for such year (prorated for any partial year of employment as an employee of Biogen (or a U.S. subsidiary)), plus 2 1/2% of his applicable compensation during such year above the Social Security taxable wage base for such year (as so prorated). In addition, a participant will be credited with a supplemental pension amount in accordance with the preceding sentence for 1989 and 1990 provided such individual was an employee of Biogen (or subsidiary) during such year. (b) A participant's accrued supplemental pension benefit hereunder as of any date of reference will be the sum of the supplemental pension amounts he is credited with under the preceding paragraph. 4.2 EXCESS BENEFIT FORMULAS. A participant's accrued excess benefit under this section will be the benefit he would have earned under the accrued benefit formula in Section 6.1(a) of the Retirement Plan if (a) his applicable compensation taken into account had never been limited under Code Section 401(a)(17), (b) the limitations on benefits imposed under Code Section 415 (as specified in Sections 12.1 to 12.3 of the Retirement Plan) were disregarded, and (c) he had never reduced his salary and/or bonus under a non-qualified deferred compensation plan or arrangement maintained by Biogen (or a subsidiary). -6- 7 4.3 VESTED INTEREST. A participant who terminates employment before his normal retirement date will have the same vested percentage in his supplemental pension benefit or excess benefit under this plan that he has in his accrued benefit under the Retirement Plan. 4.4 ADDITIONAL SPECIAL BENEFITS. In addition to any supplemental pension benefits, excess benefits or other benefits provided under the terms of the plan, a participant who is specified in an appendix to this plan will be entitled to benefits calculated in accordance with the provisions of such appendix. -7- 8 SECTION 5. PROVISIONS ON PAYMENT OF BENEFITS 5.1 SUPPLEMENTAL PENSION BENEFIT AND EXCESS BENEFITS. Supplemental pension benefit amounts or excess benefit amounts as calculated under the formulas in Sections 4.1 and 4.2 above are payable as an annual pension beginning on the participant's normal retirement date in the form of an annuity for the life of the participant only. If a participant's supplemental pension benefits or excess benefits hereunder are actually paid beginning on an earlier date or in a different form in accordance with Section 5.2, the amount will be adjusted as provided in Section 5.2. 5.2 FORM AND TIME OF BENEFIT PAYMENTS. A participant's vested supplemental pension benefit or excess benefit under Section 4.1 or Section 4.2 will be paid in the same form and beginning on the same date that his benefit under the Retirement Plan is payable. Notwithstanding the preceding sentence, if a participant elects a lump sum form of payment, such election shall be made prior to the date the participant actually retires, and will be subject to the approval of the committee. (a) ANNUITY OPTIONS. If the participant's supplemental pension benefit or excess benefit is payable in any form other than a lump sum or a life annuity, the actuarial factors used to convert his supplemental pension benefit or excess benefit amount from a life annuity to such other form of payment will be the same as the factors used for such purpose in the Retirement Plan. -8- 9 (b) LUMP SUM OPTION. (i) Supplemental pension: If a participant's supplemental pension under Section 4.1(b) is payable as a lump sum, the amount shall be the supplemental pension amount under Section 4.1 converted to a single sum benefit using the assumptions set forth in Section 2.9. (ii) Excess pension: If a participant's excess benefit under Section 4.2 is payable as a lump sum, the amount will be the lump sum benefit he would have received under the Retirement Plan without regard to Internal Revenue Code Section 401(a)(17) and regulations thereunder, Internal Revenue Code Section 415 and regulations thereunder and any reductions of his salary and/or his bonus under a non-qualified deferred compensation plan or arrangement maintained by Biogen (or a subsidiary). (c) EARLY RETIREMENT. (i) Supplemental pension: If the participant's supplemental pension benefit is payable as an annuity starting before his normal retirement date, his benefit will equal the supplemental pension amount he is credited with under Section 4.1, reduced by 5/9ths of 1% per month for each of the first 60 months, and by 5/18ths of 1% per month for each additional month, that the start of payments precedes his normal retirement date. -9- 10 (ii) Excess pension: If the participant's excess benefit is payable as an annuity starting before his normal retirement date, his benefit shall equal the early retirement annuity amount he would have received under the Retirement Plan without regard to Internal Revenue Code Sections 401(a)(17) and regulations thereunder, Internal Revenue Code Section 415 and regulations thereunder, and any reductions in his salary and/or bonus under any non-qualified deferred compensation plan or arrangement maintained by Biogen (or a subsidiary). 5.3 REDUCTION FOR RETIREMENT PLAN BENEFITS. Notwithstanding any other provision of this plan, the amount payable to a participant under this plan (as calculated under the applicable provisions of the plan) will be reduced by the amount actually paid to such participant as a benefit from the Retirement Plan. If Retirement Plan benefits to a participant are paid in a different form or commence at a different time compared to benefits under this plan, for purposes of calculating the reduction for Retirement Plan benefits under the preceding sentence, the Retirement Plan benefit amount will be converted to an amount payable in the same form and commencing at the same time as the participant's benefit under this plan, with such conversion performed in accordance with the actuarial assumptions specified in the Retirement Plan or, if applicable, in Section 2.9. -10- 11 SECTION 6. DEATH BENEFITS 6.1 APPLICATION OF THIS SECTION. This section specifies the benefits payable upon the death of a participant, either before or after the date his benefit payments hereunder begin. Except as specified in this section, no benefits are payable upon the death of a participant. 6.2 PRERETIREMENT DEATH BENEFIT. (a) ELIGIBILITY. If a participant in this plan dies after the date when he has a vested interest hereunder but before the date when his benefit payments begin, his beneficiary will receive the preretirement death benefit described under this section. (b) PAYMENT. Preretirement death benefit payments will be made or will begin on the same date that payments of the Retirement Plan's preretirement death benefit under Section 9.2 of the Retirement Plan is made or begins. (c) AMOUNT. The amount of each monthly payment to the beneficiary will be the amount the participant would have received on the payment starting date (had he survived to such date), based upon his vested accrued supplemental pension benefit or excess benefit hereunder as of the earlier of his date of death or his date of retirement or other termination of employment, with actuarial reduction if applicable, for payments starting before the participant's normal retirement date. Notwithstanding the preceding sentence, for purposes of converting a participant's Retirement Plan cash balance account to a life annuity, the applicable factor shall be based on the attained age of the beneficiary as of the date payments begin. -11- 12 (d) If the preretirement death benefit under the Retirement Plan is payable as a commuted single sum payment, the beneficiary's benefit under this section will also be paid as a commuted single sum payment. Such single sum payment shall equal the lump sum benefit the participant would have received under Section 5.2(b) (had he survived to such date and elected such form of payment). (e) OFFSET FOR RETIREMENT PLAN BENEFITS. Notwithstanding any other provision of this Section 6.2, the amount payable to a beneficiary under this section (as calculated under the applicable provisions of the plan) will be reduced by the amount payable to such beneficiary as a preretirement death benefit from the Retirement Plan. 6.3 DEATH AFTER BENEFIT PAYMENTS BEGIN. If a participant dies while receiving benefit payments hereunder, his surviving spouse, contingent annuitant or beneficiary will receive the benefit, if any, payable under the form of payment in effect for such participant. -12- 13 SECTION 7. DISABILITY 7.1 A participant who suffers a total and permanent disability for purposes of the Retirement Plan will continue to participate in this plan during his period of covered disability (as defined in the Retirement Plan). Such a participant will continue to accrue supplemental pension benefits or excess benefits under this plan in accordance with the applicable provisions of Section 4 as if such participant had continued to be an active employee of Biogen (or a subsidiary) during his period of covered disability and as if he had continued receiving applicable compensation during his period of covered disability at the same rate as his rate of applicable compensation in effect immediately before the onset of his disability and the Social Security taxable wage base had remained at the same level as in effect for the year when his disability began. The accrual of additional supplemental pension benefits or excess benefits under the preceding sentence will end when his period of covered disability ends in accordance with the terms of the Retirement Plan. 7.2 If a participant dies while disabled, his beneficiary will receive the pre-retirement death benefit determined under Section 6.2. 7.3 A participant may not receive benefits under this plan at any time when he is receiving disability income benefits under any long-term disability income plan maintained by Biogen. -13- 14 SECTION 8. BENEFITS NOT CURRENTLY FUNDED 8.1 Nothing in this plan will be construed to create a trust or to obligate Biogen (or any subsidiary) to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any participant or any other person rights to any specific assets of Biogen or of any other employer or entity. 8.2 Notwithstanding Section 8.1, Biogen in its sole discretion may establish a trust of which it is treated as the owner under Section 671 of the Internal Revenue Code (a "grantor trust") to provide for the payment of benefits hereunder, subject to such terms and conditions as Biogen may deem necessary or advisable to ensure that benefits are not includable, by reason of the trust, in income of trust beneficiaries before actual distribution and that the existence of the trust does not cause the plan or any other arrangement to be considered funded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. -14- 15 SECTION 9. ADMINISTRATION The plan will be administered by the committee, which will have full power and authority to construe, interpret and administer the plan. Decisions of the committee will be final and binding on all persons. The committee in its discretion may adopt, amend, and rescind rules and regulations relating to the administration of the plan. -15- 16 SECTION 10. RIGHTS NON-ASSIGNABLE No participant, surviving spouse, or any other person will have any right to assign or otherwise to alienate the right to receive payments under the plan, in whole or in part. -16- 17 SECTION 11. AMENDMENT OR TERMINATION Biogen reserves the right at any time by action of the board to terminate this plan or to amend its provisions in any way. In addition, if the Retirement Plan is terminated, this plan will automatically terminate also as of the same effective date. Notwithstanding the foregoing, no termination or amendment of the plan may reduce the benefits payable under the plan to any person with respect to a participant whose employment with Biogen (or a subsidiary) was terminated before such termination or amendment, and no termination or amendment may reduce the benefits to be paid with respect to a participant on the date of such termination or amendment below the amount which such participant would have received if his employment had terminated on the date before such termination or amendment. In witness whereof, Biogen, Inc. has caused this instrument to be restated and effective April 1, 1996 and to be executed as of the ______ day of ______, 1997. BIOGEN, INC. By: -------------------------------------------- Frank A. Burke, Jr. V.P., Human Resources -17- 18 APPENDIX A LIST OF PARTICIPANTS IN THE SUPPLEMENTAL PENSION FORMULA The following employees are participants in the supplemental pension formula under Section 4.1, effective as of January 1, 1991: Frank A. Burke, Jr. John W. Catterall Adrian W. Dawson, M.D. Frederic A. Eustis, III James Mullen Vicki L. Sato, Ph.D. Michael R. Slater Alan W. Tuck James L. Vincent -18- 19 APPENDIX B SPECIAL ADDITIONAL BENEFITS APPLICABLE TO CERTAIN PARTICIPANTS B.1 Special Additional Benefits for James L. Vincent (a) APPLICABILITY. This Section B.1 provides for special additional benefits for James L. Vincent, Chairman and Chief Executive Officer of Biogen, Inc. ("Vincent"), in order to carry out the provisions of Paragraph 6 of the letter agreement dated November 21, 1996 from Biogen, Inc. to Vincent (the "Letter Agreement"). Capitalized or other terms used in this Section B.1 not otherwise defined by or in accordance with this plan have the meanings given to them in such Letter Agreement or in the Employment Agreement referred to in the first paragraph of the Letter Agreement. (b) SPECIAL ADDITIONAL BENEFITS. In addition to the benefits payable to Vincent under the other provisions of this plan, Vincent will be entitled to benefits hereunder calculated in accordance with the following provisions: (i) during the period following the Change Date while Vincent continues to serve as Chairman (including during any period while Vincent has a condition or other disability for which Vincent is entitled to payment of disability benefits for a "covered disability", as defined in the Biogen Retirement Plan), Vincent will continue to accrue additional retirement benefits calculated under the supplemental pension formula in Section 4.1, treating Vincent's service as Chairman as if it were full-time service as an eligible employee and treating the salary and bonus paid to Vincent for service as Chairman (which during any period of "covered disability" shall be deemed to be the salary and bonus for the year immediately preceding such period) as Vincent's "applicable compensation" for purposes of the supplemental pension formula; (ii) in the event of a termination of Vincent's employment, before or after the Change Date, (I) by Biogen, other than for cause or permanent total disability, (II) by Vincent, under circumstances constituting Constructive Termination, or (III) by Vincent after Vincent has reached age 61, in each case before Vincent has reached age 65, Vincent will receive additional retirement benefits calculated under the supplemental pension formula as if Vincent has continued to serve as Chairman until age 65 and had continued to receive the same compensation as the annual rate of compensation in effect for Vincent immediately prior to such termination of employment; and (iii) in the event of a termination of Vincent's employment as Chairman before age 65, under circumstances entitling Vincent to benefit payments under subparagraph (i) or (ii), Vincent may thereafter elect to commence receiving such benefit payments under either clause (I) or (II) below: (I) in the event Vincent's employment is terminated under circumstances entitling Vincent to a payment under paragraph 11(c)(v) of the Letter Agreement, starting on the earlier of: -19- 20 (A) Vincent's normal retirement date, or (B) the date which follows the date of termination of Vincent's employment by a number of months equal to the Severance Multiple (as defined in paragraph 11(c)(v) of the Letter Agreement) multiplied by 12, (II) in the event Vincent's employment is terminated under circumstances not entitling Vincent to a payment under paragraph 11(c)(v) of the Letter Agreement, starting on the date of such termination. In any event, benefit payments under either clause (I) or (II) above will not be reduced for payments received before Vincent's normal retirement date. For example, if the Change Date occurs on Vincent's 57th birthday, and Vincent's employment is terminated by Biogen on Vincent's 58th birthday under circumstances entitling Vincent to a payment under paragraph 11(c)(v) of the Letter Agreement, then Vincent's Severance Multiple would be 5.5 which, multiplied by 12, results in a period of 66 months. Therefore, in this example, pursuant to subparagraph (iii)(I)(B), Vincent could elect to commence receiving benefit payments at the time Vincent reaches age 63 1/2 (which is 66 months after the assumed date of termination of Vincent's employment at age 58) without reduction for payments received before Vincent's normal retirement date. The rules governing the presumed form of payment for calculations of benefits amounts under the foregoing provisions of this paragraph, and the rules governing the conversion of actual benefits into any other form of payment elected by Vincent, will be the same rules used for such purposes under the Biogen Retirement Plan and under the provisions of this plan. Vincent's gross retirement benefit amount will be the amount calculated under this Section B.1 and the actual amount payable to Vincent under this Section B.1 will be such amount reduced by the amounts Vincent actually receives under the other provisions of this plan and the Biogen Retirement Plan. -20- EX-10.35 9 AMEN. NO.1 TO VOLUNTARY BOARD SAVINGS PLAN 1 Exhibit 10.35 ------------- BIOGEN, INC. VOLUNTARY BOARD OF DIRECTORS SAVINGS PLAN AMENDMENT NO. 1 WHEREAS, Biogen, Inc. ("Biogen") adopted the Biogen, Inc. Voluntary Board of Directors Savings Plan (the "Plan") effective October 1, 1994, and WHEREAS, Section 7.1 of the Plan permits Biogen, by action of the Board of Directors of Biogen (or its delegate) to amend the Plan; and WHEREAS, Biogen desires to amend the Plan to increase the frequency by which a participant may change his designation of mutual funds with respect to which deemed investment results are determined; NOW, THEREFORE, the Plan is hereby amended effective May 1, 1997 as follows: Section 5.1 (Participant Accounts) is amended by deleting the second sentence of the second paragraph of subsection (c) thereof and replacing it with the following: "Thereafter, a participant may change his designation either with respect to the deemed investment of future savings deposits and matching credits or the deemed transfer of amounts from a previously designated mutual fund to another fund. The Committee shall establish the frequency by which such a change may be made, the method of making such a change, and the effective date of such a change and shall prescribe such other rules and procedures as it deems appropriate." IN WITNESS WHEREOF, Biogen has caused this instrument to be executed by the individual duly authorized as of the 25th day of April, 1997. BIOGEN, INC. By: ----------------------------------- Frank A. Burke, Jr. Vice President - Human Resources EX-13 10 INCORPORATED PORTIONS FROM 1997 ANNUAL REPORT 1 EXHIBIT 13 SELECTED FINANCIAL DATA (in thousands, except per share amounts)
Year Ended December 31, 1993 1994 1995 1996 1997 Product sales .............................................. $ -- $ -- $ -- $ 78,202 $239,988 Royalty revenue ............................................ 136,418 140,433 134,653 181,502 171,921 Total revenues ............................................. 149,287 156,344 151,691 277,090 434,044 Total expenses and taxes ................................... 116,870 161,241 146,031 236,560 344,877 Net income (loss)(a) ....................................... 32,417 (4,897) 5,660 40,530 89,167 Basic earnings (loss) per share (b) ........................ 0.51 (0.07) 0.08 0.57 1.21 Diluted earnings (loss) per share (b) ...................... 0.47 (0.07) 0.08 0.55 1.17 Cash and cash equivalents and short-term marketable securities .............................................. 270,351 267,802 307,948 321,381 440,088 Total assets ............................................... 356,950 377,862 469,201 634,572 813,825 Long-term debt, less current portion ....................... -- -- 32,826 62,254 61,846 Shareholders' equity ....................................... 325,174 329,934 382,980 484,370 536,293 Shares used in calculating diluted earnings per share(b).... 69,440 65,548 72,890 73,221 76,500
(a) Net loss for the year ended December 31, 1994 includes a pre-tax charge of $25 million as a result of the Company's decision to discontinue its major activities associated with the development of the HIRULOG(R) thrombin inhibitor product. Net income for the year ended December 31, 1996 includes an income tax benefit of approximately $23 million resulting from the reversal of a deferred tax asset valuation allowance. (b) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"), which changed the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options and warrants. The Company adopted SFAS 128 in the fourth quarter of 1997. All prior period per share amounts have been restated to comply with the standard. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Biogen, Inc. (the "Company" or "Biogen") is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of AVONEX(R)(Interferon beta-1a) for the treatment of relapsing forms of multiple sclerosis ("MS")and from royalties on worldwide sales by the Company's licensees of a number of products covered under patents controlled by the Company, including alpha interferon and hepatitis B vaccines and diagnostic products. RESULTS OF OPERATIONS 1997 AS COMPARED TO 1996 REVENUES Total revenues in 1997 were $434 million, as compared to $277.1 million in 1996, an increase of approximately 57%. Product sales in 1997 were $240 million as compared to $78.2 million in 1996, an increase of approximately 207%. The Company began selling AVONEX(R) in the United States in May 1996. In March 1997, the Company received regulatory approval to market AVONEX(R) in the fifteen member countries of the European Union("EU"). By the end of 1997, AVONEX(R) had received reimbursement approval and was on the market in all of the EU countries. AVONEX(R) sales outside of the United States were approximately $19.1 million in 1997 as compared to $593,000 in 1996. The Company expects product sales as a percentage of total revenues to increase in the near term as the Company continues to market AVONEX(R) worldwide. The Company also expects sales from AVONEX(R) in Europe to increase as a percentage of total product sales. The Company, however, faces increasing competition worldwide. See "Outlook - Competition". Revenues from royalties in 1997 were $171.9 million, a decrease of $9.6 million or 5% as compared to $181.5 million of royalty revenue in 1996. Included in royalty revenue in 1997 is a one-time non-refundable licensing payment of $15 million from Merck & Co., Inc.("Merck") paid under a collaborative research, development and license agreement (the "Merck Agreement"). Merck paid the $15 million license fee to Biogen for the transfer of technology, rights granted and the research and development previously performed by Biogen. Under the Merck Agreement, Merck will have rights to develop and market small molecule VLA-4 inhibitors in all therapeutic areas other than certain small indications such as multiple sclerosis and kidney diseases and disorders, which Biogen will continue to work on itself. The Merck Agreement also provides for payments to be made by either party upon the achievement of certain development milestones by the other party. In addition, if a product is successfully developed by either party, the other party will receive royalties on sales of the product. Included in royalty revenue in 1996 is a one-time royalty payment of $30 million for sales which occurred prior to 1996 received under a license agreement with Pharmacia & Upjohn A.B. ("Pharmacia & Upjohn"). Under the terms of this license agreement Biogen granted Pharmacia & Upjohn a sublicense under certain patents related to a proprietary protein secretion technology licensed exclusively to Biogen by Harvard University. Excluding the one-time payments from Merck in 1997 and Pharmacia & Upjohn in 1996, royalty revenue increased 3.6% from 1996 to 1997. In the near term, the 3 Company expects overall sales of licensee products and royalty revenues to fluctuate depending on changes in sales volumes for specific products, patent expirations, new licensing arrangements, if any, or other developments. See "Outlook - Royalty Revenue" and "Outlook - Patents and Other Proprietary Rights". Interest income in 1997 was $22.1 million, an increase of $4.7 million or 27% as compared to 1996. This increase is a result of increased funds invested and higher average yields. The Company expects interest income to vary based on changes in the amount of funds invested and fluctuations in interest rates. EXPENSES Total expenses in 1997 were $285.1 million as compared to $236.3 million in 1996, an increase of approximately 21%. Cost of sales in 1997 totaled $50.2 million, an increase of $21.7 million or 76% as compared to 1996. This increase was due to the higher sales volume of AVONEX(R). Included in cost of sales in 1997 and 1996 is $37.1 million and $11.4 million, respectively, from product sales and $13.1 million and $17.1 million, respectively, relating to royalty revenue. Gross margins for product sales remained flat at 85% in both 1997 and 1996. Cost of sales relating to royalty revenue for 1997 decreased $4 million, or approximately 23% as compared to 1996, due to a lower percentage of royalty revenue with associated royalty costs. The Company expects that gross margins on royalty revenue will fluctuate in the future based on the impact of one-time royalty and milestone payments. Research and development expenses in 1997 were $145.5 million, an increase of $13.1 million or 10% as compared to 1996. This increase was primarily due to the costs associated with funding of collaboration agreements, an increase in clinical trial costs and an increase in the Company's other development efforts related to its ongoing research and development programs. In 1997, the Company completed Phase 2 trials of several of its drug candidates, including LFA3TIP, a T-cell inhibiting protein being tested as a potential treatment for moderate to severe psoriasis and CVT-124, which is being developed for treatment of edema associated with congestive heart failure. Additional Phase 2 studies of LFA3TIP and CVT-124 are underway or planned. Biogen also plans to initiate in 1998 Phase 2 trials of humanized 5c8 anti-CD40, a monoclonal antibody for potential use in the treatment of several inflammatory and autoimmune diseases, such as lupus. In addition, the Company is working on ongoing studies of AVONEX(R) to support a broader label and additional indications. The Company expects that, in the near and long-term, research and development expenses will increase as the Company expands its pipeline and related development efforts with respect to potential new product candidates and continues clinical trials of AVONEX(R). Selling, general and administrative expenses in 1997 were $90.1 million, an increase of $16.5 million or 22% as compared to 1996. This increase was primarily due to the selling and marketing expenses related to the sale of AVONEX(R), principally in support of the European launch. The Company expects that selling, general, and administrative expenses will continue to increase in the near term as the Company continues to expand the sales and marketing organizations necessary to sell AVONEX(R) in additional European markets. Other income, net in 1997 was $711,000 compared to other expense of $1.7 million in 1996. The increase is principally due to an increase in foreign currency gains of $6.3 million resulting from notes payable denominated in foreign currencies offset by an increase in interest expense of $2.9 million. 4 The Company's effective tax rate in 1997 was 40.1%. Income tax expense for 1997 varied from the amount computed at U.S. federal statutory rates primarily due to the benefit of research and development and investment tax credits offset by foreign losses for which the Company will receive no current tax benefit. The Company expects its effective tax rate to decline as sales in Europe increase. During the third quarter of 1996, the Company determined it was more likely than not that it would realize the benefits of its net deferred tax assets, and reversed the related valuation allowance. The reversal of the valuation allowance resulted in a realization of income tax benefit of approximately $23 million and an increase in additional paid-in capital of $38.6 million which related to deductions for non-qualified stock options. RESULTS OF OPERATIONS 1996 AS COMPARED TO 1995 Total revenues in 1996 were $277.1 million, as compared to $151.7 million in 1995, an increase of approximately 83%. The increase in total revenues in 1996 was primarily due to the successful launch of the Company's AVONEX(R) product in the United States in May 1996, which accounted for $76.5 million of product sales. Revenues from royalties in 1996 were $181.5 million, an increase of $46.8 million or 35% as compared to 1995. Included in royalty revenue in 1996 was a one-time royalty payment of $30 million, relating to sales occurring prior to 1996, received under a license agreement with Pharmacia & Upjohn. Under the terms of this license agreement Biogen granted Pharmacia & Upjohn a sublicense under certain patents related to proprietary protein secretion technology licensed exclusively to Biogen by Harvard University. In addition to the one-time $30 million payment, Pharmacia & Upjohn agreed to pay ongoing royalties on sales of Pharmacia & Upjohn's product Genotropin in the United States, Canada and Japan. Excluding the one-time royalty payment, royalty revenues increased 12.5% in 1996 as compared to 1995, primarily as a result of an increase in ongoing royalties received from Schering-Plough Corporation ("Schering-Plough"), the Company's licensee for alpha interferon. Interest income in 1996 was $17.4 million, an increase of $348,000 or 2% as compared to 1995. The increase was primarily a result of increased funds invested. EXPENSES Total expenses in 1996 were $236.3 million as compared to $144.2 million in 1995. Cost of sales in 1996 was $28.5 million, an increase of $18 million or 172% as compared to 1995. Included in cost of sales in 1996 was $11.4 million from product sales and $17.1 million relating to royalty revenue. The gross margin in 1996 for product sales was approximately $66.8 million or 85%. Cost of sales relating to royalty revenue for 1996 increased $6.6 million, or approximately 63%. Excluding the cost of sales relating to the one-time royalty payment from Pharmacia & Upjohn, cost of sales relating to royalty revenue increased $3.6 million or approximately 34% primarily due to the increased level of royalty revenues. Research and development expenses in 1996 were $132.4 million, an increase of $44.9 million or 51% as compared to 1995. This increase was primarily due to new research collaboration agreements, an increase in clinical trial costs and an increase in the Company's development efforts related to other research and development programs in its pipeline. In 1996, the Company entered into a research collaboration and license agreement with Creative BioMolecules, Inc. ("CBM") under which Biogen obtained rights to develop and 5 market CBM's morphogenic protein, OP-1, for the treatment of kidney diseases and disorders, including acute and chronic renal failure. Included in research and development expense in 1996 was $13.2 million relating to the research collaboration and license agreement with CBM. In 1996, Biogen had two early stage compounds in clinical trials, LFA3TIP, a T-cell inhibiting protein tested as a potential treatment for severe psoriasis and Gelsolin, a mucolytic agent, that was being studied for treatment of cystic fibrosis, chronic bronchitis and several other pulmonary diseases. Selling, general and administrative expenses in 1996 were $73.6 million, an increase of $33.3 million or 83% as compared to 1995. This increase was primarily due to the costs associated with the commercial launch of AVONEX(R) in the United States, including the formation of a domestic sales organization. In addition, the Company invested resources in market development efforts in Europe related to AVONEX(R). During 1996, the Company substantially completed the hiring of its domestic sales force and the build-up of its corporate and administrative departments to support the Company's ongoing commercial operations. Other expenses, net in 1996 were $1.7 million, a decrease of $4.3 million compared to 1995. The decrease was primarily due to gains recorded on foreign exchange related contracts. Income tax expense for 1996 and 1995 varied from the amount computed at U.S. federal statutory rates primarily because of the impact of net operating loss carry forwards and the reversal of the deferred tax asset valuation allowance in 1996. As of December 31, 1995, the Company had a net deferred tax asset of $57.1 million (before valuation allowance) consisting of the future tax benefits from net operating loss carry forwards and other tax credits. During the third quarter of 1996, the Company determined it was more likely than not that it would realize the benefits of its net deferred tax assets, and reversed the related valuation allowance. The reversal of the valuation allowance resulted in realization of income tax benefit of approximately $23 million and an increase in additional paid-in capital of $38.6 million which related to deductions for non-qualified stock options. FINANCIAL CONDITION At December 31, 1997, cash, cash equivalents and short-term marketable securities were $440.1 million compared with $321.4 million at December 31, 1996, an increase of $118.2 million. Working capital increased $124.3 million to $472.2 million. Net cash provided by operating activities for the year ended December 31, 1997 was $97.6 million compared with $42.3 million in 1996. Cash outflows during 1997 included investments in property and equipment and patents of $35.6 million and $11 million related to investments under collaborative agreements. Significant cash inflows included $29.3 million from loan and notes payable agreements with banks and $24.5 million from common stock option and purchase plan activity. In August 1995, the Company entered into a loan agreement with a bank for financing the construction of its biological manufacturing facility in North Carolina (the "Construction Loan"). During 1997, the Company completed construction of the facility and the funds advanced under the Construction Loan were converted to a floating rate ten year term loan with principal and interest payable quarterly. As of December 31, 1997, the Company had $45.9 million outstanding under the Construction Loan. The loan is secured by the underlying building. The Company also entered an interest rate swap agreement with the same bank, fixing its interest rate on the Construction Loan at 7.75% during the remaining term of the loan with interest payable quarterly. As of December 31, 1997, the Company had $20.8 million outstanding under a floating rate loan with a bank (the "Term Loan"). The Term loan is secured by 6 the Company's laboratory and office building in Cambridge, Massachusetts. The Company has fixed its interest rate on the Term Loan at 7.5% under the terms of a swap agreement. Terms of the Company's loan agreements include various covenants, including financial covenants which require the Company to maintain minimum net worth, cash flow and various financial ratios. On October 6, 1997, the Company announced that its Board of Directors has authorized the repurchase of up to 2.5 million shares of the Company's common stock. The repurchased stock will provide the Company with treasury shares for general corporate purposes, such as stock to be issued under employee stock option and stock purchase plans. Stock purchases are expected to occur from time to time over the next two years. The stock repurchase program may be discontinued at any time. In 1997, the Company repurchased 200,000 shares of its common stock at a cost of $7.0 million. To minimize the cost of the repurchase program, the Company sold put options and purchased call options covering a large portion of the shares intended to be repurchased. The Company has several research programs and collaborations underway. In December 1997, the Company entered into a collaborative research, development and license agreement (the "Merck Agreement") with Merck & Co., Inc. ("Merck"). Under the Merck Agreement, Merck paid a non-refundable license fee of $15 million to Biogen for the transfer of technology, rights granted and research and development previously performed by Biogen. Under the Merck Agreement, Merck will have rights to develop and market small molecule VLA-4 inhibitors in all therapeutic areas other than certain small indications such as multiple sclerosis and kidney diseases and disorders, which Biogen will continue to work on itself. The Merck Agreement also provides for payments to be made by each party upon the achievement of certain development milestones by the other party. The payments could total approximately $130 million paid by Merck to Biogen and approximately $21 million paid by Biogen to Merck if all milestones are met. In addition, if a product is successfully developed by a party, the other party will receive royalties on sales of the product. In June 1997, the Company purchased 100,000 shares of Series E Preferred Stock of CuraGen Corporation ("CuraGen") for $1 million. In October 1997, the Company signed a research and option agreement (the "CuraGen Agreement") with CuraGen under which the Company and CuraGen will collaborate in the discovery of novel genes using CuraGen's functional genomics technologies. The Company has an option to acquire an exclusive license to certain discoveries arising out of the collaborative effort. Under the terms of the CuraGen Agreement, the Company has agreed to purchase CuraGen common stock totaling $5 million in the event of CuraGen's initial public offering and to establish a $10 million line of credit with a maximum drawdown limit of $5 million in the first year. The Company has also agreed to fund research activities of CuraGen related to the collaboration up to a maximum of $7.5 million over the next five years. At December 31, 1997, CuraGen had not completed its initial public offering and there were no borrowings outstanding under the line of credit. In March 1997, the Company signed a research collaboration and license agreement (the "CVT Agreement") with CV Therapeutics, Inc. ("CVT") under which Biogen obtained rights to develop and market CVT's therapeutic CVT-124 for the treatment of edema associated with congestive heart failure. Under the terms of the CVT Agreement, the Company purchased approximately 670,000 shares of CVT common stock for $7 million and paid a one-time license fee of $5 million. In addition, pursuant to the terms of the CVT Agreement, the Company established a $12 million line of credit that CVT may use for operating purposes. At December 31, 1997, the Company had advanced $3 million under the line of credit to CVT. 7 In December 1996, the Company signed a research collaboration and license agreement(the "CBM Agreement") with Creative BioMolecules, Inc. ("CBM") under which Biogen obtained rights to develop and market CBM's morphogenic protein, OP-1, for the treatment of renal disorders. During 1996, under the CBM Agreement, Biogen paid a license fee of $10 million and purchased 1.5 million shares of CBM common stock for $18 million. The Company also has agreed to fund research and development of up to a maximum of $10.5 million through 1999 of which $4 million was funded in 1997. Effective July 1, 1996, the Company signed a collaborative research and commercialization agreement(the "Ontogeny Agreement") with Ontogeny, Inc. ("Ontogeny"), a private biotechnology company, for the development and commercialization of three specific hedgehog cell differentiation proteins. The Company acquired an equity interest in Ontogeny totaling $1 million as well as certain exclusive, worldwide rights related to products based on the hedgehog proteins for most disease areas. Under the Ontogeny Agreement, the Company committed to fund a total of $4 million of research and development work at Ontogeny through the end of the research phase. The Company has funded $3 million through December 31, 1997. In 1998, the Company has the option to proceed with commercialization of one or more of the hedgehog proteins. If the Company exercises its option, it will be committed to fund an additional $4 million of research at Ontogeny through mid 2001 and would be committed to additional funding of up to $23.8 million per hedgehog protein selected in a combination of license fees, additional equity investments, a line of credit, and potential milestone payments. The Company would also pay royalties if products are successfully developed. In August 1995, the Company signed a collaborative research agreement for the development of human gene therapy treatments with Genovo, Inc. ("Genovo"), a gene therapy research company. The Company acquired a minority equity interest in Genovo as well as certain licensing rights. The Company has agreed to fund research and development costs to Genovo up to approximately $37 million over the life of the agreement, depending on achievement of scientific milestones, of which $18.1 million of the funding has been paid through December 31, 1997. The Company believes that existing funds and cash generated from operations are adequate to satisfy its working capital and capital expenditure requirements in the foreseeable future. However, the Company may raise additional capital to take advantage of favorable conditions in the market or in connection with the Company's development activities. The Company believes that "Year 2000" costs will be minimal. Most of the Company's business and operating computer systems were installed in early 1996, in connection with the launch of its product AVONEX(R). The Company believes the Year 2000 conversion requirements will be achieved though routine upgrades to these software systems. The Company expects to complete these upgrades by the end of 1998. LEGAL MATTERS During the fourth quarter of 1994, a total of six class action lawsuits were initiated against the Company and several of its directors and officers. On March 3, 1995, these cases were consolidated into a single proceeding in the United States District Court for the District of Massachusetts. On January 23, 1996, in response to motions to dismiss the entire case filed by Biogen and the named officer and director defendants, the District Court issued a Memorandum and Order, dated January 22, 1996, dismissing most of the claims asserted in the plaintiffs Second Amended Complaint, including all claims against the Company's outside directors. The only claims remaining in the case pertain to a statement concerning the results of the HIRULOG(R) TIMI-7 clinical trials in unstable angina. The Court did not reach a decision on the merits of these claims. On October 11, 1996, the Company filed a motion for 8 summary judgment in the case. On September 4, 1997, the Court denied the motion but narrowed the plaintiff class. A trial is scheduled for April 1998. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against Biogen in the United States District Court for the District of New Jersey alleging infringement by Biogen of Berlex's "McCormick" patent in the United States in the production of AVONEX(R). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. An unfavorable ruling in the Berlex suit could have a material adverse effect on the Company's results of operations and financial position. The Company believes that it has meritorious defenses to the Berlex claim; however, the ultimate outcome is not determinable at this time. Prior to the date of the suit filed by Berlex on the McCormick patent, Biogen had filed a suit against Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") in the United States District Court for the District of Massachusetts for a declaratory judgment of non-infringement and invalidity of the McCormick patent contending that AVONEX(R), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is not valid. In November 1996, the U.S. District Court in Massachusetts ruled that it had jurisdiction and Berlex's New Jersey action was transferred to Massachusetts and consolidated for pre-trial purposes with the Massachusetts case. In February 1997, the U.S. District Court in Massachusetts dismissed Biogen's declaratory judgment action as to Schering without prejudice if such dismissal is later shown to result in an injustice to Biogen. Biogen and Stanford subsequently entered into an agreement voluntarily dismissing Stanford from the suit. The suit involving Berlex is still pending. A trial is not expected before the early part of 1999. In June 1996, ASTA Medica Aktiengesselschaft ("ASTA") filed for arbitration against Biogen with the International Chamber of Commerce (ICC)in Paris, France. In its complaint, ASTA alleges that Biogen's 1993 termination of a 1989 agreement licensing ASTA to market recombinant interferon beta in certain European territories was ineffective. The agreement at issue also included as a party Bioferon, a Biogen joint venture that declared bankruptcy in 1993. The ASTA complaint asks that an ICC panel declare that the 1989 license is still in force, and, in the alternative, seeks approximately $5 million in damages. The territories included in the 1989 license were Austria, Belgium, Denmark, Finland, France, Greece, Iceland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Arbitration proceedings were held in late 1997 in Zurich under Swiss law. The parties expect a decision in the first half of 1998. The Company's management believes that it has meritorious defenses to the preceding claims and given these defenses believes the ultimate outcome of these legal proceedings will not have a material adverse effect on the results of operations or financial position of the Company. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated financial statements. SFAS 131 establishes standards for reporting information on operating segments in interim and annual financial statements. SFAS 130 and SFAS 131 will become effective for the Company beginning in 1998. SFAS 130 and SFAS 131 require 9 disclosure only and will have no impact on the Company's consolidated financial position and results of operations. In November 1997, the Emerging Issues Task Force("EITF") issued EITF 97-13 "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation"("EITF 97-13"). EITF 97-13 requires that costs associated with business process reengineering activities be expensed as incurred, and that any amounts previously capitalized be charged to expense beginning in 1997. EITF 97-13 did not have a significant impact on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") which changes the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted average number of shares of common stock outstanding and dilutive common stock equivalents such as stock options and warrants. The Company adopted SFAS 128 in the fourth quarter of 1997. All per share amounts have been restated to comply with the standard. OUTLOOK Safe Harbor Statement under Private Securities Litigation Reform Act of 1996 In addition to historical information, this annual report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Reference is made in particular to forward-looking statements regarding the anticipated level of future product sales, royalty revenues, expenses and profits, statements regarding the timing of clinical trials and predictions as to the anticipated outcome of pending litigation. These and all other forward-looking statements are made based on the Company's current belief as to the outcome and timing of such future events. Factors which could cause actual results to differ from the Company's expectations and which could negatively impact the Company's financial condition and results of operations are discussed below. Dependence on AVONEX(R) Sales The Company's ability to sustain increases in revenues and profitability will be primarily dependent on the level of revenues and profitability from AVONEX(R) sales. The Company's ability to sustain profitability from sales of AVONEX(R) will depend on a number of factors, including: continued market acceptance of AVONEX(R) worldwide; the Company's ability to maintain a high level of patient satisfaction with AVONEX(R); the nature of regulatory and pricing decisions related to AVONEX(R) worldwide; the extent to which AVONEX(R) receives reimbursement coverage; and the impact of competitive products. The profitability from AVONEX(R) sales is also dependent on the successful resolution of the Berlex suit and the Asta arbitration, both of which are described above under "Legal Matters". Competition The Company faces increasing competition from other products for the treatment of relapsing forms of multiple sclerosis. AVONEX(R) competes with interferon beta-1b which is sold in the United States under the brand name Betaseron(R) by Berlex Laboratories, Inc., a United States affiliate of 10 Schering AG, Germany ("Schering AG"), and is sold in Europe under the brandname Betaferon(R) by Schering AG. AVONEX(R) also faces competition from Copaxone(R) glatiramer acetate(also known as copolymer-1). In the United States Copaxone(R) is marketed by a partnership between Teva Pharmaceuticals and Hoechst Marion Roussel, Inc. In addition, Ares Serono S.A. ("Serono") is seeking approval to market another interferon beta-1a product in Europe. Serono is also seeking approval to market its interferon beta-1a product in the United States but to be approved for relapsing forms of multiple sclerosis would have to overcome the orphan drug status afforded AVONEX(R) and Betaseron(R) by the FDA. There can be no assurance that the Company will be able to sustain market share of AVONEX(R) in light of competition from other products for the treatment of multiple sclerosis. Royalty Revenue The Company receives royalty revenues which contribute a significant amount to its overall profitability. In the near term, the Company expects overall sales of licensee products and royalty revenues to fluctuate depending on changes in sales volumes for specific products, patent expirations, new licensing arrangements, if any, or other developments. There are a number of other factors which could also cause the actual level of royalty revenue to differ from the Company's expectations. For example, pricing reforms, health care reform initiatives, other legal and regulatory developments and the introduction of competitive products may have an impact on product sales by the Company's licensees. In addition, licensee sales levels may fluctuate from quarter to quarter due to the timing and extent of major events such as new indication approvals or government sponsored vaccination programs. Since the Company is not involved in the development or sale of products by its licensees, the Company is unable to predict the timing or potential impact of factors which may affect licensee sales. In the long term, the Company expects its royalty revenue to be affected most significantly by patent expirations. See "Outlook - Patents and Other Proprietary Rights." Patents and Other Proprietary Rights The Company has numerous issued patents and patent applications pending on a number of its processes and products. The Company has also obtained rights to certain patents under licenses with third parties which provide for the payment of royalties. There can be no assurances that Biogen's existing patents or others, if obtained, will be of substantial protection or commercial benefit to Biogen. In addition, it is not known to what extent Biogen's pending patent applications or patent applications licensed from third parties will be granted or whether any of the Company's patents will prevail if they are challenged in litigation. There is also no assurance that third parties will not be granted patents claiming subject matter necessary to Biogen's business. Biogen has granted an exclusive worldwide license to Schering Plough Corporation under Biogen's alpha interferon patents, and receives royalties from Schering Plough on sales of its Intron(R) A brand of alpha interferon. In the event Biogen does not prevail in an action it has taken against Genentech Inc. and F. Hoffman La Roche, Inc. to overturn a priority of invention decision made against Biogen in connection with a Biogen alpha interferon patent application or does not resolve the matter in another manner satisfactory to Biogen, Schering Plough's royalty obligation to Biogen on sales of Intron(R) A in the United States will terminate upon expiration of Biogen's existing U.S. alpha interferon patent in 2002. The parties are discussing possible alternative resolutions of the dispute. Schering Plough's royalty obligation to Biogen on sales of Intron(R) A in Europe will terminate upon expiration of Biogen's European alpha interferon patent in 2001. 11 Biogen has licensed its recombinant hepatitis B antigen patent rights to manufacturers and marketers of hepatitis B vaccines and diagnostic test kits, and receives royalties on sales of the vaccines and test kits by its licensees. The obligation of SmithKline and Merck to pay royalties on sales of hepatitis B vaccines and the obligation of Biogen's other licensees under its hepatitis B patents to pay royalties on sales of diagnostic products will terminate upon expiration of Biogen's existing hepatitis B patents. Biogen's existing United States hepatitis B patents will expire in 2004. Biogen's European hepatitis B patents will expire at the end of 1999, except in those countries in which Biogen has or is able to obtain supplemental protection certificates. To date, Biogen has received supplemental protection certificates in France, Italy, Luxembourg, The Netherlands, and Sweden, and has a number of additional applications pending. The additional coverage afforded by supplemental protection certificates ranges from two to six years. There can be no assurance as to the extent of coverage available under the supplemental protection certificates, or that protection will be available in additional countries. There has been, and Biogen expects that there may continue to be significant litigation in the industry regarding patents and other intellectual property rights. Such litigation could create uncertainty and consume substantial resources. See also "Legal Matters". New Products AVONEX(R) is currently the only product sold by the Company. The Company's long-term viability and growth will depend on the successful development and commercialization of other products from its research activities and collaborations. The Company continues to expand its development efforts related to other potential products in its pipeline. The expansion of the pipeline may include increases in spending on internal projects, the acquisition of third party technologies or products or other types of investments. Product development involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. Success in preclinical and early clinical trials does not ensure that later stage or large scale clinical trials will be successful. Many important factors affect the Company's ability to successfully develop and commercialize drugs, including the ability to obtain and maintain necessary patents and licenses, to demonstrate safety and efficacy of drug candidates at each stage of the clinical trial process, to meet applicable regulatory standards and to receive required regulatory approvals, to be capable of producing drug candidates in commercial quantities at reasonable costs, to compete successfully against other products and to market products successfully. There can be no assurance that the Company will be successful in its efforts to develop and commercialize new products. Market Risk The Company has exposure to financial risk in several areas including changes in foreign exchange rates, interest rates and in the price of the Company's common stock. The Company attempts to minimize its exposures by using certain financial instruments, for purposes other than trading, in accordance with the Company's overall risk management guidelines. Further information regarding the Company's accounting policies for financial instruments and disclosures of financial instruments can be found in Notes 1,2 and 3 to the Company's consolidated financial statements. Foreign Exchange The Company has operations in several European countries in connection with the sale of its product AVONEX(R). The Company also receives royalty revenues 12 based on worldwide product sales by its licensees. As a result, the Company's financial position, results of operations and cash flows can be affected by fluctuations in foreign currency exchange rates (primarily the British pound, French franc, German mark, and Japanese yen). During 1997, the Company entered into a $30 million variable rate multicurrency line of credit agreement with a bank ("Multicurrency Line"). Under the Multicurrency Line, the Company may borrow or enter into commitments to borrow amounts in various currencies, at which time the exchange rate for these commitments is set. Any amounts outstanding under the Multicurrency Line are revalued using exchange rates at each balance sheet date. At December 31, 1997 there was $24.8 million outstanding under the Multicurrency Line of which $14.4 million was denominated in U.S. dollars. The carrying value of the amounts outstanding under the variable rate Multicurrency Line approximates fair value. The Company uses foreign currency forward contracts("Forward Contracts") to manage specifically identifiable foreign currency risk but does not engage in currency speculation. The Company uses these Forward Contracts to hedge certain transactions denominated in foreign currencies, including amounts outstanding under the Multicurrency Line. The contract amount of the forwards outstanding at December 31, 1997 was $10.4 million. The potential gain or loss for a hypothetical 10% beneficial or adverse change in foreign currency exchange rates on the Multicurrency Line and Forward Contracts outstanding at December 31, 1997 would not materially affect Biogen's financial position, results of operations or cash flows. Interest Rates The Company is exposed to risk of interest rate fluctuations in connection with its variable rate long term debt, which at December 31, 1997 included a $20.8 million term loan (the "Term Loan"), and a $45.9 million construction term loan (the "Construction Loan"). The Term Loan requires annual principal payments of $1.7 million through 2004, with the balance due in 2005. The Construction Loan requires principal payments of $805,000 quarterly through 2006, with the balance due in 2007. At December 31, 1997, the carrying values of the Term Loan and the Construction Loan approximated fair value. The Company has fixed its interest rates on the Term Loan and Construction Loan by entering swap agreements under which the Company exchanges the difference between 7.5% and 7.75%, respectively, and a floating rate. The notional principal balance on the swap agreements approximates the principal on the underlying debt agreements. The fair value of the swap agreements at December 31, 1997, representing the cash requirements of the Company to settle the agreements, was approximately $2.1 million. Stock Price The stock prices of biotechnology companies are subject to significant fluctuations. The stock price may be affected by a number of factors including, but not limited to clinical trial results and other product development events, the outcome of litigation, the decisions relating to intellectual property rights and the entrance of competitive products into the market, changes in reimbursement policies or other practices related to the pharmaceutical industry or other industry and market changes or trends. In addition, if revenues or earnings in any quarter fail to meet the investment community's expectations, there could be an immediate adverse impact on the Company's stock price. To minimize the cost of the Company's stock repurchase program, the Company sold put options and purchased call options covering a large portion of 13 the shares intended to be repurchased. Below is a summary of the contract amounts, weighted average strike price and fair value of these instruments at December 31, 1997.
Contract Amount Weighted Average Fair Value (In millions) Strike Price (In millions) --------------------------------------------------- Put Options Sold......... $76.7 $33.34 $(4.9) Call Options Purchased... 65.6 36.42 7.9
14 BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
Years Ended December 31, 1997 1996 1995 ---------------------------------- REVENUES: Product sales ................................ $239,988 $ 78,202 $ -- Royalties .................................... 171,921 181,502 134,653 Interest ..................................... 22,135 17,386 17,038 -------- -------- -------- Total revenues ........................... 434,044 277,090 151,691 -------- -------- -------- EXPENSES: Cost of sales ................................ 50,188 28,525 10,504 Research and development ..................... 145,501 132,384 87,448 Selling,general and administrative ........... 90,098 73,632 40,293 Other(income)expense, net .................... (711) 1,720 6,001 -------- -------- -------- Total expenses ........................... 285,076 236,261 144,246 -------- -------- -------- INCOME BEFORE INCOME TAXES ..................... 148,968 40,829 7,445 INCOME TAXES ................................... 59,801 299 1,785 -------- -------- -------- NET INCOME ..................................... $ 89,167 $ 40,530 $ 5,660 ======== ======== ======== BASIC EARNINGS PER SHARE ....................... $ 1.21 $ 0.57 $ 0.08 ======== ======== ======== DILUTED EARNINGS PER SHARE ..................... $ 1.17 $ 0.55 $ 0.08 ======== ======== ======== SHARES USED IN CALCULATING: BASIC EARNINGS PER SHARE ..................... 73,812 71,595 67,951 ======== ======== ======== DILUTED EARNINGS PER SHARE ................... 76,500 73,221 72,890 ======== ======== ========
See accompanying notes to consolidated financial statements. 15 BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
As of December 31, 1997 1996 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents .......................... $ 70,358 $ 62,032 Marketable securities .............................. 369,730 259,349 Accounts receivable, less allowances of $1,645 in 1997; $1,480 in 1996 ........................... 86,802 42,952 Deferred tax asset ................................. 37,203 47,888 Other current assets ............................... 31,973 23,533 -------- -------- Total current assets ........................... 596,066 435,754 -------- -------- PROPERTY AND EQUIPMENT, NET .......................... 174,492 165,323 -------- -------- OTHER ASSETS Patents, net ....................................... 14,935 10,458 Marketable securities .............................. 17,095 16,003 Other .............................................. 11,237 7,034 -------- -------- Total other assets ............................. 43,267 33,495 -------- -------- $813,825 $634,572 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ................................... $ 15,820 $ 15,722 Note payable ....................................... 24,817 -- Current portion of long-term debt .................. 4,888 4,017 Accrued expenses and other ......................... 78,358 62,071 -------- -------- Total current liabilities ...................... 123,883 81,810 -------- -------- LONG-TERM DEBT, LESS CURRENT PORTION ................. 61,846 62,254 OTHER LONG TERM LIABILITIES .......................... 15,132 6,138 PUT OPTIONS .......................................... 76,671 -- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, par value $0.01 per share (110,000,000 shares authorized; issued: 1997 - 74,149,391; 1996 - 72,526,009) ...... 741 725 Additional paid-in capital ......................... 516,880 471,623 Retained earnings .................................. 25,327 12,831 Unrealized losses on marketable securities ......... (2,233) (743) Cumulative translation adjustment .................. (37) (66) Treasury stock, at cost, 125,534 shares in 1997 .... (4,385) -- -------- -------- Total shareholders' equity ..................... 536,293 484,370 -------- -------- $813,825 $634,572 ======== ========
See accompanying notes to consolidated financial statements. 16 BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1997 1996 1995 ------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................... $ 89,167 $ 40,530 $ 5,660 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization ................................ 19,296 15,264 10,916 Other ........................................................ 2,695 682 (3,177) Deferred income taxes ........................................ 22,462 (5,541) -- Changes in: Accounts receivable ....................................... (43,850) (23,340) (1,110) Other current and other assets ............................ (8,643) (7,727) (4,269) Accounts payable, accrued expenses and other current and long-term liabilities ......................... 16,505 22,413 1,429 --------- --------- --------- Net cash provided from operating activities .................. 97,632 42,281 9,449 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities ........................... (481,783) (369,893) (349,025) Proceeds from sales and maturities of marketable securities ...................................... 373,130 370,252 307,021 Investment in collaborative partners ......................... (11,000) (16,774) -- Acquisitions of property and equipment ....................... (28,896) (62,030) (47,998) Additions to patents ......................................... (6,654) (3,606) (2,311) --------- --------- --------- Net cash used by investing activities ........................ (155,203) (82,051) (92,313) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable ................................... 24,817 -- -- Proceeds from issuance of long-term debt ..................... 4,545 33,444 35,326 Repayments on long-term debt ................................. (4,082) (1,666) (833) Purchases of treasury stock .................................. (7,000) -- -- Tax benefit related to stock options ......................... 23,164 4,258 -- Issuance of common stock and warrant and option exercises ........................................... 24,453 19,996 39,459 --------- --------- --------- Net cash provided from financing activities .................. 65,897 56,032 73,952 --------- --------- --------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS .............. 8,326 16,262 (8,912) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..................... 62,032 45,770 54,682 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR ........................... $ 70,358 $ 62,032 $ 45,770 ========= ========= ========= SUPPLEMENTAL CASH FLOW DATA Cash paid during the year for: Interest .................................................. $ 5,940 $ 4,038 $ 2,000 Income Taxes .............................................. $ 3,783 $ 1,516 $ 591
See accompanying notes to consolidated financial statements. 17 BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1997, 1996, and 1995 (in thousands)
Unrealized Gains Additional Retained (Losses)on Cumulative Common Paid-in Treasury Earnings Marketable Translation Shareholders' Stock Capital Stock (Deficit) Securities Adjustment Equity ---------------------------------------------------------------------------------------------- Balance, December 31, 1994 ....... $663 $368,452 $ -- $(33,359) $(5,867) $ 45 $329,934 Conversion of warrants ........... 36 30,564 30,600 Issuance of common stock ......... 470 470 Exercise of options, including tax benefits ........... 11 9,307 9,318 Unrealized gains on marketable securities ............ 7,112 7,112 Net income ....................... 5,660 5,660 Translation adjustment ........... (114) (114) ---- -------- ------- -------- ------- ----- -------- Balance, December 31, 1995 ....... $710 $408,793 $ -- $(27,699) $ 1,245 $ (69) $382,980 Exercise of options .............. 15 19,288 19,303 Issuance of common stock ......... 693 693 Tax benefit related to stock options .................... 42,849 42,849 Unrealized losses on marketable securities, net of taxes ......................... (1,988) (1,988) Net income ....................... 40,530 40,530 Translation adjustment ........... 3 3 ---- -------- ------- -------- ------- ----- -------- Balance, December 31, 1996 ....... $725 $471,623 $ -- $ 12,831 $ (743) $ (66) $484,370 Exercise of options .............. 16 20,841 2,548 23,405 Issuance of common stock ......... 981 67 1,048 Compensation expense related to stock options ......... 271 271 Tax benefit related to stock options .................... 23,164 23,164 Unrealized losses on marketable securities, net of taxes ......................... (1,490) (1,490) Treasury stock purchased ......... (7,000) (7,000) Reclassification of put option obligation ................ (76,671) (76,671) Net income ....................... 89,167 89,167 Translation adjustment ........... 29 29 ---- -------- ------- -------- ------- ----- -------- Balance, December 31, 1997 ....... $741 $516,880 $(4,385) $ 25,327 $(2,233) $ (37) $536,293 ==== ======== ======= ======== ======= ===== ========
See accompanying notes to consolidated financial statements 18 BIOGEN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Biogen, Inc. ("Biogen" or the "Company") is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of AVONEX(R) (Interferon beta-la) for the treatment of relapsing forms of multiple sclerosis and from royalties on worldwide sales by the Company's licensees of a number of products covered under patents controlled by the Company, including alpha interferon and hepatitis B vaccines and diagnostic products. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. Certain items in prior years' financial statements have been reclassified to conform with the current year's presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures; actual amounts may differ. Translation of Foreign Currencies Adjustments resulting from the translation of the financial statements of the Company's foreign operations into U.S. dollars are excluded from the determination of net income and are accumulated in a separate component of shareholders' equity. Foreign exchange transaction gains and losses are included in the results of operations. Foreign exchange gains(losses) totaled $8.2 million, $1.9 million and ($3.2) million in 1997, 1996 and 1995, respectively. Cash and Cash Equivalents The Company considers only those investments which are highly liquid, readily convertible to cash and which mature within three months from date of purchase to be cash equivalents. Inventories Inventories are stated at the lower of cost or market with cost determined under the first-in/first-out ("FIFO") method and are classified in other current assets. Included in inventory are raw materials used in the production of pre-clinical and clinical products which are expensed as research and development costs when consumed. The components of inventories, net of applicable reserves and allowances, as of December 31, are as follows:
(in thousands) 1997 1996 ------- ------- Raw materials $ 4,957 $ 3,262 Work in process 8,132 7,801 Finished goods 9,870 5,495 ------- ------- $22,959 $16,558 ======= =======
19 Marketable Securities The Company invests its excess cash balances in short-term marketable securities, principally corporate notes and government securities. The Company classifies these securities as "available for sale". All available for sale securities are recorded at fair market value and unrealized gains and losses are included in shareholders' equity, net of related tax effects. Realized gains and losses and declines in value, if any, judged to be other than temporary on available for sale securities are reported in other income or expense. As part of its strategic product development efforts, the Company also invests in equity securities of certain biotechnology companies with which it has collaborative agreements. Such investments, which are included in long term marketable securities and other assets, are classified as available for sale if a readily determinable market value exists. These investments are accounted for under the cost or equity method depending on the facts and circumstances of the investment and are reviewed regularly for impairment. Accounts Receivable During the first quarter of 1994, the Company entered into an agreement with a bank to sell certain foreign based accounts receivable, with recourse. The Agreement was terminated in early 1997. There were no amounts outstanding at December 31, 1997 under the agreement. At December 31, 1996, the Company had approximately $14.9 million of foreign based accounts receivable outstanding under the agreement. All amounts were collected by the end of the first quarter in 1997. Resulting gains and losses on the sales of the foreign based accounts receivable were recorded in other expenses when the receivables were sold. Property and Equipment Property and equipment is carried at cost and depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life or the term of the respective lease. Maintenance of computer systems, including maintenance to make its software Year 2000 compliant, is expensed as incurred. The Company capitalizes certain incremental costs associated with the validation effort required for licensing by the FDA of a manufacturing facility for the production of a commercially approved drug. These costs include direct labor and material. Buildings and equipment are depreciated over estimated useful lives ranging from 30 to 40 and 5 to 10 years, respectively. Patents The costs associated with successful patent defenses and patent applications are capitalized and amortized on the straight-line basis over estimated useful lives up to 15 years. Accumulated amortization of patent costs was $11.8 million and $11.3 million as of December 31, 1997 and 1996, respectively. The carrying value of patents is regularly reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from the patent are less than their carrying value. Revenues Revenues from product sales are recognized when product is shipped and are net of applicable allowances for returns, rebates and other applicable 20 discounts and allowances. The Company receives revenues under license agreements with a number of third parties that sell products based on technology developed by the Company. All of the license agreements provide for the payment of royalties to the Company based on sales of the licensed product. The Company records these revenues based on estimates of the sales that occurred during the relevant period. Many of the license agreements also provide for the payment of one-time, non-refundable fees when the agreement is signed or when commercial goals are achieved. These fees are recorded as revenue in accordance with the terms of the particular agreement. Research and Development Expenses Research and development costs, including amounts funded in research collaborations, are expensed as incurred. Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"), which changed the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options and warrants. The Company adopted SFAS 128 in the fourth quarter of 1997. All prior period per share amounts have been restated to comply with the standard. Dilutive securities include outstanding options under the Company's stock option plans. The put options sold in connection with the Company's stock repurchase program may have an additional dilutive effect. Below is a summary of the shares used in calculating basic and diluted earnings per share for the years ended December 31,:
(in thousands) 1997 1996 1995 ------ ------ ------ Weighted average number of shares of common stock outstanding ................. 73,812 71,595 67,951 Dilutive stock options ..................... 2,688 1,626 4,939 ------ ------ ------ Shares used in calculating diluted earnings per share ....................... 76,500 73,221 72,890 ====== ====== ======
New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated financial statements. SFAS 131 establishes standards for reporting information on operating segments in interim and annual financial statements. SFAS 130 and SFAS 131 will become effective for the Company beginning in 1998. SFAS 130 and SFAS 131 require disclosure only and will have no impact on the Company's consolidated financial position or results of operations. In November 1997, the Emerging Issues Task Force("EITF") issued EITF 97-13 "Accounting for Costs Incurred in Connection with a Consulting Contract or an 21 Internal Project That Combines Business Process Reengineering and Information Technology Transformation"("EITF 97-13") which is effective for the Company in 1997. EITF 97-13 requires costs associated with business process reengineering activities to be expensed as incurred and any amounts previously capitalized be charged to expense. EITF 97-13 did not have an impact on the Company's financial position and results of operations. 2. FINANCIAL INSTRUMENTS The following is a summary of marketable securities as of December 31,:
Unrealized Fair ---------------- Amortized (In thousands) Value Gains Losses Cost -------- ------ ------ --------- December 31, 1997: U.S. Government securities $197,375 $ 250 $ 207 $197,332 Corporate debt securities 172,355 1,751 -- 170,604 -------- ------ ------ -------- $369,730 $2,001 $ 207 $367,936 ======== ====== ====== ======== Marketable securities, noncurrent $ 17,095 $ 228 $5,974 $ 22,841 ======== ====== ====== ======== December 31, 1996: U.S. Government securities $146,707 $ 111 $ 718 $147,314 Corporate debt securities 112,642 350 184 112,476 -------- ------ ------ -------- $259,349 $ 461 $ 902 $259,790 ======== ====== ====== ======== Marketable securities, noncurrent $ 16,003 $ - $ 771 $ 16,774 ======== ====== ====== ========
The average maturity of the Company's marketable securities as of December 31, 1997 and 1996 was 16 months and 15 months, respectively. Proceeds from maturities and other sales of marketable securities, which were primarily reinvested, for the years ended December 31, 1997, 1996 and 1995 were $373.1 million, $370.3 million and $307 million, respectively. The cost of securities sold is determined based on the specific identification method. Realized losses on these sales for the years ended December 31, 1997, 1996 and 1995 were $510,000, $783,000 and $58,000, respectively. Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable securities. Wholesale distributors and large pharmaceutical companies account for the majority of the accounts receivable and collateral is generally not required. To mitigate the risk, the Company monitors the financial performance and credit worthiness of its customers. The Company invests its excess cash balances in marketable debt securities, primarily U.S. government securities and corporate bonds and notes, with strong credit ratings. The Company limits the amount of investment exposure as to institution, maturity and investment type. The Company's long-term debt and note payable are carried at face value, which approximates fair market value. The Company uses interest rate swaps and foreign currency agreements to manage specifically identifiable risks. The Company uses swap agreements to mitigate the risk associated with its floating rate debt and, accordingly, accounts for the swap agreements under the accrual basis, recording the differential to be paid or received as interest expense. The fair value of the swap agreements at December 31, 1997 and 1996, representing the cash requirements of the Company to settle the agreements, approximated $2.1 million and $580,000, respectively. The Company has foreign currency forward contracts to hedge specific transactions denominated in foreign currencies. All foreign 22 currency forward contracts have a duration of ninety days. These contracts are designated as effective hedges and accordingly, any gains or losses on these contracts are recognized as part of the hedged transaction. The contract amount of the forwards at December 31, 1997 was $10.4 million which approximated fair value. To minimize the cost of the Company's stock repurchase program, the Company sold put options and purchased call options covering a large portion of the shares to be repurchased. Below is a summary of the contract amounts, weighted average strike price and fair value of these instruments at December 31, 1997.
Contract Amount Weighted Average Fair Value (In millions) Strike Price (In millions) --------------- ---------------- ------------- Put Options Sold .................... $76.7 $33.34 $(4.9) Call Options Purchased .............. 65.6 36.42 7.9
3. BORROWINGS Long-term debt consists of the following as of December 31,(in thousands):
1997 1996 -------- -------- Term Loan due 2005 .................. $20,834 $22,499 Construction Loan due 2007 .......... 45,900 43,772 ------- ------- 66,734 66,271 Current portion ............... (4,888) (4,017) ------- ------- $61,846 $62,254 ======= =======
As of December 31, 1997, the Company had $20.8 million outstanding under a floating rate loan with a bank (the "Term Loan"). The Term Loan is secured by the Company's laboratory and office building in Cambridge, Massachusetts. The Term Loan provides for annual principal payments of $1.7 million in each of the years 1996 through 2004 with the balance due May 8, 2005. The Company has fixed its interest rate on the Term Loan at 7.5% under the terms of a swap agreement with the same bank, under which the Company agrees to exchange with the bank semi-annually the difference between 7.5% and a floating rate computed on a notional amount beginning at $25 million and amortizing according to the same terms as the Term Loan agreement. As of December 31, 1997, the Company had $45.9 million outstanding under a floating rate loan agreement with a bank for financing the construction of its biological manufacturing facility in North Carolina (the "Construction Loan"). The Construction Loan is secured by the facility. Payments of $805,000 are due quarterly through 2006 with the balance due in 2007. The Company also entered into an interest rate swap agreement, with the same bank, fixing its interest rate at 7.75% during the remaining term of the loan, payable quarterly. The Term Loan and Construction Loan agreements include various covenants, including financial covenants, which require the Company to maintain minimum net worth, cash flow and various financial ratios. During 1997, the Company entered into a $30 million variable rate multicurrency line of credit agreement with a bank. Under the agreement, the Company may borrow or enter into commitments to borrow amounts in various currencies, at which time the exchange rate for these commitments is set. The agreement expires on March 31, 2000, is secured by certain assets of the Company and requires 23 compliance with certain financial ratios. Any amounts outstanding under the Agreement are revalued using exchange rates at each balance sheet date. At December 31, 1997 there was $24.8 million outstanding under this agreement, of which $14.4 million was denominated in U.S. dollars. 4. CONSOLIDATED BALANCE SHEET DETAILS
(in thousands) 1997 1996 -------- -------- Property and equipment: Land ........................................ $ 8,359 $ 3,470 Buildings ................................... 83,565 26,417 Construction in progress .................... -- 65,079 Leasehold improvements ...................... 49,795 50,739 Equipment ................................... 98,794 72,221 -------- -------- Total cost .................................. 240,513 217,926 Less accumulated depreciation ............... 66,021 52,603 -------- -------- $174,492 $165,323 ======== ========
Depreciation expense was $15.9 million, $12.7 million and $8.5 million for 1997, 1996 and 1995, respectively. The Company capitalized interest costs of $685,000, $1.7 million and $143,000 in 1997, 1996 and 1995, respectively with respect to qualifying construction projects. The Company completed construction of its biological manufacturing facility in North Carolina in 1997. As of December 31, 1997, the Company had capitalized $65.5 million relating to the North Carolina facility of which $4.9 million relates to costs associated with the validation effort required for licensing by the FDA.
(in thousands) 1997 1996 ------- ------- Accrued expenses and other: Royalties and licensing fees ................ $17,676 $22,784 Income taxes ................................ 20,196 6,634 Other ....................................... 40,486 32,653 ------- ------- $78,358 $62,071 ======= =======
5. PENSIONS The Company has a defined benefit pension plan which provides benefits to substantially all of its employees. The Company also has a supplemental retirement benefit plan which covers certain employees. The pension plans are noncontributory with benefit formulas based on employee earnings and credited years of service. The Company's funding policy for its pension plans is to contribute amounts deductible for federal income tax purposes. Funds contributed to the plans are invested primarily in fixed income and equity securities. Pension cost for each of the three years ended December 31 are summarized below:
1997 1996 1995 ------- ------- ------ Service cost .............................. $1,873 $1,381 $ 847 Interest cost ............................. 876 659 371 Actual return on plan assets .............. (1,407) (532) (622) Net amortization and deferral ............. 972 312 420 ------ ------ ------ Net pension cost .......................... $2,314 $1,820 $1,016 ====== ====== ======
24 The funded status of the defined benefit plans at December 31, is as follows:
(in thousands) 1997 1996 -------- ------- Actuarial present value of: Vested benefits obligation ..................... $ 7,398 $5,497 Non-vested benefits ............................ 1,493 1,348 ------- ------ Accumulated benefit obligation ................. 8,891 6,845 Effect of future salary increase ............... 3,836 2,621 ------- ------ Projected benefit obligation ................... 12,727 9,466 Plan assets at fair value ...................... 8,393 5,579 ------- ------ Projected benefit obligation in excess of plan assets ...................... 4,334 3,887 Unrecognized net asset ......................... 21 42 Unrecognized net loss .......................... (905) (985) Unrecognized prior service cost ................ (401) (444) ------- ------ Accrued pension cost ........................... $ 3,049 $2,500 ======= ======
The projected benefit obligation was determined using an assumed discount rate of 7.5% for 1997 and 1996. The assumed long-term compensation increase rate was 5% and the assumed long-term rate of return on plan assets was 8% for 1997 and 1996. 6. INCOME TAXES The components of income (loss) before income taxes and of income tax expense (benefit)for each of the three years ended December 31, is as follows:
1997 1996 1995 (in thousands) --------- --------- --------- Income (loss) before income taxes: Domestic ............................. $172,973 $ 65,250 $ 28,845 Foreign .............................. (24,005) (24,421) (21,400) -------- -------- -------- $148,968 $ 40,829 $ 7,445 ======== ======== ======== Income tax expense (benefit): Current Federal .............................. $ 33,688 $ 4,636 $ 1,264 State ................................ 2,735 789 211 Foreign .............................. 916 415 310 -------- -------- -------- $ 37,339 $ 5,840 $ 1,785 -------- -------- -------- Deferred Federal .............................. $ 21,416 $ (4,082) $ -- State ................................ 1,046 (1,459) -- -------- -------- -------- 22,462 $ (5,541) $ -- -------- -------- -------- Total income tax expense ............... $ 59,801 $ 299 $ 1,785 ======== ======== ========
The Company's foreign subsidiaries generated operating losses in 1997, 1996 and 1995 reflecting the costs of building a commercial infrastructure in Europe and the foreign subsidiaries' investment in the Company's research and development efforts. 25 Deferred tax assets (liabilities) are comprised of the following at December 31:
(in thousands) 1997 1996 --------- -------- Tax credits ...................................... $ 32,273 $26,079 Loss carryforwards ............................... -- 17,006 Inventory and other reserves ..................... 3,810 5,304 Other ............................................ 5,297 4,510 -------- ------- Deferred tax assets .............................. 41,380 52,899 -------- ------- Depreciation and amortization .................... (14,405) (7,496) -------- ------- Deferred tax liabilities ......................... (14,405) (7,496) -------- ------- $ 26,975 $45,403 ======== =======
During the third quarter of 1996, the Company determined that it was more likely than not that it would realize the benefits of its net deferred tax assets and therefore released the related valuation allowance. The reversal of the valuation allowance resulted in a realization of income tax benefits of approximately $23 million. The income tax benefit represented the balance of tax-loss carryforwards and tax credits that had not been recognized through the third quarter in 1996 and tax credits generated during the quarter. The reversal of the valuation allowance also resulted in an increase in additional paid-in capital of $38.6 million relating to deductions for non-qualified stock options. A reconciliation between the amounts of reported income tax expense and the amounts computed using the U.S. federal statutory rate of 35% are as follows:
(in thousands) 1997 1996 1995 -------- --------- -------- Income tax expense at statutory rates ..... $52,115 $ 14,350 $ 2,606 States taxes, net of federal income tax benefit ............................... 4,090 509 138 Foreign losses without tax benefit and foreign rate differential ................. 9,394 8,887 7,812 Current utilization of net operating loss carryforwards, reversal of valuation allowance, investment tax and research and development credits ...... (5,700) (23,000) (9,485) Other, net ................................ (98) (447) 714 ------- -------- ------- Reported income tax expense ............... $59,801 $ 299 $ 1,785 ======= ======== =======
At December 31, 1997, the Company had tax credits of $32 million, most of which expire at various dates through 2010. 7. RESEARCH COLLABORATIONS The Company has several research programs and collaborations underway. In December 1997, the Company entered into a collaborative research, development and license agreement (the "Merck Agreement") with Merck & Co., Inc. ("Merck"). Merck paid a $15 million non-refundable license fee to Biogen for the transfer of technology, the rights granted and the research and development previously performed by Biogen. Under the Merck Agreement, Merck will have rights to develop and market small molecule VLA-4 inhibitors in all 26 therapeutic areas other than certain small indications such as multiple sclerosis and kidney diseases and disorders, which Biogen will continue to work on itself. The Merck Agreement also provides for payments to be made by either party upon the achievement of certain development milestones by the other party. In addition, if a product is successfully developed by a party, the other party will receive royalties on sales of the product. In June 1997, the Company purchased 100,000 shares of Series E Preferred Stock of CuraGen Corporation ("CuraGen") for $1 million. The Company accounts for this investment, which is included in other assets, using the cost method of accounting. In October 1997, the Company signed a research and option agreement (the "CuraGen Agreement") with CuraGen under which the Company and CuraGen will collaborate in the discovery of novel genes using CuraGen's functional genomics technologies. The Company has an option to acquire an exclusive license to certain discoveries arising out of the collaborative effort. Under the terms of the CuraGen Agreement, the Company has agreed to purchase CuraGen common stock totaling $5 million in the event of CuraGen's initial public offering and to establish a $10 million line of credit with a maximum drawdown limit of $5 million in the first year. The Company has also agreed to fund research activities of CuraGen related to the collaboration up to a maximum of $7.5 million over the next five years. At December 31, 1997, CuraGen had not completed an initial public offering and there were no borrowings outstanding under the line of credit. In March 1997, the Company signed a research collaboration and license agreement (the "CVT Agreement") with CV Therapeutics, Inc. ("CVT") under which Biogen obtained rights to develop and market CVT's therapeutic CVT-124 for the treatment of edema associated with congestive heart failure. Under the terms of the CVT Agreement, the Company purchased approximately 670,000 shares of CVT common stock for $7 million and paid a one-time license fee of $5 million. In addition, pursuant to the terms of the CVT Agreement, the Company established a $12 million line of credit that CVT may use for operating purposes. The investment in CVT is classified as available-for-sale and is included in non current marketable securities. At December 31, 1997, the Company had advanced $3 million under the line of credit to CVT. In December 1996, the Company signed a research collaboration and license agreement (the "CBM Agreement") with Creative BioMolecules, Inc. ("CBM") under which Biogen obtained rights to develop and market CBM's morphogenic protein, OP-1, for the treatment of renal disorders. Under the CBM Agreement, Biogen paid a license fee of $10 million, which was charged to research and development expense, and purchased 1.5 million shares of CBM common stock for $18 million. The payment for the common stock included a $1.2 million premium over the fair value of the common stock which was charged to research and development expense. The investment is classified as available-for-sale and is included in long term marketable securities. The Company also has agreed to fund research and development of a maximum of up to $10.5 million through 1999 of which $4 million was funded in 1997. Effective July 1, 1996, the Company signed a collaborative research and commercialization agreement (the "Ontogeny Agreement") with Ontogeny, Inc. ("Ontogeny"), a private biotechnology company, for the development and commercialization of three specific hedgehog cell differentiation proteins. The Company purchased 400,000 shares of preferred stock of Ontogeny for $1 million and acquired certain exclusive, worldwide rights related to products based on the hedgehog proteins for most disease areas. The Company accounts for this investment, which is included in other assets, using the cost method of accounting. Under the Ontogeny Agreement, the Company committed to fund a total of $4 million of research and development work at Ontogeny through the end of the research phase. The Company has funded $3 million through December 31, 1997. In 1998, the Company has the option to proceed with commercialization of one or more of the hedgehog proteins. If the Company 27 exercises its option, the Company will be committed to fund an additional $4 million of research at Ontogeny through mid 2001 and would be committed to additional funding of up to $23.8 million per hedgehog selected in a combination of license fees, additional equity investments, a line of credit, and potential milestone payments. The Company would also pay royalties if products are successfully developed. In August 1995, the Company signed a collaborative research agreement (the "Genovo Agreement") for the development of human gene therapy treatments with Genovo, Inc. ("Genovo"), a gene therapy research company. Under the Genovo Agreement, the Company acquired 380,000 shares of Genovo Series A Preferred stock for $4.5 million and acquired certain licensing rights. The Company accounts for this investment, which is included in other assets, using the equity method of accounting. The Company recorded its proportion of Genovo's net losses as research and development which totaled $7.7 million, $5.6 million and $1 million in 1997, 1996 and 1995, respectively. The Company has agreed to fund research and development costs to Genovo up to approximately $37 million, including the initial equity investment, over the life of the agreement, depending on achievement of scientific milestones. The Company has paid $18.1 million through December 31, 1997. 8. COMMITMENTS AND CONTINGENCIES The Company rents laboratory and office space and certain equipment under noncancellable operating leases. The rental expense under these leases, which terminate at various dates through 2012, amounted to $7.5 million in 1997, $6.6 million in 1996 and $5.1 million in 1995. The lease agreements contain various clauses for renewal at the option of the Company and, in certain cases, escalation clauses linked generally to rates of inflation. At December 31, 1997, minimum annual rental commitments under noncancellable leases were as follows: (in thousands)
YEAR 1998 ................................................... $ 8,131 1999 ................................................... 7,972 2000 ................................................... 7,052 2001 ................................................... 4,513 2002 ................................................... 4,544 Thereafter ............................................. 17,276 ------- Total minimum lease payments ........................... $49,488 =======
During the fourth quarter of 1994, a total of six class action lawsuits were initiated against the Company and several of its directors and officers. On March 3, 1995, these cases were consolidated into a single proceeding in the United States District Court for the District of Massachusetts. On January 23, 1996, in response to motions to dismiss the entire case filed by Biogen and the named officer and director defendants, the District Court issued a Memorandum and Order, dated January 22, 1996, dismissing most of the claims asserted in the plaintiffs Second Amended Complaint, including all claims against the Company's outside directors. The only two claims remaining in the case pertain to a statement concerning the results of the HIRULOG(R) TIMI-7 clinical trials in unstable angina. The Court did not reach a decision on the merits of these claims. On October 11, 1996, the Company filed a motion for summary judgment in the case. On September 4, 1997, the Court denied the motion but narrowed the plaintiffs class. A trial is scheduled for April 1998. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against Biogen in the United States District Court for the District of New Jersey 28 alleging infringement by Biogen of Berlex's "McCormick" patent in the United States in the production of AVONEX(R). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. An unfavorable ruling in the Berlex suit could have a material adverse effect on the Company's results of operations and financial position. The Company believes that it has meritorious defenses to the Berlex claim; however, the ultimate outcome is not determinable at this time. Prior to the date of the suit filed by Berlex on the McCormick patent, Biogen had filed a suit against Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") in the United States District Court for the District of Massachusetts for a declaratory judgment of non-infringement and invalidity of the McCormick patent contending that AVONEX(R), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is not valid. In November 1996, the U.S. District Court in Massachusetts ruled that it had jurisdiction and Berlex's New Jersey action was transferred to Massachusetts and consolidated for pre-trial purposes with the Massachusetts case. In February 1997, the U.S. District Court in Massachusetts dismissed Biogen's declaratory judgment action as to Schering without prejudice if such dismissal is later shown to result in an injustice to Biogen. Biogen and Stanford subsequently entered into an agreement voluntarily dismissing Stanford from the suit. The suit involving Berlex is still pending. A trial is not expected before the early part of 1999. In June 1996, ASTA Medica Aktiengesselschaft ("ASTA") filed for arbitration against Biogen with the International Chamber of Commerce ("ICC") in Paris, France. In its complaint, ASTA alleges that Biogen's 1993 termination of a 1989 agreement licensing ASTA to market recombinant interferon beta in certain European territories was ineffective. The agreement at issue also included as a party Bioferon, a Biogen joint venture that declared bankruptcy in 1993. The ASTA complaint asks that an ICC panel declare that the 1989 license is still in force, and, in the alternative, seeks approximately $5 million in damages. The territories included in the 1989 license were Austria, Belgium, Denmark, Finland, France, Greece, Iceland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Arbitration proceedings were held in late 1997 in Zurich under Swiss law. The parties expect a decision in the first half of 1998. The Company's management believes that it has meritorious defenses to the preceding claims and given these defenses, believes the ultimate outcome of these legal proceedings will not have a material adverse effect on the results of operations or financial position of the Company. 9. SHAREHOLDERS' EQUITY Convertible Exchangeable Preferred Stock The Company has authority to issue 20,000,000 shares of $.01 par value preferred stock. Shareholder Rights Plan In 1989, the Company's Board of Directors declared a dividend of one preferred share purchase right (a "right") for each share of common stock outstanding. Each right entitles the holder to purchase from the Company one two-hundredth of a share of $0.01 par value Series A junior participating preferred stock at a price of $34.00 per two-hundredth of a share, subject to certain adjustments. The rights are exercisable only if a person or group acquires 20% or more of the outstanding common stock of the Company or 29 commences a tender offer which would result in the ownership of 20% or more of the outstanding common stock of the Company; or if 10% of the Company's common stock is acquired and the acquirer is determined by the Board of Directors to be an adverse person (as defined in the rights plan). Once a right becomes exercisable, the plan allows the Company's shareholders to purchase common stock at a substantial discount. Unless earlier redeemed, the rights expire on May 8, 1999. The Company is entitled to redeem the rights at $.005 per right, subject to adjustment for any future stock split, stock dividend or similar transaction. As of December 31, 1997, the Company has authorized the issuance of 400,000 shares of Series A junior participating preferred stock for use in connection with the shareholder rights plan. Share Option and Purchase Plans The Company has several stock-based compensation plans. The Company applies APB Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its plans. In 1996, the Company adopted Statement of Financial Accounting Standards No. 123 "Accounting for Stock Issued to Employees"("SFAS 123") for disclosure purposes only. The SFAS 123 disclosures include pro forma net income and earnings per share as if the fair value-based method of accounting had been used. Stock issued to non-employees is accounted for in accordance with SFAS 123. Included in compensation expense in 1997 was $271,000 related to stock based compensation plans. There were no such compensation costs in 1996 and 1995. The Company has several plans and arrangements under which it may grant options to employees, Directors, Scientific Board members and consultants to purchase common stock. Option grants are typically made under the 1985 Non-Qualified Stock Option Plan and the 1987 Scientific Board Stock Option Plan (the "Plans"). Options under the Plans are granted at no less than 100% of the fair market value on the date of grant. Options generally become exercisable over various periods, typically 5 to 7 years for employees and 3 years for Directors and Scientific Board members and have a maximum term of 10 years. Activity under these plans is as follows (shares are in thousands):
1997 1996 1995 ------------------- ------------------ ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- ------- -------- ------- -------- Outstanding, Jan. 1.......... 11,748 $20.77 11,772 $17.59 10,764 $14.71 Granted..................... 1,556 37.65 1,935 34.46 2,465 25.81 Exercised................... (1,652) 14.08 (1,478) 12.89 (1,117) 7.13 Canceled.................... (500) 24.39 (481) 20.92 (340) 21.38 ------ ------ ------ ------ ------ ------ Outstanding, Dec. 31 11,152 23.95 11,748 20.77 11,772 17.59 ====== ====== ====== ====== ====== ====== Options exercisable 5,208 5,692 5,925 Available for grant 1,135 2,310 3,764 Weighted average fair value of options granted $16.78 $16.59 $12.63
30 The table below summarizes options outstanding and exercisable at December 31, 1997 (shares are in thousands):
Options Outstanding Options Exercisable ---------------------------------------- ------------------------ Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price - --------------------------------------------------------------------------------------- $ 0.00-$10.00 970 2.58 $ 7.59 759 $ 7.44 $10.01-$20.00 3,273 5.39 15.92 2,236 15.59 $20.01-$30.00 3,852 6.76 25.02 2,013 24.42 $30.01-$40.00 2,749 9.09 35.31 195 34.48 Over $40.00 308 9.10 46.09 5 40.86 ------- ------ ----- Total 11,152 $23.95 5,208 ======= ====== =====
The Company also has two employee stock purchase plans covering substantially all of its employees. The plans allow employees to purchase common stock at 85% of the lower of the fair market value at either the date of the beginning of the plan period or the purchase date. Purchases under the plans are subject to certain limitations and may not exceed an aggregate of 560,000 shares during the term of the plans; no shares may be issued after December 31, 2007. Through December 31, 1997, 289,450 shares have been issued under the stock purchase plans. Had compensation cost for the Company's 1997, 1996 and 1995 grants under the stock-based compensation plans been determined based on SFAS 123, the Company's pro forma net income, and pro forma diluted earnings per share for the years ending December 31, would be as follows (in thousands except per share data):
1997 1996 1995 ------- ------- ------ Pro forma net income $83,244 $36,679 $3,711 Pro forma diluted earnings per share $ 1.09 $ 0.50 $ 0.05
The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1997 1996 1995 ------------------------------------------- Expected dividend yield 0% 0% 0% Expected stock price volatility 36% 36% 40% Risk-free interest rate 5.5% - 5.9% 5.5% - 5.9% 5.6% - 7.7% Expected option term 5.8 Years 6.3 Years 6.3 Years
31 The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995, and additional awards in future years are anticipated. Stock Repurchase Program On October 6, 1997, the Company announced that its Board of Directors has authorized the repurchase of up to 2.5 million shares of its common stock. The repurchased stock will provide the Company with treasury shares for general corporate purposes, such as stock to be issued under employee stock option and stock purchase plans. Stock purchases may occur from time to time over the period ending two years from the date of the Board of Directors authorization. The stock repurchase program may be discontinued at any time. In 1997, the Company repurchased 200,000 shares of its common stock at a cost of $7.0 million. To minimize the cost of the repurchase program, the Company sold put options and bought call options covering a large portion of the shares to be repurchased. At December 31, 1997, the Company had outstanding put options covering 2.3 million shares at $33.34 expiring at various dates from January 1998 through November 1998. The Company may elect to pay a net cash settlement or physical settlement, if the put options are exercised. Accordingly, the maximum potential repurchase option obligation of $76.7 million was reclassified from shareholders equity to put option. At December 31, 1997, the Company had call options outstanding which entitled the Company to buy 1.8 million shares of Biogen stock at prices ranging from $35.00 to $36.75 per share. The call options expire at various dates from January 1998 through November 1998. In the event the call options are exercised, the Company may elect to receive cash for the difference between the exercise price and the market price of the Company's shares, in lieu of repurchasing the stock. The premiums received from the sale of the put options offset in full the cost of the call options. 10. GEOGRAPHIC DATA Revenues, excluding interest, were derived in the following geographic areas for the years ended December 31:
(in thousands) 1997 1996 1995 -------- -------- -------- United States .......................... $308,660 $131,756 $ 44,764 Japan .................................. 15,362 50,342 16,082 Europe ................................. 68,164 62,459 60,523 Other .................................. 19,723 15,147 13,284 -------- -------- -------- $411,909 $259,704 $134,653 ======== ======== ========
The Company received revenue from four unrelated parties in 1997 accounting for a total of 19%, 11%, 11% and 10% of total product and royalty revenues; three unrelated parties in 1996 accounting for 27%, 17% and 13% of total royalty revenues; and two unrelated parties in 1995 accounting for 40% and 39% of total royalty revenue. 32 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year -------- -------- -------- -------- -------- 1997 Total revenues ......................... $99,738 $97,653 $106,201 $130,452 $434,044 Product revenue ........................ 52,616 56,440 60,413 70,519 239,988 Royalties revenue ...................... 42,215 36,007 40,200 53,499 171,921 Total expenses and taxes ............... 82,728 77,705 85,716 98,728 344,877 Net income ............................. 17,010 19,948 20,485 31,724 89,167 Basic earnings per share ............... 0.23 0.27 0.28 0.43 1.21 Diluted earnings per share ............. 0.22 0.26 0.27 0.42 1.17 1996 Total revenues ......................... $38,843 $45,401 $100,859 $ 91,987 $277,090 Product revenue ........................ -- 6,125 27,517 44,560 78,202 Royalties revenue ...................... 34,378 35,032 69,236 42,856 181,502 Total expenses and taxes ............... 42,501 54,494 55,807 83,758 236,560 Net income (loss) ...................... (3,658) (9,093) 45,052 8,229 40,530 Basic earnings (loss) per share ........ (0.05) (0.13) 0.64 0.11 0.57 Diluted earnings (loss) per share ...... (0.05) (0.13) 0.60 0.11 0.55 - ---------------------------------------------------------------------------------------------------
33 EXHIBIT 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Biogen, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Biogen, Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts January 13, 1998 34 EXHIBIT 13 SHAREHOLDER INFORMATION without charge upon written request to the BIOGEN, INC. AND SUBSIDIARIES Corporate Communications Department, Biogen, Inc., 14 Cambridge Center, Cambridge, MA 02142 CORPORATE HEADQUARTERS: TRANSFER AGENT: Biogen, Inc. For shareholder questions regarding lost 14 Cambridge Center certificates, address changes and changes of Cambridge, MA 02142 ownership or name in which the shares are held, direct inquiries to: Telephone: (617) 679-2000 Fax: (617) 679-2617 State Street Bank and Trust Company P.O. Box 8200 ANNUAL MEETING: Boston, MA 02266-8200 Friday, June 19, 1998 at 10:00 a.m. Telephone: (800) 426-5523 at the Company's offices at 12 Cambridge Center All shareholders are welcome. INDEPENDENT ACCOUNTANTS: Price Waterhouse LLP MARKET FOR SECURITIES: 160 Federal Street Biogen's securities are quoted on the Boston, MA 02110 NASDAQ National Market System. Common stock symbol: BGEN U.S. LEGAL COUNSEL: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. As of February 18, 1998, there were approximately One Financial Center 2,770 holders of record of the Company's Common Boston, MA 02111 Stock. The Company has not paid any cash dividends on its Common Stock since its inception, and does ANNUAL REPORT ANNOUNCEMENT not intend to pay any dividends in the foreseeable As a service to our shareholders and prospective future. On November 15, 1996, the Company effected investors, copies of Biogen news releases issued a two-for-one stock split of its Common Stock. The in the last 12 months are now available almost quarterly high and low closing sales price immediately 24 hours a day, seven days a week on (adjusted for all periods to reflect the stock the Internet's World Wide Web at split) of the Common Stock on the NASDAQ National http://www.prnewswire.com and via automated fax by Market System for 1997 and 1996 are as follows: calling "Company News On Call" at 1 800 758-5804, ext. 101550. Biogen news releases are usually HIGH LOW posted on both systems within one hour of being issued and are available at no cost. FISCAL 1997 First Quarter 51 7/8 37 3/8 Second Quarter 39 1/4 30 THE BIOGEN LOGO IS A REGISTERED TRADEMARK OF Third Quarter 41 3/16 31 7/8 BIOGEN, INC. AVONEX(R) IS A TRADEMARK OF BIOGEN, Fourth Quarter 37 5/16 31 5/8 INC. HIRULOG(R) IS A REGISTERED TRADEMARK OF THE MEDICINES COMPANY. INTRON(R) A IS A REGISTERED FISCAL 1996 TRADEMARK OF SCHERING-PLOUGH CORPORATION. First Quarter 38 1/4 28 3/4 Second Quarter 33 7/8 25 13/16 Third Quarter 38 1/16 26 3/8 Fourth Quarter 43 36 3/16 SEC FORM 10-K: A copy of the Company's annual report to the Securities and Exchange Commission on Form 10-K is available
EX-21 11 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 BIOGEN, INC. LIST OF SUBSIDIARIES Biogen (Switzerland) AG Seestrasse 200 8700 Kusnacht, Switzerland Biogen GmbH (Germany) Carl - Zeiss-Ring 6 85737 Ismaning Munchen, Deutschland Biogen France S.A. "Le Capitole" 55 Avenue des Champs-Pierreux 92012 Nanterre Cedex, France Biotech Manufacturing Limited C/o Rulland House, Pitt Street, St. Helier Jersey JE4 8ZB, Channel Islands Biogen Limited Ocean House The Ring, Bracknell Berkshire RG12 1AX, United Kingdom Biogen GmbH (Austria) Effingergasse 21 1160 Wien, Osterreich Biogen B.V. World Trade Center Strawinskylaan 757 1077 XX Amsterdam, The Netherlands Biogen Belgium rue Abbe Cuypers, 3 Etterbeek (B. 1040 Bruxelles) Belgique Biogen Canada, Inc. 3-Robert Speck Parkway Mississauga, Ontario L4Z 1S1, Canada 2 Biogen Securities Corporation 14 Cambridge Center Cambridge, MA 02142 Biogen Realty Corporation 14 Cambridge Center Cambridge, MA 02142 Biogen Realty Limited Partnership 14 Cambridge Center Cambridge, MA 02142 Biogen Technologies, Inc. 913 N. Market Street, Suite 807 Wilmington, Delaware 19801 EX-24.1 12 CONSENT OF PRICE WATERHOUSE 1 Exhibit 24.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3, as amended (Nos. 33-14741, 33-14743, 33-20183 and 33-51639) and in the Registration Statements on Form S-8, as amended (Nos. 2-87550, 2-96157, 33-9827, 33-14742, 33-37312, 33-22378, 33-41077, 33-69174, 33-63013, 33-63015 and 333-42887) of Biogen, Inc. and its subsidiaries of our report dated January 13, 1998 appearing in the 1997 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. Price Waterhouse LLP Boston, Massachusetts March 6, 1998 EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLAR 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1,000 70,358 369,730 88,447 1,645 22,959 596,066 240,513 66,021 813,825 123,883 61,846 0 0 741 535,552 813,825 239,988 434,044 50,188 285,076 (711) 0 5,309 148,968 59,801 89,167 0 0 0 89,167 $1.21 $1.17
-----END PRIVACY-ENHANCED MESSAGE-----