-----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, KrH5WtZFsPm+KYdwR810qY/ggZO2wunaBObNaSDVt+8EjvR0ajGd2/bE+NtvyApV 9CuI2S8SRuufWJfEzXyjzA== 0000912057-01-506357.txt : 20010409 0000912057-01-506357.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-506357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSKARYOTIC THERAPIES INC CENTRAL INDEX KEY: 0000885259 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043027191 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21481 FILM NUMBER: 1590742 BUSINESS ADDRESS: STREET 1: 195 ALBANY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6173490200 10-K 1 a2042542z10-k.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File No. 0-21481 TRANSKARYOTIC THERAPIES, INC. (Exact name of registrant as specified in its charter) ------------ Delaware 04-3027191 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 195 Albany Street Cambridge, Massachusetts 02139 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (617) 349-0200 ------------ 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 Preferred Stock Purchase Rights (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. |_| As of March 1, 2001, the approximate aggregate market value of the voting stock held by non-affiliates of the registrant was $165,227,749 based on the last reported sale price of the registrant's Common Stock on The Nasdaq Stock Market as of the close of business on March 1, 2001. There were 22,717,379 shares of Common Stock outstanding as of March 1, 2001. DOCUMENTS INCORPORATED BY REFERENCE Document 10-K Part - -------- --------- Specifically Identified Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on June 14, 2001 III PART I ITEM 1. BUSINESS Summary Transkaryotic Therapies, Inc. ("TKT" or the "Company") is a biopharmaceutical company developing protein- and cell-based therapeutics for the treatment of a wide range of human diseases. Based on three proprietary development platforms: Gene-Activated(R) proteins, Niche Protein(TM) products, and Gene Therapy, the Company is building a broad and renewable product pipeline. Five products emerging from TKT's pipeline have been approved for human clinical testing, including two late-stage products, Dynepo(TM) for the treatment of anemia, and Replagal(TM) for the treatment of Fabry disease. During 2000, Aventis Pharma ("Aventis"), the Company's collaborative partner on the development of Dynepo, filed a Biologics License Application ("BLA") and a Marketing Authorization Application ("MAA") seeking marketing authorization of Dynepo in both the United States and Europe, respectively. In 2000, the U.S. Food and Drug Administration ("FDA") requested that additional data be provided regarding manufacturing information and that a new BLA be submitted when the data are compiled. Aventis and the Company are currently accumulating this information. The European review of the Dynepo MAA is ongoing. In 2000, the Company submitted a BLA seeking marketing authorization for Replagal(TM). In January 2001, the FDA issued a complete review letter regarding the BLA, which requested further explanation in several areas and additional data. In July 2000, the Company submitted a MAA to the European Agency for the Evaluation of Medicinal Products (the "EMEA") seeking marketing approval of Replagal. The Company announced in March 2001 that the Committee for Proprietary Medicinal Products (the "CPMP") of the EMEA issued a positive opinion recommending approval of Replagal(TM) in the European Union. The CPMP's recommendation for approval will be forwarded to the European Commission (the "EC"), which will determine whether to grant marketing authorization of Replagal. The Company expects the EC to make a final decision regarding the approval of Replagal in mid-2001. TKT has a balanced commercialization strategy, designed to leverage the size and expertise of corporate partners for certain products, while building a small efficient commercial infrastructure for others. Accordingly, TKT is collaborating with Aventis with respect to the worldwide development and commercialization of Dynepo, with Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo") for Replagal in Japan, and with Genetics Institute, Inc. ("GI") for Factor VIII gene therapy for the treatment of hemophilia A in Europe. TKT intends to independently market its Niche Protein products and gene therapy products, as well as a number of its Gene-Activated proteins. In January 2001, the U.S. District Court for the District of Massachusetts concluded in a patent infringement action brought by Amgen Inc. against the Company and Aventis that Dynepo and the cells and processes used to make Dynepo infringed eight claims of patents asserted by Amgen. TKT and Aventis have filed an appeal of the decision with the U.S. Court of Appeals for the Federal Circuit. The Company believes it has strong grounds for appeal. The Company and Aventis are also engaged in litigation involving Dynepo with Kirin-Amgen, Inc. ("Kirin-Amgen") in the U.K. The Company is also involved in patent litigation in the United States with Genzyme Corporation ("Genzyme") and Mount Sinai School of Medicine of New York University ("Mt. Sinai") regarding whether Replagal infringes a patent held by Genzyme and Mt. Sinai. (See Item 3. Legal Proceedings). 2 Technology Platforms Gene-Activated(R) Protein Products TKT's gene activation technology is a proprietary approach to the development and large scale production of therapeutic protein products. It is based on the activation of genes encoding therapeutic proteins in human cells, rather than the cloning and transfer of these genes associated with conventional protein production techniques. The Company believes this technology will allow it to develop and commercialize a large number of therapeutic proteins, including potentially improved versions of currently-marketed proteins and proteins that have no currently-marketed counterparts. Essentially every human cell contains the same set of approximately 35,000 genes, but each cell type actually produces only a subset of the 35,000 proteins possible. For example, although essentially all human cells contain the insulin gene, only certain cells of the pancreas actually produce insulin. The regulatory switches that turn on gene expression in the appropriate cell type also turn off gene expression in all other cell types. For this reason, only pancreatic cells express insulin; the regulatory DNA sequences normally associated with the insulin gene prevent expression elsewhere in the body. TKT's gene activation technology is based on activating previously silent genes by bypassing regulatory DNA sequences set in the "off position" with regulatory DNA sequences set in the "on position." During the 1970's proteins were generally purified from human or animal tissue. By the mid-1980's, proteins were manufactured using conventional genetic engineering techniques, which were based on the cloning of human genes to produce therapeutic proteins at levels that were substantially in excess of what could be obtained by purification from tissue. Although conventional genetic engineering techniques for recombinant protein production are quite powerful, their use today faces certain commercial barriers and technical limitations. The primary barrier is that biotechnology companies have sought and obtained patent protection covering many of the techniques used to produce commercially-marketed proteins using conventional genetic engineering techniques. These patent rights have served as effective barriers to entry, minimizing competition in the therapeutic proteins market. In addition, conventional genetic engineering techniques for protein production may face technical limitations arising from the need to first clone the gene of interest. TKT has developed gene activation technology, a new approach to the production of therapeutic proteins. This proprietary technology does not rely on the manipulation of cloned genes. The Company's gene activation technology does not require the manipulation of the protein coding DNA sequences of the gene. The bypass of an "off switch" with an "on switch" is accomplished by "gene targeting" or homologous recombination. Accordingly, the Company believes that gene activation technology may be used to express a wide variety of therapeutically valuable proteins at levels suitable for large-scale manufacturing purposes. Since gene activation technology avoids many of the technical limitations of conventional recombinant protein production technology, the Company also believes that the gene activation technology is at least as efficient as, and may be more cost-effective than, conventional genetic engineering techniques for protein production. 3 Niche Protein(TM) Products Certain genetic diseases are known to be caused by the deficiency of a single, well-defined protein. The patient's inability to produce sufficient amounts of the specified protein results in symptoms which can be debilitating and, ultimately, life threatening. These diseases include lysosomal storage disorders such as Fabry disease, Gaucher disease, Hunter syndrome, Hurler syndrome, Pompe disease, and Tay-Sachs disease. Lysosomal storage disorders result from an inherited deficiency of an enzyme responsible for the breakdown of biomolecules such as fats and sugars. The build-up becomes toxic, resulting in lysosomes that crowd out other parts of the cell, ultimately killing it from within. The most direct approach to treat these diseases is to manufacture the missing or deficient protein and deliver it to the patient. No effective treatment currently exists for most of these rare diseases. TKT's Niche Protein product platform is focused on developing enzyme replacement products to treat patients suffering from certain of these diseases. The Company's product development strategy for its Niche Protein product platform is to leverage the Company's core competencies in gene expression, cell culture, and protein characterization to create protein replacement products to treat rare genetic diseases which are characterized by the absence of certain metabolic enzymes. Since the defects in many of the diseases which the Company intends to address with its Niche Protein product platform are understood in depth, product development pathways have the potential to be straightforward. The Company is currently developing seven Niche Protein products, including treatments for Fabry disease, Hunter syndrome, and Gaucher disease, with the goal of reducing symptoms and potentially reversing progression of the disease. TKT views its Niche Protein product platform as a near-term opportunity to develop and commercialize products on a relatively cost-effective, lower risk basis. During 1999, the Company initiated the development of a commercial infrastructure for the future worldwide marketing and sale of its Niche Protein products. In the U.S., the Company has assembled a group of seasoned executives with broad experience in marketing, sales and reimbursement of specialty products. The Company expects that it will expand its infrastructure following marketing approval of Replagal in the U.S. In 2000, the Company formed TKT Europe-5S AB, a majority owned subsidiary, to market its Niche Protein products in the European Union. The company, headquartered in Sweden, is led by five veteran marketers of specialty biopharmaceutical products in Europe. The Company has established a presence in all major European markets. Gene Therapy TKT's approach to gene therapy, called Transkaryotic Therapy(TM), is based on genetically modifying patients' cells to produce and deliver therapeutic proteins for extended periods. The Company believes the approach will be safe, cost-effective, and clinically superior to the conventional delivery of proteins by injection. TKT believes its gene therapy system is broadly enabling and, accordingly, may be applicable to the treatment of a wide range of human diseases. Because TKT's gene therapy has demonstrated long-term delivery of therapeutic proteins in animal model systems, the Company believes its approach may be well-suited to the treatment of chronic protein deficiency states, including hemophilia, diabetes, and hypercholesterolemia. The diseases targeted by TKT are 4 characterized by a significant unmet medical need, and the clinical goals that must be achieved by TKT's gene therapy products are well-defined. The potential benefits of TKT's gene therapy products include improved therapeutic outcome, elimination of frequent painful injections and the problem of patient compliance, a minimization of side effects due to over- or under-dosing of conventional proteins, and a reduction in costs. There are a large number of technical approaches to gene therapy, but two basic distinctions can be used to characterize the field. The first distinction is viral versus non-viral. Viral gene therapy approaches use genetically modified viruses to introduce genes into human cells by infection. Non-viral approaches use noninfectious (chemical or physical) means to introduce the genes. The second distinction is in vivo versus ex vivo. In vivo gene therapies are based on the administration of DNA-based drugs directly to the patient. Ex vivo gene therapies are based on removing a small number of cells from a patient, introducing a gene into the cells and implanting the engineered cells into the patient. TKT's enabling gene therapy technology platform is a non-viral, ex vivo system, which the Company believes is significantly different from other approaches to gene therapy. The Company believes that these differences will allow for physiologic levels of protein expression in patients for extended periods, a goal that historically has represented a major obstacle in alternative gene therapy systems. The major alternative to TKT's system is based on the use of genetically-modified viruses to infect patients' cells. The Company believes that such viral approaches present a significant safety risk due to the possibility of causing new viral infections in patients. To the best of the Company's knowledge, neither viral nor non-viral in vivo gene therapy technologies have allowed long-term or high-level protein expression in the patient. Accordingly, these technologies may be best-suited for non-chronic applications, such as immunotherapy. TKT believes Transkaryotic Therapy is well-suited to allow safe and long-term delivery of therapeutic proteins for the treatment of chronic protein deficiency states as demonstrated by the long-term delivery of therapeutic proteins in animal models. The Company believes it has developed the basic technologies required for a safe and effective gene therapy approach which can be refined and optimized for patient use. In patients, TKT envisions that, in general, the system would function as follows: 1. The clinician would identify the patient to be treated and perform a small skin biopsy; 2. In TKT's manufacturing facility, patient cells would be harvested from the biopsy specimen; 3. The DNA fragment containing DNA regulatory sequences and protein coding sequences would be introduced into the harvested cells by electroporation. The DNA fragment and the electroporation methodology would be the same for all patients with a given disease; 4. A genetically engineered cell expressing the therapeutic protein would be identified, propagated, subjected to appropriate characterization and quality control tests, and formulated in a syringe. The syringe would then be returned to the physician; and 5 5. The physician would then inject the engineered cells under the patient's skin as an outpatient procedure. The Company believes that Transkaryotic Therapy offers several clinical and commercial advantages over conventional treatments and other gene therapies for targeted diseases, including safety, long-term expression, controllability, flexibility, ease of administration, and cost effectiveness. Transkaryotic Therapy does not use infectious agents such as retroviruses, adenoviruses, or adeno-associated viruses to genetically engineer the patient's cells. TKT's non-viral method of producing genetically engineered cells allows for extensive safety testing prior to implantation of such cells in the patient. In studies of TKT's gene therapy system involving over 5,000 animals, no side effects have been observed. The system is designed to produce long-term results with a single treatment. In preclinical studies, the Company has produced target proteins at therapeutic levels for the lifetime of the animals, suggesting the possibility of long-term effectiveness in humans. Further, the Company believes that the treatment afforded by Transkaryotic Therapy will be readily reversible so that therapy can be discontinued if no longer required. The Company has focused on genetically engineering a wide variety of human cell types because, although certain cell types are useful in the gene therapy of particular diseases, no single cell type is appropriate for the gene therapy of all diseases. Transkaryotic Therapy will allow for the administration of its products by a single injection under the patient's skin on an out-patient basis. Furthermore, the potential long-term effectiveness of the treatment could eliminate problems of patient compliance. Transkaryotic Therapy takes advantage of the patient's natural ability to synthesize therapeutic proteins for extended periods. The potential benefits of Transkaryotic Therapy include improved therapeutic outcome, the elimination of frequent painful injections and patient compliance problems, a reduction of side effects due to overdosing and underdosing of conventional proteins, and significant reductions in cost. Accordingly, the Company believes that its therapy may be less costly than therapy using conventional protein pharmaceuticals, which require frequent administration. Products in Development Investigational Products in Clinical Trials Product/Protein Indication Status Partner - ------------------------------------------------------------------------------------------------------------- Dynepo(TM)/erythropoietin anemia from kidney disease MAA submitted Aventis Dynepo(TM)/erythropoietin anemia from cancer Phase III Aventis Replagal(TM)/alpha-galactosidase A Fabry disease BLA/MAA submitted Sumitomo (Japan) Iduronate-2-sulfatase Hunter syndrome IND submitted -- Factor VIII gene therapy hemophilia A Phase I GI (Europe)
Dynepo(TM) for anemia TKT's lead Gene-Activated protein program is Dynepo(TM), a fully human erythropoietin, developed in collaboration with Aventis. Erythropoietin, a circulating protein hormone that stimulates 6 the differentiation of certain progenitor cells in the bone morrow, is normally produced in the kidney when the body requires additional red blood cells. In December 1999, Aventis completed Phase III testing of Dynepo of its initial indication, anemia related to chronic renal failure. More than 1,300 patients participated in clinical studies, which supported submissions for marketing approval in the United States and Europe. In August 2000, Aventis submitted a BLA to the FDA and a MAA to the EMEA. Aventis is seeking authorization for subcutaneous and intravenous routes of administration for the treatment of anemia in patients with chronic renal failure, including both dialysis and non-dialysis patients, to elevate and maintain red blood cell production. In November 2000, the FDA requested that Aventis provide data on additional manufacturing data for Dynepo, based on a change in the Dynepo manufacturing process that increases the scale from 2000 liter to 5000 liter bioreactors. The Company is assisting Aventis in collecting these data and expects that Aventis will submit a new BLA for Dynepo when the data are compiled, which is currently in progress and is expected to take at least six months. The review of Aventis' MAA for Dynepo is ongoing in Europe. A Phase III clinical trial assessing Dynepo as a treatment for anemia associated with cancer chemotherapy is ongoing. Upon completion of this study, Aventis will collect the data and, if positive, TKT expects Aventis will file a new BLA in the U.S. . In January 2001, the U.S. District Court for the District of Massachusetts concluded in a patent infringement action brought by Amgen against the Company and Aventis that Dynepo and the cells and processes used to make Dynepo infringed eight claims of patents asserted by Amgen. TKT and Aventis have filed an appeal of the decision with the U.S. Court of Appeals for the Federal Circuit. The Company and Aventis are also involved in judicial proceedings involving Dynepo with Kirin-Amgen in the U.K. The trial concluded in March 2001, and a decision is expected in mid-2001. (See Item 3. Legal Proceedings). Other Gene-Activated Proteins TKT believes that numerous development opportunities exist for Gene-Activated proteins. In addition to erythropoietin, TKT is developing six other Gene-Activated proteins. These programs are in various stages of development. In November 2000, TKT reacquired rights to develop and market a second Gene-Activated protein (GA-II) from Aventis. Prior to November 2000, Aventis successfully completed Phase I clinical testing of GA-II. A third Gene-Activated protein (GA-III) is in late preclinical development. Replagal(TM) for Fabry disease TKT's first target in the Niche Protein product program is Fabry disease. Fabry disease is an inherited lysosomal storage disorder caused by the deficiency of the enzyme alpha-galactosidase A. Patients with Fabry disease show diverse clinical manifestations beginning as early as adolescence. These manifestations include severe pain and cardiovascular and renal complications. The Company believes that there are approximately 5,000 Fabry disease patients worldwide. Current treatment of the disease is limited to the reduction of symptoms. The Company believes that enzyme replacement therapy could result in an improvement in the clinical manifestations of the disease. 7 TKT, in collaboration with the National Institutes of Health ("NIH"), completed a 26 patient pivotal Phase II study in patients with Fabry disease in December 1999. The goal of the study was to assess safety and clinical activity of Replagal, TKT's enzyme replacement therapy, particularly its effect on pain and kidney function. A second pivotal Phase II study involving 15 patients was conducted at the Royal Free Hospital in London. The goal of the study was to assess safety and clinical activity, particularly to improve cardiac function in patients with Fabry disease. In October 2000, TKT reported pivotal Phase II clinical results of Replagal from the NIH study, indicating that the enzyme replacement therapy had broad clinical effects in treating Fabry disease. Patients receiving Replagal had comprehensive clinical and biochemical improvement including a reduction in pain and stabilization or improvement in renal function. Data from the Royal Free Hospital study will be presented at a medical meeting during 2001. Data from these two pivotal studies, as well as data from an additional six months of treatment from an open-label maintenance study at the NIH, supported submissions for marketing approval in the United States and Europe. In June 2000, the Company filed a BLA seeking marketing authorization of Replagal in the U.S. During 2000, Replagal underwent a priority review at the FDA. In January 2001, the FDA issued a complete review letter which requested additional data and asked for further explanation in several areas. In July 2000, the Company submitted a MAA to the EMEA seeking marketing approval of Replagal. The Company announced in March 2001 that the CPMP issued a positive opinion recommending approval of Replagal(TM) in the European Union. The CPMP's recommendation for approval will be forwarded to the EC, which will determine whether to grant marketing authorization of Replagal. The Company expects the EC to make a final decision regarding the approval of Replagal in mid-2001. TKT has received orphan drug designation for Replagal in the U.S. As a result, if Replagal is the first product to receive FDA marketing approval for the indication for which it has designation as an orphan drug, the FDA may not approve any other applications to market the same product for the same indication, except in limited circumstances, for a period of seven years. The Company also received orphan drug designation in Europe. As a result, if Repalgal is the first product to receive marketing approval for Fabry disease, the European Commission may not approve any other applications to market the same product for the same indication, except in limited circumstances, for a period of ten years. The Company believes that Genzyme is seeking marketing authorization in both the U.S. and Europe. Genzyme has also received orphan drug status for its Fabry disease treatment in both the U.S. and Europe. Moreover, the CPMP also issued a positive opinion recommending approval of Genzyme's Fabry disease product to the EC. If Genzyme's Fabry disease product receives marketing approval in either the U.S. or Europe before TKT, TKT may be excluded from marketing Replagel in the U.S. or Europe, as the case may be, except in limited circumstances. 8 The Company is also involved in patent litigation with Genzyme and Mt. Sinai in the U.S. District Court for the District of Delaware regarding whether the manufacture, use, intended sale, and/or intended offer for sale of Replagal infringes a Genzyme and Mt. Sinai patent. The court has scheduled trial in this action to begin in March 2002. (See Item 3. Legal Proceedings.) Iduronate-2-Sulfatase for Hunter Syndrome TKT's second target in the Niche Protein product platform is Hunter syndrome. Hunter syndrome is an inherited lysosomal storage disorder caused by a deficiency of the enzyme iduronate-2-sulfatase ("I2S"). As a result of this deficiency, complex carbohydrates accumulate in cells of the body, causing debilitating symptoms in the patient. Physical manifestations include skeletal deformities, obstructive airway disease, cardiac failure and, in severe cases, central nervous system involvement. Cardiac and respiratory illness are often the cause of death at an early age in patients with the disorder. The Company believes that there are approximately 5,000 Hunter syndrome patients worldwide. The Company believes that I2S enzyme replacement therapy could result in an elimination of many of the clinical manifestations associated with Hunter syndrome and an increased life expectancy and quality of life. In December 2000, TKT filed an Investigational New Drug Application ("IND") to commence a Phase I/II clinical trial of I2S in twelve patients with Hunter syndrome. The randomized, placebo-controlled study will assess the safety, pharmacokinetic profile and clinical activity of the enzyme in patients. Other Niche Protein Products TKT is developing five additional Niche Protein products including treatments for Gaucher disease and Hurler syndrome. Factor VIII Gene Therapy for Hemophilia A TKT's lead gene therapy program is for the treatment of hemophilia A. Hemophilia A, is caused by a deficiency or defect in protein coagulation Factor VIII. Patients with the disease experience acute, debilitating, and often life-threatening bleeding episodes. Depending on the severity of the disease, bleeding may occur spontaneously or after minor trauma. Conventional treatment consists of temporarily increasing the patient's Factor VIII levels through infusions of plasma-derived or recombinantly-produced Factor VIII. Factor VIII levels typically rise to therapeutic levels for only two to three days following intravenous administration, then return to the baseline subtherapeutic level, once again placing the patient at risk for a serious bleeding episode. It is estimated that there are approximately 50,000 hemophilia A patients worldwide. In the U.S., an adult suffering from the disease receives Factor VIII protein treatment only during bleeding crises at an average annual cost of approximately $65,000. TKT's approach to the treatment of hemophilia A is based on the production and delivery of Factor VIII using its non-viral, ex vivo gene therapy approach called Transkaryotic Therapy(TM). The Company believes that its Factor VIII gene therapy product has the potential to provide a constant supply of therapeutic levels of the missing protein, effectively eliminating the problem of rapid disappearance of the therapeutic protein. The Company has produced clonal populations of human fibroblasts which have been transfected to express Factor VIII in vitro, demonstrated that the protein is properly processed, and achieved protein expression in animals. 9 In November 1998, the Company began the first ever clinical trial evaluating a gene therapy treatment for hemophilia A. The Phase I safety study includes 12 patients and is being conducted at the Beth Israel Deaconess Medical Center in Boston, Massachusetts. The trial is expected to take up to three years to complete, which includes a two year follow up period following the treatment phase. In December 2000, Phase I results were presented at the 42nd Annual Meeting of the American Society of Hematology. Data from the first six of twelve patients participating in the study demonstrated that non-viral delivery of Factor VIII using patients' genetically modified cells is safe and well-tolerated. Furthermore, four of the first six patients showed clinical benefit, with two patients having no spontaneous bleeds for approximately one year following treatment. Research and Development Expenses For the years ending December 31, 2000, 1999, and 1998, the Company spent approximately $56.4 million, $44.0 million, and $25.6 million, respectively on research and development activities . Collaborative Partners Aventis Pharma TKT entered into a strategic alliance with Aventis in May 1994, focused on the development of Dynepo. TKT has the potential to receive up to $58 million, consisting of license fees, equity investments, milestone payments, and research funding, of which $30 million had been received at December 31, 2000. The remaining payments are contingent upon the achievement of milestones in connection with the commercialization of Dynepo by Aventis. TKT also is entitled to a low double-digit royalty on net sales of Dynepo worldwide. Under the original license agreement, Aventis was granted worldwide exclusive rights to make, use, and sell Dynepo, except that TKT has reacquired marketing rights from Aventis for Japan. Aventis is responsible, at its own expense, for development, manufacturing, and marketing activities for the product. The license agreement expires, on a country by country basis, on the later of (i) 10 years after the first commercial sale of the covered product in such country or (ii) the last to expire of the patents licensed under such agreement with respect to such country, subject to earlier termination by either party under specified circumstances, including a material breach of the agreement by the other party. In addition, Aventis has assumed the cost of defense of its patent litigation with Amgen Inc. and Kirin-Amgen, Inc. The Company is required to reimburse Aventis for its share of litigation expenses, as defined, from future royalties, if any, otherwise payable by Aventis as to the sale of Dynepo and in certain other circumstances. In March 1995, TKT entered into a second agreement with Aventis focused on the development of GA-II. Under the collaborative agreement, TKT had received $34 million as of December 2000, in the form of license fees, equity investments, milestone payments, and research funding. In November 2000, TKT reacquired rights to develop and market GA-II from Aventis. Prior to November 2000, Aventis completed Phase I clinical testing of GA-II. Sumitomo Pharmaceutical Co., Ltd. 10 In July 1998, the Company entered into a distribution agreement with Sumitomo to commercialize Replagal in Japan and certain other Asian countries. As of December 31, 2000, TKT has received $3.0 million from Sumitomo for Replagal. Sumitomo will make additional payments to TKT, subject to the achievement of milestones, as the product moves through development and commercialization. Sumitomo is responsible for development and commercialization of Replagal in its territories. The distribution agreement expires on a country-by-country basis under specified circumstances, including a material breach of the agreement by the other party. Genetics Institute In July 1993, TKT entered into a Collaboration and License Agreement with GI relating to a joint development and marketing program for a hemophilia A gene therapy product based on TKT's proprietary non-viral gene therapy technology and GI's patented Factor VIII genes. Under the agreement, GI has granted TKT a non-exclusive worldwide license under GI's patents covering truncated versions of the gene encoding Factor VIII for use in certain non-viral gene therapy applications. GI has agreed to pay a portion of the clinical development costs of the product in the U.S., Canada, and the European Community. TKT retained exclusive manufacturing rights throughout the world and exclusive marketing rights to all countries of the world, except those in Europe. Subject to certain conditions, GI received exclusive rights to market the product in Europe. The GI agreement terminates upon the expiration date of the last to expire licenses granted pursuant to the agreement. Patents, Proprietary Rights, and Licenses Patents and Proprietary Issues The Company believes that protection of the proprietary nature of its products and technology is important to its business. Accordingly, it has adopted and plans to maintain a vigorous program to secure and maintain such protection. The Company's practice is to file patent applications with respect to technology, inventions, and improvements that are important to its business. The Company also relies upon trade secrets, unpatented know-how, continuing technological innovation, and the pursuit of licensing opportunities to develop and maintain its competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary technology or that the Company can meaningfully protect its proprietary position. At December 31, 2000, the Company owned or licensed 25 issued U.S. patents and had 50 pending patent applications in the U.S. to protect its proprietary methods and processes. It also has filed corresponding foreign patent applications for certain of these U.S. patent applications. The issued U.S. patents and patent applications relate to the gene activation platform in general, DNA sequences required for gene activation, cells modified by gene activation to produce Gene-Activated proteins, corresponding gene activation methods, the Transkaryotic Therapy platform in general, the Niche Protein product platform in general, methods of propagating and transfecting cells, methods for obtaining expression of therapeutic proteins and homologous recombination in cells, and cells modified by the preceding methods. The U.S. patents owned or licensed by TKT expire at various dates ranging from 2010 to 2017. As a general matter, patent positions in the fields of biotechnology and biopharmacology are highly uncertain and involve complex legal, scientific, and factual matters. To date, there has emerged no consistent policy regarding the breadth of claims allowed in biotechnology patents. 11 Consequently, although TKT plans to prosecute aggressively its applications and defend its patents against third parties, there can be no assurance that any of the Company's patent applications relating to the technology used by the Company will result in the issuance of patents or that, if issued, such patents or the Company's existing patents will not be challenged, invalidated, or circumvented or will afford the Company protection against competitors with similar technology. Any litigation or interference proceedings regarding patent or other proprietary rights may result in substantial cost to the Company, regardless of outcome, and, further, may adversely affect TKT's ability to develop, manufacture, and market its products and to form strategic alliances. The Company's technologies and potential products may conflict with patents that have been or may be granted to competitors, universities, or others. As the biotechnology industry expands and more patents are issued, the risk increases that the Company's technologies and potential products may give rise to claims that they infringe the patents of others. Such other persons could bring legal actions against the Company claiming damages and seeking to enjoin commercialization of a product or use of a technology. If any such actions are successful, in addition to any potential liability for damages, the Company could be required to obtain a license in order to continue to use such technology or to manufacture or market such product, or could be required to cease using such product or technology. There can be no assurance that the Company would prevail in any such action or that any license required under any such patent would be made available or would be made available on acceptable terms. The Company believes that there may be significant litigation regarding patent and other intellectual property rights in the fields of all three of its product platforms. Gene Activation Technology Patents For many currently-marketed proteins, the product manufactured using conventional genetic engineering techniques does not represent the first time the protein was isolated and purified. As such, it was generally not possible to obtain a broad composition of matter patent for many of the currently marketed proteins. In contrast, the isolated and purified DNA sequences encoding these proteins, various vectors used to insert such DNA sequences into production cell lines, cell lines modified by the insertion of such DNA sequences, and corresponding methods (including methods of producing proteins using this approach) led to issued patents in many cases. TKT continues to believe that, notwithstanding the Amgen cases, by completely avoiding the use of isolated and purified DNA sequences encoding proteins of commercial interest, the Company's technology does not infringe claims based on isolated and purified DNA sequences encoding such proteins. Furthermore, the Company intends to avoid the use of technologies (such as specific protein purification procedures) that are the subject of patents that are not limited to protein products manufactured using conventional genetic engineering techniques. Dynepo(TM) Patent Litigation In January 2001, the U.S. District Court for the District of Massachusetts concluded in a patent infringement action brought by Amgen against the Company and Aventis that Dynepo and the cells and processes used to make Dynepo infringed eight claims of patents held by Amgen. TKT and Aventis have filed an appeal of the decision with the U.S. Court of Appeals for the Federal Circuit. The Company and Aventis are also involved in judicial proceedings with Kirin-Amgen in the U.K. involving Dynepo. The trial concluded in March 2001 and a decision is expected in mid-2001. (See Item 3. Legal Proceedings). Replagal(TM) Patent Litigation 12 The Company is involved in patent litigation with Genzyme and Mt. Sinai in the U.S. District Court for the District of Delaware regarding whether the manufacture, use, intended sale, and/or intended offer for sale of Replagal infringes a Genzyme and Mt. Sinai patent. The Court has scheduled trial in this action to begin in March 2002. (See Item 3. Legal Proceedings). Gene Therapy Patent Interference In January 1996, the U.S. Patent and Trademark Office ("PTO") declared an interference regarding an issued patent with broad claims to ex vivo gene therapy involving TKT, Genetic Therapy, Inc., a wholly owned subsidiary of Novartis AG, Syntex, a wholly-owned subsidiary of Roche Holdings, Inc., and Cell Genesys, Inc. (See Item 3. Legal Proceedings). Trade Secrets To further protect its trade secrets and other proprietary property, the Company requires all employees, Scientific Advisory Board members, consultants, and collaborators having access to such proprietary property to execute confidentiality and invention rights agreements in favor of the Company before beginning their relationship with the Company. While such arrangements are intended to enable the Company to better control the use and disclosure of its proprietary property and provide for the Company's ownership of proprietary technology developed on its behalf, they may not provide meaningful protection for such property and technology in the event of unauthorized use or disclosure. Licensing The Company has entered into several royalty-bearing licensing agreements under which it has acquired certain worldwide rights to use proprietary genes and related technology in its non-viral gene therapy products. In particular, the Company has a non-exclusive license for certain non-viral gene therapy applications from GI with respect to GI's patented Factor VIII genes and a non-exclusive sublicense for non-viral gene therapy applications from British Technology Group plc ("BTG") with respect to BTG's patented Factor IX gene. In addition, the Company has an exclusive license to certain pending and issued patents from Women's and Children's Hospital, North Adelaide, Australia related to certain mucopolysaccharidoses (MPS), including Hurler and Scheie syndrome (MPS I), Hunter syndrome (MPS II), and Sanfilippo syndrome (MPS III), TKT's rights under these gene licenses and sublicenses are for the term of the last-to-expire patent included in the licensed patent rights. Competition The Company believes that the primary competitive factors relating to the products that it is developing include safety, efficacy, reliability, distribution channels, price, and disease management services. In addition, the length of time required for products to be developed and to obtain regulatory and, in some cases, reimbursement approval are important competitive factors. The biotechnology industry is characterized by rapid and significant technological change. Accordingly, the Company's success will depend in part on its ability to respond quickly to medical and technological changes through the development and introduction of new products. The Company believes it competes favorably with respect to the competitive factors affecting its business, although there can be no assurance that it will be able to continue to do so. Many of the Company's competitors have substantially greater financial and other resources than the Company, including larger research and development staffs and more experience and capabilities in conducting research and development activities, testing products in clinical trials, 13 obtaining regulatory approvals, and manufacturing, marketing, and distributing products. Smaller companies may obtain access to such skills and resources through collaborative arrangements with pharmaceutical companies or academic institutions. There can be no assurance that TKT will succeed in developing and marketing technologies and products that are more clinically efficacious and cost-effective than existing established treatments or new approaches and products developed and marketed by competitors. The development by others of alternative or superior treatment methods could render the Company's products obsolete or noncompetitive with respect to some or all of the competitive factors described above. In addition, treatment methods not clearly superior to the Company's could achieve greater market penetration through competitors' superior sales, marketing, or distribution capabilities. The Company's competitive position also depends upon its ability to attract and retain qualified personnel, obtain patent protection, secure licenses of necessary genes and technology from third parties, or otherwise develop proprietary products, or processes, and secure sufficient capital resources for the typically substantial expenditures and period of time prior to commercial sales of each product. Gene-Activated(TM) Proteins In its Gene-Activated protein program, TKT is developing potentially improved versions of proteins that are currently-marketed and proteins that have no currently-marketed counterparts. For instance, in the case of Dynepo, erythropoietin is marketed by Amgen and Johnson & Johnson ("J&J") in the U.S.; F. Hoffmann-La Roche Ltd. (Boehringer Mannheim GmbH) and J&J (Janssen-Cilag) in Europe; and by Sankyo Company Ltd., Chugai Pharmaceutical Co., Ltd., and Kirin in Japan. Many of the protein products against which the Company's Gene-Activated proteins would compete have well-known brand names, have been promoted extensively and have achieved market acceptance by third party payors, hospitals, physicians, and patients. In addition, many of the companies that produce these protein products have patents covering techniques used to produce these products, which have served as effective barriers to entry in the therapeutic proteins market. As with Amgen and its erythropoietin product, these companies may seek to block TKT's entry into the market by asserting that the Company's Gene-Activated proteins infringe their patents. Many of these companies are also seeking to develop and commercialize new or potentially improved versions of their proteins. Niche Protein(TM) Products For many of the disease targets of the Company's Niche Protein product program, there is currently no cure or effective treatment. Treatments generally are focused on the management of the disease's clinical symptoms, particularly pain. In general, the Company believes that these diseases may represent markets too small to attract the resources of larger pharmaceutical companies, but provide attractive commercial opportunities to smaller companies, such as TKT. The Company believes its major competition with respect to Fabry disease and Gaucher disease is Genzyme. Genzyme owns or controls issued patents related to the production of protein products to treat Fabry disease and Gaucher disease. Some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Orphan drug status generally provides incentives to manufacturers to undertake development and marketing of products to treat relatively rare diseases . The Company believes that many of the potential products in its Niche Protein product platform will 14 qualify as orphan drugs and intends to pursue orphan drug designations, where appropriate. If a product that has an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the same product for the same indication may not generally be approved for marketing, except in limited circumstances, for a period of seven to ten years. The Company believes that Genzyme is seeking marketing authorization in the U.S. and Europe. Genzyme has also received orphan drug status for its Fabry disease treatment in both the U.S. and Europe. In December 2000, Genzyme announced that the FDA had requested clarification of several points and identified additional data it needs concerning Genzyme's BLA. Concurrently with the issuance of its positive opinion on Replagal to the EC, the CPMP issued a positive opinion recommending approval of Genzyme's Fabry disease product to the EC. If Genzyme receives regulatory approval to market its drug before TKT, TKT may be excluded from marketing Replagal in the U.S. and/or Europe, except in limited circumstances. There can be no assurance that other companies will not seek an orphan drug designation and obtain marketing approval for a product competitive with a Niche Protein product before the Company obtains such approval. If another company obtains orphan drug marketing approval and receives seven year marketing exclusivity, the Company would not be permitted to market the same product for the same indication during the exclusivity period, except in limited circumstances. Gene Therapy The Company's gene therapy system will have to compete with other gene therapy systems, as well as with conventional methods of treating the diseases and conditions targeted. In addition, new non-viral gene therapy treatments may be developed in the future. A number of companies, including major biotechnology and pharmaceutical companies, as well as development stage companies, are actively involved in this field. Manufacturing TKT is currently using, and plans in the future to use, a combination of internal manufacturing and contract manufacturing by third parties to meet its requirements for preclinical testing, clinical trials, and commercialization of its products. Under TKT's collaboration with Aventis, Aventis is required to manufacture Dynepo required for clinical trials and commercial sale. TKT expects that in the future it may employ third party contract manufacturers for the production of Gene-Activated proteins for clinical development and commercial sale. TKT has entered into contract manufacturing arrangements with third parties for the production of Replagal. TKT expects that it will also rely on contract manufacturers to produce Replagal for commercial sale. Government Regulation The testing, manufacturing, labeling, advertising, promotion, export, and marketing, among other things, of the Company's products are subject to extensive regulation by governmental authorities in the U.S. and other countries. In the U.S., pharmaceutical products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. The Company believes that most of its products will be 15 regulated by the FDA as biologics. Biologics require the submission of a BLA and approval by the FDA prior to being marketed in the U.S. Manufacturers of biologics may also be subject to state regulation. The steps required before a product may be approved for marketing in the U.S. generally include (i) preclinical laboratory tests and animal tests, (ii) the submission to the FDA of an IND for human clinical testing, which must be approved before human clinical trials may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) the submission to the FDA of a BLA, (v) FDA review of the BLA, and (vi) satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is made to assess compliance with cGMP. The Company or the FDA may suspend the approval process at any time on various grounds including a finding that subjects or patients are exposed to an unacceptable health risk. There can be no assurance that the completion of any stage of the approval process will result in FDA authorization to market the Company's products. Both before and after approval is obtained, violations of regulatory requirements may result in various adverse consequences, including the FDA's delay in approving or refusal to approve a product, withdrawal of an approved product from the market, and/or the imposition of criminal penalties against the manufacturer and/or BLA holder. For example, BLA holders are required to report certain adverse reactions to the FDA, and to comply with certain requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP regulations after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, monies, and effort in the area of production and quality control to maintain cGMP compliance. In addition, discovery of problems may result in restrictions on a product, manufacturer, or BLA holder, including withdrawal of the product from the market. Also, new federal, state or local government requirements may be established that could delay or prevent regulatory approval of the Company's products under development. The Company also will be subject to a variety of foreign regulations governing clinical trials and sales of its products. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. In addition to regulations enforced by the FDA, the Company also is subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other present and potential future federal, state, or local regulations. The Company's research and development activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the resources of the Company. For marketing outside the U.S., the Company also is subject to foreign regulatory requirements governing human clinical trials and marketing approval for products. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country to country. 16 Employees As of December 31, 2000, the Company had 322 full-time employees, including 254 in research and development and 55 in general and administrative functions. Thirteen of these employees are based in Europe as part of a European subsidiary. Trademarks Gene-Activated(R) and the TKT(R) logo are registered trademarks of Transkaryotic Therapies, Inc. GA-EPO(TM), Niche Protein(TM), Replagal(TM), and Transkaryotic Therapy(TM), are trademarks of Transkaryotic Therapies, Inc. Dynepo(TM) is a trademark of Aventis Pharma. ITEM 2. PROPERTIES As of December 31, 2000, the Company leased a total of approximately 124,000 square feet of laboratory and office space in buildings located in Cambridge, Massachusetts. These facilities include pilot facilities for gene therapy and protein product manufacturing. In August 2000, TKT signed a lease to rent approximately 180,000 square feet of new laboratory and office space in Cambridge, Massachusetts, which will serve as the Company's new corporate headquarters. TKT is expected to take occupancy of its new headquarters in 2002. In January 2001, the Company purchased a 45,000 square foot facility and leased 44,000 square feet of adjacent space in Randolph, Massachusetts. This facility will serve as laboratory and product development space. The Company believes that its current facilities together with the new building will be adequate to accommodate its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company can provide no assurance as to the outcome of any legal proceedings. A decision by a court in the United States or in any other jurisdiction in a manner adverse to the Company could have a material adverse effect on the Company's business, financial condition, and results of operations. Dynepo(TM) Patent Litigation In April 1997, Amgen commenced a patent infringement action against the Company and Aventis in the U.S. District Court for the District of Massachusetts. Amgen's Complaint, as subsequently amended, sought a declaratory judgment that the Company's Dynepo(TM) product, and the cells and processes used to make Dynepo, infringe and will infringe, Amgen's U.S. Patent Nos. 5,547,933, 5,618,698, 5,621,080, 5,756,349 and 5,955,422. A non-jury trial commenced in May 2000 and concluded in September 2000. In January 2001, the Court ruled that the Company infringed eight claims of three patents. In particular, the Court ruled that the asserted claims of U.S. Patent No. 5,547,933 are not infringed (and, if this finding is in error, that the asserted claims are invalid), that the asserted claims of U.S. Patent 5,618,698 are not infringed, that Claims 2, 3 and 4 of U.S. Patent No. 5,621,080 are valid, enforceable and infringed under the doctrine of equivalents; that Claims 1, 17 3, 4 and 6 of U.S. Patent No. 5,756,349 are valid, enforceable and literally infringed, but that Claim 7 of the '349 patent is not infringed, and that Claim 1 of U.S. Patent No. 5,955,422 is valid, enforceable and literally infringed. Amgen did not seek and was not awarded monetary damages. In January 2001, TKT and Aventis filed a Notice of Appeal from the Judgment of the District Court with the U.S. Court of Appeals for the Federal Circuit in this case. The Company believes it has strong grounds for appeal. Amgen filed a Notice of Cross-Appeal in February 2001 with the U.S. Court of Appeals for the Federal Circuit. In addition, in July 1999, Aventis and the Company commenced legal proceedings in the U.K. against Kirin-Amgen, seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by the Company's activities related to Dynepo and that certain claims of Kirin-Amgen's U.K. patent are invalid. The trial commenced in January 2001 and concluded in March 2001. The Company expects a decision in mid-2001. Pursuant to an Amended and Restated License Agreement, dated March 1995, by and between Aventis and the Company, Aventis has assumed the legal costs of the Amgen and Kirin-Amgen litigation. The Company will reimburse Aventis for the Company's share of the litigation expenses, as defined, from future royalties, if any, received from the sale of Dynepo and in certain other circumstances. Replagal(TM) Patent Litigation In July 2000, Genzyme and Mount Sinai filed a patent infringement suit against the Company in the U.S. District Court for the District of Delaware, alleging that the manufacture, use, intended sale, and/or intended offer for sale of the Company's Replagal(TM) product infringes U.S. Patent No. 5,356,804. Genzyme and Mt. Sinai seek injunctive relief and an accounting for damages. Discovery proceedings commenced in February 2001, and the Court has scheduled trial in this action to begin in March 2002. In September 2000, the Company filed suit against Genzyme and Mount Sinai in the U.S. District Court for the District of Massachusetts seeking a declaratory judgment that Genzyme's U.S. Patent No. 5,356,804 is invalid and not infringed TKT. TKT expects the case to be transferred to the U.S. District Court for the District of Delaware as part of the Delaware action. Gene Therapy Patent Interference TKT requested, and the U.S. Patent and Trademark Office ("PTO") declared in January 1996, an interference regarding an issued patent with broad claims to ex vivo gene therapy. The participants in the interference are TKT, Genetic Therapy, Inc., which is a wholly-owned subsidiary of Novartis AG, Syntex (U.S.A.), which is a wholly-owned subsidiary of Roche Holdings, Inc., and Cell Genesys, Inc. The PTO proceeding will determine the patentability of the subject matter of the interference and which of the parties first developed this subject matter. The process to resolve the interference can take many years. The outcome of interferences can be quite variable: for example, none of the four 18 parties may receive the desired claims, one party may prevail, or a settlement involving two or more of the parties may be reached. There can be no assurance that TKT will prevail in this interference or that, even if it does prevail, the Company can meaningfully protect its proprietary position. If TKT does not prevail, a March 1997 Federal Trade Commission (the "FTC") consent order may be relevant to TKT. The FTC entered this consent order to resolve anti-competitive concerns raised by the merger of Ciba-Geigy Limited and Sandoz Limited into Novartis AG. As part of the consent order, the constituent entities of Novartis are required to provide all gene therapy researchers and developers with nonexclusive, royalty-bearing licenses to the Novartis patent that is involved in the interference. In addition, the Company has entered into an agreement with Cell Genesys under which the Company would be permitted to market its non-viral gene therapy products pursuant to a license agreement if Cell Genesys wins the interference. Thus, the Company believes that it will only be materially adversely affected if Syntex prevails in this proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. Executive Officers The executive officers of the Company are as follows: Name Age Position held with the Company - ---- --- ------------------------------ Richard F Selden, M.D., Ph.D. 42 President and Chief Executive Officer Michael J. Astrue 44 Senior Vice President, Administration and General Counsel Daniel E. Geffken 44 Senior Vice President, Finance and Chief Financial Officer William H. Pursley 47 Senior Vice President, Commercial Operations Douglas A. Treco, Ph.D. 43 Senior Vice President, Research and Development Each officer's term of office extends until the first meeting of the Board of Directors following the next annual meeting of stockholders and until a successor is elected and qualified. Richard F Selden, M.D., Ph.D. is the founder of TKT. He has served as Chief Scientific Officer, Chairman of the Scientific Advisory Board and a Director since the Company's inception in 1988 and as President and Chief Executive Officer since June 1994. He received an A.B. in Biology from Harvard College, an A.M. in Biology from the Harvard University Graduate School of Arts and Sciences, a Ph.D. in Genetics from the Division of Medical Sciences at Harvard Medical School and an M.D. from Harvard Medical School. Michael J. Astrue has served as Senior Vice President, Administration and General Counsel since May 2000. From 1993 to 1999, he served as Vice President, Secretary and General Counsel of Biogen, Inc., a biotechnology company. Mr. Astrue holds a B.A. in Philosophy and English from Yale University and a J.D. from Harvard Law School. Daniel E. Geffken has served as Senior Vice President, Finance and Chief Financial Officer of the Company since December 2000 and, from February 1997 to December 2000, he served as Vice President, Finance and Chief Financial Officer. From June 1993 to February 1997, Mr. Geffken was 19 Vice President and Chief Financial Officer of CytoTherapeutics, Inc., a biotechnology company. He received a B.S. in Economics from The Wharton School, University of Pennsylvania and a M.B.A. from the Harvard Business School. William H. Pursley has served as Senior Vice President, Commercial Operations since April 1999. From April 1995 to April 1999, Mr. Pursley was Senior Vice President, Commercial Development at BioTechnology General Corporation, a BioTechnology company. He received a B.A. in Biology from the University of Louisville. Douglas A. Treco, Ph.D. has directed research at the Company since its inception in 1988. Since February 1997, he has served as the Senior Vice President, Research and Development and, from June 1993 to February 1997, he served as Vice President, Director of Research and Development. He received a B.S. in Biology and Chemistry from the University of Delaware and a Ph.D. in Biochemistry and Molecular Biology from the State University of New York, Stony Brook. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock commenced trading on October 17, 1996 on The Nasdaq Stock Market under the symbol "TKTX." As of March 1, 2001, there were 155 holders of record of the Company's Common Stock. The following table sets forth for the fiscal periods indicated the range of high and low closing prices for the Company's Common Stock on The Nasdaq Stock Market. High Low 2000 Quarter Ended: December 31....................................... $ 46 5/8 $ 30 7/8 September 30...................................... 48 25 3/16 June 30........................................... 52 24 7/16 March 31.......................................... 85 3/8 32 9/16 1999 Quarter Ended: December 31....................................... $ 53 3/8 $ 34 1/4 September 30...................................... 51 3/8 31 3/8 June 30........................................... 34 3/8 25 15/16 March 31.......................................... 37 7/8 23 3/8 The Company has never declared or paid any cash dividends on its capital stock. The Company currently anticipates that it will retain all future earnings, if any, to fund the development and growth of its business and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company is currently prohibited from paying cash dividends under its term loan facility with Fleet National Bank. 20 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company for the five years ended December 31, 2000 are derived from the consolidated financial statements of the Company. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as Item 7 and the consolidated financial statements and related footnotes included as Item 8 in this Form 10-K.
- ------------------------------------------------------------------------------------------------------------------ STATEMENT OF OPERATIONS DATA Year ended December 31, - ------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) 2000 1999 1998 1997 1996 License and research revenues $7,247 $3,870 $5,325 $5,788 $4,225 Research and development expenses 56,440 43,946 25,617 18,111 14,019 Net income (loss) (51,021) (44,456) (19,965) (12,871) (11,972) Basic net income (loss) per share (pro forma in 1996) $(2.25) $(2.25) $(1.05) $(0.74) $(0.98) Shares used to compute basic net income (loss) per share (pro forma in 1996) 22,675 19,763 19,052 17,394 12,262 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA December 31, - ------------------------------------------------------------------------------------------------------------------ (in thousands) 2000 1999 1998 1997 1996 Cash and marketable securities $245,456 $192,495 $110,155 $129,554 $86,255 Total assets 272,393 215,291 117,962 134,948 90,998 Total stockholders' equity 247,857 195,782 113,646 131,749 89,644
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Since its inception in 1988, the Company has been primarily engaged in the development and commercialization of products based on the Company's three proprietary development platforms: Gene-Activated(R) proteins, Niche Protein(TM) products and gene therapy. As of December 31, 2000, no revenue has been derived from the sale of any products. The Company expects that its research and development expenditures will increase substantially in future years as product development efforts accelerate. With the exception of 1995, the Company has incurred substantial annual operating losses since inception and expects to incur substantial operating losses in the future. At December 31, 2000, the Company's accumulated deficit was $165,429,000. As a result, the Company is dependent upon existing cash resources, interest income, external financing from equity offerings, debt financings or collaborative research and development arrangements with corporate sponsors to finance its operations. Results of operations may vary significantly from period to period depending on, among other factors, the progress of the Company's research and development efforts, the receipt, if any, of additional license fees and milestone payments, the timing of certain expenses, and the establishment of additional collaborative research agreements. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto. 21 Results of Operations Years Ended December 31, 2000, 1999 and 1998 License and research revenues totaled $7,247,000, $3,870,000 and $5,325,000 for the years ended December 31, 2000, 1999 and 1998, respectively. All revenues were earned from collaborative agreements with Aventis Pharma ("Aventis"), Genetics Institute, Inc. and Sumitomo Pharmaceuticals Co., Ltd. Research and development expenses totaled $56,440,000 in 2000, as compared to $43,946,000 in 1999 and $25,617,000 in 1998. The increase in 2000 of $12,494,000, or 28%, and in 1999 of $18,329,000, or 72%, was principally due to increases in external development services and research and development staffing in each of the Company's product development platforms. In particular, preclinical and clinical costs for the Company's Fabry disease, Hunter syndrome and hemophilia A programs, as well as manufacturing costs associated with the Fabry disease program, were significant components of the increase in 2000. During 2001, the costs related to both preclinical and clinical programs are expected to increase significantly as product development activities are initiated or expanded. General and administrative expenses were $15,755,000 for the year ended December 31, 2000, compared with $10,035,000 and $6,409,000 in 1999 and 1998, respectively. The increases in 2000 of $5,720,000, or 57%, and in 1999 of $3,626,000, or 57%, were principally due to costs in building a business development and commercialization infrastructure, particularly sales and marketing capabilities related to the commercialization of products in the Company's Niche Protein product platform in both the U.S. and Europe. During 2001, these costs are expected to increase as pre-launch activities related to its Niche Protein product platform accelerate. Interest income was $13,927,000, $5,655,000 and $6,736,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The average cash and marketable securities balances were $222,712,000, $108,673,000 and $120,779,000 in 2000, 1999 and 1998, respectively. The increase in interest income in 2000 is due to both higher average investment balances for 2000 as compared to 1999 and higher rates of return earned in 2000. The decrease in interest income in 1999 is due to both lower average investment balances and generally lower rates of return earned in 1999. The Company had a net loss of $51,021,000, $44,456,000 and $19,965,000 in 2000, 1999 and 1998, respectively. Liquidity and Sources of Capital Since its inception, the Company has financed its operations through the sale of Common and Preferred Stock, borrowings under debt agreements, revenues from collaborative agreements and interest income. The Company had unrestricted cash, cash equivalents and marketable securities totaling $245,456,000 at December 31, 2000. Cash equivalents and marketable securities are invested in U.S. government and agency obligations and money market funds. 22 In June 2000, the Company completed a private placement of 10,000 shares of Series A Convertible Preferred Stock, resulting in net proceeds to the Company of approximately $99,797,000. In November 1999, the Company completed a private placement of 3,300,000 shares of Common Stock, resulting in net proceeds to the Company of approximately $124,576,000. The Company leased additional facilities in the fourth quarter of 1998 which are used for research and development. In December 1998, the Company obtained an unsecured term loan facility for up to $14,000,000 to finance the capital costs related to the leased space. The loan became payable in December 1999 on the basis of a seven year amortization schedule over a five year period, with a final payment for any remaining amount in September 2004. The loan bears interest at either the prime rate or LIBOR plus 1.5%, at the Company's election. The weighted average interest rate of the loan at December 31, 2000 was 8%. The note contains certain restrictive covenants, including, among other things, minimum cash and tangible net asset requirements and prohibitions on the payment of dividends. At December 31, 2000, $12,000,000 was outstanding under this facility. In August 2000, the Company entered into a ten year lease for a new corporate headquarters and research and development facility in Cambridge, Massachusetts. The lease requires a security deposit of $7,680,000, of which $680,000 was paid in cash and the balance provided in the form of a letter of credit. An investment with a value of $7,819,000 collateralizes the letter of credit. The Company expects to spend up to an additional $25,000,000 for leasehold improvements for this facility. In January 2001, the Company purchased a 45,000 square foot development facility for $8,800,000. In addition, it leased an adjoining 44,000 square foot facility under the terms of a ten year lease. The Company expects to spend up to an additional $10,000,000 for leasehold improvements for these facilities. The Company may seek financing for all or a significant portion of the cost of the leasehold improvements described above. There can be no guarantee that financing will be available on favorable terms, if at all. At December 31, 2000, the Company had committed to pay approximately $28,560,000 to third parties for certain product development activities through 2004. In May 1994, the Company and Aventis entered into an agreement to commercialize Dynepo(TM), a Gene-Activated erythropoeitin product. Under the terms of the agreement, Aventis is obligated to pay the Company a total of $58,000,000 upon completion of all milestones and objectives set forth in the agreement. As of December 31, 2000, the Company had received $30,000,000. The remaining $28,000,000 in payments are contingent upon Aventis' achievement of certain Dynepo clinical development milestones. Aventis is responsible for the worldwide development, manufacturing and marketing of Dynepo, and the Company is entitled to receive a royalty based on net sales. In March 1995, the Company entered into a second agreement with Aventis to commercialize a second Gene-Activated protein, GA-II. In December 2000, TKT reacquired worldwide commercial rights to GA-II. The GA-II development program has concluded Phase 23 I studies, and the Company may fund the remaining development cost itself. This cost could be significant. At December 31, 2000, the Company had net operating loss carryforwards of approximately $144,264,000, which expire at various times through 2020. Due to the degree of uncertainty related to the ultimate use of loss carryforwards and tax credits, the Company has fully reserved against any potential tax benefit. The future utilization of net operating loss carryforwards and tax credits may be subject to limitation under the changes in stock ownership rules of the Internal Revenue Code. Because of this limitation, it is possible that taxable income in future years, which would otherwise be offset by net operating losses, will not be offset and, therefore, will be subject to tax. Substantial additional funds will be required to support the Company's research and development programs, for acquisition of technologies, for preclinical and clinical testing of its products, pursuit of regulatory approvals, acquisition of capital equipment, expansion of laboratory and office facilities, establishment of production capabilities, establishment of sales and marketing capabilities and for general and administrative expenses. Until such time, if any, as the Company's operations generate significant revenues from product sales, cash resources, interest income and proceeds from equity offerings, debt financings and funding from collaborative arrangements will be required to fund operations. The Company expects to pursue opportunities to obtain additional financing in the future through equity financings, debt financings, lease arrangements related to facilities and capital equipment and collaborative research agreements. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, on the Company's continued progress in its exploratory, preclinical and clinical development programs. There can be no assurance that such funds will be available on favorable terms, if at all. The Company expects that its existing capital resources, together with revenues from collaborative agreements and interest income, will be sufficient to fund its operations into 2002. The Company's cash requirements may vary, however, depending on numerous factors. Lack of necessary funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs or to license its potential products or technologies to third parties. The Company has been engaged in litigation with Amgen Inc. and Kirin-Amgen, Inc. with respect to the development of Dynepo and with Genzyme Corporation with respect to the development of Replagal. Pursuant to the Amended and Restated License Agreement, dated March 1995, by and between Aventis and the Company, Aventis has assumed the legal cost of the Amgen and Kirin-Amgen litigations. The Company is required to reimburse Aventis for the Company's share of litigation expenses, as defined, from future royalties, if any, received from the sale of Dynepo and in certain other circumstances. Forward-Looking Statements 24 Statements that are not historical facts, including statements about the Company's confidence and strategies and its expectations about future products, technologies and opportunities, market demand or acceptance of future products are forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "estimates," "intends," "should," "could," "will," "may," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These include, without limitation, the following: (1) whether any of the Company's Gene-Activated protein, Niche Protein or gene therapy product candidates will advance in the clinical trial process, (2) whether such clinical trials will proceed in a timely manner, (3) whether the clinical trial results will warrant continued product development, (4) whether the required regulatory filings, such as Investigational New Drug applications and Biologics License Applications, are made in a timely manner, (5) whether the Company's products will receive approval from the U.S. Food and Drug Administration or equivalent foreign regulatory agencies, (6) if such products receive approval, whether they will be successfully distributed and marketed, (7) whether patent litigation in which the Company is involved or may become involved are resolved in a manner adverse to the Company; (8) the effects of competitive products on the Company's proposed products, (9) the Company's dependence on third parties, including collaborators, manufacturers and distributors, and (10) the other risks set forth below the caption, "Certain Factors That May Affect Future Results." In addition, any forward-looking statements represent the Company's estimates only as of the date this Annual Report was first filed with the Securities and Exchange Commission and should not be relied upon as representing the Company's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so, even if its estimates change. Certain Factors That May Affect Future Results The following important factors, among others, could cause actual results to differ from those indicated by forward-looking statements made in this Annual Report on Form 10-K for the year ended December 31, 2000 and presented elsewhere by management from time to time. WE ARE A PARTY TO LITIGATION WITH AMGEN AND KIRIN-AMGEN INVOLVING DYNEPO(TM) In April 1997, Amgen commenced a patent infringement action against the Company and Hoechst Marion Roussel, Inc. (now Aventis Pharma) in the United States District Court for the District of Massachusetts. Amgen's complaint, as subsequently amended, sought a declaratory judgment that our Dynepo(TM) product, and the cells and processes used to make Dynepo, infringe, and will infringe, Amgen's U.S. Patent Nos. 5,547,933, 5,618,698, 5,621,080, 5,756,349 and 5,955,422. A non-jury trial commenced in May 2000 and concluded in September 2000. In January 2001, the Court ruled that we do not infringe the asserted claims of U.S. Patent No. 5,547,933 (and, if this finding is in error, that the asserted claims are invalid), that we do not infringe the asserted claims of U.S. Patent 5,618,698, that Claims 2, 3 and 4 of United States Patent No. 5,621,080 are valid, enforceable and are infringed by us under the doctrine of equivalents; that Claims 1, 3, 4 and 6 of United States Patent No. 5,756,349 are valid, enforceable and literally infringed by us, but that we do not infringe Claim 7 of the '349 patent, and that Claim 1 of U.S. Patent No. 5,955,422 is valid, enforceable and literally infringed by us. Amgen did not seek and was not awarded monetary damages. In January 2001, we filed a Notice of Appeal with the U.S. Court of Appeals for the Federal Circuit from the Judgment of the District Court in this case. We believe that we have strong grounds for appeal. Amgen filed a Notice of Cross-Appeal in February 2001. 25 In addition, in July 1999, together with Aventis, we commenced legal proceedings in the United Kingdom against Kirin-Amgen, Inc., seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by our activities related to Dynepo and that certain claims of Kirin-Amgen's U.K. patent are invalid. The trial commenced in January 2001 and concluded in March 2001. We expect a decision from the Court in mid-2001. Pursuant to an Amended and Restated License Agreement, dated March 1995, by and between Aventis and the Company, Aventis has assumed the legal costs of the Amgen and Kirin-Amgen litigation. We will reimburse Aventis for the Company's share of the litigation expenses, as defined, from future royalties, if any, received from the sale of Dynepo and in certain other circumstances. We can provide no assurance as to the outcome of either of these proceedings. Court decisions adverse to us could have a material adverse effect on our business, financial condition, and results of operations. In particular, with respect to the Amgen litigation, if the District Court decision is not reversed on appeal, it is likely that we and Aventis would be enjoined from making, using, or selling Dynepo in the U.S. Additionally, Dynepo may be the subject of additional litigation in the future. WE ARE A PARTY TO LITIGATION WITH GENZYME AND MOUNT SINAI INVOLVING REPLAGAL(TM) We are a defendant in a civil patent infringement lawsuit brought by Genzyme and Mt. Sinai in the U.S. District Court for the District of Delaware. Genzyme's complaint, which was filed in July 2000, alleges that the manufacture, use, intended sale, and/or intended offer for sale of our Replagal(TM) product infringes U.S. Patent No. 5,356,804. Genzyme and Mt. Sinai seek injunctive relief and an accounting for damages. Discovery proceedings commenced in February 2001 and the Court has scheduled trial in this action to begin in March 2002. In September 2000, we filed suit against Genzyme and Mt. Sinai in the U.S. District Court for the District of Massachusetts seeking a declaratory judgment that Genzyme's U.S. Patent No. 5,356,804 is invalid and not infringed us. We expect the case to be transferred to the U.S. District Court for the District of Delaware. We can provide no assurance as to the outcome of this litigation. A court decision adverse to us could have a material adverse effect on our business, financial condition, and results of operations. WE MAY NOT OBTAIN GOVERNMENT APPROVALS; THE APPROVALS PROCESS IS COSTLY AND LENGTHY The testing, manufacturing, labeling, advertising, promotion, export, and marketing, among other things, of our products are subject to extensive regulation by governmental authorities in the U.S. and other countries. The regulatory approval process to obtain market approval for a new drug or biologic takes many years and requires the expenditure of substantial resources. We have had only limited experience in preparing applications and obtaining regulatory approvals. There can be no assurance that submission of an Investigational New Drug Application will result in FDA authorization to commence clinical trials, or that once clinical trials have begun, testing will be completed successfully within any specific time period, if at all, with respect to any of our products. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to unacceptable health 26 risks. Once trials are complete and an application has been submitted, the FDAmay deny a BLA if applicable regulatory criteria are not satisfied, may require additional testing or information, or may require postmarketing testing and surveillance to monitor the safety or efficacy of a product. The testing and approval process requires substantial time, effort, and financial resources. We can provide no assurance that any approval will be granted on a timely basis, if at all. In 2000, the FDA requested that additional data be provided regarding manufacturing information and that a new BLA for Dynepo be submitted when the data is compiled. In 2001, the FDA issued a complete review letter regarding the Replagal BLA, which requested further explanation in several areas and additional data. Because gene therapy is a relatively new technology and products for gene therapy have not been extensively tested in humans, the regulatory requirements governing gene therapy products may be more uncertain than for other types of products. This uncertainty may cause delays in the regulatory process relating to our gene therapy products, including delays in our initiating clinical trials of these products. This uncertainty may also increase the cost of obtaining regulatory approvals of our gene therapy products. Both before and after approval is obtained, violations of regulatory requirements may result in various adverse consequences, including the FDA's delay in approving or refusal to approve a product, withdrawal of an approved product from the market, /or the imposition of criminal penalties against the manufacturer or the BLA holder. We will also be subject to a variety of foreign regulations governing clinical trials and the sale of its products. Whether or not we have obtained FDA approval, the comparable regulatory authorities of foreign countries must also approve a product prior to the commencement of marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. We announced in March 2001 that the CPMP issued a positive opinion recommending approval of Replagal(TM). The CPMP's recommendation for approval will be forwarded to the EC, which will determine whether to grant marketing authorization of Replagal in the European Union. The CPMP also issued a positive opinion recommending approval of Genzyme's Fabry disease product to the EC. There can be no assurance that the EC will approve the marketing authorization for Replagal. COMPETITORS' PRODUCTS MAY RECEIVE ORPHAN DRUG EXCLUSIVITY AND THEREBY PRECLUDE US FROM MARKETING OUR NICHE PROTEIN-TM- PRODUCTS AND WE MAY NOT BE ABLE TO OBTAIN ORPHAN DRUG EXCLUSIVITY FOR OUR NICHE PROTEIN PRODUCTS Some jurisdictions, including the United States, may designate drugs for relatively small patient populations as `orphan drugs'. Generally, if a product which has an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity, i.e., other applications to market the same product for the same indication may not be approved, except in limited circumstances, for a period of seven to ten years. Obtaining orphan drug designations and orphan drug exclusivity for our Niche Protein products may be critical to our success in this area. We may not be able to obtain orphan drug designation or exclusivity for any of our potential products or be able to maintain such designation or exclusivity for any of these products. For example, if a competitive product is shown to be clinically superior to our product, any orphan drug exclusivity we have obtained will not apply to our product. 27 Our competitors may also seek orphan drug designations and obtain orphan drug exclusivity for products competitive with our products before we obtain marketing approval. We believe that Genzyme is seeking marketing authorization in both the U.S. and Europe for a protein product for the treatment of Fabry disease for which it has orphan drug designation. In December 2000, Genzyme announced that the FDA requested clarification of several points and identified additional data it needs concerning Genzyme's BLA. Concurrently with the issuance of its positive opinion on Replagal to the EC, the CPMP issued a positive opinion recommending approval of Genzyme's Fabry disease product to the EC. We cannot predict whether Genzyme may in the future be able to prevent the marketing of Replagal through an orphan drug statute. WE FACE SIGNIFICANT COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING, DEVELOPING, OR COMMERCIALIZING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO The biotechnology industry is highly competitive and characterized by rapid and significant technological change. Our competitors include pharmaceutical companies, biotechnology firms, universities, and other research institutions. Many of these competitors have substantially greater financial and other resources than we do and are conducting extensive research and development activities on technologies and products similar to or competitive with ours. We may be unable to develop technologies and products that are more clinically efficacious or cost-effective than products developed by our competitors. Even if we obtain marketing approval for our product candidates, many of our competitors have more extensive and established sales, marketing, and distribution capabilities than we do. Litigation with third parties, including our litigation with both Amgen and Genzyme, could delay our time to market for certain products and enable our competitors to more quickly and effectively penetrate certain markets. Under our Gene-Activated protein program, we are developing fully human versions of proteins that are currently-marketed. For instance, in the case of Dynepo, erythropoietin is marketed by Amgen and Johnson & Johnson in the U.S.; F. Hoffmann-La Roche Ltd. (Boehringer Mannheim GmbH) and Johnson & Johnson (Janssen-Cilag) in Europe; and Sankyo Company Ltd., Chugai Pharmaceutical Co., Ltd., and Kirin in Japan. Many of the protein products against which our Gene-Activated proteins would compete have well-known brand names, have been promoted extensively, and have achieved market acceptance by third party payors, hospitals, physicians, and patients. Many of the companies that produce these protein products have patents covering the techniques used to produce these products, which have served as effective barriers to entry in the protein therapeutics market. As with Amgen and its erythropoietin product, these companies may seek to block our entry into the market by asserting that our Gene-Activated proteins infringe their patents. Many of these companies are also seeking to develop and commercialize new or potentially improved versions of their proteins. We believe that the primary competition with respect to our Niche Protein product program is from biotechnology and smaller pharmaceutical companies. In particular, we believe that our major competition with respect to Fabry disease and Gaucher disease is Genzyme. We believe that Genzyme is seeking marketing authorization in both the U.S. and Europe. Genzyme has received orphan drug status for its Fabry disease treatment in both the U.S. and Europe. Moreover, concurrently with the issuance of its positive opinion on Replagal to the EC, the CPMP issued a positive opinion recommending approval of Genzyme's Fabry disease product to the EC. In addition, Genzyme has marketed a product for the treatment of Gaucher disease since 1991. Genzyme owns or controls issued patents related to the production of protein products to treat Fabry disease and Gaucher disease. The markets for some of our potential Niche Protein 28 products are quite small. As a result, if competitive products exist, we may not be able successfully to commercialize our products. Our gene therapy system will have to compete with other gene therapy systems, as well as with conventional methods of treating targeted diseases and conditions. In addition, new non-gene therapy treatments may be developed in the future. A number of companies, including major biotechnology and pharmaceutical companies, as well as development stage companies, are actively involved in this field. WE ARE DEPENDENT ON AVENTIS AND OTHER CORPORATE COLLABORATORS TO DEVELOP, CONDUCT CLINICAL TRIALS, OBTAIN REGULATORY APPROVALS FOR, AND, MANUFACTURE, MARKET, AND SELL OUR PRINCIPAL PRODUCTS We are parties to collaborative agreements with third parties relating to certain of our principal products. We are relying on Aventis to develop, conduct clinical trials, obtain regulatory approvals for, and manufacture, market, and sell Dynepo; Sumitomo to develop and commercialize Replagal for Fabry disease in Japan and other Asian countries; and GI to develop and commercialize Factor VIII gene therapy for hemophilia A in Europe. Our collaborators may not devote the resources necessary or may otherwise be unable to complete development and commercialization of these potential products. Our existing collaborations are subject to termination without cause on short notice under certain circumstances. Our existing collaborations and any future collaborative arrangements with third parties may not be scientifically or commercially successful. Factors that may affect the success of our collaborations include the following: - our collaborators may be pursuing alternative technologies or developing alternative products, either on their own or in collaboration with others, that may be competitive with the product as to which they are collaborating with us, which could affect our collaborative partners' commitment to the collaboration with us; - reductions in marketing or sales efforts or a discontinuation of marketing or sales of our products by our collaborators would reduce our revenues, which will be based on a percentage of net sales by the collaborator; - our collaborators may terminate their collaborations with us, which could make it difficult for us to attract new collaborators or adversely affect the perception of us in the business and financial communities; and - our collaborators may pursue higher priority programs or change the focus of their development programs, which could affect the collaborator's commitment to us. WE HAVE NOT GENERATED REVENUES FROM THE SALE OF PRODUCTS We are at an early stage of development. We have not generated revenues from the sale of products. Each of our three product platforms involves new and rapidly evolving technologies. All of our potential products are in research, preclinical testing, or clinical development. We will need to conduct additional development efforts for all of these products prior to seeking regulatory approval. Preclinical and clinical data on the safety and efficacy of our potential products are limited. Our potential products may not be efficacious or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may prevent or limit commercial use. WE HAVE NOT BEEN PROFITABLE AND MAY REQUIRE ADDITIONAL FUNDING 29 We have experienced significant operating losses since our inception in 1988. At, December 31, 2000, we had an accumulated deficit of approximately $165.4 million. We expect that we will continue to incur substantial losses and that our cumulative losses will increase until then as our research and development, sales and marketing, and manufacturing efforts expand. We expect that the losses that we incur will fluctuate from quarter to quarter and that these fluctuations may be substantial. To date, we have not received revenues from the sale of products. We will require substantial funds to conduct research and development, including preclinical testing and clinical trials of our potential products, and to manufacture and market any products that are approved for commercial sale. Our future capital requirements will depend on many factors, including the following: - continued progress in our research and development programs, as well as the magnitude of these programs; - the scope and results of our clinical trials; - the time and costs involved in obtaining regulatory approvals; - the cost of manufacturing activities; - the cost of commercialization activities; - the cost of our additional facilities requirements; - our ability to establish and maintain collaborative arrangements; - the timing, receipt, and amount of milestone and other payments from collaborators; - the timing, receipt, and amount of sales and royalties from our potential products in the market; - the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other patent-related costs, including litigation costs and the costs of obtaining any required licenses to technologies; - the results of such litigation; and - the cost of obtaining and maintaining licenses to use patented technologies. We may seek additional funding through collaborative arrangements and public or private financings. Additional financing may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity securities, further dilution to our then existing stockholders will result. In addition, the terms of the financing may adversely affect the holdings or the rights of such stockholders. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, product candidates, or products which we would otherwise pursue on our own. WE HAVE LIMITED MANUFACTURING CAPABILITIES AND MAY DEPEND ON THIRD PARTY MANUFACTURERS We have limited manufacturing experience and in order to continue to develop products, apply for regulatory approvals, and, ultimately, commercialize any products, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. 30 We expect to manufacture certain of our products in our own manufacturing facilities. We will require substantial additional funds and need to recruit qualified personnel in order to build or lease and operate any manufacturing facilities. We currently rely upon third parties to produce material for preclinical testing and clinical trial purposes. We expect to continue to do so in the future. We also expect to rely upon third parties for the commercial production of certain of our products if we succeed in obtaining necessary regulatory approvals. There are a limited number of such third party manufacturers capable of manufacturing for us. As a result, we may experience difficulty in obtaining adequate capacity for our future needs. If we are unable to obtain or maintain contract manufacturing of these products, or to do so on commercially reasonable terms, we may not be able to complete development of these products or market them. To the extent that we enter into manufacturing arrangements with third parties, we are dependent upon these third parties to perform their obligations in a timely manner and in accordance with applicable government regulations. IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO DEVELOP AND COMMERCIALIZE ANY RELATED PRODUCTS In order to obtain regulatory approvals for the commercial sale of our potential products, we and our collaborators will be required to complete extensive clinical trials in humans to demonstrate the safety and efficacy of the products. We may not be able to obtain authority from the FDA or other regulatory agencies to commence or complete these clinical trials. The results from preclinical testing of a product that is under development may not be predictive of results that will be obtained in human clinical trials. In addition, the results of early human clinical trials may not be predictive of results that will be obtained in larger scale, advanced stage clinical trials. Furthermore, we, one of our collaborators, or the FDA may suspend clinical trials at any time if the subjects or patients participating in such trials are being exposed to unacceptable health risks, or for other reasons. The rate of completion of clinical trials is dependent in part upon the rate of enrollment of patients. Patient accrual is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, and the existence of competitive clinical trials. In particular, the patient population for some of our Niche Protein products is small. Delays in planned patient enrollment may result in increased costs and program delays. We and our collaborators may not be able to successfully complete any clinical trial of a potential product within any specified time period. In some cases, we may not be able to complete the trial at all. Moreover, clinical trials may not show any potential product to be safe or efficacious. Thus, the FDA and other regulatory authorities may not approve any of our potential products for any indication. Our business, financial condition, or results of operations could be materially adversely affected if: - we or our collaborators are unable to complete a clinical trial of one of our potential products; - the results of any clinical trial are unfavorable; or - the time or cost of completing the trial exceeds our expectations. 31 WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES We have limited sales and marketing experience and capabilities. In order to market our products, we will need to develop this experience and these capabilities or rely upon third parties, such as our collaborators, to perform these functions. If we rely on third parties to sell, market, or distribute our products, our success will be dependent upon the efforts of these third parties in performing these functions. In many instances, we may have little or no control over the activities of these third parties in selling, marketing, and distributing our products. If we choose to conduct these activities directly, as we plan to do with respect to some of our potential products, we may not be able to recruit and maintain an effective sales force. OUR SUCCESS IS DEPENDENT UPON THE RETENTION AND HIRING OF KEY PERSONNEL Our success is highly dependent on the retention of principal members of our scientific and administrative staff. Furthermore, our future growth will require hiring a significant number of qualified scientific and administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities, and there can be no assurance that we will be able to continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business. IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT BY THIRD PARTY PAYORS FOR OUR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS IN CERTAIN MARKETS The availability of reimbursement by governmental and other third party payors affects the market for any pharmaceutical product. These third party payors continually attempt to contain or reduce the costs of health care by challenging the prices charged for medical products and services. In certain foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. Proposals have been considered periodically by the Health Care Financing Administration of the United States Department of Health and Human Services to reduce the reimbursement rate with respect to erythropoietin. Adoption by the Health Care Financing Administration of any such proposal might have an adverse effect on the pricing of Dynepo. In both the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system. We believe that further proposals are likely. The potential for adoption of these proposals may affect our ability to raise capital, obtain additional collaborative partners, and market our products. If we or our collaborators obtain marketing approvals for our products, we expect to experience pricing pressure due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative proposals. We may not be able to sell our products profitably if reimbursement is unavailable or limited in scope or amount. WE MAY BE SUBJECT TO ADDITIONAL LITIGATION RELATING TO OUR INTELLECTUAL PROPERTY RIGHTS 32 The biotechnology industry has been characterized by significant litigation and interference and other proceedings regarding patents, patent applications, and other intellectual property rights. We may become a party to additional patent litigation and other proceedings in the future beyond the patent issues described under "--We are a party to litigation with Amgen and Kirin-Amgen involving Dynepo(TM)", "We are a party to litigation with Genzyme involving Replagal" and "--We are involved and may become involved in patent litigation or other intellectual property proceedings relating to our Transkaryotic Therapy(TM) technology which could result in liability for damages or stop our development and commercialization efforts." Certain of our competitors have filed patent applications and have been issued patents relating to certain methods of producing therapeutic proteins. We believe that the risk of our becoming involved in patent litigation is significant with respect to the therapeutic proteins that we anticipate producing. An adverse outcome in any patent litigation or other proceeding involving patents could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain these costs more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. In addition, hearings have been held by Congress with respect to the Waxman-Hatch Act. Under the safe harbor provisions of the Waxman-Hatch Act, activities conducted solely for uses reasonably related to the production of information for submission to the FDA as part of seeking regulatory approval to market a product are not acts of patent infringement. If legislation changing the safe harbor provisions of the Waxman-Hatch Act were introduced in Congress and enacted, competitors of ours that desire to bring U.S. patent infringement actions against us might be able to do so at an earlier time than under the existing law. WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES Our success will depend in large part on our ability to obtain patent protection for our processes and products in the U.S. and other countries. The patent situation in the field of biotechnology generally is highly uncertain and involves complex legal and scientific questions. We may not be issued patents relating to our technology. Even if issued, patents may be challenged, invalidated, or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the U.S. are maintained in secrecy until patents issue, third parties may have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications. We may not hold proprietary rights to certain product patents, process patents, and use patents related to our products or their methods of manufacture. In some cases, these patents may be owned or controlled by third parties. As a result, we may be required to obtain licenses under third party patents to market certain of our potential products. If licenses are not available to us on acceptable terms, we may not be able to market these products. 33 We also rely upon unpatented proprietary technology, processes, and know-how. We seek to protect this information in part by confidentiality agreements with our employees, consultants, and other third party contractors. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. WE MAY LOSE IMPORTANT LICENSE RIGHTS IN SOME CIRCUMSTANCES We are a party to a number of patent licenses that are important to our business and expect to enter into additional patent licenses in the future. These licenses impose various commercialization, sublicensing, royalty, insurance, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license. WE ARE INVOLVED AND MAY BECOME INVOLVED IN PATENT LITIGATION OR OTHER INTELLECTUAL PROPERTY PROCEEDINGS RELATED TO OUR TRANSKARYOTIC THERAPY -TM- TECHNOLOGY WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR DEVELOPMENT AND COMMERCIALIZATION EFFORTS We are a party to a proceeding before the U.S. Patent and Trademark Office to determine the patentability of our Gene Therapy technology. The participants in the interference are TKT, Genetic Therapy, Inc., which is a wholly-owned subsidiary of Novartis AG, Syntex (U.S.A.), which is a wholly-owned subsidiary of Roche Holdings, Inc., and Cell Genesys, Inc. This proceeding will determine which of the parties first developed this technology. If the technology is patentable, the party that first developed the technology will be awarded the U.S. patent rights. The process to resolve an interference can take many years. We may not prevail in this interference. Even if we do prevail, the decision in this proceeding may not enable us meaningfully to protect our proprietary position in the field of ex vivo gene therapy. If we do not prevail in this proceeding, a consent order issued by the Federal Trade Commission in March 1997 may be relevant to us. The Federal Trade Commission entered this consent order to resolve anti-competitive concerns raised by the merger of Ciba-Geigy Limited and Sandoz Limited into Novartis AG. As part of the consent order, the constituent entities of Novartis are required to provide all gene therapy researchers and developers with nonexclusive, royalty-bearing licenses to the Novartis patent which is involved in the interference proceeding described above. In addition, we have entered into an agreement with Cell Genesys under which we would be permitted to market our non-viral gene therapy products pursuant to a royalty-free license agreement if Cell Genesys wins the interference. SOME GENE THERAPY CLINICAL TRIALS HAVE BEEN SUSPENDED AND REGULATORY AUTHORITIES ARE REVIEWING THE NEED FOR INCREASED REGULATION OF GENE THERAPY CLINICAL TRIALS Due to recent adverse events that have occurred during gene therapy clinical trials, conducted by other biotechnology and pharmaceutical companies and institutions, the Federal government, the FDA, industry organizations, and institutions conducting gene therapy clinical trials have grown increasingly concerned about the safety of gene therapy clinical trials. As a result, a number of gene therapy clinical trials have been terminated or suspended. In February 2000, Beth Israel placed a temporary moratorium on all gene therapy clinical trials being conducted at its facility, including our clinical trial for hemophilia A, due to national public policy concerns relating to gene therapy trials. 34 There had been no adverse events associated with our trial. Upon review of our hemophilia A clinical trial safety data, Beth Israel resumed our gene therapy clinical trial to treat hemophilia A two weeks after its initial suspension. There can be no assurance that increased concern over gene therapy trials generally will not lead the FDA or other regulatory agencies to impose further regulation on gene therapy clinical trials. If greater regulations are imposed on gene therapy research generally, the delays and costs involved in complying with such greater regulation may impair our ability to complete clinical trials already in progress and to conduct gene therapy clinical trials in the future. EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING REGULATORY REVIEW If regulatory approval of a product is granted, such approval may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing studies. As to products for which we obtain marketing approval, we, the manufacturer of the product if other than us, and the manufacturing facilities will be subject to continual review and periodic inspections by the FDA and other regulatory authorities. The subsequent discovery of previously unknown problems with the product, manufacturer, or facility may result in restrictions on the product or manufacturer, including withdrawal of the product from the market. We announced in March 2001 that the CPMP issued a positive opinion recommending approval of Replagal(TM). The CPMP's recommendation for approval will be forwarded to the EC, which will determine whether to grant marketing authorization of Replagal. If the EC approves the marketing authorization for Replagal, we and our subsidiaries will be subject to on-going regulatory requirements. There can be no assurance that we or our subsidiaries will be able to comply with all applicable requirements. If we fail to comply with applicable regulatory requirements with respect to any of our products, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION The commercial success of our products that are approved for marketing by the FDA and other regulatory authorities will depend upon their acceptance by the medical community and third party payors as clinically useful, cost-effective, and safe. Each of our technology programs is new. As a result, it may be difficult for us to achieve market acceptance of our products, particularly for the first products for which we obtain marketing approval. Other factors that we believe will materially affect market acceptance of our products include: - the timing of the receipt of marketing approvals and the countries in which such approvals are obtained; - the safety and efficacy of the product as compared to competitive products; and - the cost-effectiveness of the product and the ability to receive third party reimbursement. We may be exposed to product liability claims and may not bE able to obtain adequate product liability insurance Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing, and marketing of human therapeutic products. Although we have 35 clinical trial liability insurance, we do not currently have any product liability insurance. We may not be able to obtain or maintain such insurance on acceptable terms or at all. Moreover, any insurance that we do obtain may not provide adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial condition. These liabilities could prevent or interfere with our product commercialization efforts. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and supplementary data are included as part of this Annual Report on Form 10-K: Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 36 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Transkaryotic Therapies, Inc. We have audited the accompanying consolidated balance sheets of Transkaryotic Therapies, Inc. (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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 in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transkaryotic Therapies, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2001 37 TRANSKARYOTIC THERAPIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par values) DECEMBER 31, ---------------------- 2000 1999 ---------------------- ASSETS Current assets: Cash and cash equivalents $ 49,445 $ 151,202 Marketable securities 196,011 41,293 Prepaid expenses and other current assets 1,842 2,054 --------- --------- Total current assets 247,298 194,549 Property and equipment, net 23,597 20,384 Other assets 1,498 358 --------- --------- Total assets $ 272,393 $ 215,291 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,986 $ 2,000 Accrued expenses 8,550 4,009 Current maturities of long-term debt 2,500 2,000 --------- --------- Total current liabilities 15,036 8,009 Long-term debt, less current maturities 9,500 11,500 Stockholders' equity: Series A convertible preferred stock, $.01 par value, 10 shares authorized; 10 shares issued and outstanding at December 31, 2000 and no shares issued and outstanding at December 31, 1999 1 -- Series B preferred stock, $.01 par value, 1,000 shares authorized; no shares issued and outstanding at December 31, 2000 and 1999 -- -- Common stock, $.01 par value; 100,000 shares authorized, 22,700 and 22,592 shares issued and outstanding at December 31, 2000 and 1999, respectively 227 226 Additional paid-in capital 413,242 311,817 Accumulated deficit (165,429) (114,408) Deferred compensation (860) (1,645) Accumulated other comprehensive income (loss) 676 (208) --------- --------- Total stockholders' equity 247,857 195,782 --------- --------- Total liabilities and stockholders' equity $ 272,393 $ 215,291 ========= ========= See accompanying Notes to Consolidated Financial Statements. 38 TRANSKARYOTIC THERAPIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) YEAR ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ------------------------------------ License and research revenues $ 7,247 $ 3,870 $ 5,325 Operating expenses: Research and development 56,440 43,946 25,617 General and administrative 15,755 10,035 6,409 -------- -------- -------- 72,195 53,981 32,026 -------- -------- -------- Loss from operations (64,948) (50,111) (26,701) Interest income 13,927 5,655 6,736 -------- -------- -------- Net loss $(51,021) $(44,456) $(19,965) ======== ======== ======== Basic and diluted net loss per share $ (2.25) $ (2.25) $ (1.05) ======== ======== ======== Shares used in computing basic and diluted net loss per share 22,675 19,763 19,052 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. 39 TRANSKARYOTIC THERAPIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONVERTIBLE (in thousands) PREFERRED STOCK COMMON STOCK --------------------- ---------------------- SHARES AMOUNTS SHARES AMOUNT --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1997 -- -- 18,929 $189 Issuances of common stock -- -- 201 2 Compensation expense related to equity issuances -- -- -- -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted -- -- (4) -- Unrealized loss on marketable securities -- -- -- -- Net loss -- -- -- -- Comprehensive loss -- -- -- -- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1998 -- -- 19,126 191 Issuances of common stock, net -- -- 3,466 35 Deferred compensation related to stock options granted -- -- -- -- Compensation expense related to equity issuances -- -- -- -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted -- -- -- -- Unrealized loss on marketable securities -- -- -- -- Net loss -- -- -- -- Comprehensive loss -- -- -- -- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1999 -- -- 22,592 226 Issuance of convertible preferred stock, net 10 $1 -- -- Issuances of common stock -- -- 108 1 Compensation expense related to equity issuances -- -- -- -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted -- -- -- -- Unrealized gain on marketable securities -- -- -- -- Foreign currency translation adjustment -- -- -- -- Net loss -- -- -- -- Comprehensive loss -- -- -- -- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2000 10 $1 22,700 $227 ========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 40
ADDITIONAL (in thousands) PAID-IN ACCUMULATED CAPITAL DEFICIT ---------- ----------- BALANCE AT DECEMBER 31, 1997 $185,451 $(49,987) Issuances of common stock 808 -- Compensation expense related to equity issuances -- -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted (192) -- Unrealized loss on marketable securities -- -- Net loss -- (19,965) Comprehensive loss -- -- --------- --------- BALANCE AT DECEMBER 31, 1998 186,067 (69,952) Issuances of common stock, net 125,715 -- Deferred compensation related to stock options granted 208 -- Compensation expense related to equity issuances 67 -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted (240) -- Unrealized loss on marketable securities -- -- Net loss -- (44,456) Comprehensive loss -- -- --------- --------- BALANCE AT DECEMBER 31, 1999 311,817 (114,408) Issuance of convertible preferred stock, net 99,796 -- Issuances of common stock 1,672 -- Compensation expense related to equity issuances -- -- Reversal of deferred compensation related to forfeited restricted stock and stock options granted (43) -- Unrealized gain on marketable securities -- -- Foreign currency translation adjustment -- -- Net loss -- (51,021) Comprehensive loss -- -- --------- --------- BALANCE AT DECEMBER 31, 2000 $413,242 $(165,429) ========= =========
See accompanying Notes to Consolidated Financial Statements. 41
ACCUMULATED OTHER TOTAL (in thousands) DEFERRED COMPREHENSIVE STOCKHOLDERS' COMPENSATION INCOME (LOSS) EQUITY ------------ ------------- ------------- BALANCE AT DECEMBER 31, 1997 $ (3,940) $ 36 $ 131,749 Issuances of common stock -- -- 810 Compensation expense related to equity issuances 1,116 -- 1,116 Reversal of deferred compensation related to forfeited restricted stock and stock options granted 192 -- -- Unrealized loss on marketable securities -- (64) (64) Net loss -- -- (19,965) --------- Comprehensive loss -- -- (20,029) --------- --------- --------- BALANCE AT DECEMBER 31, 1998 (2,632) (28) 113,646 Issuances of common stock, net -- -- 125,750 Deferred compensation related to stock options granted (208) -- -- Compensation expense related to equity issuances 955 -- 1,022 Reversal of deferred compensation related to forfeited restricted stock and stock options granted 240 -- -- Unrealized loss on marketable securities -- (180) (180) Net loss -- -- (44,456) --------- Comprehensive loss -- -- (44,636) --------- --------- --------- BALANCE AT DECEMBER 31, 1999 (1,645) (208) 195,782 Issuance of convertible preferred stock, net -- -- 99,797 Issuance of common stock -- -- 1,673 Compensation expense related to equity issuances 742 -- 742 Reversal of deferred compensation related to forfeited restricted stock and stock options granted 43 -- -- Unrealized gain on marketable securities -- 776 776 Foreign currency translation adjustment -- 108 108 Net loss -- -- (51,021) --------- Comprehensive loss -- -- (50,137) --------- --------- --------- BALANCE AT DECEMBER 31, 2000 $ (860) $ 676 $ 247,857 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 42 TRANSKARYOTIC THERAPIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) YEAR ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 --------- --------- --------- OPERATING ACTIVITIES: Net loss $ (51,021) $ (44,456) $ (19,965) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 2,411 1,983 2,056 Compensation expense related to equity issuances 742 1,022 1,116 Changes in operating assets and liabilities: Decrease (increase) in prepaid expenses and other current assets 212 280 (1,783) Increase (decrease) in accounts payable 1,986 544 (200) Increase in accrued expenses 4,592 1,149 1,317 --------- --------- --------- Net cash used for operating activities (41,078) (39,478) (17,459) --------- --------- --------- INVESTING ACTIVITIES: Proceeds from sales and maturities of marketable securities 127,656 110,640 134,491 Purchases of marketable securities (281,598) (73,718) (107,318) Purchases of property and equipment (5,624) (17,227) (2,660) Increase in other assets (1,140) (25) (26) --------- --------- --------- Net cash provided by (used for) investing activities (160,706) 19,670 24,487 --------- --------- --------- FINANCING ACTIVITIES: Issuance of convertible preferred stock, net 99,797 -- -- Issuances of common stock 1,673 125,750 810 Proceeds from long-term debt financing -- 14,000 -- Principal payments of long-term debt (1,500) (500) -- --------- --------- --------- Net cash provided by financing activities 99,970 139,250 810 Effect of exchange rate changes on cash and cash equivalents 57 -- -- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (101,757) 119,442 7,838 Cash and cash equivalents at January 1 151,202 31,760 23,922 --------- --------- --------- Cash and cash equivalents at December 31 $ 49,445 $ 151,202 $ 31,760 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 43 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Transkaryotic Therapies, Inc. ("TKT" or "the Company") is a biopharmaceutical company engaged in the development and commercialization of products based on its three proprietary development platforms: Gene-Activated(R) proteins, Niche Protein(TM) products and gene therapy. 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss). The foreign currency translation component of accumulated other comprehensive income amounted to $108,000 at December 31, 2000. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS Cash equivalents include funds held in investments with original maturities of three months or less at the time of purchase. Marketable securities consist of U.S. government and agency obligations. The fair values of marketable securities are based on quoted market prices. The Company determines the classification of cash equivalents and marketable securities at the time of purchase and re-evaluates such designation as of each balance sheet date. The Company has classified such holdings as available-for-sale securities, which are carried at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss). Unrealized gains of $568,000 were included in accumulated other comprehensive income at December 31, 2000. Financial instruments that potentially subject the Company to concentrations of credit risk consist of temporary cash investments and marketable securities. The Company maintains cash and cash equivalents with high credit-quality financial institutions and limits the amount of credit exposure to any one institution. The Company's credit exposure on its marketable securities is limited by its diversification among U.S. government and agency obligations. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of the respective asset, ranging from three to five years. Leasehold improvements are stated at cost and are amortized using the straight-line method over the term of the lease or the estimated useful life of the asset, whichever is shorter. 44 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK-BASED COMPENSATION The Company accounts for qualified stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, and, accordingly, recognizes no compensation expense for the issue thereof. For certain non-qualified stock options granted, the Company recognizes as compensation expense the excess of the fair value of the common stock issuable upon exercise over the aggregate exercise price of such options. The compensation is amortized over the vesting period of each option or the recipient's term of employment, if shorter. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation." In April 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25." The Interpretation has been applied prospectively to new awards, modifications to outstanding awards, and changes in employee status on or after July 1, 2000, except in certain circumstances. This interpretation has not had a material impact on the Company's financial position and results of operations. LICENSE AND RESEARCH REVENUES The Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin 101 (SAB 101) in the fourth quarter of 2000. The Company derives its license and research revenue primarily from license fees and the achievement of certain milestones under collaborative agreements. Revenue from license fees is recorded once all significant obligations under the collaborative agreements have been fulfilled by the Company. Milestones are recorded when the Company has successfully completed the substantive performance objectives and obligations related to the milestone. There was no effect on the financial statements as a result of implementing SAB 101. The Company is located in the U.S. and derives substantially all of its license and research revenues from services provided in the U.S. Current licensing agreements provide for the sale of products in both the U.S. and abroad. To date, the Company has not recorded revenues from the sale of any product. INCOME TAXES Deferred tax assets are determined based on differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization. NET LOSS PER SHARE The Company calculates net loss per share in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share is computed using the weighted average shares outstanding. Basic net loss per share was equivalent to diluted net loss per share for the years ended December 31, 2000, 1999 and 1998 since common equivalent shares from convertible preferred stock, stock options and warrants have been excluded as their effect is antidilutive. 45 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements establish accounting and reporting standards for derivative instruments and for hedging activities. Currently, the Company does not hold derivative instruments and has not entered into any hedging arrangements. The Company does not hedge its foreign currency exposures. Thus, the Company anticipates that the adoption of FAS 133 will not have a material impact on the Company's financial position or results of operations. 3. FINANCIAL INSTRUMENTS The following is a summary of available-for-sale securities: GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR (in thousands) COST GAINS LOSSES VALUE ----- ---------- ----------- ----------- December 31, 2000 $211,352 $ 574 $ (6) $211,920 ======== ======= ======= ======== December 31, 1999 $170,456 $ 83 $ (291) $170,248 ======== ======= ======= ======== These securities are classified in the accompanying balance sheets as follows: December 31, (in thousands) --------------------------- 2000 1999 -------- -------- Cash equivalents $ 15,909 $128,955 Marketable securities 196,011 41,293 -------- -------- $211,920 $170,248 ======== ======== Maturities of marketable securities held at December 31, 2000 are as follows: Less than one year $185,839 One through two years 10,172 -------- $196,011 ======== 46 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following: (in thousands) DECEMBER 31, ------------------------- 2000 1999 ------- ------- Leasehold improvements $ 8,017 $ 7,823 Laboratory equipment 7,533 6,009 Office furniture and equipment 4,883 3,816 Construction in process 17,075 14,236 ------- ------- 37,508 31,884 Less accumulated depreciation and amortization 13,911 11,500 ------- ------- $23,597 $20,384 ======= ======= Depreciation and amortization expense on property and equipment was $2,411,000, $1,983,000 and $2,025,000 in 2000, 1999 and 1998, respectively. 5. ACCRUED EXPENSES Accrued expenses consist of the following: (in thousands) DECEMBER 31, ----------------- 2000 1999 ------ ------ External development services $4,106 $1,491 Salaries and benefits 2,337 1,140 Professional fees 801 538 Other 1,306 840 ------ ------ $8,550 $4,009 ====== ====== 6. LONG-TERM DEBT At December 31, 2000, the Company had $12,000,000 outstanding under an unsecured term loan facility that was used to finance capital equipment and leasehold improvements. Loan repayments began in December 1999 on the basis of a seven year amortization schedule over a five year period, with a final payment for any remaining outstanding amount in September 2004. The loan bears interest at either the prime rate or LIBOR plus 1.50%, at the Company's election. The weighted average interest rate of the loan was 8.0% as of December 31, 2000. The note contains certain restrictive covenants including, among other things, minimum cash and tangible net asset requirements and a prohibition on the payment of dividends. For the years ended December 31, 2000 and 1999, capitalized interest, in connection with construction in process, was $1,042,000 and $410,000, of which $836,000 and $352,000 was paid, respectively. Maturities of long-term debt for the years ending December 31 are as follows: (in thousands) 2001 $ 2,500 2002 2,000 2003 2,000 2004 5,500 ------- $12,000 ======= 47 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LETTERS OF CREDIT As of December 31, 2000, the Company had outstanding letters of credit primarily related to lease obligations, totaling $7,450,000. Marketable securities totaling $8,516,000 are restricted and serve as collateral for the letters of credit. 8. STOCKHOLDERS' EQUITY PREFERRED STOCK There are 10,000,000 shares of Preferred Stock authorized, of which 10,000 shares have been designated for Series A Convertible Preferred Stock and 1,000,000 shares have been designated for Series B Junior Participating Preferred Stock. SERIES A CONVERTIBLE PREFERRED STOCK In June 2000, the Company completed a private placement of 10,000 shares of Series A Convertible Preferred Stock ("Series A Preferred Stock"), resulting in net proceeds of $99,797,000. The Series A Preferred Stock converts, at the option of the holder, into approximately 3,571,000 shares of the Company's Common Stock based on a conversion price of $28.00 per share, subject to adjustment under specified terms and conditions. Such common shares have been reserved for conversion. The Company, at its option, may redeem all, but not less than all, of the shares of the Series A Preferred Stock, at any time after December 15, 2000, at a price of $10,000 per share, plus dividends thereon declared but unpaid, provided certain specified criteria are met. The holders are entitled to dividends when and as declared by the Board of Directors on the shares of Common Stock. In the event of any liquidation, dissolution or winding-up of the Company, the holders of the Series A Preferred Stock are entitled to receive, prior to and in preference to the holders of Common Stock, $10,000 per share, subject to adjustments, plus any dividends thereon declared but unpaid. Each issued and outstanding share of Series A Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which each share of Series A Preferred Stock is then convertible. SHAREHOLDER RIGHTS PLAN In December 2000, the Company adopted a shareholder rights plan. The plan is intended to ensure that TKT shareholders realize the full value of their investment and to provide fair and equal treatment for all shareholders in the event that an unsolicited attempt is made to acquire TKT. Under the plan, a dividend of one Preferred Stock purchase right was declared for each share of Common Stock held of record as of the close of business on December 26, 2000. One million shares of Preferred Stock have been designated as Series B Junior Participating Preferred Stock ("the Series B Preferred Stock") and are reserved for issuance in connection with the shareholder rights plan. Each right entitles the holder to purchase from the Company one one-thousandth of a share of Series B Preferred Stock. Initially the rights are not exercisable and will automatically trade with the underlying shares of Common Stock. The rights will not become exercisable unless a person acquires, or commences a tender offer to acquire, beneficial ownership of 20% or more of the Company's outstanding Common Stock, subject to certain limited exceptions. If the rights become exercisable, each right would initially entitle shareholders of TKT, other than the acquiring person, to purchase 1/1,000th of a share of Series B Preferred Stock at an initial exercise price of $289. If a person acquires beneficial ownership of 20% or more of the Company's outstanding Common Stock, subject to certain limited exceptions, each right, other than those owned by the acquiring person, would entitle its holder to purchase shares of the Company's Common Stock having a market value of two times the exercise price of the right. The rights may be redeemed by the Board in certain circumstances and will expire in December 2010 unless extended. STOCK COMPENSATION PLANS The Company has adopted several stock compensation plans, which provide for the issuance of incentive and non-qualified stock options, stock appreciation rights, restricted stock, long-term performance awards and stock grants to employees, Directors and consultants of the Company at prices determined by the Board of Directors. At December 31, 2000, approximately 4,079,000 shares of Common Stock have been reserved for issuance under the plans. Options generally vest ratably over periods ranging from two to six years and are exercisable for ten years from the date of grant. 48 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option activity under the plans is as follows: (in thousands, except share prices)
2000 1999 1998 ------------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------------------------ Outstanding at January 1 2,214 $23.57 1,370 $12.99 976 $ 5.76 Granted 1,285 35.65 1,179 33.56 507 25.91 Exercised (108) 15.57 (167) 7.04 (51) 1.28 Cancelled (142) 32.78 (168) 23.10 (62) 11.98 ----- ----- ----- Outstanding at December 31 3,249 28.21 2,214 23.57 1,370 12.99 ===== ===== ===== Options exercisable at December 31 905 $21.51 515 $16.96 395 $13.95 ===== ===== ===== Weighted average fair value per share of options granted during the year $27.10 $20.72 $15.63
The exercise price and life information for significant option groups outstanding at December 31, 2000 is as follows: (in thousands, except share prices)
EXERCISABLE ---------------------------- WEIGHTED AVERAGE WEIGHTED RANGE OF NUMBER OF REMAINING AVERAGE WEIGHTED EXERCISE OPTIONS CONTRACTUAL EXERCISE NUMBER OF AVERAGE PRICES OUTSTANDING LIFE (Yrs.) PRICE OPTIONS EXERCISE PRICE - --------- ----------- ------------ --------- -------- -------------- $.01 466 4.95 $0.01 279 $0.01 $16.75-25.12 452 7.69 $21.60 120 $20.97 $26.19-37.56 1,494 8.56 $31.32 382 $31.34 $37.75-55.19 817 9.39 $41.19 123 $40.20 $67.88-84.25 20 9.20 $72.91 1 $68.96 ----- --- 3,249 905 ===== ===
Pursuant to the requirements of SFAS No. 123, the following are the pro forma net loss and net loss per share amounts for 2000, 1999 and 1998, as if stock-based compensation had been determined based on the fair value at the grant date for grants in 2000, 1999 and 1998, consistent with the provisions of SFAS No. 123: (in thousands, except per share amounts)
2000 1999 1998 -------------------------- -------------------------- ------------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- ----------- --------- Net loss $(51,021) $(68,399) $(44,456) $(52,193) $(19,965) $(23,774) Basic and diluted Net loss per share $ (2.25) $ (3.02) $ (2.25) $ (2.64) $ (1.05) $ (1.25)
49 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of options issued pursuant to the plans at the date of grant were estimated using the Minimum Value method for options granted prior to the initial public offering and the Black-Scholes model for options granted subsequent to the initial public offering. The estimation of the fair value of these options at the date of grant used the following assumptions: 2000 1999 1998 ------- ------- -------- Expected life (years) 2.5-7.5 1.5-7.5 2.5-7.5 Interest rate 4.8-5.2% 5.2%-6.7% 4.5-4.8% Expected volatility 0.95 0.70 0.70 The Company has never declared or paid dividends on any of its capital stock and does not expect to do so in the foreseeable future. The pro forma effects on 2000, 1999 and 1998 net loss and net loss per share of expensing the estimated fair value of stock options issued are not necessarily representative of the effects on reporting the results of operations for future years as the periods presented include only four years, three years and two years, respectively, of option grants. 9. LICENSE AND RESEARCH AGREEMENTS The Company entered into license agreements with Aventis Pharma ("Aventis"), formerly Hoechst Marion Roussel, Inc., whereby Aventis was granted exclusive worldwide rights to make, use and sell two therapeutic products produced under patent rights and technologies owned by the Company. In December 2000, the Company re-acquired worldwide commercial rights to the second product, GA-II. As of December 31, 2000, the Company has received $64,000,000 from the sale of stock, nonrefundable licensing fees, milestone payments related to the successful completion of certain development milestones, and contract research fundings, pursuant to the agreements with Aventis. As part of the remaining agreement, Aventis will make additional payments of up to $28,000,000 upon achievement of certain development milestones and pay royalties based on net sales of the product. For the years ended December 31, 2000, 1999 and 1998, license and research revenues earned from Aventis totaled $3,500,000, $3,531,000 and $3,325,000, respectively. At December 31, 2000, Aventis owned 2,187,000 shares of the Company's Common Stock. For the years ended December 31, 2000 and 1999, license and research revenues from Sumitomo Pharmaceutical Co., Ltd. totaled $1,051,000 and $339,000, respectively. In 2000, the Company also received license and research revenue from Genetics Institute, Inc. in the amount of $2,696,000. The Company licenses certain technology from various universities and research organizations. Under the terms of these agreements, the Company is required to make payments of nonrefundable license fees and royalties on future sales of products employing the technology. 10. EMPLOYEE RETIREMENT PLANS The Company maintains a qualified defined contribution plan covering substantially all employees of the Company. The Company matches 50% of employee contributions, up to 7% of compensation. Employer contributions vest ratably over five years; the related expense was $471,000, $310,000 and $231,000 in 2000, 1999 and 1998, respectively. In 2000, the Company established a non-qualified deferred compensation plan, which permits certain management employees to annually elect to defer a portion of their compensation, on a pre-tax basis. The amount of compensation deferred, the Company match, and earnings on deferrals included in accrued expenses at December 31, 2000, the benefit is $347,000. 50 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. INCOME TAXES At December 31, 2000, the Company had unused net operating loss carryforwards of $144,264,000 and research and development tax credits of $27,109,000, which expire through 2020. Due to the degree of uncertainty related to the ultimate use of the loss carryforwards and tax credits, the Company has fully reserved this tax benefit. Additionally, the future utilization of the net operating loss carryforwards and tax credits may be subject to limitations under the change in stock ownership rules of the Internal Revenue Service. Significant components of the Company's deferred tax assets are as follows: (in thousands) December 31 --------------------- 2000 1999 ------ ------- Deferred tax assets: Net operating loss carryforwards $57,705 $ 40,115 Research and development tax credits 27,109 15,575 Depreciation and amortization 1,789 1,625 Other 386 225 ------- ------- Total deferred tax assets 86,989 57,540 Valuation allowance (86,989) (57,540) ------- ------- Net deferred tax assets $ -- $ -- ======= ======= The valuation allowance increased by $29,449,000 during 2000 primarily due to the increase in net operating loss carryforwards and tax credits. The difference between the Company's expected tax benefit, as computed by applying the U.S. federal corporate tax rate of 34% to the loss before provision for income taxes, and the actual tax is attributable to tax losses and credits for which the Company has not recognized any tax benefit. 12. COMMITMENTS AND CONTINGENCIES In April 1997, Amgen Inc. commenced a patent infringement action against the Company and Aventis in the U.S. District Court of Massachusetts. Amgen's Complaint, as subsequently amended, sought a declaratory judgment that the Company's Dynepo product, and the cells and processes used to make Dynepo, infringe or will infringe five of Amgen's U.S. patents. In January 2001, the District Court ruled that eight claims of three of the patents were valid, enforceable and infringed. Amgen did not request and was not awarded monetary damages. In February 2001, the Company and Aventis filed a Notice of Appeal with the U.S. Court of Appeals for the Federal Circuit from the judgment of the District Court. The Company and Aventis believe that they have substantial grounds for appeal. Amgen filed a Notice of Cross Appeal in February 2001 with the U.S. Court of Appeals for the Federal Circuit. In addition, in July 1999, the Company commenced legal proceedings in the U.K. against Kirin-Amgen, Inc., seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by TKT's activities related to Dynepo and that numerous claims of Kirin-Amgen's U.K. patent are invalid. The trial concluded in February 2001, and a decision is expected in 2001. Pursuant to the Amended and Restated License Agreement, dated March 1995, by and between Aventis and the Company, Aventis has assumed the cost of defense of the Amgen and Kirin-Amgen litigation. The Company will reimburse Aventis for the Company's share of litigation expenses, as defined, from future royalties, if any, received from the sale of Dynepo and in certain other circumstances. 51 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 2000, Genzyme Corporation ("Genzyme") and Mt. Sinai School of Medicine of New York University ("Mt. Sinai") brought suit against TKT in the U.S. District Court of Delaware alleging that certain of TKT's activities relating to the Company's ReplagalTM product infringe or will infringe one or more claims of a U.S. patent held by them. Genzyme and Mt. Sinai's complaint requested that the District Court award Genzyme and Mt. Sinai monetary damages and injunctive relief. The trial is scheduled to begin in March 2002. The Company can provide no assurance as to the outcome of these proceedings. A decision by a court in the United States or in any other jurisdiction in a manner adverse to the Company would have a material adverse effect on the Company's business, financial condition, and results of operations. The Company leases its facilities under operating leases that expire through 2011, subject to renewal provisions. Future annual minimum payments under such commitments are as follows: YEAR ENDED (in thousands) 2001 $ 4,145 2002 9,781 2003 9,415 2004 7,646 2005 7,638 Thereafter 47,750 ------- $86,375 ======= Rent expense was $2,537,000, $1,962,000 and $1,316,000, in 2000, 1999 and 1998, respectively. At December 31, 2000, the Company had committed to pay approximately $28,560,000 to third parties for certain product development activities through 2004. The Company has the right to terminate this agreement upon six months written notice. 13. QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year 2000 -------- -------- -------- -------- -------- License and research revenues $ -- $ 1,514 $ 5,357 $ 376 $ 7,247 Total expenses 15,721 16,655 17,096 22,723 72,195 Net loss $(13,099) $(12,220) $ (7,506) $(18,196) $(51,021) Basic and Diluted net loss per share $ (0.58) $ (0.54) $ (0.33) $ (0.80) $ (2.25) 1999 License and research revenues $ 721 $ -- $ 649 $ 2,500 $ 3,870 Total expenses 11,522 13,710 14,589 14,160 53,981 Net loss $ (9,458) $(12,517) $(12,870) $ (9,611) $(44,456) Basic and Diluted net loss per share $ (0.49) $ (0.65) $ (0.67) $ (0.45) $ (2.25)
52 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in part under the caption "Executive Officers of the Company" in PART I hereof, and in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held on June 14, 2001 (the "Proxy Statement") under the caption "Proposal 1 - Election of Directors" and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained under the caption "Executive Compensation" in the Company's Proxy Statement and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in the Company's Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Company's Proxy Statement under the caption "Certain Transactions" and is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of this Form 10-K: 1. Financial Statements. The following documents are filed as part of this Annual Report on Form 10-K: Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Stockholders' Equity for years ended December 31, 2000, 1999 and 1998 53 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements 2. Financial Statement Schedules. The Company is not filing any financial statement schedules as part of this Annual Report on Form 10-K because they are not applicable or the required information is included in the financial statements or notes thereto. 3. Exhibits. The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Annual Report on Form 10-K, and such Exhibit Index is incorporated herein by reference. (b) Reports on Form 8-K: Report on Form 8-K filed November 22, 2000, announcing that the United States Food and Drug Administration requested additional data regarding Dynepo. Report on Form 8-K filed December 12, 2000, announcing that the Company had reacquired GA-II from Aventis Pharma. Report on Form 8-K filed December 14, 2000, announcing the filing of a Registration Statement on Form S-3 and the adoption of a shareholders rights plan. 54 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. TRANSKARYOTIC THERAPIES, INC. By: /s/ Richard F Selden -------------------- Richard F Selden President and Chief Executive Officer Date: April 2, 2001 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, in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Richard F Selden President, Chief Executive Officer April 2, 2001 - ---------------------------- and Director (Principal Executive Richard F Selden Officer) /s/ Daniel E. Geffken Senior Vice President, Finance and April 2, 2001 - ---------------------------- Chief Financial Officer Daniel E. Geffken (Principal Accounting and Financial Officer) /s/ Rodman W. Moorhead, III Chairman of the Board of Directors April 2, 2001 - ---------------------------- Rodman W. Moorhead, III /s/ Jonathan S. Leff Director April 2, 2001 - ---------------------------- Jonathan S. Leff /s/ William R. Miller Director April 2, 2001 - ---------------------------- William R. Miller /s/ Walter Gilbert Director April 2, 2001 - ---------------------------- Walter Gilbert /s/ James E. Thomas Director April 2, 2001 - ---------------------------- James E. Thomas /s/ Wayne P. Yetter Director April 2, 2001 - ---------------------------- Wayne P. Yetter
55 Exhibit Index Exhibit No. Description - ----------- ----------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant. (1) 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant, dated June 15, 2000. (2) 3.3 Certificate of Designation, Number, Voting Powers, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant, dated June 9, 2000. (2) 3.4 Certificate of Designation of Series B Junior Participating Preferred Stock of the Registrant, dated December 13, 2000. (3) 3.5 Amended and Restated By-Laws of the Registrant. (4) 3.6 Amendment No. 1 to Amended and Restated By-Laws. (2) 3.7 Amendment No. 2 to Amended and Restated By-Laws. (3) 4.1 Rights Agreement dated December 13, 2000, between Registrant and Equiserve Trust Company, N.A. (5) 10.1 Amended and Restated Registration Rights Agreement, dated November 3, 1993 and amended on May 13, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and August 7, 1996, by and among certain holders of the Registrant's Preferred Stock named therein and the Registrant. (6) 10.2 Lease Agreement, dated January 1, 1994, for office space at 195 Albany Street, Cambridge, Massachusetts, by and between the Trust under the Will of Harry F. Stimpson and the Registrant. (6) 10.3 Sublease Agreement, dated April 7, 1992, for office space located at 185 Albany Street, Cambridge, Massachusetts, by and between the Massachusetts Institute of Technology and the Registrant. (6) 10.4 1993 Non-Employee Directors' Stock Option Plan. (6) (7) 10.5 1993 Long-Term Incentive Plan. (7) (8) 10.6 Form of Letter Agreement re: Confidentiality, Inventions and Non-Disclosure. (6) 10.7 Form of Letter Agreement re: Restricted Stock. (6) 10.8 Form of Scientific Advisor Agreement. (6) 56 10.9 Employment Agreement, dated June 19, 1991, by and between Dr. Richard F Selden and the Registrant. (6) (7) 10.10 Employment Agreement, dated July 26, 1991, by and between Dr. Douglas A. Treco and the Registrant. (6) (7) 10.11 Agreement, dated September 1, 1991, by and between Mr. William R. Miller and the Registrant. (6) (7) 10.12 Agreement, dated July 30, 1993, by and between E.M. Warburg, Pincus & Co. and the Registrant. (6) (7) 10.13 Collaboration and License Agreement, dated July 22, 1993 and amended on May 30, 1996, by and between Genetics Institute, Inc. and the Registrant. (5) (9) 10.14 Amended and Restated License Agreement, dated March 1, 1995, by and between Aventis S.A. and the Registrant. (6) (9) 10.15 Fifth Amendment to Registration Rights Agreement, dated October 1, 1996, by and among certain holders of the Registrant's Preferred Stock named therein and the Registrant. (6) 10.16 Employment Agreement, dated February 20, 1997, by and between Mr. Daniel E. Geffken and the Registrant. (7) (10) 10.17 Form of Common Stock Purchase Agreement by and between each Purchaser of shares in the Registrant's directed public offering of common stock in 1997 and the Registrant. (11) 10.18 Employment Agreement, dated April 12, 1999, by and between Mr. William H. Pursley and the Registrant. (7) (12) 10.19 Common Stock Purchase Agreement by and between each Purchaser of shares in the Registrant's private placement of common stock in November 1999 and the Registrant. (13) 10.20 Agreement, dated November 15, 1999, by and between Mr. Wayne P. Yetter and the Registrant. (7) (13) 10.21 Employment agreement, dated February 4, 2000, by and between Dr. Joseph G. Habarta and the Registrant. (7) (14) 10.22 Registration Rights Agreement, dated June 9, 2000, by and between certain holders of Series A Convertible Preferred Stock and the Registrant. (15) 10.23 Agreement, dated April 20, 2000, by and between Dr. Walter Gilbert and the Registrant. (7) (15) 10.24 Agreement, dated June 16, 2000, by and between Mr. James E. Thomas and the Registrant. (7) (15) 57 10.25 Employment Agreement, dated May 18, 2000, by and between Mr. Michael J. Astrue and the Registrant. (7) (15) 10.26 Lease Agreement, dated August 4, 2000, for new corporate headquarters and research and development space at 28 Osborn Street, Cambridge, Massachusetts, by and between the Massachusetts Institute of Technology and the Registrant. (16) 10.27 Purchase and Sale and Assignment Agreement, dated November 28, 2000, by and between Serono, Inc. and the Registrant. (3) 10.28 First Amendment to Purchase and Sale and Assignment Agreement, dated February 8, 2001, by and between Serono, Inc. and the Registrant. (3) 10.29 Lease Agreement, dated February 2001, by and between Trinet Property Partners, L.P and the Registrant. (3) 10.30 Reimbursement Agreement, dated May 18, 2000, by and between Mr. William H. Pursley and the Registrant. (3) 10.31 2001 Non-Officer Employee Stock Incentive Plan. (3) 10.32 2000 Nonqualified Deferred Compensation Plan. (3) 21.1 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as amended, of the Trustee under the Senior Indenture will be incorporated herein by reference from a subsequent filing in accordance with Section 305(b)(2) of the Trust Indenture Act of 1939. (17) 25.2 State of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as amended, of the Trustee under the Subordinated Indenture will be incorporated herein by reference from a subsequent filing in accordance with Section 305 (b)(2) of the Trust Indenture Act of 1939. (17) FOOTNOTES 1. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference. 2. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference. 3. Filed as an exhibit to this Annual Report on Form 10-K for the year ended December 31, 2000. 58 4. Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. 5. Filed as an exhibit to the Company's Report on Form 8-K filed with the SEC on December 14, 2000 and incorporated herein by reference 6. Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 333-10845) and incorporated herein by reference. 7. Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. 8. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference. 9. Confidential treatment granted as to certain portions. 10. Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference. 11. Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 333-31957) and incorporated herein by reference. 12. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference. 13. Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference. 14. Filed as an exhibit to the Company's Quarterly Report on From 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference. 15. Filed as an exhibit to the Company's Quarterly Report on From 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference. 16. Filed as an exhibit to the Company's Quarterly Report on From 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference. 17. Filed as an exhibit to the Company's Registration Statement on Form S-3 filed with the SEC on December 13, 2000 (File No. 333-51772) and incorporated herein by reference. 59 EX-3.4 2 a2042542zex-3_4.txt EXHIBIT 3.4 Exhibit 3.4 CERTIFICATE OF DESIGNATIONS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK OF TRANSKARYOTIC THERAPIES, INC. - ------------------------------------------------------------------------------- Transkaryotic Therapies, Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation at a meeting duly called and held on December 13, 2000: RESOLVED: That pursuant to the authority granted to and vested in the Board of Directors of the Corporation (hereinafter called the "Board") in accordance with the provisions of the Certificate of Incorporation, as amended, the Board hereby creates a series of Preferred Stock, $0.01 par value per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof as follows: SERIES B JUNIOR PARTICIPATING PREFERRED STOCK: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series B Junior Participating Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be one million (1,000,000). Such number of shares may be increased or decreased by resolution of the Board prior to issuance; PROVIDED, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series B Preferred Stock. Section 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Common Stock, par value $0.01 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds of the Corporation legally available for the payment of dividends, quarterly dividends payable in cash on the last day of each fiscal quarter of the Corporation in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the A-1 aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series B Preferred Stock payable in shares of Series B Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series B Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series B Preferred Stock) into a greater or lesser number of shares of Series B Preferred Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (b) of the first sentence of this Section 2(A) shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series B Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series B Preferred Stock outstanding immediately after such event. (B) The Corporation shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock) and the Corporation shall pay such dividend or distribution on the Series B Preferred Stock before the dividend or distribution declared on the Common Stock is paid or set apart; provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series B Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the A-2 total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series B Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series B Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series B Preferred Stock payable in shares of Series B Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series B Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series B Preferred Stock) into a greater or lesser number of shares of Series B Preferred Stock, then in each such case the number of votes per share to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series B Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series B Preferred Stock outstanding immediately after such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or by law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series B Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series B Preferred Stock, voting as a separate series from all other series of Preferred Stock and classes of capital stock, shall be entitled to elect two members of the Board in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of the Corporation shall, as soon as may be practicable, call a special meeting of holders of Series B Preferred Stock for the purpose of electing such members of the Board. Such special meeting shall in any event be held within 45 days of the occurrence of such arrearage. A-3 (ii) During any period when the holders of Series B Preferred Stock, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then, and during such time as such right continues, (a) the then authorized number of Directors shall be increased by two, and the holders of Series B Preferred Stock, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of any existing class of the Board, but shall serve until the next annual meeting of stockholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3(C). (iii) A Director elected pursuant to the terms hereof may be removed with or without cause by the holders of Series B Preferred Stock entitled to vote in an election of such Director. (iv) If, during any interval between annual meetings of stockholders for the election of Directors and while the holders of Series B Preferred Stock shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board shall call a special meeting of the holders of Series B Preferred Stock for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting. Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy. (v) At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any shares of Series B Preferred Stock outstanding are paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant to this Section 3(C), or his successor, shall automatically terminate, and the authorized number of Directors shall automatically decrease by two, the rights of the holders of the shares of the Series B Preferred Stock to vote as provided in this Section 3(C) shall cease, subject to renewal from time to time upon the same terms and conditions, and the holders of shares of the Series B Preferred Stock shall have only the limited voting rights elsewhere herein set forth. (D) Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. A-4 Section 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. A-5 Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series B Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. (B) Neither the consolidation, merger or other business combination of the Corporation with or into any other corporation nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6. (C) In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series B Preferred Stock payable in shares of Series B Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series B Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series B Preferred Stock) into a greater or lesser number of shares of Series B Preferred Stock, then in each such case the aggregate amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series B Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series B Preferred Stock outstanding immediately after such event. Section 7. CONSOLIDATION, MERGER, ETC. Notwithstanding anything to the contrary contained herein, in case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly exchanged or changed into an A-6 amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series B Preferred Stock payable in shares of Series B Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series B Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series B Preferred Stock) into a greater or lesser number of shares of Series B Preferred Stock, then in each such case the amount set forth in the first sentence of this Section 7 with respect to the exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series B Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series B Preferred Stock outstanding immediately after such event. Section 8. NO REDEMPTION. The shares of Series B Preferred Stock shall not be redeemable. Section 9. RANK. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Preferred Stock issued either before or after the issuance of the Series B Preferred Stock, including, without limitation, the Series A Convertible Preferred Stock, unless the terms of any such series shall provide otherwise. Section 10. AMENDMENT. At such time as any shares of Series B Preferred Stock are outstanding, the Certificate of Incorporation, as amended, of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock, voting together as a single class. Section 11. FRACTIONAL SHARES. Series B Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series B Preferred Stock. A-7 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Vice President, Finance and Chief Financial Officer this 13th day of December, 2000. TRANSKARYOTIC THERAPIES, INC. By: /s/ DANIEL E. GEFFKEN Name: Daniel E. Geffken Title: Vice President, Finance and Chief Financial Officer EX-3.7 3 a2042542zex-3_7.txt EXHIBIT 3.7 Exhibit 3.7 TRANSKARYOTIC THERAPIES, INC. AMENDMENT NO. 2 TO AMENDED AND RESTATED BY-LAWS Pursuant to Section 109 of the Delaware Corporate Law, Article II, Section 2 of the Corporation's Amended and Restated By-Laws is hereby amended and restated in its entirety as follows: "SPECIAL MEETINGS. Special meetings of the Stockholders for any purpose may be called at any time by the Board of Directors, the Chairman of the Board, or if no Chairman has been elected, by the President and Chief Executive Officer, and shall be called by the Chairman of the Board or, if none, by the President and Chief Executive Officer at the request of the holders of a majority of the outstanding shares of capital stock entitled to vote. Following receipt of a request by any stockholder or stockholders entitled to call a special meeting pursuant to this Section 2, the Chairman of the Board or, if none, the President and Chief Executive Officer shall determine a date and time for the requested meeting, which date shall not be less than 60 days nor more than 90 days after receipt of such request, and the Board of Directors shall establish a record date for the determination of stockholders entitled to vote at such meeting. Following such determination and establishment, it shall be the duty of the Secretary, or if the Secretary be unable or unwilling, an Assistant Secretary, to cause notice of the special meeting to be given in accordance with Section 3 of this Article II. Special meetings shall be held at such place or places within or without the State of Delaware as shall from time to time be designated by the Board of Directors and stated in the notice of such meeting. At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting." EX-10.27 4 a2042542zex-10_27.txt EXHIBIT 10.27 Exhibit 10.27 11.10.00 PURCHASE AND SALE AND ASSIGNMENT AGREEMENT THIS PURCHASE AND SALE AND ASSIGNMENT AGREEMENT ("Agreement") is made as of the 28th day of November, 2000, by and among Serono, Inc., a Delaware corporation ("Seller"), Transkaryotic Therapies, Inc., a Delaware corporation ("Buyer"), and joined in for the limited purposes set forth herein by Stewart Title Insurance Company, as escrow agent ("Escrow Agent"). BACKGROUND A. Seller is the owner of the following real and personal property (collectively, the "Property"): (1) The land with the improvements thereon ("Improvements") on a certain parcel of land located at 78-80 Pacella Park Drive, Randolph, Norfolk County, Massachusetts, as more particularly described in EXHIBIT A hereto, together with all easements, rights and privileges appurtenant thereto (the "Real Property"); (2) All personal property, fixtures and equipment now located in or attached to the Real Property, including without limitation the personal property, fixtures and equipment listed in EXHIBIT A-1 hereto; and (3) All existing intangible property used by Seller in connection with the operation of the foregoing, including, without limitation, all contract rights, guarantees, licenses, permits and warranties. B. Seller is the tenant under a lease of certain premises located at 76 Pacella Park Drive, Randolph, Norfolk County, Massachusetts ("Leased Premises") dated October 16, 1984, as amended by a First Amendment dated as of August 1, 1987, an undated Second Amendment, and a Third Amendment dated as of January 27, 1993 (as so amended, the "Lease"). C. Seller is prepared to sell, transfer and convey the Property to Buyer, to assign its interest under the Lease to Buyer, and to provide a guaranty of certain obligations of Buyer under the Amended Lease (as defined in Section 4.1.9 below), and, subject to the terms of Section 4.1.9 below, Buyer is prepared to purchase and accept the same from Seller and to assume Seller's obligations under the Lease, all for the purchase price and on the other terms and conditions hereinafter set forth. TERMS AND CONDITIONS In consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree: 1. SALE AND PURCHASE; ASSIGNMENT AND ASSUMPTION. Seller hereby agrees to sell, transfer and convey the Property to Buyer, and to assign its interest under the Lease to Buyer, and Buyer hereby agrees to purchase and accept the Property from Seller, and to assume the obligations of Seller under the Lease, in each case for the purchase price and on and subject to the other terms and conditions set forth in this Agreement. 2. PURCHASE PRICE. The purchase price for the Property (the "Purchase Price") shall be Nine Million and 00/100 Dollars ($9,000,000.00), and the consideration for the assignment of the Lease shall be the assumption thereof by Buyer, which, subject to the terms and conditions hereinafter set forth, shall be paid to Seller by Buyer as follows: 2.1. DEPOSIT. By December 1, 2000, Buyer shall deliver to Escrow Agent, in immediately available funds, to be held in escrow and delivered in accordance with this Agreement, a cash deposit in the amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) (such amount, with all interest earned thereon, shall hereinafter be referred to as the "Deposit"). The Deposit shall be held in an insured, interest bearing account by Escrow Agent, with interest credited to Buyer, and shall be applied to the Purchase Price hereunder. The Deposit shall be non-refundable (except as provided in Sections 4.1.4.2, 4.1.5, 4.1.6, 5, 9 and 10.2 hereunder), but shall be applied to the Purchase Price at the Closing. 2.2. PAYMENT AT CLOSING. At the consummation of the transaction contemplated hereby (the "Closing"), Buyer shall deliver to Escrow Agent cash in an amount equal to the Purchase Price less the Deposit. The Purchase Price, subject to adjustments and apportionments as set forth herein, shall be paid at Closing by wire transfer of immediately available federal funds, transferred to the order or account of Seller or such other person as Seller may designate in writing. 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: 3.1. AUTHORITY. Seller is a corporation duly formed and validly existing under the laws of the Commonwealth of Massachusetts, and has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. The execution and delivery of this Agreement have been duly authorized. 3.2. NO CONFLICT. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Seller do not and will not conflict with or result in the breach of any material terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, or encumbrance upon any of the Property or the Lease, or assets of the Seller by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Seller is a party or which is or purports to be binding upon Seller or which otherwise affects Seller, which will not be discharged, assumed or released at Closing, except for the agreements to be obtained from Trinet Property Partners Limited Partnership ("Landlord") with respect to the Lease and the Leased Premises under the provisions of Section 4.1.9 below. No action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality, and no consent of any third party (other than Landlord) is necessary to make this Agreement a valid instrument binding upon Seller in accordance with its terms. -2- 3.3. LEASES; SUBLEASES. There are no leases or occupancy agreements currently in effect that affect the Property. The only lease which affects the Leased Premises is the Lease, a true, correct, and complete copy of which is attached hereto as SCHEDULE 3.3. There are no other agreements, written or oral, with respect to the Lease, other than as set forth in SCHEDULE 3.3. There are no subleases or occupancy agreements (other than the Lease) currently in effect that affect the Leased Premises. 3.4. NO CONDEMNATION. There is no pending or, to the best of Seller's actual knowledge, contemplated condemnation, eminent domain or similar proceeding with respect to all or any portion of the Property or the Leased Premises. 3.5. NO RIGHTS IN OTHERS. No person or other entity has any right or option to acquire, lease, sublease, or occupy all or any portion of the Property granted or arising by, through or under Seller. No person or other entity has any right or option to acquire, lease, sublease, or occupy all or any portion of the Leased Premises granted or arising by, through or under Seller, except for Seller's option to purchase the Leased Premises set forth in the Lease. 3.6. CONTRACTS. There are no construction, management, leasing, service, equipment, supply, maintenance or concession agreements in effect with respect to the Property or the Leased Premises, except for cleaning, landscaping and security arrangements made by Seller which shall be terminated by Seller by the Closing. 3.7. COMPLIANCE. Seller has received no notice of, and to the best of Seller's actual knowledge, there are no existing violations of any federal, state, or municipal laws, ordinances, orders, codes, regulations or requirements affecting the Property or the Leased Premises. 3.8. LITIGATION. There is no action, suit or proceeding pending or, to the best of Seller's actual knowledge, threatened against or affecting the Property or the Leased Premises, or arising out of the ownership, management or operation of the Property, the Leased Premises, this Agreement or the transactions contemplated hereby. 3.9. ENVIRONMENTAL MATTERS. To the best of Seller's actual knowledge, Seller has not generated, stored, or disposed other than in compliance with law, nor has Seller released or discharged, any hazardous substances or wastes from or on the Property or the Leased Premises, nor, except as disclosed in Schedule 3.9, has there been any generation, storage, release, discharge or disposal of such hazardous substances or wastes from or on the Property or the Leased Premises by any other party, other than the generation, storage and disposal of Hazardous Substances used by Seller in its business operations in accordance with applicable law. As used in this Agreement, the terms "Hazardous Substances" and "Hazardous Wastes" shall have the meanings set forth in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, and the regulations thereunder, the Resource Conservation and Recovery Act, as amended, and the regulations thereunder, and the Federal Clean Water Act, as amended, and the regulations thereunder, and such terms shall also include asbestos, petroleum products, radioactive materials and any regulated substances under any Federal, State or local environmental law, regulation or ordinance. -3- 3.10. FIRPTA. Seller is not a "foreign person" as defined in Section 1445(f)(3) of the Internal Revenue Code. 3.11. CONTINUING OBLIGATIONS. There are no contractual or governmental obligations in connection with the Property or the Leased Premises which will be binding upon Buyer after Closing, except the Amended Lease (as defined in Section 4.1.9 below), which are not recorded with the Norfolk Registry of Deeds or filed in the Norfolk Registry District of the Land Court. 3.12. BANKRUPTCY. Seller, as debtor, has not filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any insolvency laws, or any laws for composition of indebtedness or for the reorganization of debtors. For the purpose of this Article 3, the term "to the best of Seller's actual knowledge" shall mean the actual knowledge of Seller, after reasonably diligent inquiry. 4. CONDITIONS PRECEDENT. The respective obligations of Buyer and Seller are expressly conditioned on the satisfaction of certain conditions as more specifically set forth in this Section 4. 4.1. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All of Buyer's obligations hereunder are expressly conditioned on the satisfaction at or before the time of Closing hereunder, or at or before such earlier time as may be expressly stated below, of each of the following conditions (any one or more of which may be waived in writing in whole or in part by Buyer, at Buyer's option): 4.1.1 ACCURACY OF REPRESENTATIONS. All of the representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the date of Closing with the same effect as if made on and as of such date. 4.1.2 PERFORMANCE BY SELLER. Seller shall have performed, observed and complied with all material covenants, agreements and conditions required by this Agreement to be performed, observed and complied with on its part prior to or as of Closing hereunder. 4.1.3 DOCUMENTS AND DELIVERIES. All instruments and documents required on Seller's part to effectuate this Agreement and the transactions contemplated hereby shall be delivered to Buyer and shall be in form and substance consistent with the requirements herein. 4.1.4 ACCESS; CONDITIONS TO CLOSING. 4.1.4.1. During the term of this Agreement, Buyer, its agents and representatives, after having provided Seller with reasonable prior notice, shall be entitled to enter upon the Property and the Leased Premises to perform inspections and tests of the Property and the Leased Premises, including without limitation, surveys, environmental studies, engineering studies, structural inspections, and similar examinations and tests, review of lease documentation, title and survey matters, review of permits, approvals, and governmental -4- records, review of facility and safety records, and inventory of furniture, fixtures and equipment, and facility related documentation, including records of facility validation, facility maintenance, and facility and equipment decommissioning. Buyer shall comply with all applicable provisions of the Lease in making any such entry upon the Leased Premises. Buyer shall repair any damage to the Property or the Leased Premises caused by any entry, tests or investigations conducted by Buyer, and indemnify Seller from any and all personal injury or property damage resulting therefrom. The foregoing indemnification shall survive Closing or the termination of this Agreement. 4.1.4.2. Buyer may terminate this Agreement in its sole discretion in the event of Buyer's dissatisfaction with the environmental condition of the Property or the Leased Premises by giving written notice of such dissatisfaction and election to Seller on any day prior to and including December 1, 2000 (the period from the date hereof to December 1, 2000, the "Environmental Evaluation Period"), in which event the Deposit shall be returned forthwith to Buyer and, except as expressly set forth herein, neither party shall have any further liability or obligation to the other hereunder. Such notice shall state the basis for Buyer's dissatisfaction, provided that in no event shall Seller have any right to challenge Buyer's dissatisfaction, it being expressly understood that Buyer may terminate this Agreement under the provisions of this Section 4.1.4.2 in its sole discretion. Buyer shall deliver with such notice copies of any reports, studies, evaluations, surveys or the like made or received by Buyer with respect thereto, provided that Buyer shall have no duty to perform or complete any such reports or other materials, nor shall Buyer be obligated to cause the preparer thereof to permit Seller or any other party to rely thereon. In the absence of such written notice by said time limit, the contingency provided for in this Section 4.1.4.2 no longer shall be applicable, and this Agreement shall continue in full force and effect, with disposition of the Deposit becoming limited to the provisions of Sections 2.1, 5, 9, 10.1 and 10.2, as applicable. 4.1.5. SURVEY. Buyer shall approve or disapprove the Survey, as hereinafter defined, in the following manner: (a) NOTICE. Buyer shall be responsible for obtaining an update of the survey of the Property delivered by Seller to Buyer, and shall be responsible for obtaining a survey of the Leased Premises (collectively, the "Survey"). On or before December 1, 2000, Buyer shall give notice to Seller of Buyer's approval of the Survey or disapproval of any matters thereon ("Survey Exceptions"). Buyer's failure to give any notice within the time limit shall be deemed approval of the Survey, and this contingency shall be deemed satisfied. (b) SURVEY CURE PERIOD. Seller shall have the right, but not the obligation, to remove any Survey Exceptions within thirty (30) days after Buyer's notice of disapproval ("Survey Cure Period"), either by obtaining the surveyor's written agreement to make appropriate changes to the Survey or by taking other steps reasonably satisfactory to Buyer to permit such changes to the Survey. (c) WAIVER OF UNCURED MATTERS. If Seller does not cure any Survey Exceptions within the Survey Cure Period, Buyer shall have three (3) business days to give Seller written notice that Buyer waives its objections to the Survey Exceptions. If Buyer does not give such notice by said time limit, this Agreement shall terminate whereupon the -5- Deposit shall be returned forthwith to Buyer and, except as expressly set forth herein, neither party shall have any further liability or obligation to the other hereunder. If this Agreement is so terminated, Buyer shall provide to Seller copies of the written documents obtained in the course of its inspections. (d) APPROVED SURVEY. The Survey, as approved by Buyer pursuant to clause (a) above and with any waivers by Buyer pursuant to clause (c) above, is referred to herein as the "Approved Survey". 4.1.6. TITLE. Buyer shall review and approve or disapprove the condition of title to the Property and the Leased Premises in the following manner: (a) REPORT AND NOTICE. Seller has delivered to Buyer a copy of Seller's policy of title insurance for the Property. Buyer has obtained an update thereof, and has obtained a title examination of the Leased Premises (collectively, the "Title Report"), a copy of which is attached hereto as SCHEDULE 4.1.6. Buyer has given notice to Seller of Buyer's disapproval of certain exceptions to title through the date of the Title Report (the title exceptions listed as disapproved in such notice, the "Disapproved Exceptions"), a copy of which notice is also included in Schedule 4.1.6. (b) TITLE CURE PERIOD. Seller shall have the right, but not the obligation, by December 1, 2000 (the "Title Cure Period"), to (i) remove any Disapproved Exceptions or (ii) agree to use reasonable and diligent efforts to remove any Disapproved Exceptions on or before the Closing. If Seller gives notice, within the Title Cure Period, that Seller will make reasonable and diligent efforts to remove any such Disapproved Exception on or before the Closing, then Seller shall proceed with such efforts, but shall not be required to spend or incur costs of more than $100,000 in doing so. If Seller should be unable to accomplish such removal on or before the Closing, the title conditions to Closing under this Section 4.1.6 shall be deemed unsatisfied, and Buyer shall have the option in such regard set forth in Section 5.1. With respect to any Exception consisting of a financial encumbrance in a liquidated, fixed amount, such as a mortgage, deed of trust, or other debt security, or any delinquent real estate taxes or mechanic's liens outstanding against the Property, such matter shall automatically be deemed a Disapproved Exception; Seller hereby covenants to remove any such Exception on or before the Closing, provided that Seller may use the proceeds from the Purchase Price to do so as set forth in Section 14.8. (c) WAIVER OF UNCURED EXCEPTIONS. If Seller does not remove or agree to remove any Disapproved Exception within the Title Cure Period, Buyer shall have until December 10, 2000 to give Seller notice that Buyer waives its objections to such Exception. If Buyer does not give such notice by such time limit, this Agreement shall terminate whereupon the Deposit shall be returned forthwith to Buyer and, except as expressly set forth herein, neither party shall have any further liability or obligation to the other hereunder. (d) APPROVED TITLE. The condition of title, as approved by Buyer pursuant to clause (a) above and with any waivers by Buyer pursuant to clause (c) above, is referred to herein as the "Approved Title." -6- (e) LATER CHANGES TO CONDITION OF TITLE. Buyer shall have the right to approve or disapprove any exceptions to title that are revealed by the Survey or become of record after there is an Approved Title. 4.1.7. MATERIAL ADVERSE CHANGE. Between the expiration of the Inspection Period and the date of Closing, there shall have been no material adverse change in the financial or physical condition of the Property or the Leased Premises, and no change to title or survey matters from the Approved Title and the Approved Survey shall have arisen, which change would be unacceptable to Buyer's mortgagee or to a reasonably prudent buyer. 4.1.8. POSSESSION. The Property and the Leased Premises shall be delivered to the Buyer at the Closing free of any tenants or other occupants. 4.1.9. AMENDED LEASE, GUARANTY, AND NON-DISTURBANCE AGREEMENT. Prior to December 1, 2000, (a) Buyer and Landlord shall have reached agreement as to the form of lease and notice thereof which will amend, restate, and supercede the Lease at the time of Closing ("Amended Lease"), and Buyer, Seller and Landlord shall have reached agreement as to the form of guaranty to be provided by Seller to Landlord with respect to the Amended Lease ("Guaranty"), on terms and conditions satisfactory to Buyer in its sole discretion, and (b) all mortgagees of the Leased Premises and any other party having approval rights with respect thereto shall have approved the Amended Lease (including, without limitation, the option to purchase set forth therein) and the transaction contemplated by this Agreement, and shall have reached agreement with Buyer as to a commercially reasonable Subordination, Nondisturbance and Attornment Agreement (collectively, the "Non-Disturbance Agreement") with respect to the Amended Lease to be provided by such mortgagees at the time of Closing. Seller retains the right to act in its sole discretion in agreeing or not agreeing to (a) the particular terms of the Guaranty which Seller is to provide, and (b) if Seller is required to execute the Non-Disturbance Agreement, any terms of such agreement which affect Seller. Seller and Buyer shall share equally the cost of Landlord's legal expenses in connection with the Amended Lease, the Guaranty, and the Non-Disturbance Agreement, up to a maximum payment by each party of no more than Ten Thousand ($10,000.00) Dollars. 4.1.10 PERMITTING CONTINGENCY. Buyer shall have obtained from the Town of Randolph Zoning Board of Appeals, the Randolph Board of Health, and any other governmental body having jurisdiction amendments of the existing special permits or new special permits for each of the Property and the Leased Premises, permits for the use of recombinant DNA, and such other permits as are required by the Town of Randolph to permit the use of the Property and the Leased Premises for Buyer's intended biotechnology research, manufacturing, office and storage activities, on terms and conditions satisfactory to Buyer in its sole discretion, and all appeal periods therefrom shall have expired without appeal having been taken ("Permitting Contingency"). Buyer agrees to use diligent efforts to pursue such relief, including the timely filing of applications, and attendance at all hearings related thereto. Seller hereby agrees to cooperate in such proceedings, and to attend such hearings in support of Buyer's requested relief. Buyer shall furnish Seller with copies of its applications and other filings, and shall keep Seller advised as to the progress of such proceedings. -7- 4.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. All of Seller's obligations hereunder are expressly conditioned on the satisfaction at or before the time of Closing hereunder, or at or before such earlier time as may be expressly stated below, of each of the following conditions (any one or more of which may be waived in writing in whole or in part by Seller, at Seller's option): 4.2.1. ACCURACY OF REPRESENTATIONS. All of the representations and warranties of Buyer contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the date of Closing with the same effect as if made on and as of such date. 4.2.2. AMENDED LEASE AND NON-DISTURBANCE AGREEMENT. Simultaneous with the Closing, Buyer and Landlord shall have entered into the Amended Lease and Non-Disturbance Agreement (and the mortgagees shall have executed same), and Seller and Landlord shall have entered into the Guaranty, in forms to be mutually agreed in accordance with Section 4.1.9. 4.2.3. GUARANTY REIMBURSEMENT AGREEMENT. Prior to December 1, 2000, and in conjunction with Buyer, Seller and Landlord agreeing as to the form of Amended Lease and Guaranty pursuant to Section 4.1.9 above, Buyer and Seller shall have reached agreement as to a form of contract whereby Buyer agrees to reimburse Seller for Seller's expenditures, if any, under the Guaranty (the "Guaranty Reimbursement Agreement"). Also, at the Closing, Buyer and Seller shall mutually execute and deliver such Guaranty Reimbursement Agreement. 4.2.4. PERFORMANCE BY BUYER. Buyer shall have performed, observed and complied with all material covenants, agreements and conditions required by this Agreement to be performed, observed and complied with on its part prior to or as of Closing hereunder. 4.2.5. DOCUMENTS AND DELIVERIES. All instruments and documents required on Buyer's part to effectuate this Agreement and the transactions contemplated hereby shall be delivered to Seller and shall be in form and substance consistent with the requirements herein. 5. FAILURE OF CONDITIONS. 5.1. CONDITIONS TO BUYER'S PERFORMANCE. (a) Except as otherwise provided in Section 5.1(b) below or Section 10.2 hereof, in the event Seller shall not be able to convey title to the Property and leasehold title to the Leased Premises on the date of Closing in accordance with the provisions of this Agreement, or if the conditions to Buyer's performance set forth in Article 4 have not been satisfied, then Buyer shall have the option, exercisable by written notice to Seller at or prior to Closing, of (i) accepting at Closing such title as Seller is able to convey and/or waiving any unsatisfied condition precedent, with no deduction from or adjustment of the Purchase Price and proceeding to Closing, or (ii) declining to proceed to Closing. In the latter event, except as expressly set forth herein, all obligations, liabilities and rights of the parties under this Agreement shall terminate, and the Deposit shall be returned to Buyer. Such election to terminate this Agreement and have the Deposit returned shall be Buyer's sole remedy for Seller's inability to perform its obligations hereunder or the failure of any conditions to Closing -8- to be satisfied. Seller shall not have any liability to Buyer for any such inability to perform or failure of conditions, nor any obligation to cure any defects or other matters which may cause such inability or failure or which may otherwise exist or apply with respect to the Property or the Leased Premises, except as expressly set forth in this Agreement to the contrary. (b) PERMITTING CONTINGENCY. In the event that the Permitting Contingency has not been satisfied by March 1, 2001, then Buyer shall have the option, exercisable by written notice to Seller at or prior to Closing, of (i) accepting at Closing such title as Seller is able to convey and/or waiving any unsatisfied condition precedent, including the Permitting Contingency, with no deduction from or adjustment of the Purchase Price and proceeding to Closing, or (ii) declining to proceed to Closing. In the latter event, except as expressly set forth herein, all obligations, liabilities and rights of the parties under this Agreement shall terminate, and the Deposit shall be returned to Buyer. Such election to terminate this Agreement and have the Deposit returned shall be Buyer's sole remedy for the failure of the Permitting Contingency to be satisfied. Seller shall not have any liability to Buyer for any such failure of the Permitting Contingency to be satisfied, provided that Seller has performed its obligations under Section 4.2.5 above. 5.2. CONDITIONS TO SELLER'S PERFORMANCE. In the event that the conditions to Seller's performance set forth in Article 4 have not been satisfied by the Closing, then Seller shall have the option, exercisable by written notice to Buyer at or prior to Closing, to decline to proceed to Closing. In such event, except as expressly set forth herein, all obligations, liabilities and rights of the parties under this Agreement shall terminate, and the Deposit shall be returned to Buyer. 6. REPRESENTATIONS OF BUYER. Buyer represents and warrants that: 6.1. AUTHORITY. Buyer is a Delaware corporation, duly organized and validly existing under the laws of the Commonwealth of Massachusetts and has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Buyer has been duly authorized. 6.2. NO CONFLICT. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Buyer do not and will not violate any applicable law, ordinance, statute, rule, regulation, order, decree or judgment, conflict with or result in the breach of any material terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, or encumbrance upon any of the property or assets of the Buyer by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Buyer is a party or which is or purports to be binding upon Buyer or which otherwise affects Buyer, which will not be discharged, assumed or released at Closing. No action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon Buyer in accordance with its terms. 7. CLOSING; DELIVERIES. -9- 7.1. TIME OF CLOSING. The Closing shall take place on a date specified by written notice from Buyer to Seller but no later than the earlier to occur of (a) fifteen (15) days after satisfaction of the Permitting Contingency, or (b) March 31, 2001, at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts. 7.2. SELLER DELIVERIES. At Closing, Seller shall deliver to Buyer the following, and it shall be a condition to Buyer's obligation to close that Seller shall have delivered the same to Buyer: 7.2.1. A Massachusetts Quitclaim Deed to the Real Property from Seller to Buyer, duly executed and acknowledged by Seller, together with authority of the signatory thereto, in form satisfactory to Buyer and its title insurer in their reasonable discretion, and subject only to such title matters as are approved by Buyer pursuant to Section 4.1.6. 7.2.2. A Bill of Sale to the Property (other than the Real Property) from Seller to Buyer, duly executed and acknowledged by Seller, in form reasonably satisfactory to Buyer, conveying the property subject thereto without encumbrance. 7.2.3 An Assignment and Assumption of Lease with respect to the Lease in the form attached hereto as SCHEDULE 7.2.3, duly executed by Seller. 7.2.4. Copies of all architectural and engineering drawings and specifications and utilities layout plans for the construction of the Improvements and the Leased Premises which are in the possession of Seller. 7.2.5. Such affidavits or letters of indemnity as the title insurer shall require, consistent with such documentation as is customarily required by title insurance companies in connection with commercial real estate closings in the Commonwealth of Massachusetts, in order to issue, without extra charge, an owner's policy of title insurance for the Property and a leasehold policy of title insurance for the Leased Premises, free of any exceptions for unfiled mechanics' or materialmen's liens for work performed by Seller prior to Closing and free of any exception for parties in possession. 7.2.6. A Non-Foreign Affidavit as required by the Foreign Investors in Property Tax Act ("FIRPTA"), as amended, in the form of EXHIBIT B, duly executed by Seller. 7.2.7. A certification by Seller that all representations and warranties made by Seller in this Agreement are true and correct on the date of Closing. 7.2.8 The Amended Lease and the Notice of Lease with respect thereto, duly executed by Landlord, and the Guaranty, duly executed by Seller, together with evidence of authority of the signatories thereto. 7.2.9 The Non-Disturbance Agreement, duly executed by Seller (if required) and all mortgagees of the Leased Premises. 7.2.10 All other instruments and documents reasonably required to effectuate this Agreement and the transactions contemplated thereby. -10- 7.3. BUYER DELIVERIES. At Closing, Buyer shall deliver to Seller the following, and it shall be a condition to Seller's obligation to close that Buyer shall have delivered the same to Seller: 7.3.1. In accordance with Seller's instructions, a wire transfer in the amount required under Article 2 hereof (subject to the adjustments provided for in this Agreement), transferred in immediately available funds to the order or account of Seller or to such other person or persons as Seller shall designate in writing. 7.3.2 An Assignment and Assumption of Lease with respect to the Lease in the form attached hereto as SCHEDULE 7.2.3, duly executed by Buyer. 7.3.3. A certification by Buyer that all representations and warranties made by Buyer in this Agreement are true and correct on the date of Closing. 7.3.4. The Amended Lease and the Notice of Lease with respect thereto, duly executed by Buyer, together with evidence of authority of the signatory thereto. 7.3.5. The Non-Disturbance Agreement, duly executed by Buyer. 7.2.6 The Guaranty Reimbursement Agreement, duly executed by Buyer. 7.3.7. All other instruments and documents reasonably required to effectuate this Agreement and the transactions contemplated thereby. 8. TAXES; UTILITIES CHARGES; EXPENSES. 8.1. TAXES, UTILITIES CHARGES AND LEASE ADJUSTMENTS. All estate taxes, charges and assessments affecting the Property ("Taxes"), all charges for water, electricity, sewer rental, gas, telephone and all other utilities ("Utilities Charges"), and all rents and other amounts due under the Lease ("Lease Adjustments") shall be prorated on a per diem basis as of the date of Closing. If any Taxes have not been finally assessed as of the date of Closing for the current fiscal year of the taxing authority, then the same shall be adjusted at Closing based upon the most recently issued bills therefor, and shall be re-adjusted when and if final bills are issued. If any Utilities Charges or Lease Adjustments cannot conclusively be determined as of the date of Closing, then the same shall be adjusted at Closing based upon the most recently issued bills thus far and shall be re-adjusted within 180 days after the end of the calendar year in which the Closing occurs after final Utilities Charges and Lease Adjustments are determined. 8.2. EXPENSES. Each party will pay all its own expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, (1) all costs and expenses stated herein to be borne by a party, and (2) all of their respective accounting, legal and appraisal fees. Buyer, in addition to its other expenses, shall pay at Closing all recording charges incident to the recording of the deed for the Property, and the Notice of Lease and Non-Disturbance Agreement with respect to the Amended Lease, and premiums for Buyer's title insurance policy and survey. Seller, in addition to its other expenses, shall pay at Closing all documentary stamps, deed stamps and realty transfer taxes. -11- 9. DAMAGE OR DESTRUCTION; CONDEMNATION; INSURANCE. 9.1 If at any time prior to the Closing, a fire or other casualty results in damage to the Property or to the Leased Premises having a restoration cost in excess of $50,000, and cannot be restored to its original condition prior to Closing, or if all or any portion of the Property or the Leased Premises is condemned or taken by eminent domain, then, at Buyer's option, this Agreement shall terminate, and the Deposit shall be returned to Buyer, and, except as expressly set forth herein, neither party shall have any further obligation or liability to the other hereunder. 9.2 If there is any damage or destruction or condemnation or taking, as above set forth, and if Buyer elects not to terminate this Agreement as therein provided, or if such casualty results in a restoration cost less than $50,000, then (1) in the case of a taking, all condemnation proceeds paid or payable to Seller shall belong to Buyer and shall be paid over and assigned to Buyer at Closing, and (2) in the case of a casualty, Seller shall assign to Buyer at the Closing all rights to any insurance proceeds paid or payable under the applicable insurance policies, and shall pay over to Buyer or deduct from the Purchase Price any deductible thereunder, in either event without adjustment to the Purchase Price (except for the deductible as aforesaid). Seller shall maintain its existing insurance in effect during the term of this Agreement, a copy of which Seller shall furnish to Buyer. 10. REMEDIES. 10.1. BUYER DEFAULT. In the event Buyer breaches its obligation to complete the purchase of the Property and assignment of the Lease, or to perform any of its other obligations under this Agreement, then Seller shall, as its sole remedy therefor, be entitled to receive the Deposit, plus all interest earned and accrued thereon, as liquidated damages (and not as a penalty) in lieu of, and as full compensation for, all other rights or claims of Seller against Buyer by reason of such default. Thereupon this Agreement shall terminate and the parties shall be relieved of all further obligations and liabilities hereunder, except as expressly set forth herein. Buyer and Seller acknowledge that the damages to Seller resulting from Buyer's breach would be difficult, if not impossible, to ascertain with any accuracy, and that the liquidated damage amount set forth in this Section represents both parties' best efforts to approximate such potential damages. 10.2. SELLER DEFAULT. In the event Seller breaches its obligation to complete the sale of the Property and the assignment of the Lease, or to perform any of its other obligations under this Agreement, Buyer may, as its sole remedy therefor, either (i) enforce specific performance of this Agreement against Seller, or (ii) terminate this Agreement, receive a return of the Deposit, and recover from Seller all out-of-pocket expenditures reasonably and actually incurred by Buyer in connection with this Agreement, up to a maximum of Seventy-Five Thousand ($75,000.00) Dollars. 11. NOTICES. All notices and other communications provided for herein shall be in writing and shall be sent to the address set forth below (or such other address as a party may hereafter designate for itself by notice to the other parties as required hereby) of the party for whom such notice or communication is intended: -12- 11.1. If to Seller: Serono Laboratories, Inc. 100 Longwater Circle Norwell, MA 02061 Fax No. - Attention: A. Peter Frank, Esq., General Counsel With a copy to: William A. Kuncik, P.C., Esq. Nixon Peabody LLP 101 Federal Street Boston, MA 02110 11.2. If to Buyer: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Fax No.: 617-491-7903 Attention: Mr. Daniel Geffken, Vice President and Chief Financial Officer With a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Fax No.: 617-526-5000 Attention: Katharine E. Bachman, Esq. 11.3 If to the Escrow Agent to: Stewart Title Insurance Company 99 Summer Street Boston, MA 02110 Fax No.: 617-737-8370 Attention: Marie L. Franco, Esq. Any such notice or communication shall be deemed given when deposited with the U.S. Mail, registered or certified mail, return receipt requested, postage prepaid, or when deposited with a recognized national overnight courier service. 12. BROKERS. Buyer and Seller each represent to the other that it has not dealt with any broker or agent in connection with this transaction. Each party hereby indemnifies and holds harmless the other party from all loss, cost and expense (including reasonable attorneys' fees) arising out of a breach of its representation or undertaking set forth in this Section 12. The provisions of this Section 12 shall survive Closing or the termination of this Agreement. -13- 13. ESCROW AGENT. Escrow Agent shall hold the Deposit in accordance with the terms and provisions of this Agreement, subject to the following: 13.1. OBLIGATIONS. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement or any subsequent written instructions duly executed by Seller and Buyer, and no implied duties or obligations shall be read into this Agreement against Escrow Agent. 13.2. RELIANCE. Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes is genuine, valid or authentic, and any statement or assertion contained in such writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instrument in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agent's duties under this Agreement shall be limited to those provided in this Agreement. 13.3. INDEMNIFICATION. Unless Escrow Agent discharges any of its duties under this Agreement in a negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, Seller and Buyer shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or other expenses, fees, or charges of any character or nature, which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection Seller and Buyer shall indemnify Escrow Agent against any and all expenses including reasonable attorneys' fees and the cost of defending any action, suit or proceeding or resisting any claim in such capacity. The respective obligations of Seller and Buyer under this Section 13.3 shall be apportioned equally between Seller and Buyer, i.e., fifty percent (50%) for each of Seller and Buyer. 13.4. DISPUTES. If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, or the application of the Deposit, Escrow Agent shall hold the Deposit until the receipt of written instructions from and signed by both Buyer or Seller, or a final order of a court of competent jurisdiction. In addition, in any such event, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys' fees in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action or a settlement agreement duly executed by all necessary parties is received. 13.5. COUNSEL. Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its negligence or willful misconduct. -14- 14. MISCELLANEOUS. 14.1. ASSIGNABILITY. Buyer may not assign or transfer all or any portion of its rights or obligations under this Agreement to any other individual, entity or other person without the prior written consent thereto by Seller, which consent shall be in Seller's sole discretion, provided that Buyer may assign or transfer such rights and obligations to any entity in which Buyer or an affiliate thereof has a controlling interest without the consent of Seller, provided that any such assignee or transferee of Buyer's obligations duly executes an assumption agreement reasonably satisfactory to Seller. 14.2. GOVERNING LAW; BIND AND INURE. This Agreement shall be governed by the law of the Commonwealth of Massachusetts and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, assigns and personal representatives. 14.3. TIME OF THE ESSENCE. Time is of the essence of this Agreement. 14.4. HEADINGS. The headings preceding the text of the paragraphs and subparagraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 14.5. COUNTERPARTS. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.6. EXHIBITS. All Exhibits which are referred to herein and which are attached hereto or bound separately and initialed by the parties are expressly made and constitute a part of this Agreement. 14.7. SURVIVAL; LIMITATION OF RECOVERY. Each of the warranties and representations of Seller set forth in Article 3 and Buyer set forth in Article 6 shall survive the Closing and delivery of the deed and other closing documents by Seller to Buyer, and shall not be deemed to have merged therewith; provided, however, that (a) any suit or action for breach of any of the representations or warranties set forth herein must be commenced within one (1) year after the Closing or any claim based thereon shall be deemed irrevocably waived, and (b) the maximum amount which either party may recover hereunder shall be Five Hundred Thousand ($500,000.00) Dollars. The parties' indemnities under Sections 4.4.4.1 and 12 shall also survive the Closing. The delivery and acceptance of the deed and other closing documents hereunder shall be deemed a full performance and discharge of all of the parties' other agreements, obligations and covenants hereunder. 14.8. USE OF PROCEEDS TO CLEAR TITLE. To enable Seller to make conveyance as herein provided, Seller may, at the time of Closing, use the Purchase Price or any portion thereof to clear the title of any or all encumbrances or interests, provided that provision reasonably satisfactory to Buyer's attorney is made for prompt recording of all instruments so procured in accordance with conveyancing practice in the Commonwealth of Massachusetts. -15- 14.9. SUBMISSION NOT AN OFFER OR OPTION. The submission of this Agreement or a summary of some or all of its provisions for examination or negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer to enter into an agreement to sell or purchase the Property, and neither party shall be bound to the other with respect to any such purchase and sale until a definitive agreement satisfactory to the Buyer and Seller in their sole discretion is executed and delivered by both Seller and Buyer. 14.10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits hereto set forth all of the promises, covenants, agreements, conditions and undertakings between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as contained herein. This Agreement may not be changed orally but only by an agreement in writing, duly executed by or on behalf of the party or parties against whom enforcement of any waiver, change, modification, consent or discharge is sought. 14.11 STANDSTILL AGREEMENT. Seller hereby covenants and agrees that during the time that this Agreement is in effect, Seller will not: (i) market, advertise or otherwise offer, solicit offers, or accept offers to sell the Property or assign, sublet or otherwise transfer its interest under the Lease; (ii) sell the Property or any portion thereof, or assign, sublet or otherwise transfer its interest under the Lease, to any third party; or (iii) voluntarily encumber the Property or its interest under the Lease in any way. Each party hereby agrees not to issue any press releases or other statements to the public, other than as necessary to satisfy the Permitting Contingency, with respect to the transaction which is the subject of this Agreement until the Closing has been consummated. (signatures on next page) -16- IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. SELLER: SERONO, INC., a Delaware corporation By: /s/ Peter Frank --------------------------------------- Name: Peter Frank Title: Vice-President BUYER: TRANSKARYOTIC THERAPIES, INC. a Delaware corporation By: /s/ Daniel E. Geffken ---------------------------------------- Name: Daniel E. Geffken Title: Vice President Finance and Chief Financial Officer ESCROW AGENT: STEWART TITLE INSURANCE COMPANY By: /s/ Marie L. Franco ---------------------------------------- Name: Marie L. Franco Title: National Underwriting Counsel -17- LIST OF EXHIBITS AND SCHEDULES Exhibit A Description of Land Exhibit A-1 Inventory of Personal Property, Fixtures, and Equipment Exhibit B FIRPTA Affidavit Schedule 3.3 Lease Schedule 3.9 Environmental Information Schedule 4.1.6 Title Report and Exceptions Schedule 7.2.3 Form of Assignment and Assumption of Lease -18- EXHIBIT A DESCRIPTION OF THE LAND (Follows this Page) -19- EXHIBIT A-1 INVENTORY OF PERSONAL PROPERTY, FIXTURES, AND EQUIPMENT 107250-145 -20- EXHIBIT B FIRPTA AFFIDAVIT (Follows this Page) -21- NON-FOREIGN AFFIDAVIT Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by _______________________________ ("Seller"), the undersigned hereby certifies the following: 1. Seller is not a foreign person, foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); 2. Seller's U.S. taxpayer identification number is [___________]; and 3. Seller's address is ________________________________. The undersigned understands that this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury, the undersigned declares that it has examined this certification and to the best of its knowledge and belief it is true, correct, and complete, and further declares that it has authority to sign this document. Date: As of _____________, ____ By: ------------------------------- Name: Title -22- SCHEDULE 3.3 Lease See attached -23- SCHEDULE 3.9 Environmental Information 1. Environmental Evaluation dated September, 1992, prepared by Zecco, Inc. for Seller 2. On or about October 23, 2000, Buyer was informed by its environmental consultant that analytical results obtained from a surficial soil sample collected beneath a thirty-gallon drum located in the wooded area in the rear of the Premises indicated a concentration of Extractable Petroleum Hydrocarbons ("EPH") of 240 mg/kg. A copy of the communication to Buyer is attached hereto. The Massachusetts Contingency Plan, 30 CMR 40.000 et seq., requires reporting to the Massachusetts Department of Environmental Protection of EPH concentrations in S1 soils which exceed 200 mg/kg unless such concentrations are timely addressed by a Limited Removal Action, as described at 310 CMR 40.0318. In November, 2000 Seller had a Limited Removal Action performed in accordance with 310 CMR 40.0318, since less than 100 cubic yards of the above-described soil were required to be removed. This soil was removed, transported and disposed of in accordance with applicable law. Seller hereby agrees to provide Buyer with such documentation of the foregoing Limited Removal Action as Buyer may reasonably request. -24- SCHEDULE 4.1.6 Title Report and Exceptions See attached -25- SCHEDULE 7.2.3 Form of Assignment and Assumption of Lease See attached -26- ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is entered into effective as of the [_______] day of [_______________] [_______], between Serono, Inc., a Delaware corporation ("Assignor"), whose address is 100 Longwater Circle, Norwell, Massachusetts 02061, and Transkaryotic Therapies, Inc., a Delaware corporation ("Assignee"), whose address is 195 Albany Street, Cambridge, Massachusetts 02139. 1. REFERENCE TO PURCHASE AND SALE AND ASSIGNMENT AGREEMENT. Reference is made to a Purchase and Sale and Assignment Agreement dated November ___, 2000 (the "Purchase Agreement") between Assignor, as seller, and Assignee, as buyer, pursuant to which, inter alia, Assignor has agreed to assign to Assignee, and Assignee has agreed to assume from Assignor, Assignor's interest in the lease described in Exhibit A attached hereto (the "Lease"). Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. 2. ASSIGNMENT. For good and valuable consideration received by Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby grants, transfers and assigns to Assignee all right, title and interest of Assignor as tenant in, to and under the Lease, together with all security deposits thereunder (the "Security Deposit"). 3. ASSUMPTION. Assignee hereby assumes, and agrees to be bound by, all of the covenants, agreements and obligations of Assignor as tenant under the Lease, that shall arise or be incurred, or that are required to be performed, on and after the date of this Assignment. 4. INDEMNITY. Assignee shall indemnify, defend and hold harmless Assignor from any loss, cost, claim, liability, expense (including reasonable attorney's fees) or demand of whatever nature under the Lease arising or accruing on or after the date hereof. Assignor shall indemnify, defend and hold harmless Assignee from any loss, cost, claim, liability, expense (including reasonable attorney's fees) or demand of whatever nature under the Lease arising or accruing before the date hereof. 5. BINDING EFFECT. This Assignment shall be binding upon and inure to the benefit of Assignor and Assignee and their respective heirs, executors, administrators, successors and assigns. -27- IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as of the day and year first above written. SELLER: SERONO, INC. By: ---------------------------------- BUYER: TRANSKARYOTIC THERAPIES, INC. By: ---------------------------------- -28- EXHIBIT A -29- EX-10.28 5 a2042542zex-10_28.txt EXHIBIT 10.28 Exhibit 10.28 FIRST AMENDMENT TO PURCHASE AND SALE AND ASSIGNMENT AGREEMENT This FIRST AMENDMENT TO PURCHASE AND SALE AND ASSIGNMENT AGREEMENT (this "Amendment") is dated as of February 8, 2001 by and between SERONO, INC., a Delaware corporation, as seller (the "Seller"), and Transkaryotic Therapies, Inc., a Delaware corporation, as buyer (the "Buyer"). RECITALS WHEREAS, Buyer and Seller are parties to that certain Purchase and Sale and Assignment Agreement dated as of November 28, 2000, as modified by letter agreements dated November 30, 2000, January 12, 2001, and January 31, 2001 (as so amended, the "Agreement") for the lease of 76 Pacella Park Drive and the conveyance of 78-80 Pacella Park Drive, Randolph, Massachusetts; and WHEREAS, Buyer and Seller desire to amend the Agreement as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of Ten Dollars ($10.00), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, Buyer and Seller hereby agree as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement. 2. PURCHASE PRICE. Section 2.0 of the Agreement is hereby amended by reducing the Purchase Price from Nine Million and 00/100 ($9,000,000.00) Dollars to Eight Million Eight Hundred Thousand and 00/100 (8,800,000.00) Dollars. 3. CLOSING. The parties hereby agree that the Closing under Section 7.1 of the Agreement shall occur at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 at 10:30 a.m. on February 8, 2001, and that the recording and funding for the Closing shall be implemented on February 9, 2001 through an escrow with Stewart Title Guaranty Company pursuant to the escrow provisions of the Agreement and an Escrow Agreement of even date herewith. 4. PERSONAL PROPERTY, FIXTURES AND EQUIPMENT. Seller hereby covenants and agrees with Buyer that Seller shall deliver to Buyer at the Closing (or, to the extent not feasible to do so at the Closing within thirty (30) days thereafter) any documentation in Seller's possession for the major items of personal property, fixtures, and equipment to be conveyed by Seller to Buyer under the Agreement, including without limitation, CAD drawings, validation documentation, manuals, warranties, and related materials, if and to the extent that Seller has any of the foregoing. Seller further covenants and agrees to make its personnel reasonably available to Buyer at Seller's expense for a reasonable period following the Closing to facilitate the transfer to Buyer of regulatory and operating responsibility for such personal property, fixtures and equipment. 5. PH NEUTRALIZATION AND STEAM EQUIPMENT. Buyer shall hereafter be solely responsible for the so-called "ph neutralization and steam equipment" in the 76 Pacella property which connects into the 78-80 Pacella property, including removal of such equipment at the expiration or earlier termination of Buyer's new lease of the 76 Pacella property from Trinet Property Partners, L.P. and any necessary repair, replacement and restoration work in the 76 Pacella property in connection with such removal. Buyer's assumption of the foregoing responsibility is the consideration for the reduction in the Purchase Price set forth in Section 2 of this Amendment. 6. MISCELLANEOUS. Except as amended hereby, the Agreement shall continue in full force and effect. This Amendment may be executed in counterpart facsimiles which, taken together, shall constitute a single effective instrument. SELLER: SERONO, INC. By: /s/ A. Peter Frank -------------------------------------- A. Peter Frank, its Vice President and General Counsel By:/s/ Monica Elliott -------------------------------------- Monica Elliot, its Treasurer BUYER: TRANSKARYOTIC THERAPIES, INC. By: /s/ Daniel E. Geffken -------------------------------------- Daniel E. Geffken, its Vice President, Finance and Chief Financial Officer -2- EX-10.29 6 a2042542zex-10_29.txt EXHIBIT 10.29 EXHIBIT 10.29 BASIC LEASE INFORMATION LEASE DATED AS OF FEBRUARY 8, 2001 LANDLORD: TRINET PROPERTY PARTNERS, L.P. TENANT: TRANSKARYOTIC THERAPIES, INC. PROPERTY: 76 Pacella Park Drive, Randolph, Massachusetts (entire Building) RENTABLE SPACE: 47,586 square feet COMMENCEMENT DATE: February 8, 2001 LEASE EXPIRATION DATE: 11:59 p.m. Boston time on the last day of the tenth (10th) Lease Year, unless extended pursuant to Section 3(b) of the Lease. PRIMARY TERM FIXED RENT: The annual Fixed Rent during the Primary Term of the Lease shall be in the following amounts: - ------------------------------------------------------------------------------- DATES ANNUAL FIXED RENT PER RENTABLE SQUARE FOOT - ------------------------------------------------------------------------------- Lease Years 1-4 $537,245.94 $11.29 - ------------------------------------------------------------------------------- Lease Years 5-7 $591,018.12 $12.42 - ------------------------------------------------------------------------------- Lease Years 8-10 $650,024.76 $13.66 - ------------------------------------------------------------------------------- Fixed Rent shall be payable in advance in equal monthly installments on the Commencement Date and on the first day of each month thereafter during the Term. If the Commencement Date is other than the first day of a calendar month, then the rent for the remainder of such calendar month shall be in proportion to the number of days remaining in such calendar month. EXTENSION TERMS: Two (2) options of five (5) years each, to be exercised not less than eighteen (18) months prior to expiration of the Primary Term or first Extension Term, as applicable. RENT DURING EXTENSION TERMS: (a) The annual Fixed Rent during the first Extension Term, if any, shall be $743,769.18, which is equivalent to a per-square-foot amount of $15.63. (b) The annual Fixed Rent during the second Extension Term, if any, shall be $855,120.42, which is equivalent to a per-square-foot amount of $17.97. LANDLORD ADDRESS: TriNet Property Partners, L.P. c/o IStar Financial Inc. 3480 Preston Ridge Road, Suite 575 Alpharetta, GA 30005-8891 Attn: Vice President, Asset Management with a copy to: TriNet Property Partners, L.P. c/o Keller/Davis Company, LLC 101 Derby Street Hingham, MA 02043 TENANT ADDRESS: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attn: Chief Financial Officer with a copy to: Katharine E. Bachman, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 LEASE AGREEMENT Between TRINET PROPERTY PARTNERS, L.P. as Landlord and TRANSKARYOTIC THERAPIES, INC. as Tenant Dated as of February ___, 2001 TABLE OF CONTENTS
Page 1. DEMISE OF PREMISES; CONDITION OF PREMISES; QUIET ENJOYMENT:......... 4 2. USE:................................................................ 4 3. TERM:............................................................... 5 4. RENTAL:............................................................. 6 5. PROPERTY TAXES:..................................................... 7 6. OPERATING EXPENSES:................................................. 8 7. NET LEASE; NON-TERMINABILITY:....................................... 8 8. REPAIRS, MAINTENANCE AND REPLACEMENTS:.............................. 9 9. DESTRUCTION, DAMAGE OR CONDEMNATION:............................... 11 10. INSURANCE, HOLD HARMLESS AND INDEMNIFICATION:...................... 12 11. COMPLIANCE WITH LAWS, COVENANTS:................................... 14 12. [INTENTIONALLY OMITTED]............................................ 16 13. ARBITRATION:....................................................... 16 14. EVENTS OF DEFAULT:................................................. 17 15. REMEDIES:.......................................................... 18 16. SUBORDINATION; NON-DISTURBANCE; MORTGAGEE PROTECTION:.............. 20 17. LANDLORD'S RIGHT OF ENTRY:......................................... 21 18. NOTICES:........................................................... 22 19. ESTOPPEL CERTIFICATE............................................... 23 20. MECHANICS' LIENS:.................................................. 23 21. END OF TERM:....................................................... 24 22. ALTERATIONS:....................................................... 25 23. MEMORANDUM OF LEASE:............................................... 28 24. SUBLETTING/ASSIGNMENT:............................................. 28 25. HAZARDOUS MATERIAL:................................................ 30 26. [INTENTIONALLY OMITTED]............................................ 33 27. GRANTING OF EASEMENTS:............................................. 33 28. LETTER OF CREDIT:.................................................. 33 29. [INTENTIONALLY OMITTED]............................................ 35 30. BROKERS:........................................................... 35 31. FINANCIAL REPORTING:............................................... 36 32. MISCELLANEOUS PROVISIONS:.......................................... 37
EXHIBIT A. LEGAL DESCRIPTION - REAL ESTATE EXHIBIT B. FORM OF LETTER OF CREDIT EXHIBIT C. TENANT'S PERSONAL PROPERTY LEASE AGREEMENT ("LEASE") made and entered into as of February _, 2001, by and between TRINET PROPERTY PARTNERS, L.P., a Delaware limited partnership d/b/a TriNet Property Partners Limited Partnership, having an address c/o IStar Financial Inc., 3480 Preston Ridge Road, Suite 575, Alpharetta, GA 30005-8891 ("LANDLORD"), and TRANSKARYOTIC THERAPIES, INC., a Delaware corporation having an address at 195 Albany Street, Cambridge, Massachusetts 02139 ("TENANT"). DEFINITIONS The following terms shall have the following meanings for all purposes of this Lease and shall be equally applicable to both the singular and plural forms of the terms herein defined. "ADDITIONAL RENT" means all amounts, liabilities and obligations other than Fixed Rent which Tenant assumes or agrees to pay under this Lease to Landlord or others. "AFFILIATE" means, with respect to any Person, a Person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "ANTENNAE" is defined in Section 12(a) of this Lease. "APPRAISAL REQUEST" is defined in Section 26(b) of this Lease. "BASIC LEASE INFORMATION" means the pages preceding this Lease which are hereby incorporated by reference. "BUILDING" means the existing building located on the Land containing approximately 47,586 square feet of floor area and commonly known as 76 Pacella Road, Randolph, Massachusetts. "COMMENCEMENT DATE" is defined in the Basic Lease Information. "ENVIRONMENTAL LAWS" means the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss.ss.6901, ET SEQ. (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss.9601 ET SEQ. (CERCLA), the Toxic Substance Control Act, as amended, 15 U.S.C. ss.ss.2601 ET seq., the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. ss.ss.136 ET SEQ., the Occupational Safety & Health Act of 1970, as amended, 29 U.S.C. ss. 651 ET SEQ. (OSHA), and all applicable federal, state and local environmental laws, ordinances, rules and regulations, as any of the foregoing may have been or may be from time to time amended, supplemented or supplanted, and any other federal, state or local laws, ordinances, rules and regulations, now or hereafter existing relating to regulations or control of Hazardous Material or materials. "EVENT OF DEFAULT" is defined in Section 14 of this Lease. "EXCUSABLE DELAY" is defined in Section 9(b) of this Lease. "EXTENSION TERM" is defined in Section 3(b) of this Lease. "FIXED RENT" is defined in Section 4 of this Lease. "GAAP" means generally accepted accounting principles, consistently applied. "HAZARDOUS MATERIALS" means substances defined as "hazardous substances", "hazardous materials", "hazardous wastes" or "toxic substances" in any applicable federal, state or local statute, rule, regulation or determination, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.ss.ss.9601, ET SEQ.; the -- --- Hazardous Materials Transportation Act, 49 U.S.C.ss.ss.1801, ET SEQ.; the Resource, Conservation and Recovery Act of 1976, 42 U.S.C. -- --- ss.ss.6901, ET SEQ.; and asbestos, PCB's, radioactive substances, methane, volatile hydrocarbons, petroleum or petroleum-derived -- --- substances or wastes, radon, industrial solvents or any other material as may be specified in applicable law or regulations. "IMPROVEMENTS" means all of the buildings (including the Building), structures, improvements, and all building fixtures therein now or hereafter located on the Land, including the Building. "INITIAL IMPROVEMENTS" is defined in Section 22 of this Lease. "LAND" means the land, but none of the Improvements thereon, described on EXHIBIT A attached hereto. "LANDLORD" is defined in the introductory paragraph of this Lease. "LEASE" is defined in the introductory paragraph of this Lease. "LEASE EXPIRATION DATE" is defined in the Basic Lease Information. "LEASE YEAR" means the one-year period commencing on the Commencement Date and ending at 11:59 p.m. Boston time on the date immediately prior to the first anniversary of the Commencement Date, and each successive one-year period thereafter during the Term. "LETTER OF CREDIT" is defined in Section 28(a) of this Lease. "MIFA MORTGAGE" means that certain Mortgage, Loan and Security Agreement and Indenture of Trust dated as of March 1, 1985, as amended from time to time, naming State Street Bank and Trust Company, as trustee, as mortgagee thereunder. -2- "MORTGAGE" shall mean a mortgage on the Premises given by Landlord to a Mortgagee to secure a loan, including the MIFA Mortgage and the UNUM Mortgage. "MORTGAGEE" shall mean any holder of a Mortgage with respect to the Premises or any part thereof, including the mortgagees from time to time of the MIFA Mortgage and the UNUM Mortgage. "NON-DISTURBANCE AGREEMENT" is defined in Section 16(a) of this Lease. "OPERATING EXPENSES" is defined in Section 6(a) of this Lease. "OVERDUE RATE" means 18% per annum or, if lower, the maximum annual interest rate allowed by law for business or commercial loans (not primarily for personal, family or household purposes). "PERMITTED ENCUMBRANCES" means: (a) Any liens for taxes, assessments and other governmental charges and any liens of mechanics, materialmen and laborers for work or services performed or materials furnished in connection with the Premises, which are not due and payable; (b) the easements, rights-of-way, encroachments, encumbrances, restrictive covenants or other matters of record as of the date of this Lease and which affect the title to the Premises or any part thereof; and (c) this Lease and the rights of Tenant hereunder. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization, or government or governmental authority, agency or political subdivision thereof. "PREMISES" is defined in Section 1 of this Lease. "PRIMARY TERM" is defined in Section 3(a) of this Lease. "PROPERTY TAXES" is defined in Section 5(a)(i) of this Lease. "PROPERTY TAX STATEMENT" is defined in Section 5(a)(ii) of this Lease. "RENT" means Fixed Rent and Additional Rent. "ROOF" is defined in Section 12(a) of this Lease. "SITE ASSESSMENTS" is defined in Section 25(d) of this Lease. "SITE REVIEWERS" is defined in Section 25(d) of this Lease. -3- "SUBORDINATION AGREEMENT" is defined in Section 16(a) of this Lease. "TENANT'S TRADE FIXTURES" means all personal property of Tenant in or on the Premises which is not necessary for the operation of the Improvements. "TERM" means the Primary Term and the Extension Terms, if any. "UNUM MORTGAGE" means that certain Mortgage and Security Agreement dated as of May 9, 1989, as amended from time to time, naming UNUM Life Insurance Company as mortgagee thereunder. 1. DEMISE OF PREMISES; CONDITION OF PREMISES; QUIET ENJOYMENT: (a) Landlord hereby demises and leases to Tenant, and Tenant hereby leases and rents from Landlord, the Land and the Improvements, together with any easements, rights, and appurtenances in connection therewith or belonging thereto (collectively, the "PREMISES"). (b) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 8(B), TENANT ACKNOWLEDGES AND AGREES THAT THE LAND AND THE IMPROVEMENTS ARE LEASED TO TENANT IN "AS IS", "WHERE-IS" CONDITION, SUBJECT TO THE EXISTING STATE OF TITLE, AND WITHOUT EXPRESS OR IMPLIED WARRANTY OF LANDLORD WITH RESPECT TO THE CONDITION, QUALITY, REPAIR OR FITNESS OF THE PREMISES FOR A PARTICULAR USE OR TITLE THERETO. ALL SUCH WARRANTIES ARE HEREBY WAIVED AND RENOUNCED BY TENANT. (c) Landlord covenants with Tenant, that upon the payment of the Fixed Rent and Additional Rent and the performance of all the terms of this Lease, Tenant shall, at all times during the Term, peaceably and quietly enjoy the Premises without any disturbance from Landlord or from any person claiming by, through, or under Landlord. Any exercise by Landlord of its rights to come upon the Premises as set forth in this Lease shall not constitute a violation of this Section. 2. USE: Tenant may use and occupy the Premises for research and development; light manufacturing and assembly, including pharmaceutical manufacturing and assembly; and administration and general office purposes. In all events, Tenant shall not use or occupy the same, or knowingly permit them to be used or occupied, contrary to any statute, rule, order, ordinance, requirement or regulation applicable thereto, or in any manner which would violate any certificate of occupancy affecting the same or which would make void or voidable any insurance then in force with respect thereto, or which would cause structural injury to the Premises or cause the value or usefulness of the Premises, or any portion thereof, to diminish, or which would constitute a public or private nuisance or waste, and Tenant agrees that it will promptly, upon discovery of any such use, take all necessary steps to compel the discontinuance of such use. Tenant shall not use, suffer or permit the Premises, or any portion thereof, to be -4- used by Tenant, any third party or the public, as such, without restriction or in such manner as might impair Landlord's title to the Premises, or in such manner as might reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or third Persons, or of implied dedication of the Premises, or any portion thereof. Nothing contained in this Lease and no action by Landlord shall be construed to mean that Landlord has granted to Tenant any authority to do any act or make any agreement that may create any such third party or public right, title, interest, lien, charge or other encumbrance upon the estate of the Landlord in the Premises, except Permitted Exceptions. 3. TERM: (a) The primary term of this Lease (the "PRIMARY TERM") shall be for a period of approximately ten (10) years, beginning on the Commencement Date and ending on the Lease Expiration Date. Tenant shall have the right, at its option, to renew the Primary Term of this Lease, for up to two (2) renewal terms (each an "EXTENSION TERM"), which shall renew the Primary Term for an additional five (5) years each. Each Extension Term shall commence on the day after the expiration of the preceding term and shall expire on the fifth (5th) anniversary of the Lease Expiration Date, in the case of the first Extension Term, and on the tenth (10th) anniversary of the Lease Expiration Date, in the case of the second Extension Term. The option to renew the Term of this Lease as described above shall be exercised by Tenant by written notice to Landlord given at least eighteen (18) months prior to the Lease Expiration Date or expiration of the first Extension Term, as the case may be. If such notice is not given in a timely fashion, the option to renew this Lease shall terminate. Subject to the provisions of Section 4(a)(ii), the terms and conditions of this Lease shall apply to each Extension Term with the same force and effect as if such Extension Term had originally been included in the Primary Term of the Lease. The right of Tenant to the Extension Terms shall be conditioned upon (i) Tenant not being in default under this Lease beyond any applicable grace period on the date on which notice of exercise of the renewal option is given and on the Lease Expiration Date or expiration of the first Extension Term, as the case may be, and (ii) this Lease being in full force and effect as of the Lease Expiration Date or expiration of the first Extension Term, as the case may be. In the event that Tenant assigns or sublets its interest in fifty percent (50%) or more of the floor area of the Premises pursuant to Section 24 and such assignment or sublease is in force at any time during the twenty-four months prior to the expiration of the Primary Term or any Extension Term, then any remaining options for Extension Terms shall immediately terminate and such assignee or subtenant shall only be permitted to occupy the Premises until the expiration of the then current Primary Term or the first Extension Term, as applicable. In calculating the measurement of the floor area of the Premises which have been assigned or sublet pursuant to the foregoing sentence, subleases or assignments to Affiliates of Tenant shall not be included, it being the intention of the parties that assignments or subleases to Affiliates of the Tenant shall not operate to cause the termination of Tenant's extension rights as set forth herein. -5- 4. RENTAL: (a) Tenant shall pay to Landlord the following amounts as fixed monthly rent (the "FIXED RENT") for the Premises: (i) During the Primary Term of this Lease, Tenant shall pay to Landlord the amount of Fixed Rent specified in the Basic Lease Information with respect to the Primary Term. (ii) During the Extension Terms, if any, Tenant shall pay to Landlord the amount of Fixed Rent specified in the Basic Lease Information with respect to the Extension Terms, which amount shall be calculated in accordance with the provisions of Section 26. (b) Throughout the Term of this Lease, Tenant shall pay, as Additional Rent, all other amounts of money and charges required to be paid by Tenant under this Lease, whether or not such amounts of money or charges are designated Additional Rent. (c) Tenant shall pay all Fixed Rent to Landlord, in advance, on or before the first day of each and every calendar month during the Term of this Lease. Tenant shall pay all Additional Rent when due. Tenant shall pay all Fixed Rent to Landlord without notice, demand, deduction or offset, in lawful money of the United States of America, at the address of Landlord specified in the Basic Lease Information or, at the election of Tenant, by wire transfer or other electronic means (or otherwise so there are collected funds available to Landlord on the due date), or to such other person or at such other place as Landlord may from time to time designate in writing. (d) Tenant acknowledges that the late payment by Tenant of any Fixed Rent or reimbursement of Additional Rent advanced by Landlord will cause Landlord to incur costs and expenses, the exact amount of which is extremely difficult and impractical to fix. If any Fixed Rent or Additional Rent advanced by Landlord is not received by Landlord on or before its due date or if reimbursement for Additional Rent advanced by Landlord is not received by Landlord within five (5) business days after written demand, Tenant shall pay to Landlord interest on such delinquent amount at the Overdue Rate until paid. In no event shall payment of interest at the Overdue Rate be deemed to grant to Tenant a grace period or extension of time within which to pay any Rent or prevent Landlord from exercising any right or enforcing any remedy available to Landlord upon Tenant's failure to pay all Rent due under this Lease on its due date or within any applicable grace or cure period, including the right to terminate this Lease. All amounts of money payable by Tenant to Landlord hereunder, if not paid when due, shall bear interest from the due date thereof until paid at the Overdue Rate. (e) It is the intention of Landlord and Tenant that, except as otherwise expressly provided in this Lease, the Fixed Rent payable by Tenant to Landlord during the entire Term of this Lease shall be absolutely net of all costs and expenses incurred in connection with the management, operation, maintenance and repair of the Premises in accordance with this Lease. Except as otherwise expressly set forth herein, Landlord shall have no obligations or liabilities whatsoever with respect to the operation, maintenance or repair of the Premises during the term of this Lease, and Tenant shall operate, maintain and repair the Premises in accordance with this -6- Lease and shall pay all costs and expenses incurred in connection therewith before such costs or expenses become delinquent. Without limiting the generality of the foregoing, throughout the entire term of this Lease, Tenant shall pay, as Additional Rent, all premiums for all property and liability insurance covering the Premises, all Property Taxes (as defined in Section 5(a)(i)) and all Operating Expenses (as defined in Section 6(b)) that accrue during or are allocable to the terms of this Lease. 5. PROPERTY TAXES: (a) As used in this Section, these words and terms shall have the following meanings: (i) "PROPERTY TAXES" shall mean all taxes, assessments and betterments levied, assessed or imposed by any governmental authority upon or against the Premises, or payments in lieu thereof, including reasonable expenses, which shall include, without limitation, any and all payments due to the Town of Randolph, Massachusetts for traffic impact fees, water and sewer charges and fees, use charges, fire service fees and similar payments, as well as all fees of attorneys, appraisers and other consultants incurred in connection with any efforts to obtain abatements or reductions which may be requested by Tenant. Property Taxes shall not include estate, income or franchise taxes of Landlord. If, at any time during the Term of this Lease, as it may be extended hereunder, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord with respect to the rent reserved hereunder in substitution for, real estate taxes assessed or levied on the Premises, or payments in lieu thereof, such tax or excise on rents shall be included in Taxes. For purposes hereof, any assessments and betterments shall be amortized, with interest, over the longest period permitted by law. (ii) "PROPERTY TAX STATEMENT" shall mean a statement in writing signed by Landlord, setting forth the amounts payable by Tenant for a specified calendar year, tax year or other tax period pursuant to this Section and delivered to Tenant not later than 120 days after the end of the calendar year, tax year or other tax period to which such statement relates, accompanied by a copy of the applicable tax bills. (b) During the Term and at the times set forth herein, Tenant shall pay directly to the taxing authority and before the due date thereof, as Additional Rent, all Property Taxes with respect to the Premises. In the event of an abatement or refund in real estate taxes, Tenant shall be entitled thereto after deduction by Landlord of any reasonable costs paid and incurred in connection with the abatement or refund by Landlord. The Tenant shall provide Landlord with evidence of payments made to the taxing authority within thirty (30) days after payment of same. (c) If Tenant deems that it is reasonable to pursue an abatement of Property Taxes and Landlord, in its sole and absolute discretion, determines not to do so, then Tenant may apply for an abatement in the name of Landlord, with attorneys and appraisers reasonably acceptable to Landlord, at the sole expense of Tenant, except that if an abatement is obtained, these expenses shall be paid from the abatement. Tenant may pursue an abatement of taxes pursuant to this Section only if (a) such proceeding will not cause the Premises to be subject to any lien, charge or liability of any kind against or expose the Premises to a material risk of forfeiture, (b) the -7- failure to so comply will not subject Landlord or any Mortgagee to any liability, civil, administrative or criminal fines or penalties, and (c) Tenant prosecutes such proceeding with due diligence, in compliance with all Applicable Laws and in good faith. (d) Any obligations under this Section which shall not have been paid at the termination or earlier expiration of the Term of this Lease shall survive such termination or earlier expiration and shall be paid by Tenant within fifteen (15) days after receipt of written notice from Landlord of any amounts owed. If Tenant does not pay such amounts with such fifteen (15) day period, Tenant also shall pay interest on such amounts at the Overdue Rate from the end of such fifteen (15) day period until paid. 6. OPERATING EXPENSES: (a) Tenant shall, at Tenant's sole cost and expense, supply the Premises with electricity, heating, ventilating and air conditioning, water, natural gas, lighting, replacement for all lights, restroom supplies, telephone service, window washing, security service, janitor, scavenger and disposal services (including hazardous and biological waste disposal, if necessitated by Tenant's operations in the Premises), and such other services as Tenant determines to furnish to the Premises. All of such utilities, supplies and services shall be ordered directly by and in the name of Tenant, and Tenant shall pay directly any fees or charges associated therewith (including any utility deposits or similar expenses). Landlord shall not be in default hereunder or be liable for any damage or loss directly or indirectly resulting from, nor shall the Fixed Rent or Additional Rent be abated or a constructive or other eviction be deemed to have occurred by reason of, the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, any failure to furnish or delay in furnishing any such services, whether such failure or delay is caused by accident or any condition beyond the control of Landlord or Tenant or by the making of repairs or improvements to the Premises, or any limitation, curtailment, rationing or restriction on use of water, electricity, gas or any form of energy serving the Premises, whether such results from mandatory governmental restriction or voluntary compliance with governmental guidelines. (b) Tenant shall pay as Additional Rent: to the Persons entitled thereto, on or before the applicable due dates thereof, the full cost of all of the services referred to in Section 6(a) and all other utilities and services supplied to the Premises (collectively, "OPERATING EXPENSES"). (c) Any obligations under this Section which shall not have been paid at the termination or earlier expiration of the Term of this Lease shall survive such termination or earlier expiration and shall be paid by Tenant within fifteen (15) days after receipt of written notice from Landlord of any amounts owed. If Tenant does not pay such amounts with such fifteen (15) day period, Tenant also shall pay interest on such amounts at the Overdue Rate from the end of such fifteen (15) day period until paid. 7. NET LEASE; NON-TERMINABILITY: -8- (a) This is a net lease and the Fixed Rent, Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice (except as expressly provided herein), demand, set-off, counterclaim, abatement, suspension, deduction or defense. It is the intention of the parties hereto that the Fixed Rent shall be an absolutely net return to Landlord throughout the term of this Lease. (b) This 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 Rent hereunder (except as otherwise expressly provided in this Lease), nor shall the obligations of Tenant under this Lease be affected, by reason of (i) subject to Section 9, any damage to or destruction of all or any part of the Premises from whatever cause, (ii) subject to Section 9, the taking of the Premises or any portion thereof by condemnation, requisition or otherwise, (iii) the prohibition, limitation or restriction of Tenant's use of all or any part of the Premises, or any interference with such use, or (iv) any default on the part of Landlord under this Lease, or under any other agreement to which Landlord and Tenant may be parties. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Fixed Rent, the Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events and that the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated pursuant to any express provision of this Lease. (c) Tenant agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or winding-up or other proceeding affecting Landlord or its successor in interest, or (ii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or its successor in interest or by any court in any such proceeding. (d) Tenant waives all rights which may now or hereafter be conferred by law to any abatement, suspension, deferment or reduction of the Fixed Rent, Additional Rent or any other sums payable under this Lease. 8. REPAIRS, MAINTENANCE AND REPLACEMENTS: (a) Except for those items set forth in Section 8(b) which are the responsibility of Landlord, Tenant shall, at its own sole cost and expense, keep each and every portion of the Premises, including the Building and grounds, in good repair and condition, reasonable wear and tear and damage due to fire or other casualty excepted, at all times on and after commencement of the Term to and including the date of the termination of the Term, by lapse of time or otherwise, so as to preserve and protect the useful life, utility and value of the Premises, and in all events so as to preserve the effectiveness of any warranty relating thereto. Without limiting the foregoing, Tenant shall promptly and adequately repair, maintain and replace the electrical, sprinkler, plumbing and mechanical systems; the septic system and/or sewer system servicing the Building; utility connections; the parking lot, driveways and sidewalks on the Premises and any -9- components thereof, and striping of the parking lot; lighting in and around the Premises; interior and exterior glass; glazing systems and through-wall flashing; water tightness of all walls; landscaping; and all damaged or broken fixtures and appurtenances. Tenant shall, upon Landlord's request, deliver to Landlord a written statement showing all removals and replacements of any such systems or components during the preceding calendar year, including manufacturers, model numbers, and serial numbers in order to establish a current list of what assets are owned by whom. Landlord may, upon five (5) business days prior notice, cause independent private inspectors, qualified in the specific discipline, to make inspections of any building component or part or segments thereof to determine Tenant's compliance under this Section 8(a). The cost of such inspection shall be borne by Landlord unless the inspection reveals more than DE MINIMIS non-compliance with this Section 8(a), in which case the cost of the inspection shall be borne by Tenant. Landlord shall endeavor to minimize the interference with Tenant's use of the Premises during any such inspection. (b) Landlord, at its sole cost and expense, shall be responsible for the repair, maintenance and, if necessary, replacement of the roof and roof membrane of the Building and the foundation, floor slab, exterior walls and interior support columns of the Building, PROVIDED that if any such repairs, maintenance or replacements are caused by or result from the negligence or willful misconduct of Tenant, then Landlord shall perform such work at Tenant's cost and expense. If Tenant is responsible for payment of any repairs, maintenance or replacements pursuant to the proviso of the preceding sentence, Tenant shall remit payment to Landlord for such costs and expenses within fifteen (15) days of receipt of a reasonably detailed invoice therefor from Landlord, and any amounts outstanding after such due date shall accrue interest at the Overdue Rate. Landlord shall only be obligated to perform such repairs, maintenance and replacements if Landlord receives actual knowledge (which shall include receipt of written notice from Tenant) of the need for same. (c) Landlord may, but is not required to, after five (5) days notice to Tenant (except in the case of emergency, in which case Tenant shall be given notice contemporaneously with entry), enter the Premises and make any repairs, alterations, improvements, additions, replacements or maintenance as Landlord deems reasonably necessary and which are the responsibility of Tenant pursuant to the provisions of this Lease but which Tenant failed to do as required in this Lease after notice and the expiration of any applicable grace period, and Tenant shall pay Landlord as Additional Rent forthwith upon being billed for same by Landlord the cost thereof plus an administrative fee of five percent (5%) of such cost, such fee representing Landlord's reasonable overhead, fees and other costs or expenses arising from Landlord's involvement with such repairs, alterations, improvements, additions, replacements and maintenance. Such amount shall be paid by Tenant within fifteen (15) days after receipt of written notice from Landlord of any amounts owed. If Tenant does not pay such amounts with such fifteen (15) day period, Tenant also shall pay interest on such amounts at the Overdue Rate from the end of such fifteen (15) day period until paid. (d) Tenant shall maintain on the Premises, and turn over to Landlord upon expiration or termination of this Lease, current operating manuals for the equipment now or hereafter -10- located on the Premises which were either provided by Landlord or obtained by Tenant in connection with its maintenance and repair obligations hereunder. (e) Tenant covenants not to install any underground storage tank on the Land. 9. DESTRUCTION, DAMAGE OR CONDEMNATION: (a) If (i) all or substantially all of the Premises shall be damaged by fire or other casualty or taken under power of eminent domain or rendered unusable in Tenant's business by reason of a governmental order or decree, (ii) the Premises remaining after damage by fire or other casualty or taking by eminent domain is, in the reasonable judgment of Tenant, insufficient for the feasible operation of Tenant's business, or (iii) in the exercise of reasonable judgment of Tenant (or, in the last two years (2) of the Term, Landlord), repair and restoration of the Building after damage by fire or other casualty or taking by eminent domain will require more than one hundred twenty (120) days, then Tenant (and in the last two years of the Term, Landlord) shall have the right, exercisable within thirty (30) days of receipt of notice of such casualty or condemnation, to terminate this Lease. If Landlord elects to terminate this Lease in the last two (2) years of any term prior to the last Extension Term, such election may be nullified by Tenant giving notice to Landlord exercising its right to the next Extension Term within thirty (30) days after Landlord's election. (b) If, after damage by fire or other casualty or taking by eminent domain, neither party has exercised its rights granted within this Section 9 to terminate this Lease, then this Lease shall remain in effect and Landlord shall proceed with reasonable diligence, and at its expense (but only to the extent of insurance proceeds recovered and made available to Landlord plus the amount of any deductible actually paid by Tenant to Landlord with respect to casualty and only to the extent of a condemnation award actually received with respect to eminent domain proceedings), to cause the Premises to be repaired and restored as nearly as possible to the condition in which they were immediately prior to the casualty or condemnation, subject to applicable laws and regulations. Landlord shall not be liable for delays in the making of any repairs to the Premises which are due to governmental regulations, casualties and strikes, unavailability of labor and materials, and other causes beyond the control of Landlord ("EXCUSABLE DELAY"), nor shall Landlord be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting from reasonable delays in repairing such damage. Notwithstanding anything to the contrary herein, if Excusable Delay continues for more than thirty (30) days and if as a result Landlord will not complete restoration of the Premises within the time period contemplated by Section 9(d), then Tenant may terminate this Lease on written notice to Landlord. (c) If the Premises, or any part thereof, shall have been rendered unfit for use and occupation hereunder, or if Tenant is denied reasonable access to the Premises, in either case by reason of casualty or condemnation, and the Lease has not otherwise been terminated in accordance with this Section 9, then Fixed Rent, Additional Rent and other charges due hereunder, or a just and proportionate part thereof, according to the nature and extent to which -11- the Premises shall have been so rendered untenantable, shall be suspended or abated until the Premises shall have been restored as nearly as practicable to the condition in which they were immediately prior to such casualty or condemnation, subject to applicable laws and regulations. (d) If neither party has exercised its rights granted within this Section 9 to terminate this Lease, and Landlord has proceeded to repair and restore the Premises as provided above and does not substantially complete repair and restoration of the Premises to substantially the same condition which they were in prior to the casualty or condemnation within two hundred seventy (270) days after such damage, then Tenant may terminate this lease by notice to Landlord within fifteen (15) days after the expiration of said two hundred seventy (270) day period, Tenant's right of termination being its sole remedy with respect to Landlord's failure to restore. (e) In the event of any termination of this Lease pursuant to Section 9, this Lease and the Term hereof shall expire as of such effective termination date and the Fixed Rent, Additional Rent, and other charges shall be apportioned as of such effective termination date. (f) If the Premises or any part thereof shall be damaged by fire or other casualty or taken under power of eminent domain, each party hereto shall give prompt written notice to the other. (g) Tenant is required by the terms hereof to insure its own personal property, and all repairs to and replacements of Tenant's personal property shall be made by and at the expense of Tenant, and Landlord shall have no liability or responsibility therefor. 10. INSURANCE, HOLD HARMLESS AND INDEMNIFICATION: (a) Landlord shall not be liable to Tenant for any damage to or loss or theft of any property or for any bodily or personal injury, illness or death of any person in, on or about the Premises arising at any time and from any cause whatsoever, except to the extent caused by the gross negligence or willful misconduct of Landlord. Tenant waives all claims against Landlord arising from any liability described in this Section 10(a), except to the extent caused by the gross negligence or willful misconduct of Landlord. (b) Tenant shall be solely liable for, and hereby agrees to indemnify and defend Landlord against and hold Landlord harmless from all, claims, demands, liabilities, damages, losses, costs and expenses, including reasonable attorneys' fees and disbursements, arising from or related to Tenant's use or occupancy of the Premises, or any condition of the Premises arising from Tenant's use or occupancy of the Premises or for which Tenant is otherwise responsible, or any default in the performance of Tenant's obligations hereunder, or any damage to any property (including property of employees and invitees of Tenant) or any bodily or personal injury, illness or death of any person (including employees and invitees of Tenant) occurring in, on or about the Premises or any part thereof or any part of the building or the land constituting a part of the Premises (except to the extent caused by the negligence or willful misconduct of Landlord) or occurring outside the Premises when such damage, bodily or personal injury, illness or death is caused by any act or omission of Tenant or its agents, officers, employees, contractors, invitees -12- or licensees. This Section 10(b) shall survive the termination of this Lease with respect to any damage, bodily or personal injury, illness or death occurring prior to such termination, for a period of six (6) years. THE WAIVER PROVISION IN SECTION 10(a) AND THE INDEMNITY PROVISION IN THIS SECTION 10(b) ARE INTENDED TO EXCULPATE AND INDEMNIFY LANDLORD FROM AND AGAINST ANY LIABILITY OF LANDLORD BASED ON ANY APPLICABLE DOCTRINE OF STRICT LIABILITY. (c) Tenant shall, at all times and during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force (i) commercial general liability insurance, including contractual liability (specifically covering this Lease), cross liability, fire legal liability, and premises operations, all on an "occurrence" policy form, with a minimum combined single limit in the amount of $5,000,000 per occurrence for bodily or personal injury to, illness of, or death of persons and damage to property occurring in, on or about the Premises, and shall not have a deductible amount greater than $10,000, and (ii) business interruption insurance insuring that the Fixed Rent will be paid to Landlord for up to one year if the Premises are destroyed or rendered untenantable by any cause insured against (it being understood that the existence of such insurance does not reduce Tenant's obligation to pay Fixed Rent without diminution, except as expressly provided for in this Lease). The insurance policies specified in the foregoing clauses (i) and (ii) shall name Landlord and any Mortgagees as additional insureds. Tenant shall, at Tenant's sole cost and expense, be responsible for insuring Tenant's furniture, equipment, fixtures, computers, office machines, personal property and Tenant's Trade Fixtures. (d) Tenant shall, at all times during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force worker's compensation and employer's liability insurance in all states in which the Premises and any other operations of Tenant are located and any other state in which Tenant may be subject to any statutory or other liability arising in any manner whatsoever out of the actual or alleged employment of others. (e) Tenant shall, at all times during the term of this Lease and at Tenant's sole cost and expense, obtain and keep in force (i) insurance against loss or damage to the Premises by fire and all other risks of physical loss (including flood coverage, if the Premises are located in a Special Flood hazard area, as determined by the Secretary of Housing and Urban Development) covered by insurance of the type now known as "all risk," with difference in conditions coverage, in an amount not less than the full replacement cost of the Premises (without deduction for depreciation), with ninety percent (90%) co-insurance, with deductibles of no more than $10,000, including the cost of debris removal and such endorsements as Landlord may reasonably require, with a so-called Standard Mortgagee Clause and containing "Replacement Cost," "Inflation Guard" and "Agreed Amount" endorsements; (ii) boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, ventilation and air conditioning equipment, and elevator and escalator equipment, in the amount of full replacement cost, PROVIDED the Premises contain equipment of such nature and insurance against loss of occupancy or use arising from any breakdown of any such items, in such amounts as Landlord may reasonably determine; and (iii) insurance in amounts and against such other risks as Landlord or Mortgagee may reasonably require and against such risks as are customarily -13- insured against by operators of similar properties. The insurance policy specified in this Section 10(e) shall name Landlord and any Mortgagee as loss payee. (f) All policies of insurance shall be written by a company or companies that have been rated as follows by at least 2 out of 3 rating agencies: (i) a Best's rating of A:VIII, A:X or better; (ii) a Moody's rating of A or better; and/or (iii) a Standard & Poor's rating of A or better. All insurance required to be maintained by Tenant under this Section 10 shall be selected by the Tenant and approved by the Landlord and any Mortgagee. Each policy to be maintained by Tenant shall expressly provide that the policy shall not be canceled or altered without thirty (30) days' prior written notice to Landlord and any Mortgagee and shall remain in effect notwithstanding any such cancellation or alteration until such notice shall have been given to Landlord and such period of thirty (30) days shall have expired. All insurance under this Section 10 to be maintained by Tenant shall be primary and noncontributing with any insurance which may be carried by Landlord, and shall afford coverage for all claims based on any act, omission, event or condition that occurred or arose (or the onset of which occurred or arose) during the policy period other than as a result of the negligence or willful misconduct of Landlord. Upon the issuance of each such policy to be maintained by Tenant, Tenant shall deliver a certificate of insurance to Landlord and a copy of each such policy for retention by Landlord. In the case of insurance about to expire, Tenant shall deliver renewal certificates not less than ten (10) days prior to their respective dates of expiration. Tenant may maintain the insurance required by this Section 10 under blanket insurance policies, PROVIDED that the insurer provides evidence that an amount necessary to meet the requirements of this Section 10 has been reserved for the Premises. (g) Tenant waives to the extent allowed by the insurer on behalf of all insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, all rights of subrogation which any insurer might otherwise, if at all, have to any claims of Tenant against Landlord. Landlord waives on behalf of all insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Landlord insuring or covering the Premises or any portion or any contents thereof, or any operations therein, all rights of subrogation which any insurer might otherwise, if at all, have to any claims of Landlord against Tenant. Tenant shall use its best efforts to procure from each of the insurers under all policies of property, liability and other insurance (excluding workers' compensation) now or hereafter carried by Tenant insuring or covering the Premises, or any portion or any contents thereof, or any operations therein, a waiver of all rights of subrogation which the insurer might otherwise, if at all, have to any claims of Tenant against Landlord, to the extent that such a waiver can be obtained without payment by Tenant. 11. COMPLIANCE WITH LAWS, COVENANTS: (a) Subject to the provisions of Section 8(b) above, Tenant shall throughout the Term promptly comply or cause compliance with or remove or cure any violation of any and all -14- present and future laws, including, without limitation, the Occupational Safety and Health Act of 1970, as the same may be amended from time to time, ordinances (zoning or otherwise), orders, rules, regulations and requirements of all Federal, State, municipal and other governmental bodies having jurisdiction over the Premises and the appropriate departments, commissions, boards and officers thereof, and the orders, rules and regulations of the Board of Fire Underwriters where the Premises are situated, or any other body now or hereafter constituted exercising lawful or valid authority over the Premises, or any portion thereof, or the sidewalks, curbs, roadways, alleys or entrances adjacent or appurtenant thereto, or exercising authority with respect to the use or manner of use of the Premises, or such adjacent or appurtenant facilities, and whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall involve any change in governmental policy, and irrespective of the amount of the costs thereof. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants, if any, running with the land, or hereafter created by Tenant or consented to, in writing, by Tenant or requested, in writing, by Tenant. Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises and required to be obtained and maintained under the terms of Section 10 hereof and shall comply with all development permits issued by governmental authorities issued in connection with development of the Premises. (b) If Tenant shall at any time fail to pay any Property Taxes in accordance with the provisions of Section 5, or to take out, pay for, maintain and deliver any of the insurance policies or certificates of insurance provided for in Section 10, or shall fail to make any other payment or perform any other act on its part to be made or performed hereunder after any required notice and the expiration of any applicable grace period, then Landlord, after seven (7) business days prior written notice to Tenant (or without notice in situations where Landlord determines, in the exercise of commercially reasonable discretion, that delay is likely to cause harm to Landlord's interest in the Premises), and without waiving or releasing Tenant from any obligation of Tenant contained in this Lease, may, but shall be under no obligation to do so, (i) make such payment of Property Taxes on behalf of Tenant; (ii) take out, pay for and maintain any of the insurance policies to be obtained by Tenant pursuant to Section 10; or (iii) make any other payment or perform any other act on Tenant's part to be paid or performed hereunder, except that any time permitted to Tenant to perform any act required to be performed by Tenant hereunder shall be extended for such period as may be necessary to effectuate such performance, PROVIDED Tenant is continuously, diligently and in good faith prosecuting such performance. -15- Landlord may enter upon the Premises for any such purpose and take all such action therein or thereon as may be necessary therefor. All sums, reasonable under the circumstances, actually so paid by Landlord and all costs and expenses, including reasonable attorney's fees, incurred by Landlord in connection with the performance of any such act, together with interest thereon at the Overdue Rate, shall be paid by Tenant to Landlord on demand and submission of reasonable evidence of such expenditures. Landlord shall not be limited in the proof of any damages which Landlord may claim against Tenant arising out of or by reason of Tenant's failure to provide and keep in force insurance as aforesaid, to the amount of the insurance premium or premiums not paid or incurred by Tenant, and which would have been payable upon such insurance. (c) Tenant covenants and agrees that it shall, at its sole cost and expense, comply with all provisions of the Americans With Disabilities Act of 1990 as they apply to the Premises and which require modifications to the Premises during the Term. 12. [INTENTIONALLY OMITTED] 13. ARBITRATION: At the election of either Landlord or Tenant, any controversy or claim arising out of this Lease, or any dispute or matter that this Lease provides may be submitted to arbitration, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by any arbitrator may be entered in any court having jurisdiction thereof; PROVIDED, HOWEVER, that this Section 13 shall not limit the right of either Landlord or Tenant to obtain any provisional remedy (including, without limitation, injunctive relief, writs for recovery of possession similar relief) from any court of competent jurisdiction, as may be necessary in the sole judgment of the party seeking such provisional remedy, to protect such party's interests. The arbitrator shall not have the right to add to, detract from, or in any way alter the provisions of the Lease. Any party desiring to submit a controversy to arbitration shall give notice of intention to so by giving notice to the other party in accordance with the provisions hereof and shall, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, submit such controversy to arbitration by submission to the American Arbitration Association at the same time. Arbitration proceedings shall be conducted by a single arbitrator at the Regional Office of the American Arbitration Association in Boston, Massachusetts, or at any other location which the parties may mutually designate. The costs and expenses of arbitration shall be paid by the party against whom the arbitrator's decision is adverse. 14. EVENTS OF DEFAULT: The occurrence of any one or more of the following events (each an "EVENT OF DEFAULT") shall constitute a breach of this Lease by Tenant: (a) Tenant fails to pay any Fixed Rent as and when such Fixed Rent becomes due and such failure continues for five (5) business days after written notice thereof has been delivered to Tenant; or -16- (b) Tenant fails to pay any Additional Rent as and when such Additional Rent becomes due and payable and such failure continues for more than fifteen (15) days after Landlord gives written notice thereof to Tenant; or (c) Tenant fails to deliver the Letter of Credit or to maintain the Letter of Credit at the times, in the manner and in the amounts required pursuant to Section 28; or (d) Tenant fails to perform or breaches any other agreement or covenant of this Lease to be performed or observed by Tenant as and when performance or observance is due and such failure or breach continues for more than thirty (30) days after Landlord provides written notice thereof to Tenant; PROVIDED, HOWEVER, that if, by the nature of such agreement or covenant, such failure or breach cannot reasonably be cured within such period of thirty (30) days, an Event of Default shall not exist as long as Tenant commences with due diligence and dispatch the curing of such failure or breach within such period of thirty (30) days and, having so commenced, thereafter prosecutes with diligence and dispatch and completes the curing of such failure or breach within 260 days after Tenant's acquisition of knowledge or notice of such failure or breach; or (e) Tenant (i) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii) makes an assignment for the benefit of its creditors, (iii) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of Tenant or of any substantial part of Tenant's property, or (iv) takes action for the purpose of any of the foregoing; or (f) Without consent by Tenant, a court or government authority enters an order, and such order is not vacated within ninety (90) days, (i) appointing a custodian, receiver, trustee or other officer with similar powers with respect to Tenant or with respect to any substantial part of Tenant's property, or (ii) constituting an order for relief or approving a petition for relief or reorganization or arrangement or any other petition in bankruptcy, insolvency or other debtors' relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or liquidation of Tenant; or (g) This Lease or any estate of Tenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within thirty (30) days. Landlord may treat the occurrence of any one or more of the foregoing Events of Default as a breach of this Lease. For so long as such Event of Default continues, Landlord, at its option and with or without notice or demand of any kind to Tenant or any other person, may have any one or more of the remedies provided in this Lease, in addition to all other remedies and rights provided at law or in equity. 15. REMEDIES: -17- In the event of any Event of Default, Landlord may, in addition to, and not in derogation of any remedies for any preceding breach, with or without notice of demand (except as otherwise expressly provided herein) and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Event of Default: (a) Landlord shall have the right at any time to give a written termination notice to Tenant and, on the date specified in such notice (which shall be not less than five (5) days after such notice is given), Tenant's right to possession shall terminate and this Lease shall terminate. (b) If this Lease shall have been terminated as provided herein, Tenant shall pay the Fixed Rent and all other sums payable hereunder up to the time of such termination, and thereafter, Tenant, until what would have been the balance of the Term then in effect (The Primary Term or any Extension Term) in the absence of such termination, shall be liable to Landlord for, and shall pay to Landlord, as current damages, Fixed Rent and other sums which would be payable hereunder if such termination had not occurred, plus the remaining unamortized amount of any brokerage fees paid by Landlord in connection with this Lease and any remaining unamortized amounts paid by Landlord in connection with the Tenant Work, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses reasonably incurred by Landlord in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorney's fees, advertising and the reasonable costs and expenses incurred in preparing the Premises for such reletting. Tenant shall pay such current damages to Landlord monthly on the days which the Fixed Rent would have been payable hereunder if this Lease has not been terminated. (c) At any time after such termination, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election, Tenant shall pay to Landlord an amount equal to the excess, if any, of the Fixed Rent and other sums which would be payable hereunder from the date of such demand over the then fair rental value of the Premises for the same period, discounted to present value at the rate of seven percent (7%) per annum (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Property Taxes and insurance for the Premises would be the same as the payments required for the immediately preceding year) for what would have been the balance of the Term then in effect (the Primary Term or any Extension Term) in the absence of such termination. (d) If an Event of Default shall occur and continue beyond all applicable notice and cure periods, and if, as a result thereof, Landlord shall terminate this Lease or re-enter the Premises and take possession thereof by summary proceedings or otherwise, Landlord may (i) re-let the Premises or one or more portions thereof, either in the name of the Landlord or otherwise, for one or more terms which may, at Landlord's option, be equal to or less than or exceed the period which would have been the balance of the Term then in effect (the Primary Term or any Extension Term) in the absence of any termination of this Lease and may grant reasonable concessions, including free rent periods and tenant improvement allowances, to the extent advisable and necessary to re-let the same and (ii) may make such reasonable alterations, repairs and decorations in the Premises as Landlord, in its sole judgment considers advisable and -18- necessary for the purposes of reletting the Premises (including construction of tenant improvements) and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder; PROVIDED, HOWEVER that Tenant shall not be responsible for any damage to the Premises or liability incurred by Landlord with respect thereto from and after the date of re-entry by Landlord into the Premises or the acts or omissions of any subsequent tenant or occupant of the Premises as a result of any such reletting by Landlord. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises, or, in the event that the Premises are re-let, for failure to collect the rent under such reletting. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises by reason of a default by Tenant in its obligations under this Lease continuing beyond all applicable notice and cure periods. (e) Even though Tenant has breached this Lease, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to enforce all its rights and remedies under this Lease, including the right to recover all Rent as it becomes due under this Lease. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession unless written notice of termination is given by Landlord to Tenant. (f) All agreements and covenants to be performed or observed by Tenant under this Lease shall be at Tenant's sole cost and expense and without any abatement of Fixed Rent or Additional Rent, except as expressly provided for in this Lease. (g) If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any movable furniture, equipment, Tenant's Trade Fixtures or other personal property belonging to Tenant and left in the Premises shall be deemed to be abandoned, at the option of Landlord, and Landlord shall have the right to sell or otherwise dispose of such personal property in any commercially reasonable manner. (h) All reasonable costs and expenses incurred by or on behalf of either Landlord or Tenant (including, without limitation, reasonable attorney's fees and expenses) in enforcing its rights hereunder or occasioned by default by the other party which continues beyond all applicable notice and cure periods shall be paid by such other party. (i) Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. (j) Except as otherwise provided in this Lease, any and all rights and remedies which either Landlord or Tenant may have under this Lease, and at law and equity, shall be cumulative -19- and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law. 16. SUBORDINATION; NON-DISTURBANCE; MORTGAGEE PROTECTION: (a) Tenant agrees at any time hereafter, and from time to time within ten (10) days of written request of Landlord, to execute and deliver to Landlord an instrument in the form customarily used by any institutional investor becoming a Mortgagee subjecting and subordinating this Lease to the lien of any Mortgage which at any time may be placed upon the Premises, or any portion thereof, by Landlord, and to any replacements, renewals, amendments, consolidations, modifications, extensions or refinancing thereof, and to each and every advance made under any Mortgage. It is agreed, nevertheless, that so long as there exists no Event of Default, such subordination agreement or other instrument, release or document (a "SUBORDINATION AGREEMENT") shall not interfere with, hinder or reduce Tenant's right to quiet enjoyment under this Lease, nor the right of Tenant to continue to occupy the Premises, and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease, shall recognize Tenant's extension and express set-off rights under this Lease, shall provide for the release of insurance proceeds and condemnation awards for application in accordance with the terms of this Lease and shall not increase Tenant's financial obligations or increase in any material way any of Tenant's other obligations hereunder. The obligation of Tenant to deliver a Subordination Agreement shall be contingent upon the holder of the Mortgage delivering a non-disturbance agreement to Tenant containing the provisions set forth in the preceding sentence (a "NON-DISTURBANCE AGREEMENT"). The costs of preparing and recording a Subordination Agreement or Non-Disturbance Agreement shall be borne by Landlord, but Tenant shall be responsible for its own counsel fees. Contemporaneously with the delivery hereof, Landlord's Mortgagees have delivered to Tenant a Subordination Agreement and Non-Disturbance Agreement which is acceptable to Tenant. (b) Provided Tenant has been advised in writing of the name and address of a Mortgagee of the Premises, in the event of any act or omission of Landlord constituting a default by Landlord, Tenant shall not exercise any remedy until Tenant has given Landlord and such Mortgagee written notice of such act or omission, and until a reasonable period of time (not to exceed 10 business days) to allow Landlord or the Mortgagee to remedy such act or omission shall have elapsed following receipt of such notice. However, if such act or omission cannot, with due diligence and in good faith, be remedied within such period, except in circumstances where Tenant's interests are subject to immediate loss or uncorrectable damage Landlord and the Mortgagee shall be allowed such further period of time as may be reasonably necessary, PROVIDED that it commences remedying the same with due diligence and in good faith and thereafter diligently prosecutes such cure, and PROVIDED FURTHER that such cure period shall not extend beyond 260 days after the notice of such default. Nothing herein contained shall be construed or interpreted as requiring any Mortgagee receiving such notice to remedy such act or omission. -20- (c) If any Mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Premises, whether through possession or foreclosure or the delivery of a deed to the Premises in lieu of foreclosure, then such Mortgagee shall automatically be deemed to have recognized this Lease and to assume the obligations of Landlord hereunder accruing on and after the date such Mortgagee acquired title to the Premises, and Tenant shall attorn to and recognize such Mortgagee as Tenant's landlord under this Lease (subject to such Mortgagee providing any required non-disturbance agreement to Tenant) and shall promptly execute and deliver any instrument that such Mortgagee may reasonably request to evidence such attornment (whether before or after the making of the Mortgage). In the event of any other transfer of Landlord's interest hereunder, such transferee shall automatically be deemed to have recognized this Lease and to assume the obligations of Landlord hereunder accruing on and after the date of such transfer, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such transferee and Landlord may reasonably request to evidence such attornment. (d) Upon ten days' advance written notice, Tenant agrees to execute, acknowledge and deliver a document in a commercially reasonable form consenting to the assignment by Landlord of this Lease to a Mortgagee, with such changes therein as may be reasonably requested by the Mortgagee. (e) Landlord represents and warrants to Tenant that, as of the date of this Lease, the Premises are not encumbered by a Mortgage other than the MIFA Mortgage and the UNUM Mortgage. 17. LANDLORD'S RIGHT OF ENTRY: Upon 48 hours' advance notice, but subject to Tenant's reasonable security precautions, Landlord and its designees shall have the right to enter the Premises at any time during normal business hours and to inspect the same, post notices of non-responsibility, exhibit the Premises to prospective purchasers and mortgagees, and examine Tenant's books and records pertaining to the maintenance of the Premises, insurance policies, certificates of occupancy and other documents, records and permits in Tenant's possession with respect to the Premises, all of which shall be customary and adequate and reasonably satisfactory to Landlord. -21- 18. NOTICES: Notices, statements, demands, or other communications required or permitted to be given, rendered or made by either party to the other pursuant to this Lease or pursuant to any applicable law or requirement of public authority, shall be in writing (whether or not so stated elsewhere in this Lease) and shall be deemed to have been properly given, rendered or made, when received by overnight delivery or overnight courier delivery (even if such delivery is refused) or facsimile transmission with a confirmation copy sent by overnight delivery or by overnight courier delivery addressed to the other parties as follows: To Landlord: TriNet Property Partners, L.P. c/o IStar Financial Inc. 3480 Preston Ridge Road, Suite 575 Alpharetta, GA 30005-8891 Attn: Vice President, Asset Management With a copy to: Day, Berry & Howard LLP 260 Franklin Street Boston, MA 02110 Attn: Lewis A. Burleigh, Esq. To Tenant: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attn: Chief Financial Officer With a copy to: Katharine E. Bachman, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 Any party listed in this Section 18 may, by notices as aforesaid, designate a different address for addresses for notice, statements, demands or other communications intended for it. -22- 19. ESTOPPEL CERTIFICATE At any time and from time to time, Tenant and Landlord shall, within ten (10) days after written request by the other, execute, acknowledge and deliver to the requesting party a certificate certifying: (i) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the date and nature of each modification); (ii) the Commencement Date, the Commencement Date and the Lease Expiration Date and the date, if any, to which all Rent and other sums payable hereunder have been paid; (iii) that no notice has been received by Tenant or Landlord, as applicable of any default by Tenant or Landlord, as applicable hereunder which has not been cured, except as to defaults specified in such certificate; (iv) that, to the best knowledge of Tenant or Landlord, as applicable, Landlord or Tenant, as applicable, is not in default under this Lease, except as to defaults specified in such certificate; and (v) such other matters as may be reasonably requested by Landlord or Tenant, as applicable or any actual or prospective purchaser or Mortgagee. Any such certificate may be relied upon by Landlord or Tenant, as applicable and any actual or prospective purchaser or Mortgagee of the Premises or any part thereof. 20. MECHANICS' LIENS: (a) Tenant shall not suffer or permit any mechanic's lien or other lien to be filed or recorded against the Premises, equipment or materials supplied or claimed to have been supplied to the Premises at the request of Tenant, or anyone holding the Premises, or any portion thereof, through or under Tenant whereby the estate, rights or title of Landlord are encumbered. If any such mechanic's lien or other lien shall at any time be filed or recorded against the Premises, or any portion thereof, Tenant shall cause the same to be discharged of record or bonded against to Landlord's satisfaction within sixty (60) days after the date of filing or recording of the same. However, in the event Tenant desires to contest the validity of any such lien, it shall notify Landlord and Landlord's Mortgagee in writing that Tenant intends to so contest same and, on or before the due date thereof, post a bond or otherwise discharge of record or procure title insurance over such lien. If Tenant complies with the foregoing and Landlord's Mortgagee does not object to such contest, and Tenant continues, in good faith, to contest the validity of such lien by appropriate legal proceedings which shall operate to prevent the collection thereof and the sale or forfeiture of the Premises, or any part thereof, to satisfy the same, Tenant shall be under no obligation to pay such lien until such time as the same has been decreed, by court order, to be a valid lien on the Premises. Any surplus deposit retained by Landlord, after the payment of the lien shall be repaid to Tenant. Landlord agrees not to pay such lien during the period of Tenant's contest in accordance with this Section. If Tenant fails to discharge, bond or contest any such lien in accordance with this Section and Landlord pays for the discharge of any such lien or any part thereof from funds of Landlord, any amount paid by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorney's fees of Landlord), together with interest thereon at the Overdue Rate, shall be repaid by Tenant to Landlord on demand by Landlord. Tenant shall be solely liable for, and agrees to indemnify and defend Landlord against -23- and save Landlord and the Premises, and any portion thereof, harmless from and against all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorney's fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien or the attempt by Tenant to discharge same as above provided. (b) All materialmen, contractors, artisans, engineers, mechanics, laborers and any other Person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanic's lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Premises, or any portion thereof. (c) Without Landlord's prior written consent, which shall be given or withheld in Landlord's sole discretion, Tenant shall not create, permit or suffer, and, subject to the provisions of Section 20(a) hereof, shall promptly discharge and satisfy of record, or bond against, any other lien, encumbrance, charge, security interest, or other right or interest which, as a result of Tenant's action or inaction contrary to the provisions hereof, shall be or become a lien, encumbrance, charge or security interest upon the Premises, or any portion thereof, or the income therefrom, other than Permitted Encumbrances. 21. END OF TERM: (a) Upon the expiration or earlier termination of the Term of this Lease, Tenant shall surrender the Premises to Landlord in good repair and condition, reasonable wear and tear excepted, and broom clean. Tenant shall surrender all keys to the Premises to Landlord at the place then fixed for notices to Landlord and shall inform Landlord of all combinations on locks, safes and vaults, if any. Except as otherwise provided herein, Tenant shall at such time remove all of Tenant's Trade Fixtures, other personal property from the Premises therefrom and the property listed on EXHIBIT C (unless Landlord has previously agreed otherwise in writing in accordance with Section 22(b)(ii) hereof). Tenant shall repair any damage to the Premises caused by the removal of Tenant's Trade Fixtures, other personal property and the property listed on EXHIBIT C, and any and all such property not so removed shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant. (b) If the Premises are not surrendered as above set forth, Tenant shall pay to Landlord a sum equal to 150% of the Fixed Rent herein provided during each month or portion thereof for which Tenant shall remain in possession of the Premises or any part thereof after the termination of the Term or of Tenant's rights of possession, whether by lapse of time or otherwise. The provisions of this Section 21(b) shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein, at law or at equity. -24- (c) All property of Tenant not removed on or before the last day of the Term of this Lease shall be deemed abandoned. Tenant hereby appoints Landlord its agent to remove all property of Tenant, including Tenant's Trade Fixtures, from the Premises upon termination of this Lease and to cause its transportation and storage for Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall not be liable for damage, theft, misappropriation or loss thereof and Landlord shall not be liable in any manner in respect thereto. Tenant shall pay all costs and expenses, reasonable under the circumstances, of such removal, transportation and storage. Tenant shall reimburse Landlord upon demand for any expenses reasonably and actually incurred by Landlord with respect to removal or storage of abandoned property and with respect to restoring said Premises to good order, condition and repair. (d) Except for surrender upon the expiration or earlier termination of the Term hereof, no surrender to Landlord of this Lease or of the Premises shall be valid or effective unless agreed to and accepted in writing by Landlord. 22. ALTERATIONS: (a) Tenant shall not make any alterations, additions or improvements in or to the Premises or any part thereof without Landlord's prior written consent (which will not be unreasonably withheld or delayed). Notwithstanding the preceding sentence, Tenant may make such alterations, additions or improvements without Landlord's consent if such alterations, additions or improvements (i) will be in compliance with all applicable laws, codes, rules, regulations and ordinances, (ii) will not affect in any way the structural, exterior or roof elements of the Premises or adversely affect the mechanical, electrical, plumbing, utility or life safety systems of the Premises, and (iii) will have an estimated project cost of less than Fifty Thousand Dollars ($50,000). In no event shall Tenant be permitted to install underground storage tanks or fuel systems on the Premises. Landlord's refusal to consent to the installation of an underground tank or fuel system shall be conclusively presumed to be reasonable. (b) All alterations, additions or improvements requiring Landlord's consent shall be made at Tenant's sole cost and expense as follows: (i) Tenant shall submit to Landlord, for Landlord's written approval, complete plans and specifications for all work to be done by Tenant. Such plans and specifications shall be prepared by licensed architect(s) and/or engineer(s), shall comply with all applicable codes, ordinances, rules and regulations, shall not adversely affect the structural elements of the Premises, shall be in a form sufficient to secure the approval of all government authorities with jurisdiction over the Premises, and shall be otherwise satisfactory to Landlord in Landlord's reasonable discretion. (ii) Landlord shall notify Tenant in writing within fifteen (15) days whether Landlord approves or disapproves such plans and specifications; Landlord shall describe the reasons for any such disapproval which reasons must be based on either noncompliance with law or insurance policies, on reduction of the value or utility of the Premises, or on Tenant's refusal to remove such alterations or to restore the Premises to their condition immediately prior to such -25- work upon the expiration or earlier termination of this Lease. If Landlord does not respond within such 15 day period, Tenant may send a second notice, prominently marked "Second Notice--Failure to Respond Will Result in Deemed Approval", and if Landlord fails to respond within ten (10) business days, the proposed plans and specifications shall be deemed approved. Tenant may submit to Landlord revised plans and specifications for Landlord's prior written approval, which approval shall not be withheld or delayed if (a) the work to be done would not adversely affect the value, character, rentability or usefulness of the Premises or any part thereof, or (b) the work to be done shall be required by any Law (hereinafter defined) or (c) Tenant shall agree to remove such alterations or restore the Premises to their condition immediately prior to such work upon the expiration or earlier termination of this Lease. Tenant shall pay all costs, including the fees and expenses of the licensed architect(s) and/or engineer(s), in preparing such plans and specifications. (iii) All material changes in the plans and specifications approved by Landlord shall be subject to Landlord's prior written approval on the same terms and conditions as set forth above. If Tenant wishes to make such change in approved plans and specifications, Tenant shall have such architect(s) and/or engineer(s) prepare plans and specifications for such change and submit them to Landlord for Landlord's written approval. Landlord shall notify Tenant in writing promptly whether Landlord approves, approves on condition that Tenant reverse the alteration at Tenant's expense at the termination or expiration of this Lease, or disapproves such change and, if Landlord disapproves such change, Landlord shall describe the reasons for disapproval. Tenant may submit to Landlord revised plans and specifications for such change for Landlord's written approval. After Landlord's written approval of such change, such change shall become part of the plans and specifications approved by Landlord. (c) Tenant shall obtain and comply with all building permits and other government permits and approvals required in connection with the work. If Tenant was required to submit plans and specifications for the work to Landlord for Landlord's approval, Tenant shall, through Tenant's licensed contractor, perform the work substantially in accordance with such plans and specifications approved in writing by Landlord or deemed approved by Landlord. Tenant shall pay, as Additional Rent, the entire cost of all work (including the cost of all utilities, permits, fees, taxes, and property and liability insurance premiums in connection therewith) actually performed or obtained. Under no circumstances shall Landlord be liable to Tenant for any damage, loss, cost or expenses incurred by Tenant on account of any plans and specifications, contractors or subcontractors, design of any work, construction of any work, or delay in completion of any work. (d) Tenant shall give written notice to Landlord of the date on which construction of any work to be done by outside contractors will be commenced at least ten (10) days prior to such date. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord and the Premises from such liens, and to take any other action Landlord deems necessary to remove or discharge liens or encumbrances at the expense of Tenant. -26- (e) All work shall be done in a good and workmanlike manner employing materials of good quality and in compliance with laws, rules, orders and regulations of governmental authorities having jurisdiction thereof. All work shall be performed in such a manner as to maintain harmonious labor relations, not to damage the Building or interfere with the construction or operation of the Building. Tenant shall indemnify and hold Landlord harmless from additional costs incurred in supplying service or repairing damage caused by Tenant's contractors. Tenant shall cause each contractor to carry workmen's compensation insurance in statutory amounts covering the employees of all contractors and subcontractors, and commercial general liability insurance with such limits as Landlord may require reasonably from time to time during the Term of this Lease, but in no event less than the minimum amount of commercial general liability insurance Tenant is required to maintain as set forth in Section 10 hereof, and otherwise in accordance with the insurance requirements of Section 10. (f) All alterations, additions, fixtures and improvements, whether temporary or permanent in character, made in or to the Premises by Tenant, and specifically including the Tenant Work, shall become part of the Premises and Landlord's property, except as listed on EXHIBIT C, and as may be mutually agreed upon by Landlord and Tenant. Upon termination of this Lease, Tenant shall, at Tenant's expense, remove all movable furniture, equipment, Tenant's Trade Fixtures, office machines and other personal property from the Premises and repair all damage caused by such removal. Termination of this Lease shall not affect the obligations of Tenant pursuant to this Section 22(f) to be performed after such termination. (g) Tenant acknowledges that, as of the date hereof, the Building is connected to the building commonly known and referred to as 78 Pacella Road in Randolph, Massachusetts by a covered walkway (the "LAND BRIDGE"). Tenant covenants and agrees that upon the expiration or earlier termination of the Term and if requested to do so by Landlord, Tenant shall at its own expense remove the Land Bridge and restore the Building as a free-standing structure, seal the Building at the former connection point of the Land Bridge and otherwise restore that area of the Building to substantially the same condition as existed prior to construction of the Land Bridge. All work by Tenant in removing the Land Bridge and restoring the Building shall be performed in compliance with the requirements of this Section 22. (h) Landlord acknowledges that Tenant intends to make the following initial improvements to the Premises (collectively, the "INITIAL IMPROVEMENTS"): (i) Removal of the existing interior improvements in the Premises, including existing interior walls, and the installation in the Premises of improvements and equipment for the operation by Tenant of its pharmaceutical manufacturing activities therein (the "INTERIOR WORK"); and (ii) the construction on the roof of a penthouse for mechanical systems (the "ROOF WORK"). (i) Notwithstanding any other term or provision of this Section 22 to the contrary, the following provisions shall govern Tenant's rights to make the Initial Improvements: -27- (i) Tenant may perform the Interior Work without Landlord's consent so long as such Interior Work (i) shall be in compliance with all applicable laws, codes, rules, regulations and ordinances, (ii) shall not affect in any way the structural elements (meaning the structural portions of the roof, the exterior and load bearing walls, the foundation, the structural columns and floor slabs of the Building) or the roof of the Premises or adversely affect the mechanical, electrical, plumbing, utility or life safety systems of the Premises and (iii) shall be constructed by Tenant in accordance with the requirements of clauses (c) through (f) of this Section 22. Tenant agrees to indemnify and hold Landlord harmless from and against any claims or damage as a result of the failure of the Interior Work to comply with any of the foregoing clauses (i) through (iii). Tenant shall not be required to obtain Landlord's consent to or approval of the plans and specifications for the Interior Work, but Tenant agrees to provide Landlord with courtesy copies of all such plans and specifications, which shall be prepared by licensed architect(s) and/or engineer(s), prior to the start of demolition or construction. (ii) Tenant shall submit plans and specifications for the Roof Work to Landlord for its prior consent and approval in accordance with the procedures specified in clause (b) of this Section 22. Notwithstanding any other term or provision of clause (b), however, Landlord may not withhold, condition or delay its consent to the Roof Work so long as such Roof Work (i) shall be in compliance with all applicable laws, codes, rules, regulations and ordinances, (ii) shall not affect in any way the structural elements (meaning the structural portions of the roof, the exterior and load bearing walls, the foundation, the structural columns and floor slabs of the Building) of the Premises or adversely affect the mechanical, electrical, plumbing, utility or life safety systems of the Premises, (iii) shall be constructed by Tenant in accordance with the requirements of clauses (c) through (f) of this Section 22, and (iv) shall be consistent with the aesthetic appearance of the Building. Tenant agrees to indemnify and hold Landlord harmless from and against any claims or damage as a result of the failure of the Roof Work to comply with any of the foregoing clauses (i) through (iv). 23. MEMORANDUM OF LEASE: The parties agree, upon the written request of either party hereto, to promptly execute a Memorandum of Lease in recordable form and either of the parties shall have the right, without notice to the other party, to record such Memorandum of Lease. 24. SUBLETTING/ASSIGNMENT: (a) Except as otherwise expressly permitted under this Section 24, Tenant covenants and agrees that neither this Lease, nor the term hereof, nor the estate hereby granted, nor any interest herein or therein, will be assigned, sublet, mortgaged, pledged, encumbered or otherwise transferred, and that neither the Premises, nor any part thereof, will be encumbered in any manner by reason of any act or omission of Tenant, or used or occupied, or permitted to be used or occupied, by anyone other than Tenant and its employees, or for any use or purpose other than as above stated, or be sublet, or offered or advertised for subletting, without in each case, Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed, or -28- conditioned. Landlord's acceptance of a check in payment of any obligations of Tenant under this Lease from a person other than Tenant shall not be construed as an implied consent by Landlord to an assignment of this Lease or subletting under it. (b) Landlord's consent shall not be required for an assignment of this Lease resulting from the merger or consolidation of Tenant into an Affiliate of Tenant, or the sale of all of the assets of Tenant, so long as: (i) if Tenant survives such merger or consolidation or sale, Tenant shall have a net worth that is at least equal to the net worth of Tenant immediately prior to such merger or consolidation; (ii) if Tenant does not survive such merger or consolidation or sale, the surviving Affiliate of Tenant (A) shall have a net worth that is at least equal to the net worth of Tenant immediately prior to such merger or consolidation and (B) shall deliver to Landlord within ten (10) days after the effective date of such assignment a written instrument pursuant to which such Affiliate shall assume all of the obligations of Tenant hereunder; and (iii) in all cases, Tenant shall provide written notice to Landlord of such merger, consolidation, assignment or sublease not later than thirty (30) days prior to the effective date thereof (PROVIDED, however, that if the shareholders of Tenant are not required to have approved or been notified of such transaction at such time, Tenant shall provide written notice to Landlord at such later time at which Tenant notifies its shareholders of such transaction), and shall provide Landlord not later than thirty (30) days after the effective date thereof with evidence that the net worth requirements specified in the preceding clauses, as applicable, will be satisfied. (c) Landlord's consent shall not be required for any sublease of all or any part of the Premises to an Affiliate of Tenant so long as (I Tenant remains liable as a principal, and not merely as a surety or guarantor of performance, for all obligations hereunder, as more fully set forth in subsection (e), and (II) the provisions of subsections (f) and (g) also are satisfied. (d) Landlord shall not unreasonably withhold, condition or delay its consent to any proposed assignment of this Lease or sublease of space in the Premises to which subsections (b) and (c) do not apply so long as (I Tenant remains liable as a principal, and not merely as a surety or guarantor of performance, for all obligations hereunder, as more fully set forth in subsection (e), and (II) the provisions of subsections (f), (g) and (h) also are satisfied. (e) No assignment or sublease whatsoever shall release Tenant from Tenant's obligations and liabilities under this Lease (which shall continue as the obligations of a principal and not of a guarantor or surety) or alter the primary liability of Tenant to pay all Rent and to perform all obligations to be paid and performed by Tenant. The acceptance of Rent by Landlord from any other person or entity shall not be deemed to be a waiver by Landlord of any provision of this Lease. If any assignee, subtenant or successor of Tenant defaults in the performance of any obligation to be performed by Tenant under this Lease, Landlord may -29- proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to amendments or modifications to this Lease with assignees, subtenants or successor of Tenant, without notifying Tenant or any successor of Tenant and without obtaining any consent thereto from Tenant or any successor of Tenant, PROVIDED that Tenant shall not be bound by any such amendment or modification to which it has not consented. (f) No assignment or sublease shall be valid and no assignee or subtenant shall take possession of the premises or any part thereof until an executed duplicate original of such assignment or sublease, in compliance with this Section 24, has been delivered to Landlord. No assignment, subletting or use of the Premises shall affect the purpose for which the Premises may be used as stated in Section 2. (g) Any reasonable legal expenses incurred by Landlord by reason of any proposed assignment or subletting shall be paid by Tenant whether or not the transaction shall be consummated. (h) In the event of any assignment or subletting (other than an assignment or a subletting to an Affiliate of Tenant), Tenant shall pay to Landlord as Additional Rent hereunder fifty percent (50%) of all sums or other economic consideration that Tenant receives as a result of such assignment or subletting which exceed in the aggregate the total sums which Tenant is obligated to pay Landlord under this Lease (in the case of a sublease, prorated to reflect obligations allocable to that portion of the Premises), after the payment of Tenant's legal, brokerage, tenant improvement and rent concession expenses associated therewith. (i) Upon the occurrence of an Event of Default, if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may at its option collect directly from any assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rent against any sums due it by Tenant hereunder, and no such collection shall be construed to constitute a notation or a release of Tenant from the further performance of its obligations hereunder. (j) The consent by Landlord to an assignment or subletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting, which consent shall not be unreasonably withheld or delayed. (k) Tenant shall not mortgage its interest under this Lease. The foregoing prohibition shall not be violated by a lien on all assets of Tenant granted to institutional lenders as security for a bank loan or line of credit. 25. HAZARDOUS MATERIAL: (a) Tenant (i) shall comply, and cause the Premises to comply, with all Environmental Laws applicable to the Premises associated with Tenant's use or occupancy thereof (including the making of all submissions to governmental authorities required by -30- Environmental Laws and the carrying out of any remediation program specified by such authority), (ii) shall prohibit the use of the Premises for the generation, manufacture, refinement, production, or processing of any Hazardous Material or for the storage, handling, transfer or transportation of any Hazardous Material (other than in connection with the operation, business and maintenance of the Premises for the permitted uses specified in Section 2 including, without limitation, research and development and manufacturing, provided that such uses are in compliance with Environmental Laws), (iii) shall not permit to remain, install or permit the installation on the Premises of any surface impoundments, underground storage tanks, or asbestos-containing materials except in compliance with Environmental Laws, and (iv) shall cause any alterations of the Premises to be done in a way so as to not expose, in violation of any applicable law, the persons working on or visiting the Premises to Hazardous Materials and in connection with any such alterations shall remove any Hazardous Materials present upon the Premises which are not in compliance with Environmental Laws or which present a danger to persons working on or visiting the Premises in violation of any applicable law. (b) Except to the extent of liability resulting from or arising out of the acts or negligence of Landlord or its Mortgagee or their agents, employees or contractors or their successors and assigns on or about the Premises, or in connection with the existence of any Hazardous Materials on the Premises prior to the date of this Lease, Tenant shall be solely liable for, and agrees to protect, defend, indemnify and hold harmless Landlord and its Mortgagee, their respective directors, officers, employees and agents, and any successors to Landlord's interest in the chain of title to the Premises, their direct or indirect partners, directors, officers, employees, and agents, from and against any and all liability, including all foreseeable and all unforeseeable damages including but not limited to reasonable attorney's and consultant's fees, fines, penalties and civil or criminal damages, directly or indirectly arising out of Tenant's use, generation, storage, treatment, release, threatened release, discharge, spill, presence or disposal of Hazardous Materials from, on, at, to or under the Premises during the Term of this Lease, and including, without limitation, the cost of any required or necessary repair, response action, remediation, investigation, cleanup or detoxification and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following transfer of title to the Premises. This agreement to be solely liable for and to indemnify and hold harmless shall be in addition to any other obligations or liabilities Tenant may have to Landlord at common law under all statutes and ordinances or otherwise, and shall survive following the date of expiration or earlier termination of this Lease for three (3) years. Tenant expressly agrees that the representations, warranties and covenants made and the indemnities and agreements by Tenant stated in this Lease are not personal to Landlord, and the benefits under this Lease may be assigned to subsequent parties in interest to the chain of title to the Premises, which subsequent parties in interest may proceed directly against Tenant to recover pursuant to this Lease. Tenant, at its expense, may institute appropriate legal proceedings with respect to environmental matters of the type specified in this Section 25(b) or any lien for such environmental matters, not involving Landlord or its Mortgagee as a defendant (unless Landlord or its mortgagee is the alleged cause of the damage), conducted in good faith and with due diligence, PROVIDED that such proceedings shall not in any way impair the interests of Landlord or Mortgagee under this Lease. Counsel to Tenant in such proceedings shall be reasonably approved by Landlord if Landlord is a -31- defendant in the same proceeding. Landlord shall have the right to appoint co-counsel, which co-counsel will cooperate with Tenant's counsel in such proceedings. The fees and expenses of such co-counsel shall be paid by Landlord, unless such co-counsel are appointed because the interests of Landlord and Tenant in such proceedings, in such counsel's opinion, are or have become adverse, or Tenant or Tenant's counsel is not conducting such proceedings in good faith or with due diligence. (c) Landlord may from time to time designate one or more environmental site reviewers ("SITE REVIEWERS") to visit the Premises from time to time and perform environmental site investigations and assessments ("SITE ASSESSMENTS") on the Premises for the purpose of determining whether there exists on the Premises any environmental condition which may result in any liability, cost or expense to Landlord or any other owner or occupier of the Premises relating to Hazardous Material. Such Site Assessments may include both above and below the ground testing for environmental damage or the presence of Hazardous Material on the Premises and such other tests on the Premises as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments (other than information previously supplied in writing to Landlord by Tenant) and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting all Site Assessments shall be paid by Landlord unless the Site Reviewers discover an environmental condition caused by Tenant causing the Premises to be in material noncompliance with applicable Environmental Laws, in which events such cost will be paid by Tenant within thirty (30) days after demand by Landlord with interest to accrue at the Overdue Rate after such thirty (30) day period. Landlord, promptly after written request by Tenant and payment by Tenant to the extent required as aforesaid, shall deliver to Tenant copies of reports, summaries or other compilations of the results of such Site Assessments. Tenant's sole remedy for Landlord's breach of the preceding sentence shall be a mandatory injunction, and not a termination of this Lease or a withholding or reduction of Rent. (d) Tenant shall notify Landlord in writing, promptly upon Tenant's learning thereof, of any: (i) notice or claim to the effect that Tenant is or may be liable to any Person as a result of the release or threatened release of any Hazardous Material into the environment from the Premises; (ii) notice that Tenant is subject to investigation by any governmental authority evaluating whether any remedial action is needed to respond to the release or threatened release of any Hazardous Material into the environment from the Premises; and (iii) notice that the Premises are subject to an environmental lien. (e) Notwithstanding any other term or provision of this Section 25 to the contrary, in the event that any Hazardous Materials are discovered in or about the Premises during the Term -32- and the presence of such Hazardous Materials is not due to the negligence or intentional actions or omissions of Tenant, Landlord shall elect by written notice to Tenant either (i) to remove, remediate or encapsulate such Hazardous Materials in accordance with the requirements of Environmental Laws, in which event this Lease shall remain in full force and effect without any abatement of or reduction in Rent or (ii) not to perform such removal, remediation or encapsulation activities, PROVIDED, however, that Landlord may not make the election specified in this clause (ii) if such removal, remediation or encapsulation activities are required by applicable laws. In the event that Landlord makes the election specified in clause (ii) above, Tenant shall have the right, exercisable only in a written notice delivered to Landlord within ten (10) days of the date of receipt of such written notice, to terminate this Lease as of a date not less than sixty (60) days from the date of receipt of such notice (or such earlier date as Tenant shall be required to vacate the Premises pursuant to the terms of provisions of Environmental Laws). If Tenant fails to elect to terminate this Lease within the time periods specified above, this Lease shall remain in full force and effect without any abatement of or reduction in Rent. The agreements of Landlord set forth above shall be in addition to any other obligations or liabilities Landlord may have under any Environmental Laws. 26. [INTENTIONALLY OMITTED] 27. GRANTING OF EASEMENTS: Provided no Event of Default has occurred and is continuing hereunder, Landlord shall join with Tenant at the request of Tenant (and at Tenant's sole cost and expense) to (i) sell, assign, convey or otherwise transfer an interest in the Premises to any person legally empowered to take such interest under the power of eminent domain, (ii) grant, in the ordinary course of business, easements, licenses, rights of way, and (iii) release, in the ordinary course of business, existing easements and appurtenances which benefit the Premises, but only if Landlord shall have received (x) a certificate of Tenant stating that such action was taken in the ordinary course of business, does not interfere with the conduct of Tenant's business, does not materially impair the utility of the Premises, and does not reduce the Fair Market Rental Value of the Premises by an amount greater than the consideration (if any) being paid to Landlord in connection therewith, and (y) a written undertaking by Tenant to remain obligated under this Lease as if such action had not been taken. 28. LETTER OF CREDIT: (a) As security for the full and faithful performance of every provision of this Lease to be performed by Tenant, Tenant shall deposit with Landlord not later than March 31, 2005 an irrevocable standby letter of credit in the amount determined pursuant to Section 28(b) which shall be payable to Landlord from a bank acceptable to Landlord and substantially in the form attached hereto as EXHIBIT B or in such other form as shall be acceptable to Landlord in its reasonable discretion (the "LETTER OF CREDIT"). The Letter of Credit (I) shall not contain any conditions to draws by Landlord thereunder other than as shall be agreed to or permitted by Landlord in its sole and absolute discretion and (II) shall not expire prior to the Lease Expiration -33- Date, as it may be extended pursuant to Section 3(b), PROVIDED, HOWEVER, that the Letter of Credit may contain an earlier expiration date and provide for automatic renewal on a yearly basis, as long as (A) the bank issuing the Letter of Credit is required to provide Tenant and Landlord with sixty (60) days' written notice prior to any expiration or non-renewal of the Letter of Credit, and (B) Landlord actually receives such notice prior to any expiration or non-renewal of the Letter of Credit. If an Event of Default has occurred with respect to any term, covenant or provision under this Lease, including but not limited to making payments of Fixed Rent or Additional Rent, Landlord shall have the right, at Landlord's sole discretion and upon the expiration of any applicable cure periods set forth under this Lease, to draw upon the Letter of Credit any amounts reasonably necessary to cure such default by Tenant. Landlord's holding of the Letter of Credit shall not bar Landlord from pursuing or enforcing any other rights, at law or equity, which Landlord may have against Tenant. (b) The amount of the Letter of Credit shall be determined based upon the market value of all publicly issued and outstanding equity securities of Tenant at the end of the business day on Tuesday, March 1, 2005, if any. The amount of the Letter of Credit shall be determined as follows: MARKET CAPITALIZATION AT END OF MARCH 1, 2005: LETTER OF CREDIT AMOUNT: $2 Billion or greater No Letter of Credit required $1.5 Billion or greater but less than $2 Billion $200,000 $1 Billion or greater but less than $1.5 Billion $300,000 $500 Million or greater but less than $1 Billion $400,000 Less than $500 Million $600,000 Not later than 5 p.m. on Friday, March 4, 2005, Tenant shall provide Landlord with written documentation of its market capitalization as of the end of the business day on March 1, 2005. If based upon Tenant' market capitalization no Letter of Credit is required to be furnished by Tenant, Tenant shall be relieved of the obligations set forth in this Section 28. (c) Tenant's failure to deliver the Letter of Credit or to maintain the Letter of Credit at the times, in the manner and in the amounts required hereunder shall be an Event of Default under this Lease. (d) If any portion of the Letter of Credit is drawn upon, Tenant shall, within fifteen (15) days after written notice thereof, deposit cash with Landlord, or deliver to Landlord a replacement or supplemental letter of credit from a bank acceptable to landlord, in an amount sufficient to restore the Letter of Credit to its then required amount. Landlord shall return the -34- Letter of Credit to Tenant within thirty (30) days after the expiration or earlier termination of this Lease, subject to Tenant's satisfactory compliance with the conditions and obligations of this Lease. No Mortgagee shall be responsible for the return of or any application of the Letter of Credit, whether or not it succeeds to the position of Landlord hereunder, unless the Letter of Credit shall have been received by such Mortgagee in hand. (e) If Landlord receives notice of non-renewal or early expiration of the Letter of Credit pursuant to Section 28(a) of this Lease, then Tenant shall have thirty (30) days from the date of such notice, time being of the essence, to provide Landlord with a replacement Letter of Credit in the then required amount from a bank with a short-term unsecured debt rating of "A" or better from Standard & Poor's Ratings Services or Moody's Investor Service, Inc. or from such other bank as shall be acceptable to Landlord in its sole and absolute discretion. Any such replacement Letter of Credit shall be in the form attached hereto as EXHIBIT B or in such other form as shall be acceptable to Landlord in its reasonable discretion. (f) If (i) Tenant fails to restore the Letter of Credit to its required amount after any draws thereunder pursuant to Section 28(d) of this Lease, or (ii) the Letter of Credit is scheduled to be reduced despite Tenant being in default hereunder as of such date beyond any applicable cure periods, or (iii) Tenant fails to provide Landlord with a replacement Letter of Credit pursuant to and within the time limit specified in Section 28(e) of this Lease, then Landlord shall be immediately entitled, without any further precondition whatsoever, to draw upon the entire amount of the Letter of Credit and thereafter to hold such amount in cash as the security deposit hereunder. Landlord may co-mingle such funds with Landlord's other funds, and shall have no obligation to pay any interest with respect thereto. (g) Landlord shall have the right to turn over the Letter of Credit to any grantee of Landlord's interest in the Premises and, in such event, Tenant agrees to look solely to such grantee, and not to Landlord, with respect to the Letter of Credit. 29. [INTENTIONALLY OMITTED] 30. BROKERS: (a) Landlord and Tenant represent and warrant to each other that, in connection with the Lease specified herein, they have had no dealings with any broker, firm or salesman in connection with this transaction. (b) Landlord hereby agrees to pay defend, indemnify and hold harmless Tenant from any loss, cost, damage and expense, including, without limitation, reasonable attorneys' fees and disbursements, arising out of any other and all claims by any person, firm or business entity who shall claim to have acted in this transaction on behalf of Landlord. (c) Tenant hereby agrees to defend, indemnify and hold harmless Landlord from any loss, cost, damage and expense, including, without limitation, reasonable attorneys' fees and -35- disbursements, arising out of any other and all claims by any person, firm or business entity who shall claim to have acted in this transaction on behalf of Tenant. (d) The provisions of this Section 30 shall survive the execution and delivery hereof. 31. FINANCIAL REPORTING: (a) Tenant shall deliver to Landlord and to any lender or purchaser designated by Landlord the following information certified to be true, complete and correct by an officer of Tenant within 90 days after the end of each fiscal year of Tenant: (i) a balance sheet of Tenant and its consolidated subsidiaries as of the end of such year; (ii) a statement of profits and losses of Tenant and its consolidated subsidiaries for such year; and (iii) an audited statement of cash flows of Tenant and its consolidated subsidiaries for such year, setting forth in each case, in comparative form, the corresponding figures for the preceding fiscal year in reasonable detail and scope and certified by independent certified public accountants of recognized national standing selected by Tenant. (b) Tenant shall deliver to Landlord and to any lender or purchaser designated by Landlord the following information certified to be true, complete and correct by an officer of Tenant within 45 days after the end of each fiscal quarter of Tenant: (i) a balance sheet of Tenant and its consolidated subsidiaries as at the end of such quarter; (ii) a statement of profits and losses of Tenant and its consolidated subsidiaries for such quarter; and (iii) a statement of cash flows of Tenant and its consolidated subsidiaries for such quarter, setting forth in each case in comparative form, the corresponding figures for the similar quarter of the preceding year, in reasonable detail and scope, and certified to be true and complete by a financial officer of Tenant having knowledge thereof. (c) All of the foregoing financial statements all being prepared in accordance with GAAP. (d) If Tenant is a reporting company under the Securities and Exchange Act of 1934, as amended, the foregoing requirements of this Section 10 will be satisfied by the delivery of Tenant's Forms 10-K, 10-Q and annual reports promptly upon their filing with the Securities and Exchange Commission. -36- 32. MISCELLANEOUS PROVISIONS: (a) This Lease and all of the covenants and provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and the heirs, personal representatives, successors and permitted assigns of the parties. (b) The titles and headings appearing in this Lease are for reference only and shall not be considered a part of this lease or in any way to modify, amend or affect the provisions thereof. (c) This Lease contains the complete agreement of the parties with reference to the leasing of the Premises, and may not be amended except by an instrument in writing signed by Landlord and Tenant and consented to by any Mortgagee. (d) Any provision or provisions of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and the remaining provisions hereof shall nevertheless remain in full force and effect. (e) This Lease may be executed in one or more counterparts, each of which shall be an original, and all of which shall constitute one and same instrument. (f) The term "Landlord" as used in this Lease shall mean only the owner or owners at the time in question of the Premises and in the event of any transfer of such title or interest, Landlord named in this Lease (and in case of any subsequent transfers, then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed hereunder, PROVIDED that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective periods of ownership. (g) This Lease shall be governed by and construed and enforced in accordance with and subject to the laws of the Commonwealth of Massachusetts. (h) Any claim based on or in respect of any liability of Landlord under this Lease shall be enforced only against the Premises and not against any other assets, properties or funds of (i) Landlord or any director, officer, shareholder, general partner, limited partner, or direct or indirect partners, employee or agent of Landlord or its general partners (or any legal representative, heir, estate, successor or assign of any thereof), (ii) any predecessor or successor partnership or corporation (or other entity) of Landlord or its general partners, either directly or through Landlord or its predecessor or successor partnership or corporation (or other Person) of Landlord or its general partners, and (iii) any other person. (i) Without the written approval of Landlord and Tenant, no Person other than Landlord (including its direct and indirect partners), Mortgagee, Tenant and their respective successors and assigns shall have any rights under this Lease. -37- (j) There shall be no merger of the leasehold estate created hereby by reason of the fact that the same Person may own directly or indirectly, (1) the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (2) the fee estate in the Premises. Notwithstanding any such combined ownership, this Lease shall continue in full force and effect until terminated by an instrument executed by both Landlord and Tenant. (k) Landlord and Tenant intend to consummate the execution and delivery of this Lease by signing counterpart original signature pages hereto and faxing copies of such signature pages to each other. Accordingly, the parties agree that counterpart signature pages of both Landlord and Tenant, when sent via facsimile and attached to this Lease, shall be effective to create a valid and binding agreement between Landlord and Tenant hereunder. Upon receipt of original signature pages of each party hereto, such counterpart original signature pages may be substituted for the facsimile signature pages without affecting the continuing validity hereof. [SIGNATURE PAGE FOLLOWS] -38- IN WITNESS WHEREOF, the parties have hereunto set their hands under seal on the day and year first above written. LANDLORD: TRINET PROPERTY PARTNERS, L.P A Delaware limited partnership d/b/a TriNet Property Partners Limited Partnership By: TRINET REALTY INVESTORS I, INC. Its General Partner By: /s/ Susan K. Culbreth ------------------------------- Name: Susan K. Culbreth Title: AVP, Asset Management TENANT: TRANSKARYOTIC THERAPIES, INC. By: /s/ Daniel Geffken ------------------------------- Name: Daniel Geffken Title: SVP, CFO EXHIBIT A Legal Description - Real Estate EXHIBIT A That certain parcel of land situate in Randolph, in the County of Norfolk, Commonwealth of Massachusetts, bounded and described as follows: WESTERLY by Fitzgerald Street one hundred ten and 25/100 (110.25) feet; WESTERLY by the Easterly line of said Fitzgerald Street, two hundred ninety (290) feet; NORTHWESTERLY by lot numbered 8, as indicated on plan filed with Certificate No. 84439, three hundred ninety-five and 29/100 (395.29) feet; NORTHEASTERLY by southwesterly line of Pacella Park Drive, as shown on said plan and shown on plan filed with Certificate No. 96625, one hundred seventy and 09/100 (170.09) feet; NORTHEASTERLY by said Pacella Park Drive, as shown on plan filed with Certificate No. 107135, eighty-one and 28/100 (81.28) feet; SOUTHEASTERLY by land now or formerly of Pacella Corp., six hundred sixty six and 48/100 (666.48) feet; and SOUTHERLY by land now or formerly of Nellie Kelch, thirty-one and 45/100 (31.45) feet. Said parcel comprises LOT NUMBERED 13 on a plan drawn by Gale Engineering Co., Inc., Surveyors, dated February 13, 1968, as approved by the Land Court, filed in the Land Registration Office as No. 34183F, a copy of a portion of which is filed in Norfolk Registry District with Certificate No. 84439, Book 423; and LOT NUMBERED 17 on a plan drawn by Gale Engineering Co., Inc., Charles E. Gale, Surveyor, dated August 20, 1973, as approved by said Court, filed in the Land Registration Office as No. 34183, a copy of a portion of which is filed in Norfolk Registry District with Certificate No. 96625, Book 484; and LOT NUMBERED 22 on a plan drawn by Gale Engineering Co., Inc., Surveyors, dated June 22, 1978, as approved by said Court, filed in the Land Registration Office as No. 34183L, a copy of a portion of which is filed in Norfolk Registry District with Certificate No. 107135, Book 536. Excepting and excluding from said parcel so much of the fee and soil in said Parcella Park Drive as lies opposite said lots numbered 13 and 17. There is appurtenant to the above-described land the right to use said Pacella Park Drive out to Pond Street, as set forth in Document Nos. 290357, 338150 and 383254, as noted in Certificate 119673. For title, see Certificate 151896. EXHIBIT B Form of Letter of Credit [Letterhead of Issuer] March 31, 2005 TriNet Property Partners, L.P. c/o IStar Financial Inc. 3480 Preston Ridge Road, Suite 575 Alpharetta, GA 30005-8891 Attn: Vice President, Asset Management Ladies and Gentlemen: We hereby issue our Irrevocable Letter of Credit No. ________________ in favor of TriNet Property Partners, L.P. This Letter of Credit is issued in connection with the lease by Transkaryotic Therapies, Inc. of certain property located at 76 Pacella Road, Randolph, Massachusetts (the "PREMISES"). This Letter of Credit shall expire not earlier than [DATE]. We undertake to honor your draft or drafts At Sight on us not exceeding U.S. [AMOUNT] when accompanied by a statement on letterhead of TriNet Property Partners, L.P. or IStar Financial Inc. that the amount of the accompanying draft is due and owing to TriNet Property Partners, L.P. All drafts must be marked "Drawn under Irrevocable Letter of Credit No.__________ dated ___________." This Irrevocable Letter of Credit shall be valid until such time as we receive a statement on letterhead of TriNet Property Partners, L.P. or IStar Financial Inc. notifying us that this Irrevocable Letter of Credit has been canceled, together with this Irrevocable Letter of Credit for cancellation. Until such time, drafts drawn hereunder, when accompanied by the statement referred to above, shall be honored if presented to us at our office at __________. This Irrevocable Letter of Credit may be transferred or assigned by TriNet Property Partners L.P. to any purchaser or mortgagee of the Premises. Upon (i) our receipt of a notice of such a transfer or assignment on letterhead of TriNet Property Partners, L.P. or IStar Financial Inc. and (ii) the delivery of this Irrevocable Letter of Credit to us for cancellation, we shall issue a new Irrevocable Letter of Credit on the same terms as are contained herein, addressed to such purchaser or mortgagee. There are no other conditions to this Letter of Credit. Very truly yours, [Execution by Issuer] EXHIBIT C Tenant's Personal Property EXHIBIT C 1. Items tenant must remove upon lease termination Freestanding office and laboratory equipment and furniture including biosafety cabinets, ice machines, movable office partitions 2. Items tenant must leave in building upon lease termination Equipment related to base building systems including bathroom fixtures, boilers for building heat, roof top air handling and air conditioning equipment, air compressors for pneumatic temperature controls, exhaust fans, piping systems 3. At tenant's option, the following fixed equipment may be removed upon lease termination Laboratory case work that is affixed to the walls Steam generators for autoclaves, manifolds for specialty gas systems, water purification equipment (RODI skid) Clean steam generator WFI still Automated manufacturing equipment Dedicated process equipment, tanks and related instrumentation Autoclaves Glasswashers Process utility systems, pharmaceutical grade compressed air systems, process cooling systems Stand-by power generators Uninterruptible power systems (UPS) EX-10.30 7 a2042542zex-10_30.txt EXHIBIT 10.30 Exhibit 10.30 REIMBURSEMENT AGREEMENT This REIMBURSEMENT AGREEMENT is made as of May 18, 2000, by and between Transkaryotic Therapies, Inc., a Delaware corporation (the "Company") and William H. Pursley (the "Borrower"). WHEREAS, the Borrower has been instructed to post a $450,000 bond (the "Bond") due to the appeal of a district court ruling of an arrearage owed by the Borrower; and WHEREAS, to secure the Bond, the Borrower has requested that the Company provide the security and collateral for an irrevocable letter of credit, substantially in the form of EXHIBIT A hereto (the "Letter of Credit"), in an amount not to exceed $450,000; NOW THEREFORE, in consideration of the agreements herein, the parties hereto agree as follows: In order to induce the Company to secure and collateralize the Letter of Credit, the Borrower hereby agrees upon demand by the Company, to reimburse or pay to the Company with respect to the Letter of Credit issued, extended or renewed by the Company hereunder, (a) (i) any amount paid by the Company under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Company in connection with any payment made by the Company under, or with respect to, such Letter of Credit and (b) interest on the unpaid balance of any amounts paid by the Company under or with respect to the such Letter of Credit from the date on which such payment was made (the "Inception Date"). The interest rate applicable during each calendar year or portion thereof from and after the Inception Date shall be the rate equal to one per cent (1%) per annum above the average yield in per cent per annum prevailing in the secondary market for one-year United States Treasury Bills as of the last day in such calendar year on which such market is open, as reported in Federal Reserve Statistical Release H-15. Interest shall be computed on the basis of a year of 365 days for the actual number of days elapsed. All payments made by the Borrower shall be in immediately available funds. If any demand for payment shall be made under the Letter of Credit, the Company shall promptly notify the Borrower of the date and amount of the demand for payment and of the date and time when it expects to honor such demand for payment. The responsibility of the Company to the Borrower shall be only to determine that the documents delivered under the Letter of Credit in connection with such presentment shall be in conformity in all material respects with the requirements of such Letter of Credit. To the extent permitted by applicable law, any sums credited by or due from the Company to the Borrower, including, but not limited to, wages, bonuses and other amounts payable to the Borrower by the Company during or after the termination of the Borrower's employment by the Company, may at any time be applied to or offset against the Borrower's obligations hereunder. Should the indebtedness evidenced by this Reimbursement Agreement or any part thereof be collected by action at law, or in bankruptcy, receivership or other court proceedings, or should this Reimbursement Agreement be placed in the hands of attorneys for collection after default, the Borrower agrees to pay, upon demand by the holder hereof, in addition to principal and other sums, if any, due and payable hereon, court costs and reasonable attorneys' fees and other collection charges and expenses, unless prohibited by law. Every amount under this Reimbursement Agreement remaining unpaid for five (5) days following demand by the Company shall bear interest from and after the date on which such amount first became overdue at an annual rate which is two (2) percentage points above the rate specified in this Reimbursement Agreement. Such interest on overdue amounts under this Reimbursement Agreement shall be payable on demand and shall accrue and be compounded monthly until the obligation of the Borrower with respect to the payment of such interest has been discharged (whether before or after judgment). The Borrower and all endorsers and/or guarantors hereof (i) consent and agree to be bound by the provisions of this Reimbursement Agreement, absolutely and unconditionally, to pay the principal and interest of this Reimbursement Agreement and all other charges for which the Borrower may be or become liable hereunder as herein provided, (ii) waive trial by jury in any action on this Reimbursement Agreement, (iii) waive presentment, notice of non-payment, notice of protest, suit and all other conditions precedent in connection with the collection and enforcement of this Reimbursement Agreement, (iv) waive any right to the benefit of, or to direct the application of, any security for this Reimbursement Agreement until all indebtedness hereunder shall have been paid in full, and (v) waive the right to require the holder hereof to proceed against any other person or to pursue any other remedy before proceeding against him, and, except as otherwise required by law, waives the right to require the holder hereof to proceed against any security before proceeding against him. The Borrower agrees to indemnify and hold harmless the Company and its officers, employees, affiliates, agents, and controlling persons from and against all claims, damages, liabilities and losses of every kind arising out of and in connection to this Reimbursement Agreement absent the gross negligence or willful misconduct of the Company. Any communication to be made hereunder shall (a) be made in writing, but unless otherwise stated, may be made by telex, facsimile transmission or letter, and (b) be made or delivered to the address of the party receiving notice which is identified with its signature below (unless such party has by five (5) days written notice specified another address), and shall be deemed made or delivered, when dispatched, left at that address, or five (5) days' after being mailed, postage prepaid, to such address. This Reimbursement Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns, but the Borrower may not assign its rights or obligations hereunder. This Reimbursement Agreement may not be amended or waived except by a written instrument signed by the Borrower and the Company, and any such amendment or waiver shall be effective only for the specific purpose given. No failure or delay by the Company to exercise any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege. The provisions of this Reimbursement Agreement are severable and if any one provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, such invalidity or unenforceability shall affect only such provision in such jurisdiction. This Reimbursement Agreement expresses the entire understanding of the parties with respect to the transactions contemplated hereby. This Reimbursement Agreement and any amendment hereby may be executed in several counterparts, each of which shall be an original, and all of which shall constitute one agreement. In proving this Reimbursement Agreement, it shall not be necessary to produce more than one such counterpart executed by the party to be charged. THIS REIMBURSEMENT AGREEMENT IS A CONTRACT UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE CONSTRUED IN ACCORDANCE THEREWITH AND GOVERNED THEREBY. THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF ANY OF THE REIMBURSEMENT DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN. THE BORROWER, AS AN INDUCEMENT TO THE COMPANY TO ENTER INTO THIS REIMBURSEMENT AGREEMENT, HEREBY WAIVES ITS RIGHT TO A JURY TRIAL. IN WITNESS WHEREOF, the undersigned have duly executed this Reimbursement Agreement as a sealed instrument as of the date first set forth above. TRANSKARYOTIC THERAPIES, INC. /s/ Daniel E. Geffken -------------------------------- By: Daniel E. Geffken Title: VP, Finance & CFO Address: Fax: /s/ William H. Pursley ------------------------------ William H. Pursley Address: 177 Pleasant St. Norwell, MA 02061 Fax: EX-10.31 8 a2042542zex-10_31.txt EXHIBIT 10.31 Exhibit 10.31 TRANSKARYOTIC THERAPIES, INC. 2001 NON-OFFICER, NON-DIRECTOR EMPLOYEE STOCK INCENTIVE PLAN 1. PURPOSE The purpose of this 2001 Non-Officer, Non-Director Employee Stock Incentive Plan (the "Plan") of Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"), and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a significant interest, as determined by the Board of Directors of the Company (the "Board"). 2. ELIGIBILITY All of the Company's employees (and any individuals who have accepted an offer for employment), other than those employees who are also officers or directors of the Company, and all of the Company's consultants and advisors are eligible to be granted options or restricted stock awards (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant." 3. ADMINISTRATION AND DELEGATION (a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith. (b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board to the extent that the Board's powers or authority under the Plan have been delegated to such Committee. -1- (c) Subject to the provisions of the Plan, the Board shall have complete authority, in its sole discretion, to make or to select the manner of making any and all determinations required for the operation of the Plan, and without limiting the generality of the foregoing, shall have the authority to: (1) grant Awards to eligible individuals, pursuant to the terms of the Plan; (2) determine whether and to what extent Awards are to be granted hereunder; (3) determine the number of shares of Common Stock to be covered by each Award granted hereunder; (4) determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award (which need not be identical in every case), including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or forfeiture waiver regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Board shall determine; (5) determine whether and under what circumstances an Option may be settled, as provided in Section 5(e); (6) determine whether and under what circumstances an Option may be exercised without a payment of cash as provided in Section 5(e); and (7) determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award under this Plan shall be deferred either automatically or at the election of the Participant. In making such determinations, the Board may take into account the nature of the services rendered by the respective individuals, their present and potential contributions to the success of the Company, and such other factors as the Board in its discretion shall deem relevant. Subject to the provisions of the Plan, the Board shall also have complete authority, in its sole discretion, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of any Award issued under the Plan (and any agreements relating thereto), to resolve all disputes arising under the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. 4. STOCK AVAILABLE FOR AWARDS Subject to adjustment under Section 7, Awards may be made under the Plan for up to 2,000,000 shares of common stock, $0.01 par value per share, of the Company (the "Common Stock"). If (i) any Award expires or is terminated, surrendered or canceled without having been fully exercised, (ii) any Award is forfeited in whole or in part, (iii) any Award results in any shares of Common Stock not being issued or (iv) the shares of Common Stock issued pursuant to any Award are repurchased by the Company (including without limitation shares of Common Stock issued upon exercise of an Option (as hereinafter defined) that are subsequently -2- repurchased by the Company pursuant to a contractual repurchase right or otherwise), the unused shares of Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. 5. NON-STATUTORY STOCK OPTIONS (a) GENERAL. The Board may grant non-statutory stock options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. No Option granted under the Plan shall be intended to be an "incentive stock option" as defined in Section 422 of the Code. (b) EXERCISE PRICE. The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable instrument evidencing the grant of the Option. (c) DURATION OF OPTIONS. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable instrument evidencing the grant of the Option. (d) EXERCISE OF OPTION. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(e) for the number of shares for which the Option is exercised. (e) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as the Board may, in its sole discretion, otherwise provide in an instrument evidencing the grant of an Option, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding; (3) except as the Board may, in its sole discretion, otherwise provide in an instrument evidencing the grant of an Option, when the Common Stock is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith ("Fair Market Value"), provided (i) such method of payment is then permitted under applicable law and (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant at least six months prior to such delivery; -3- (4) to the extent permitted by the Board, in its sole discretion, by (i) delivery of a full recourse promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or (5) by any combination of the above-permitted forms of payment. (f) SUBSTITUTE OPTIONS. In connection with a merger or consolidation of an entity with and into the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5 or in Section 2 hereof. 6. RESTRICTED STOCK (a) GRANTS. The Board may grant Awards entitling Participants to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the Participant in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award"). (b) TERMS AND CONDITIONS. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. 7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS (a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the number and class of securities and exercise price per share subject to each outstanding Option, and (iii) the repurchase price per share subject to each outstanding Restricted Stock Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 7(a) applies and Section 7(c) also applies to any event, Section 7(c) shall be applicable to such event, and this Section 7(a) shall not be applicable. (b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award granted under the Plan at the time of the grant. -4- (c) REORGANIZATION EVENTS. (1) DEFINITION. A "Reorganization Event" shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction. (2) CONSEQUENCES OF A REORGANIZATION EVENT ON OPTIONS. Upon the occurrence of a Reorganization Event, or the execution by the Company of any agreement with respect to a Reorganization Event, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Participants before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Reorganization Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. To the extent all or any portion of an Option becomes exercisable solely as a result of the first sentence of this paragraph, upon exercise of such Option the Participant shall receive shares subject to a right of repurchase by the Company or its successor at the Option exercise price. Such repurchase right (1) shall lapse at the same rate as the Option would have become exercisable under its terms and (2) shall -5- not apply to any shares subject to the Option that were exercisable under its terms without regard to the first sentence of this paragraph. (3) CONSEQUENCES OF A REORGANIZATION EVENT ON RESTRICTED STOCK AWARDS. Upon the occurrence of a Reorganization Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. 8. GENERAL PROVISIONS APPLICABLE TO AWARDS (a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. (b) DOCUMENTATION. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. (c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. (d) TERMINATION OF STATUS. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. (e) WITHHOLDING. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company's minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. -6- (f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type and changing the date of exercise or realization, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. (g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. (h) ACCELERATION. The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be. 9. MISCELLANEOUS (a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. (c) EFFECTIVE DATE AND TERM OF PLAN. The Plan is effective as of March 14, 2001, the date on which it was adopted by the Board (the "Effective Date"). No Awards shall be granted under the Plan after the completion of ten years from the Effective Date, but Awards previously granted may extend beyond that date. -7- (d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time. (e) GOVERNING LAW. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. * * * * * -8- EX-10.32 9 a2042542zex-10_32.txt EXHIBIT 10.32 EXHIBIT 10.32 TRANSKARYOTIC THERAPIES, INC. DEFERRED COMPENSATION PLAN EFFECTIVE - OCTOBER 1, 2000 TRANSKARYOTIC THERAPIES, INC. DEFERRED COMPENSATION PLAN Table of Contents ARTICLE I................................................................. 4 1.1 Statement of Purpose............................................... 4 ARTICLE II................................................................ 5 DEFINITIONS............................................................... 5 2.1 Account............................................................ 5 2.2 Base Salary........................................................ 5 2.3 Beneficiary........................................................ 5 2.4 Board.............................................................. 5 2.5 Change in Control.................................................. 6 2.6 Code............................................................... 6 2.7 Committee.......................................................... 6 2.8 Compensation....................................................... 7 2.9 Company............................................................ 7 2.10 Credited Service.................................................. 7 2.11 Deferral Account.................................................. 7 2.12 Deferral Benefit.................................................. 7 2.13 Deferral Election................................................. 7 2.14 Disability........................................................ 7 2.15 Early Retirement.................................................. 7 2.16 Eligible Employee................................................. 7 2.17 Employer.......................................................... 8 2.18 Hardship Withdrawal - "Haircut" Provisions........................ 8 2.19 Investment Return Rate............................................ 8 2.20 Participant....................................................... 8 2.21 Participation Agreement........................................... 8 2.22 Plan.............................................................. 8 2.23 Plan Year......................................................... 8 2.24 Retirement........................................................ 8 2.25 Valuation Date.................................................... 9 ELIGIBILITY AND PARTICIPATION............................................. 10 3.1 Eligibility........................................................ 10 3.2 Participation...................................................... 10 3.3 Change in Participation Status..................................... 10 3.4 Termination of Participation....................................... 10 3.5 Ineligible Participant............................................. 11 ARTICLE IV................................................................ 12 DEFERRAL OF COMPENSATION; COMPANY CREDITS................................. 12 4.1 Amount of Deferral................................................. 12 4.2 Crediting Deferred Compensation.................................... 12 4.3 Company Contribution Account....................................... 12 ARTICLE V................................................................. 13 BENEFIT ACCOUNTS.......................................................... 13 2 5.1 Valuation of Account............................................... 13 5.2 Crediting of Investment Return..................................... 13 5.3 Statement of Accounts.............................................. 13 5.4 Vesting of Account................................................. 14 5.5 Investment Vehicles................................................ 14 ARTICLE VI................................................................ 15 PAYMENT OF BENEFITS....................................................... 15 6.1 Payment of Deferral Benefit upon Disability or Retirement.......... 15 6.2 Payment of Deferral Benefit upon Termination....................... 15 6.3 Payments to Beneficiaries upon Participant Death................... 15 6.4 Hardship Withdrawal - "Haircut" Provisions......................... 15 6.5 In-Service Distribution............................................ 16 6.6 Form of Payment................................................... 16 6.7 Commencement of Payments........................................... 16 6.8 Small Benefit...................................................... 16 BENEFICIARY DESIGNATION................................................... 17 7.1 Beneficiary Designation............................................ 17 7.2 Change of Beneficiary Designation.................................. 17 7.3 No Designation..................................................... 17 7.4 Effect of Payment.................................................. 17 ARTICLE VIII.............................................................. 18 ADMINISTRATION............................................................ 18 8.1 Committee......................................................... 18 8.2 Agents............................................................ 18 8.3 Binding Effect of Decisions....................................... 18 8.4 Indemnification of Committee...................................... 18 ARTICLE IX................................................................ 19 AMENDMENT AND TERMINATION OF PLAN......................................... 19 9.1 Amendment......................................................... 19 9.2 Termination....................................................... 19 9.3 Change in Control................................................. 19 ARTICLE X................................................................. 20 MISCELLANEOUS............................................................. 20 10.1 Funding.......................................................... 20 10.2 Nonassignability................................................. 20 10.3 Captions......................................................... 21 10.4 Governing Law.................................................... 21 10.5 Successors....................................................... 21 10.6 Right to Continued Service....................................... 21 EXHIBIT A................................................................. 22 EXHIBIT B................................................................. 23 EXHIBIT C................................................................. 24 EXHIBIT D................................................................. 25 3 ARTICLE I 1.1 STATEMENT OF PURPOSE This is the Transkaryotic Therapies, Inc. Deferred Compensation Plan (the "Plan") made in the form of this Plan and in related agreements between the Employer and certain management or highly compensated employees. The purpose of the Plan is to provide management and highly compensated employees of the Employer with the option to defer the receipt of portions of their compensation payable for services rendered to the Employer. It is intended that the Plan will assist in attracting and retaining qualified individuals to serve as officers and managers of the Employer. The Plan is effective as of October 1, 2000. 4 ARTICLE II DEFINITIONS When used in this Plan and initially capitalized, the following words and phrases shall have the meanings indicated: 2.1 ACCOUNT. "Account" means the sum of a Participant's Deferral Account. 2.2 BASE SALARY. "Base Salary" means a Participant's base earnings paid by an Employer to a Participant without regard to any increases or decreases in base earnings as a result of (i) an election to defer base earnings under this Plan or (ii) an election between benefits or cash provided under a Plan of an Employer maintained pursuant to Section 125 or 401(k) of the Code and as limited in Exhibit B attached hereto. 2.3 BENEFICIARY. "Beneficiary" means the person or persons designated or deemed to be designated by the Participant pursuant to Article VII to receive benefits payable under the Plan in the event of the Participant's death. 2.4 BOARD. "Board" means the Board of Directors of the Company. 5 2.5 CHANGE IN CONTROL. A "Change in Control" of the Company shall occur or be deemed to have occurred in the event that: (i) any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person"), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities (other than through an acquisition of securities directly from the Company); (ii) individuals who, as of October 1, 2000, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to October 1, 2000, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 2.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended. 2.7 COMMITTEE. "Committee" has the meaning set forth in Section 8.1. 6 2.8 COMPENSATION. "Compensation" means the Base Salary and Bonus payable with respect to an Eligible Employee for each plan year. 2.9 COMPANY. "Company" means Transkaryotic Therapies, Inc. (TKT), affiliate companies and any successor thereto. 2.10 CREDITED SERVICE. "Credited Service" means the sum of all periods of a Participant's employment by the Company or a Selected Affiliate for which service credit is given under the Transkaryotic Therapies, Inc. 401(k) Plan. 2.11 DEFERRAL ACCOUNT. "Deferral Account" means the account maintained on the books of the Employer for the purpose of accounting for the amount of Compensation that each Participant elects to defer under the Plan and for the amount of investment return credited thereto for each Participant pursuant to Article V. 2.12 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit payable to a Participant or his or her Beneficiary pursuant to Article VI. 2.13 DEFERRAL ELECTION. "Deferral Election" means the written election made by a Participant to defer Compensation pursuant to Article IV. 2.14 DISABILITY. "Disability" means a Participant's Disability as defined under the Company's Long Term Disability Plan or its successors. 2.15 EARLY RETIREMENT. "Early Retirement" will be as granted by the Committee at its sole discretion. 2.16 ELIGIBLE EMPLOYEE. "Eligible Employee" means a highly compensated or management employee of the Company who is designated by the Committee, by name or group or description, in accordance with Section 3.1 as eligible to participate in the Plan. 7 2.17 EMPLOYER. "Employer" means, with respect to a Participant, the Company or the Selected Affiliate which pays such Participant's Compensation. 2.18 HARDSHIP WITHDRAWAL - "HAIRCUT" PROVISIONS. "Hardship Withdrawal - Haircut Provisions" has the meaning set forth in Section 6.4. 2.19 INVESTMENT RETURN RATE. "Investment Return Rate" means: (a) In the case of an investment named in Exhibit C of a fixed income nature, the interest deemed to be credited, (b) In the case of an investment named in Exhibit C of an equity investment nature, the increase and decrease in deemed value and dividends deemed to be credited. 2.20 PARTICIPANT. "Participant" means any Eligible Employee who elects to participate by filing a Participation Agreement or who is automatically enrolled as provided in Section 3.2. 2.21 PARTICIPATION AGREEMENT. "Participation Agreement" means the agreement filed by a Participant, in the form prescribed by the Committee, pursuant to Section 3.2. 2.22 PLAN. "Plan" means the Transkaryotic Therapies, Inc. Deferred Compensation Plan, as amended from time to time. 2.23 PLAN YEAR. "Plan Year" means a twelve-month period commencing January 1 and ending the following December 31. 2.24 RETIREMENT "Retirement" means the termination of employment of a Participant who has reached age 55 and has completed ten (10) or more years of service. 8 2.25 VALUATION DATE. "Valuation Date" means a date on which the amount of a Participant's Account is valued as provided in Article V. The Valuation Date shall be the last day of each month and any other date determined by the Committee. 9 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY. Eligibility to participate in the Plan is limited to Eligible Employees. From time to time, and subject to Section 3.4, the Committee shall prepare, and attach to the Plan as Exhibit D, a complete list of the Eligible Employees, by individual name or by reference to an identifiable group of persons or by descriptions of the components of compensation of an individual which would qualify individuals which are eligible to participate and all of whom shall be a select group of management or highly compensated employees. 3.2 PARTICIPATION. Participation in the Plan shall be limited to Eligible Employees who elect to participate in the Plan by filing a Participation Agreement with the Committee. An Eligible Employee shall commence participation in the Plan upon the first day of his or her first payroll period commencing for the Plan Year following the receipt of his or her Participation Agreement by the Committee. In the case of an employee's initial year of participation in the Plan, the Participant may make a Deferral Election with respect to compensation for services to be performed subsequent to such Deferral Election, provided such election is made no later than 30 days after the date the Participant first becomes eligible for the Plan. An employee shall commence participation in the Plan for the current Plan Year upon the first day of his or her first payroll period following the receipt of his or her Participation Agreement by the Committee. 3.3 CHANGE IN PARTICIPATION STATUS. During the election period each December, a Participant may change a previously elected percentage of deferral of base salary and commission. Changes will only become effective as of the beginning of the next Plan Year following receipt of the change in election by the Committee and in accordance with the Company's prevailing administrative procedures. With the exception of the initial plan year, a Participant must make a Bonus deferral election by filing a written notice thereof with the Committee prior to June 30th of the year preceding the actual payment or deferral date of the Bonus. 3.4 TERMINATION OF PARTICIPATION. A Participant may elect to terminate his or her active participation in the Plan at any time by filing a written notice thereof with the Committee. Such termination of active participation shall become effective as of the beginning of the next full payroll period following receipt of such election by the Committee. Amounts credited to the Participant's Account before the effective date of such termination of active participation shall continue to be payable, receive investment credits, and otherwise be governed in accordance with the terms of the Plan as applied to all Participants. A participant that has terminated active participation shall not be permitted to resume his or her active participation in the Plan before the end of the Plan Year within which he terminated participation. 10 3.5 INELIGIBLE PARTICIPANT. Notwithstanding any other provisions of this Plan to the contrary, if the Committee determines that any Participant may not qualify as a "management or highly compensated employee" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or regulations thereunder, the Committee may determine, in its sole discretion, that such Participant shall cease to be eligible to participate in this Plan. Upon such determination, any future Participant's contributions to the Plan will cease; however, the Participant's existing account balance will be maintained in the same manner as other Plan Participants. 11 ARTICLE IV DEFERRAL OF COMPENSATION; COMPANY CREDITS 4.1 AMOUNT OF DEFERRAL. With respect to each Plan Year, a Participant may elect to defer a specified percentage of his or her Compensation up to the percentage of compensation defined and the terms described in Exhibit B attached hereto. 4.2 CREDITING DEFERRED COMPENSATION. The amount of Compensation that a Participant elects to defer under the Plan shall be credited by the Employer to the Participant's Deferral Account periodically, the frequency of which will be determined by the Committee. To the extent that the Employer is required to withhold any taxes or other amounts from a Participant's deferred Compensation pursuant to any state, federal or local law, such amounts shall be withheld only from the Participant's compensation before such amounts are credited. 4.3 COMPANY CONTRIBUTION ACCOUNT. The Company may, in its sole discretion, credit amounts to an account for a Participant (the "Company Contribution Account"). The Company shall have no obligation to treat each Participant the same with respect to such credits and may credit different amounts or no amounts to different Participants. The Company Contribution account and its terms are described in Exhibit B attached hereto. 12 ARTICLE V BENEFIT ACCOUNTS 5.1 VALUATION OF ACCOUNT. As of each Valuation Date, a Participant's Account shall consist of the balance of the Participant's Account as of the immediately preceding Valuation Date, plus the Participant's Deferred Compensation credited pursuant to Section 4.2 since the immediately preceding Valuation Date, plus investment return credited as of such Valuation Date pursuant to Section 5.2, minus the aggregate amount of distributions, if any, made from such Account since the immediately preceding Valuation Date. 5.2 CREDITING OF INVESTMENT RETURN. As of each Valuation Date, each Participant's Deferral Account shall be increased by the amount of investment return earned since the immediately preceding Valuation Date. Investment return shall be credited at the Investment Return Rate as of such Valuation Date based on the average balance of the Participant's Deferral Account, since the immediately preceding Valuation Date, but after such Accounts have been adjusted for any contributions or distributions to be credited or deducted for such period. Investment return for the period prior to the first Valuation Date applicable to a Deferral Account shall be deemed earned ratably over such period. Until a Participant or his or her Beneficiary receives his or her entire Account, the unpaid balance thereof shall earn an investment return as provided in this Section 5.2. 5.3 STATEMENT OF ACCOUNTS. The Committee shall provide to each Participant, within 30 days after the close of each calendar quarter, a statement setting forth the balance of such Participant's Account as of the last day of the preceding calendar quarter and showing all adjustments made thereto during such calendar quarter. 13 5.4 VESTING OF ACCOUNT. Except as provided in Sections 10.1 and 10.2, a Participant shall be 100% vested in his or her Deferral Account at all times. A Participant's interest in his or her Company Contribution Account shall be 100% vested upon the occurrence of a Change in Control. Prior to this event, a Participant's interest in his or her Company Contribution Account shall vest under the following vesting schedule: CREDITED SERVICE VESTED PERCENTAGE ---------------- ----------------- 0-1 year 0% 1-2 years 20% 2-3 years 40% 3-4 years 60% 4-5 years 80% More than 5 years 100% Any nonvested portion of a Participant's Company Contribution Account shall be forfeited at termination. Forfeitures under the Plan shall be for the benefit of the Employer and shall not be credited to other Participants. 5.5 INVESTMENT VEHICLES. The Company may select investment vehicles owned as general assets by the Company or as assets of a trust described in Section 10.1 to establish the Investment Return Rate. The deemed investment vehicles are set forth in Exhibit C, which the Company may amend from time to time in its sole discretion. A Participant may request the Company to make deemed investments of the credit balance of his Deferral Account in one or more of such investment vehicles. A Participant may change the deemed investment of his Deferral Account or change the deemed investment of future credits to his Deferral Account and the deemed investment of his existing Deferral Account balance may differ from the deemed investment of future amounts credited to the Deferral Account. Such changes shall be made in accordance with procedures as the Committee may establish from time to time. Such procedures may regulate the frequency of such changes and the form of notice required to make such election or changes. The Committee may also establish a deemed investment which shall apply if the Participant makes no election. The effective date of any change shall be the date for which the appropriate direction to the Company or its designee has been properly received in accordance with the procedures established by the Committee. The Committee shall have the right to refuse to honor any Participant direction related to investments or withdrawals, including transfers among investment options, where necessary or desirable to assure compliance with applicable law including U.S. and other securities laws. However, neither the Company nor the Committee assumes any responsibility for compliance by officers or others with any such laws, and any failure by the Company or the Committee to delay or dishonor any such direction shall not be deemed to increase the Company's legal obligations to the Participant or third parties. 14 ARTICLE VI PAYMENT OF BENEFITS 6.1 PAYMENT OF DEFERRAL BENEFIT UPON DISABILITY OR RETIREMENT. Upon the Disability or Retirement of a Participant, the Employer shall pay to the Participant or his Beneficiary a Deferral Benefit equal to the balance of his or her vested Account determined pursuant to Article V, less any amounts previously distributed, based on his or her written election pursuant to Section 6.6 . However, in the event of an involuntary termination as a result of a Change of Control of the Company, the participant will receive his or her Deferral Benefit in a Lump Sum payment. 6.2 PAYMENT OF DEFERRAL BENEFIT UPON TERMINATION. Upon the termination of service of the Participant as an employee of the Employer and all Selected Affiliates for reasons other than death, Disability, or Retirement, the Employer shall pay to the Participant a Deferral Benefit in a lump sum equal to the balance of his or her vested Account determined pursuant to Article V, less any amounts previously distributed, as soon as administratively practical. 6.3 PAYMENTS TO BENEFICIARIES UPON PARTICIPANT DEATH. In the event of the Participant's death prior to his or her receipt his account, the Employer shall pay to the Participant's beneficiaries a Deferral Benefit in a lump sum equal to the balance of his or her vested Account determined pursuant to Article V, less any amounts previously distributed, as soon as administratively practical. 6.4 HARDSHIP WITHDRAWAL - "HAIRCUT" PROVISIONS. Notwithstanding any other provision of the Plan, a Participant at any time shall be entitled to receive, upon written request to the Committee, a partial or full lump sum distribution on the amount owed to the Participant under the Plan subject to penalties as set forth below: (a) The lump-sum will be subject to a 10% penalty and forfeited by the Participant, and; (b) The Participant will not be eligible to recommence income deferrals until the first of the January following a one (1) year period commencing on the date of withdrawal, and then only if otherwise eligible to participate under the terms of the Plan. The amount payable under this section of the Plan shall be paid within forty-five (45) days following receipt of written notice by the Committee. 15 6.5 IN-SERVICE DISTRIBUTION A participant may elect to receive an in-service distribution of all of his or her Deferral Account. A Participant's election for an in-service distribution must be filed in writing with the Committee at the same time his or her Deferral Election is made. The Participant may elect to receive such Compensation as an in-service distribution in lump sum only, the amount of which will be the lesser of the distribution election for that year or the Deferral Account balance attributable to that year's deferral. Any benefits paid to the Participant as an in-service distribution shall reduce the amount of Deferral Benefit otherwise payable to the Participant under the Plan. 6.6 FORM OF PAYMENT. The Deferral Benefit payable pursuant to Section 6.1 shall be paid in one of the following forms, as elected by the Participant in his or her Participant Agreement on file as of one (1) year and one (1) day prior to the date of termination or death: (a) Annual payments of a substantially level amount which shall amortize the Account balance of the payment commencement date over a period of five (5) or ten (10) years. Each installment payment shall equal the quotient determined by dividing the Participant's remaining account balance at the time of the payment by the number of remaining installments (including the current installment). (b) A lump sum as soon as administratively practical. In the event a Participant fails to make a distribution election, his or her Account Balance shall be distributed as a lump sum distribution as soon as administratively practical after his or her termination, death or Disability. 6.7 COMMENCEMENT OF PAYMENTS. Commencement of payments under Section 6.1 of the Plan shall begin within 60 days following receipt of written notice by the Committee of an event which entitles a Participant (or a Beneficiary) to payments in lump sum under the Plan or in the January following the event for annual payment. 6.8 SMALL BENEFIT. In the event the Committee determines that the balance of a Participant's Account is less than $3,500 at the time of commencement of payments, or the portion of the balance of the Participant's Account payable to any Beneficiary is less than $3,500 at the time of commencement of payments, the Committee may inform the Employer and the Employer, in its discretion, may choose to pay the benefit in the form of a lump sum payment, notwithstanding any provision of the Plan or a Participant election to the contrary. Such lump sum payment shall be equal to the balance of the Participant's Account or the portion thereof payable to a Beneficiary. 16 ARTICLE VII BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION. Each Participant shall have the sole right, at any time, to designate any person or persons as his Beneficiary to whom payment under the Plan shall be made in the event of his or her death prior to complete distribution to the Participant of his or her Account. Any Beneficiary designation shall be made in a written instrument provided by the Committee. All Beneficiary designations must be filed with the Committee and shall be effective only when received in writing by the Committee. 7.2 CHANGE OF BENEFICIARY DESIGNATION. Any Beneficiary designation may be changed by a Participant by the filing of a new Beneficiary designation, which will cancel all Beneficiary designations previously filed. The designation of a Beneficiary may be made or changed at any time without the consent of any person. 7.3 NO DESIGNATION. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant, then the Participant's designated Beneficiary shall be deemed to be the Participant's estate. 7.4 EFFECT OF PAYMENT. Payment to a Participant's Beneficiary (or, upon the death of a primary Beneficiary, to the contingent Beneficiary or, if none, to the Participant's estate) shall completely discharge the Employer's obligations under the Plan. 17 ARTICLE VIII ADMINISTRATION 8.1 COMMITTEE. Members of the Committee for the Transkaryotic Therapies, Inc. Deferred Compensation Plan are listed on Exhibit A. The Committee shall have complete discretion to i) supervise the administration and operation of the Plan, ii) adopt rules and procedures governing the Plan from time to time and iii) shall have authority to give interpretive rulings with respect to the Plan. 8.2 AGENTS. The Committee may appoint an individual, who may be an employee of the Company, to be the Committee's agent with respect to the day-to-day administration of the Plan. In addition, the Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 8.3 BINDING EFFECT OF DECISIONS. Any decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan shall be final and binding upon all persons having any interest in the Plan. 8.4 INDEMNIFICATION OF COMMITTEE. The Company shall indemnify and hold harmless the members of the Committee and their duly appointed agents under Section 8.2 against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to the Plan, except in the case of gross negligence or willful misconduct by any such member or agent of the Committee. 18 ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1 AMENDMENT. The Company, on behalf of itself and of each Selected Affiliate may at any time amend, suspend or reinstate any or all of the provisions of the Plan, except that no such amendment, suspension or reinstatement may adversely affect any Participant's Account, as it existed as of the day before the effective date of such amendment, suspension or reinstatement, without such Participant's prior written consent. The Committee or its delegatee as the case may be, in its sole discretion, may accelerate the date of payment of a Participant's Account. Written notice of any amendment or other action with respect to the Plan shall be given to each Participant. 9.2 TERMINATION. The Company, on behalf of itself and of each Selected Affiliate, in its sole discretion, may terminate this Plan at any time and for any reason whatsoever. Upon termination of the Plan, the Committee shall take those actions necessary to administer any Accounts existing prior to the effective date of such termination; provided, however, that a termination of the Plan shall not adversely affect the value of a Participant's Account, as it existed as of the day before the effective date of such termination, or the timing or method of distribution of a Participant's Account, without the Participant's prior written consent. Except as provided in Section 9.3 , below, a termination of the Plan shall not give rise to accelerated or automatic vesting of any Participant's Account. 9.3 CHANGE IN CONTROL Upon the occurrence of a Change in Control, the Plan shall terminate, all accounts shall become fully vested and shall be distributed in a lump sum as soon as practical after the occurrence of a Change in Control. 19 ARTICLE X MISCELLANEOUS 10.1 FUNDING. Participants, their Beneficiaries, and their heirs, successors and assigns, shall have no secured interest or claim in any property or assets of the Employer. The Employer's obligation under the Plan shall be merely that of an unsecured promise of the Employer to pay money in the future. Notwithstanding the foregoing, in the event of a Change in Control, the Corporation shall create an irrevocable trust, or before such time the Corporation may create an irrevocable or revocable trust, to hold funds to be used in payment of the obligations of Employers under the Plan. In the event of a Change in Control or prior thereto, the Employers shall fund such trust in an amount equal to no less than the total value of the Participants' Accounts under the Plan as of the Determination Date immediately preceding the Change in Control, provided that any funds contained therein shall remain liable for the claims of the respective Employer's general creditors. 10.2 NONASSIGNABILITY. No right or interest under the Plan of a Participant or his or her Beneficiary (or any person claiming through or under any of them) shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of any such Participant or Beneficiary. If any Participant or Beneficiary shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, then the Committee, in its discretion, may terminate his or her interest in any such benefit (including the Deferral Account) to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence. Termination shall be effected by filing a written "termination declaration" with the Transkaryotic Therapies, Inc. Deferred Compensation Plan Committee of the Company and making reasonable efforts to deliver a copy to the Participant or Beneficiary whose interest is adversely affected (the "terminated participant"). As long as the terminated participant is alive, any benefits affected by the termination shall be retained by the Employer and, in the Committee's sole and absolute judgment, may be paid to or expended for the benefit of the terminated participant, his or her spouse, his or her children or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of the terminated participant, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be disposed of according to the provisions of the Plan that would apply if he or she died prior to the time that all benefits to which he or she was entitled were paid to him or her. 20 10.3 CAPTIONS. The captions contained herein are for convenience only and shall not control or affect the meaning or construction hereof. 10.4 GOVERNING LAW. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Massachusetts. 10.5 SUCCESSORS. The provisions of the Plan shall bind and inure to the benefit of the Company, its Selected Affiliates, and their respective successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company or a Selected Affiliate and successors of any such Company or other business entity. 10.6 RIGHT TO CONTINUED SERVICE. Nothing contained herein shall be construed to confer upon any Eligible Employee the right to continue to serve as an Eligible Employee of the Employer or in any other capacity. EXECUTED THIS 1st DAY OF OCTOBER, 2000 TRANSKARYOTIC THERAPIES, INC. BY: /s/ Daniel E. Geffken -------------------------- TITLE: Vice President, Finance and Chief Financial Officer 21 EX-21.1 10 a2042542zex-21_1.txt EXHIBIT 21.1 Exhibit 21.1 Subsidiaries of the Registrant Name Jurisdiction of Incorporation - ---- ----------------------------- TKT Securities Corp. Massachusetts TKT Europe-5S AB Sweden EX-23.1 11 a2042542zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-51772 and 333-90491) and in the related Prospectuses and on Form S-8 (Nos. 333-82221, 333-19915 and 333-19917) pertaining to the 1993 Long-Term Incentive Plan, as Amended and Restated, the 1993 Long-Term Incentive Plan and the 1993 Non-Employee Director Stock Option Plan of our report dated February 6, 2001, with respect to the consolidated financial statements of Transkaryotic Therapies, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ Ernst & Young LLP Boston, Massachusetts March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----