-----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, WIPbXYXtcyG8XF67o8ut8pw0EoLBOIAB9l54oni+jDKHfYMjlHMWrrUvT+WdEV1J BCQII8MxSBpGzygp/MfOPA== 0000950135-96-003813.txt : 19960828 0000950135-96-003813.hdr.sgml : 19960828 ACCESSION NUMBER: 0000950135-96-003813 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 42 FILED AS OF DATE: 19960827 SROS: NONE 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: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10845 FILM NUMBER: 96620960 BUSINESS ADDRESS: STREET 1: 195 ALBANY STREET CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6173490200 S-1 1 TRANSKARYOTIC THERAPIES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ TRANSKARYOTIC THERAPIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2836 04-3027191 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
195 ALBANY STREET CAMBRIDGE, MASSACHUSETTS 02139 (617) 349-0200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) RICHARD F SELDEN PRESIDENT AND CHIEF EXECUTIVE OFFICER TRANSKARYOTIC THERAPIES, INC. 195 ALBANY STREET CAMBRIDGE, MASSACHUSETTS 02139 (617) 349-0200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: PETER WIRTH, ESQ. BRUCE K. DALLAS, ESQ. PALMER & DODGE LLP DAVIS POLK & WARDWELL One Beacon Street 450 Lexington Avenue Boston, Massachusetts 02108 New York, New York 10017 (617) 573-0100 (212) 450-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM AMOUNT MAXIMUM AGGREGATE TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value per share........................... 2,875,000 $15.00 $43,125,000.00 $14,870.69 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
(1) Includes 375,000 shares which the Underwriters may purchase to cover overallotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject to Completion) Issued August 27, 1996 2,500,000 Shares Transkaryotic Therapies, Inc. COMMON STOCK ------------------------ ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $13 AND $15. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. HOECHST MARION ROUSSEL, INC. WILL PURCHASE AN ADDITIONAL $5 MILLION OF SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC SET FORTH BELOW PURSUANT TO ITS COLLABORATION WITH THE COMPANY. SEE "CERTAIN TRANSACTIONS." APPLICATION HAS BEEN MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TKTX." THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 8 HEREOF. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) ---------------- ---------------- ---------------- Per Share..................................... $ $ $ Total(3)...................................... $ $ $
- ------------ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting expenses payable by the Company estimated at $680,000. (3) The Company has granted to the Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 375,000 additional shares of Common Stock at the price to public less underwriting discounts and commissions for the purpose of covering overallotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ------------------------ The shares are offered, subject to prior sale, when, as and if received and accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the shares will be made on or about , 1996 at the offices of Morgan Stanley & Co. Incorporated, New York, N.Y. against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. Incorporated UBS SECURITIES PACIFIC GROWTH EQUITIES, INC. , 1996 3 [The figure shows a flowchart diagram of TKT's Gene Activation technology. A human cell containing an inactive erythropoietin gene is modified by the introduction of new regulatory DNA sequences. This process results in the activation of the erythropoietin gene and production of Gene Activated erythropoietin ("GA-EPO").] 2 4 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------ The Company intends to furnish to its stockholders annual reports containing audited consolidated financial statements certified by independent auditors and quarterly reports containing unaudited consolidated financial data for the first three quarters of each fiscal year following the end of each such quarter. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................................................................... 4 Risk Factors.......................................................................... 8 Use of Proceeds....................................................................... 15 Dividend Policy....................................................................... 15 Dilution.............................................................................. 16 Capitalization........................................................................ 17 Selected Financial Data............................................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 19 Business.............................................................................. 23 Management............................................................................ 41 Certain Transactions.................................................................. 48 Principal Stockholders................................................................ 50 Description of Capital Stock.......................................................... 52 Shares Eligible for Future Sale....................................................... 55 Underwriters.......................................................................... 57 Legal Matters......................................................................... 59 Experts............................................................................... 59 Additional Information................................................................ 59 Index to Financial Statements......................................................... F-1
------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors," and financial statements appearing elsewhere in this Prospectus. All references herein, unless the context otherwise requires, to the "Company" or "TKT" refer to Transkaryotic Therapies, Inc. Except as otherwise noted herein, information in this Prospectus (i) assumes no exercise of the Underwriters overallotment option, and (ii) reflects the automatic conversion upon the closing of this offering of all outstanding shares of Class A Redeemable Convertible, Class A, Class B, Class C, Class D, Class E, Class F and Class G Convertible Preferred Stock of the Company into an aggregate of 8,613,792 shares of Common Stock and (iii) gives effect to a 1.285714 for 1 stock split of Common Stock effected in the form of a stock dividend. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. THE COMPANY Transkaryotic Therapies, Inc. ("TKT" or the "Company") has developed two proprietary technology platforms, Gene Activation and gene therapy. The Company's Gene Activation technology is a proprietary approach to the large scale production of therapeutic proteins which does not require the cloning of genes and their subsequent insertion into non-human cell lines. Consequently, the Company believes its Gene Activation technology avoids using patented approaches to protein production associated with such conventional genetic engineering which have served as effective barriers to competition in the $11 billion therapeutic protein market. As a result, the Company believes it will be able to develop and successfully commercialize a broad range of gene activated versions of proteins which have proven medical utility, received marketing approval from regulatory authorities and generated significant revenues in major markets. The Company's most advanced Gene Activation development program is for the production of Gene Activated erythropoietin ("GA-EPO") with clinical trials expected to commence in the first half of 1997. The Company's gene therapy technology ("Transkaryotic Therapy") is a non-viral, ex vivo system based on the genetic modification of patients' cells to produce and deliver therapeutic proteins for extended periods of time. The Company's Transkaryotic Therapy system has produced target proteins at therapeutic levels for the lifetime of animals without any side effects and preliminary clinical testing suggests that the system appears to be well-tolerated. TKT believes that its proprietary Gene Activation technology represents a new wave in the evolution of protein production technology. Gene Activation is based on the observation that essentially all human cells contain genes encoding commercially valuable proteins, but that these genes are generally "turned off" in most cells. As opposed to conventional protein production technology based on the cloning of human genes and their subsequent insertion into bacteria, yeast or mammalian cells, Gene Activation bypasses the genetic "off switch" in the human cell with DNA sequences including an "on switch" that allows the human gene to express the desired protein in its natural setting. These Gene Activated human cells are then grown in large numbers and the protein of interest is harvested, purified and readied for administration. The Company has successfully applied its Gene Activation technology to the production of GA-EPO and has demonstrated that the properties of cells generated by Gene Activation are predictable and sufficient for scale-up to commercial production levels and that the protein produced by these cells has the expected structural and functional characteristics based on naturally produced erythropoietin. In order to rapidly develop and exploit its Gene Activation technology, TKT has entered into two strategic alliances with Hoechst Marion Roussel, Inc. ("HMRI"), the first in May 1994 and the second in March 1995. HMRI and its pharmaceutical affiliates are the third largest pharmaceutical group in the world based on revenues, with significant distribution capabilities in all major markets. The alliances are focused on the development of two products, GA-EPO, a protein hormone which is expected to compete in the $2.9 billion (1995) worldwide market for erythropoietin and a second, undisclosed protein. TKT has the potential to receive up to $125 million in license fees, equity investments, milestone payments and research funding in connection with the development of these two products, of which $42 million has been received from HMRI to date. Under the terms of the agreements, HMRI is responsible for all worldwide development, manufacturing and marketing. TKT has the potential to receive a royalty based on net sales of these two products 4 6 worldwide. The Company believes that working with Gene Activated proteins having conventional counterparts that are well known to regulatory authorities may allow their clinical development to be accomplished in a focused and timely manner. The Company's gene therapy technology is focused on the commercialization of non-viral gene therapy products for the long-term treatment of a broad range of human diseases. In Transkaryotic Therapy, a small sample of the patient's cells are removed in an out-patient procedure and sent to the Company's pilot manufacturing facility where the cells are genetically engineered to produce the desired therapeutic protein. In Transkaryotic Therapy, DNA is inserted into cells using physical or chemical techniques rather than viruses or other infectious agents. After the cells and the protein have been tested by TKT to ensure both safety and functionality, an appropriate number of the genetically-engineered cells are returned to the physician and injected back into the patient. TKT believes that the entire process will require approximately six weeks to complete, after which the patient should be capable of producing his or her own supply of the therapeutic protein for an extended period of time. TKT believes that its Transkaryotic Therapy gene therapy system is broadly enabling and well-suited to the treatment of chronic protein deficiency states such as hemophilia, diabetes, and hypercholesterolemia. The potential benefits of Transkaryotic Therapy include improved therapeutic outcomes, the elimination of frequent and painful injections and attendant patient compliance problems, a reduction in side effects associated with over and underdosing of proteins, and significant reductions in the total cost of therapy. Preliminary data from an initial Phase I safety study of genetically modified cells indicate that the therapy appears to be well-tolerated. The Company has successfully applied its gene therapy approach in a variety of model systems, using a number of different cell types to express a variety of therapeutically useful proteins. Cells engineered by the Company retain their normal properties, are stably transfected at efficiencies adequate for commercial application, express the proteins of interest at therapeutic levels and have delivered the therapeutic protein of interest for the lifetime of experimental animals. The Company is conducting two preclinical programs of its Transkaryotic Therapy products, one for the treatment of Fabry disease, a lysosomal storage disorder, based on the production and delivery of the enzyme - -galactosidase, and a second for the treatment of Hemophilia A based on the production and delivery of coagulation Factor VIII. The Company anticipates that it will initiate a Phase I clinical trial to study protein replacement in Fabry disease in 1996 and gene therapy clinical trials for both Fabry disease and Hemophilia A in 1997. The Company's initial business strategy is to apply its Gene Activation technology to the development and commercialization of several currently marketed proteins. The Company's two strategic alliances with HMRI are the primary focus of its Gene Activation activities, and TKT is actively pursuing other Gene Activation product candidates for commercialization either with pharmaceutical partners or independently. In parallel, the Company plans to continue research and development of its Transkaryotic Therapy system to develop a novel class of gene therapy treatments for a variety of protein deficiency diseases. Taken together, the Company believes its Gene Activation and gene therapy platforms are complementary opportunities that offer the potential for the development of powerful product pipelines that may have a significant impact in addressing society's healthcare needs. TKT was incorporated in Delaware in 1988. The Company's principal executive offices are located at 195 Albany Street, Cambridge, Massachusetts 02139, and its telephone number is (617) 349-0200. 5 7 THE OFFERING Common Stock offered................................ 2,500,000 shares(1) Common Stock to be purchased by HMRI................ 357,143 shares(2) Common Stock to be outstanding after the offering... 16,668,560 shares(3) Use of Proceeds..................................... Research, preclinical and clinical product development, and general corporate purposes Proposed Nasdaq Symbol.............................. TKTX
- --------------- (1) Excludes 375,000 shares subject to the Underwriters overallotment option. See "Underwriters." (2) Under its existing collaboration with the Company, at the closing of this offering, HMRI will purchase an additional $5 million of Common Stock at the initial public offering price (the "HMRI New Investment"). The number of shares set forth above assumes an initial public offering price of $14.00 per share (the mid-point of the filing range). The actual number of shares will be determined by dividing $5 million by the initial public offering price. (3) Excludes (i) 817,093 shares issuable upon exercise of warrants outstanding as of August 15, 1996 (at a weighted average exercise price of $7.53 per share); (ii) 2,250,000 shares of Common Stock reserved for issuance under the Company's 1993 Long-Term Incentive Plan, of which options to purchase 875,243 shares were outstanding as of August 15, 1996; and (iii) 231,429 shares of Common Stock reserved for issuance under the Company's 1993 Non-Employee Directors' Stock Option Plan, none of which have been granted as of August 15, 1996. See "Description of Capital Stock -- Warrants" and "Management -- 1993 Long-Term Incentive Plan" and Note 11 of Notes to Financial Statements. The number of shares issuable upon conversion of the outstanding Class A Redeemable Convertible Preferred Stock, which will be determined based on the initial public offering price, is based on an assumed initial public offering price of $14.00 per share. See "Description of Capital Stock -- Preferred Stock" and "Capitalization." 6 8 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------- ------------------- 1993 1994 1995 1995 1996 -------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: License and contract fee revenues..... $ -- $10,000 $15,400 $11,700 $ 1,975 Costs and expenses: Research and development........... 6,253 9,126 10,067 5,205 6,839 General and administrative......... 2,998 4,690 4,290 1,737 1,911 ------- ------- ------- ------- ------- Total costs and expenses.............. 9,251 13,816 14,357 6,942 8,750 Interest income, net.................. 168 394 1,116 432 788 Provision for income taxes............ -- -- 85 85 -- ------- ------- ------- ------- ------- Net income (loss)..................... $ (9,083) $(3,422) $ 2,074 $ 5,105 $(5,987) ======= ======= ======= ======= ======= Pro forma net income (loss) per share(1)....................... $ .14 $ .35 $ (.42) ======= ======= ======= Shares used in computing pro forma net income (loss) per share(1)......... 14,633 14,640 14,255
JUNE 30, 1996 -------------------------------------------- ACTUAL PRO FORMA(2) AS ADJUSTED(3) -------- ------------ -------------- BALANCE SHEET DATA: Cash, cash equivalents and marketable securities..................................... $ 28,774 $ 57,244 $ 89,114 Working capital................................... 27,958 56,428 88,298 Total assets...................................... 33,626 62,096 93,966 Class A redeemable preferred stock................ 4,545 -- -- Deficit accumulated during the development stage.......................................... (31,131) (31,131) (31,131) Total stockholders' equity........................ 27,887 60,902 92,772
- --------------- (1) Computed on the basis described in Note 2 of Notes to Financial Statements. (2) Gives effect to (i) the sale of 909,091 shares of Class G Convertible Preferred Stock at a price of $22.00 per share to BB Biotech AG and an additional 224,498 shares to certain stockholders of the Company pursuant to pre-emptive rights subsequent to June 30, 1996, all of which shares will convert into an aggregate of 1,457,460 shares of Common Stock upon the closing of this offering, (ii) the conversion of all outstanding shares of Preferred Stock (including Class G) into an aggregate of 8,613,792 shares of Common Stock upon the closing of this offering and (iii) 357,143 shares of Common Stock to be sold in the HMRI New Investment. (3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered hereby after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company. 7 9 RISK FACTORS Prospective purchasers of the Common Stock offered hereby should carefully consider the following risk factors in addition to the other information set forth in this Prospectus. EARLY STAGE OF DEVELOPMENT; COMMERCIAL UNCERTAINTY TKT is at an early stage of development. All of the Company's potential Gene Activation products are in research or preclinical development. No revenues have been generated from product sales and no such revenues are expected for at least several years. The Gene Activation products currently under development by the Company will require significant additional development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercial use. There can be no assurance that any Gene Activation products will ultimately be developed by the Company and its corporate partners, or that, even if developed, these products will receive regulatory approval. If approved, these products will compete with established products of proven safety and efficacy. There can be no assurance that the Company's Gene Activation products, if any, will be accepted by medical centers, hospitals, physicians or patients in lieu of existing treatments. Accordingly, there can be no assurance that these products can be successfully manufactured and marketed at prices that would permit the Company and its corporate partners to operate profitably. The Company's potential gene therapy products may be even further from commercial introduction. Due to the early stage of development of the Company's potential gene therapy products and the extensive research, development, preclinical and clinical testing, and regulatory review process required before marketing approval can be obtained, the Company cannot predict with certainty when it will be able to commercialize any of its potential gene therapy products, if at all. TECHNOLOGICAL UNCERTAINTY Gene Activation and gene therapy are new and rapidly evolving technologies. Existing preclinical data on the safety and efficacy of proteins produced by the Company's Gene Activation technology are limited, and the Company's Gene Activation products have not yet been tested in humans. The Company's potential gene therapy products are even further from commercial introduction. While many approaches to gene therapy are being pursued by pharmaceutical and biotechnology companies and academic institutions, there are currently no marketed gene therapy products, and existing clinical data on the safety and efficacy of potential gene therapy products are limited. The potential gene therapy products currently under development by the Company will require substantial additional development efforts, including extensive preclinical and clinical testing and the receipt of regulatory approvals prior to commercial introduction. For any given disease, gene therapy generally, as well as the Company's specific approach to gene therapy, may not be efficacious or may prove to have undesirable and unintended side effects, toxicities or other characteristics that may prevent or limit commercial use. There can be no assurance that the Company's products will obtain approval from the U.S. Food and Drug Administration (the "FDA") or equivalent foreign regulatory authorities for any indication. UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS Subject to compliance with FDA regulations, TKT and its corporate partners plan to undertake extensive clinical testing in humans to evaluate the safety and efficacy of its Gene Activation and gene therapy products in development. None of the Company's Gene Activation products has entered clinical trials. The rate of completion of clinical trials is dependent upon, among other factors, the 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. Delays in planned patient enrollment in the anticipated Gene Activation clinical trials may result in program delays, which could have a material adverse effect on TKT. Even if clinical trials are completed, there can be no assurance that the Company or its partners will be able to submit a Product License Application ("PLA") to the FDA or comparable regulatory agencies in foreign countries on the schedule anticipated or that such applications will be reviewed and approved by such regulatory agencies in a timely manner. Of the gene therapy products under development at the Company, only one is in Phase I human clinical trials. The Company currently intends to seek a collaborative partner prior to proceeding with further clinical development of this product. There can be 8 10 no assurance that the Company will be able to obtain authorization from the FDA for additional human clinical testing of any of its gene therapy products currently in research or preclinical development. There can be no assurance that any authorized clinical testing will be completed successfully within any specified time period, if at all, with respect to any potential product. There also can be no assurance that such testing will show any potential product to be safe or efficacious or that any such product will be approved by the FDA for any indication. Furthermore, the Company 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. There can be no assurance that the Company will not encounter problems in clinical trials which will cause the Company or the FDA to delay or suspend clinical trials. PATENTS AND PROPRIETARY RIGHTS The Company's success may depend in large part on its ability to obtain patent protection for its Gene Activation and gene therapy processes and potential products in the U.S. and other countries and to obtain the right to use in its potential products genes or other technology that have been or may be patented by others. Currently, the Company has 19 pending patent applications in the U.S. to protect its proprietary methods and processes; it has also filed foreign patent applications corresponding to certain of these U.S. patent applications. In addition, the Company has entered into several agreements to license proprietary rights from other parties. However, the patent situation in the field of biotechnology generally is highly uncertain and involves complex legal, scientific and factual questions. To date there has emerged no consistent policy regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that patent applications relating to the technology used by the Company will result in patents being issued or that, if issued, the patents will not be challenged, invalidated or circumvented or will afford protection against competitors with similar technology. Many biotechnology and pharmaceutical companies, universities and research institutions, including competitors with substantial resources, have filed patent applications and have been issued patents potentially relating to the Company's Gene Activation and gene therapy technologies. In addition, certain competitors have filed patent applications and have been issued patents relating to certain methods of producing therapeutic proteins that the Company anticipates producing using its Gene Activation technology. The Company's Gene Activation and gene therapy technologies and potential products may be found to conflict or be alleged to conflict with patents which have been or may be granted to competitors, universities or others. There are a substantial number of biotechnology patent applications under review at the U.S. Patent and Trademark Office (the "PTO"). Because patent applications in the U.S. are maintained in secrecy until patents issue, the Company cannot be certain that others have not filed or maintained patent applications for technology used by the Company or covered by the Company's pending patent applications or that the Company was the first to file patent applications for such technology. Competitors may have filed applications for, or may have received patents and may obtain additional patents and proprietary rights relating to, compositions of matter or processes that block or compete with those of the Company. Furthermore, as is the case with any pending patent application, competitors may attempt to amend existing applications to claim rights to compositions of matter or processes that may block the Company. No assurance can be given that the Company's products or processes may not infringe patents that may issue under pending patent applications. With respect to gene therapy technology, the Company is currently involved in one interference proceeding declared by the PTO in order to determine the patentability of the technology and the priority of invention and, thus, the right to a patent for such technology in the U.S. See "Business -- Patents, Proprietary Rights and Licenses." Should any of its competitors have filed additional patent applications in the U.S. that claim technology also invented by the Company, the Company may have to participate in additional interference proceedings declared by the PTO, all of which could result in substantial cost to the Company to determine its rights or potential loss of rights. The biotechnology industry has been characterized by significant litigation and interference proceedings regarding patents, patent applications and other intellectual property rights, and many companies in the biotechnology industry have attempted to employ intellectual property litigation to gain or preserve a competitive advantage. For example, there has been substantial intellectual property litigation between suppliers of erythropoietin throughout the world. There can be no assurance that the Company will not in the 9 11 future become subject to patent infringement claims, interferences and other litigation. The defense and prosecution of intellectual property suits and related legal and administrative proceedings can be both costly and time consuming. Litigation and interference proceedings could result in substantial expense to the Company or its corporate partner and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties. Although a number of patent and intellectual property disputes in the biotechnology area have been settled through licensing or similar arrangements, costs associated with any such arrangement may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that necessary licenses would be available to the Company or its corporate partner or would be available on acceptable terms. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company or its corporate partner from manufacturing and selling some or all of its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company has licensed proprietary rights to certain genes (for example, for Factor VIII and Factor IX) to be used in its gene therapy products, the Company presently has no proprietary rights to certain other genes that it may later seek to use in its products and which may be the subject of issued third party patents or pending patent applications. As a result, the Company may be required to obtain licenses under third party patents in order to market certain of its products. If such licenses are not made available to the Company on acceptable terms, the Company will not be able to market such products. In addition, under the Company's license and sublicense agreements, the licensors and sublicensors may terminate these agreements upon the Company's failure to meet certain specified milestones. Any such termination of an existing license or sublicense by any such licensor or sublicensor, or any inability by the Company to obtain any required license, could have a material adverse effect on the Company's business. The Company also relies upon unpatented proprietary technology, processes and know-how, which the Company protects in part by confidentiality agreements with its employees, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS The Company's research and development, preclinical testing, clinical trials, facilities and manufacturing and marketing of its products will be subject to extensive regulation by numerous governmental authorities in the U.S. and other countries. The regulatory process for new therapeutic products, which includes preclinical and clinical testing of each product to establish its safety and efficacy, can take many years and require the expenditure of substantial resources. Data obtained from preclinical and clinical activities are susceptible to varying interpretations which could delay, limit or prevent FDA regulatory approval. In addition, delays or rejections may be encountered based upon changes in FDA policy during the period of product development and FDA regulatory review of each submitted License Application. Similar delays may also be encountered and substantial resources expended in foreign countries. There can be no assurance that even after such time and expenditures, regulatory approval will be obtained for any Gene Activation or gene therapy products developed by the Company. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed and contain requirements for post-marketing follow-up studies. 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 subject to substantial additional review by various regulatory authorities in the U.S. and abroad. These requirements may result in extensive delays in initiating clinical trials of gene therapy products and in the regulatory approval process in general. Any of the foregoing effects of government regulation, as well as of comparable foreign regulation, could delay the marketing of the Company's Gene Activation and gene therapy products for a considerable or indefinite period of time, materially increase the cost involved in developing, manufacturing and marketing the 10 12 Company's products, diminish or eliminate any competitive advantage the Company may enjoy, or otherwise adversely affect the Company's ability to conduct its business. Compliance with applicable government regulations governing each of the Company's potential Gene Activation and gene therapy products will require a significant commitment of time, money and effort by the Company and its corporate partners with no assurances that any approval will ultimately be granted on a timely basis, if at all. HISTORY OF OPERATING LOSSES; FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING The Company has experienced significant operating losses since its inception in 1988. As of June 30, 1996, the Company had an accumulated deficit of $31,131,049. The Company expects that it will continue to incur substantial losses for at least several years and expects cumulative losses to increase as the Company's research and development efforts expand. The Company expects that such losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. There can be no assurance that the Company will ever achieve sales or profitability. The Company will require substantial funds to conduct research and development (including preclinical and clinical testing) of its potential products and to manufacture and market any products that are approved for commercial sale. The Company's future capital requirements will depend on many factors, including continued progress in its research and development programs, the magnitude of these programs, the scope and results of clinical trials, the timing and receipt of milestone payments, the time and costs involved in obtaining regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, competing technological and market developments, the ability of the Company to establish and maintain collaborative arrangements, and the cost of manufacturing and commercialization activities. To date, the Company has not received any revenues from product sales. The Company intends to seek additional funding through collaborative arrangements or through public or private financings. There can be no assurance that additional financing will be available on acceptable terms, if at all. COMPETITION The field of biotechnology is new and evolving, and it is expected to continue to undergo significant and rapid technological change. Technological developments could result in the Company's potential products becoming obsolete. The Company's products and technologies will be subject to substantial competition, both from other companies in the field of Gene Activation and gene therapy and from companies which have other forms of treatment of the diseases targeted by the Company. The Company is initially focusing its Gene Activation efforts on established products with proven safety and efficacy. The Company anticipates that companies selling such products will compete vigorously. There can be no assurance that the Company's Gene Activation products will be accepted by medical centers, hospitals, physicians or patients in lieu of existing products, or as to the effect of such competition on the market prices of the Company's products. Although the Company has a major corporate partner, many of the Company's existing or potential competitors have substantially greater product development capabilities and financial, scientific, marketing or human resources than the Company. Similarly, other competitors of the Company may enter into collaborative relationships with other companies having such greater resources. In addition, certain of these competitors have significantly greater experience than the Company in undertaking human clinical trials of new therapeutic products. Accordingly, other companies may succeed in developing products earlier than the Company, obtaining FDA approvals for such products more rapidly than the Company, or developing products that are more effective or less costly than those proposed to be developed by the Company. Furthermore, if the Company is permitted to commence commercial sales of products, it may also be competing with respect to commercial manufacturing and marketing capabilities, areas in which it has no experience. NO MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY Although the Company has a pilot gene therapy manufacturing facility and believes it will be able to manufacture its potential products on a large scale, the feasibility of large-scale manufacturing of such 11 13 products has not been demonstrated. If the Company is unable to develop or contract for manufacturing capabilities on acceptable terms, the Company's ability to commercialize its potential products would be materially adversely affected. If the Company is delayed in establishing suitable manufacturing capabilities, the Company's ability to conduct human clinical testing may be adversely affected, resulting in the delay of submission of potential products for regulatory approval and initiation of new development programs, which in turn could impair materially the Company's competitive position and the possibility of the Company achieving profitability. In addition, although the Company believes that its potential products will be cost-effective, there can be no assurance that the Company will be able to manufacture and distribute such products at a reasonable cost, that the Company will be able to price such products competitively or, if priced competitively, that the Company will be able to achieve margins sufficient to allow it to achieve profitability. The Company plans to provide its gene therapy products through central manufacturing facilities. The establishment of these facilities will require substantial additional funds and personnel and will require compliance with extensive regulations applicable to such facilities. There can be no assurance that such funds and personnel will be available on acceptable terms, if at all, or that the Company will be able to comply with such regulations at acceptable cost, if at all. In addition, in managing this expansion the Company may encounter unforeseen regulatory, logistical or management problems or incur unexpected operating costs. Failure or delays in establishing these facilities, or the incurrence of unexpected operating costs, could adversely affect the ability of the Company to manufacture and market its gene therapy products. Furthermore, the Company has no experience in sales, marketing or distribution. In order to market any of its gene therapy products, the Company must develop a marketing and sales capability, either on its own or in conjunction with others. There can be no assurance that the Company will be able to enter into any arrangements for the marketing of its products, that such arrangements will be successful, or that the Company will be able to obtain additional capital and expertise to conduct such activities independently. The Company has no manufacturing, sales, marketing or distribution capabilities for its Gene Activation products. The Company's collaborative partner, HMRI, is responsible for the manufacture, sales, marketing and distribution of GA-EPO and the undisclosed second protein. With respect to future Gene Activation products, the Company may seek collaborative partners or may manufacture and commercialize the products on its own. There can be no assurance that the Company will be successful in establishing such future collaborative relationships or that the Company will be able to conduct such activities independently. See "-- Dependence on Collaborative Partners." DEPENDENCE ON KEY PERSONNEL The Company's success is highly dependent on the retention of principal members of its scientific and management staff. Furthermore, the Company's future growth will require the hiring of significant numbers of qualified scientific and management personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to the Company's success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of the Company's activities, and there can be no assurance that the Company will be able to continue to attract and retain on acceptable terms the qualified personnel necessary for the development of its business. DEPENDENCE ON COLLABORATIVE PARTNERS The Company has entered into arrangements with HMRI on two of its Gene Activation development programs and with another corporate partner on one of its gene therapy development programs. HMRI is responsible for the worldwide development, manufacturing and marketing of GA-EPO and the undisclosed second protein. The Company's strategy for the research, development and commercialization of certain of its potential products includes the possibility that it will enter into various additional arrangements with corporate partners, licensors, licensees and others. There can be no assurance that any further arrangements will be effected in the future. Although the Company believes parties to any existing and future arrangements, if entered into, would have economic and other motivations to perform their contractual responsibilities in full, the amount and timing of resources which they would devote to these activities would not be within the control 12 14 of the Company. There can be no assurance that such parties would perform their obligations as expected or that any revenue would be derived by the Company from such arrangements. PRODUCT LIABILITY AND INSURANCE The Company's business will in the future expose it to potential product liability risks which are inherent in the testing, manufacturing and marketing of human therapeutic products. Although the Company has clinical trial liability insurance for trials conducted in the U.S., the Company does not currently have any product liability insurance, and there can be no assurance that it will be able to obtain or maintain such insurance on acceptable terms, if at all, or that any insurance obtained will provide adequate protection against potential liabilities. An inability to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, in addition to exposing the Company to significant liabilities, could prevent or inhibit the commercialization of products developed by the Company. UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT The business and financial condition of pharmaceutical and biotechnology companies will continue to be affected by the efforts of government and third-party payors to contain or reduce the cost of health care through various means. For example, in certain foreign markets, pricing and profitability of prescription pharmaceuticals is subject to government control. In particular, individual pricing negotiations are often required in each country of the European Community, even if approval to market the drug is obtained. In the U.S. there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement similar government control. In addition, an increasing emphasis on managed care in the U.S. has and will continue to increase the pressure on pharmaceutical pricing. While the Company cannot predict whether any such legislative or regulatory proposals will be adopted or the effect such proposals or managed care efforts may have on its business, the announcement of such proposals or efforts could have a material adverse effect on the Company's ability to raise capital, and the adoption of such proposals or efforts could have a material adverse effect on the Company's business, financial condition and results of operations. Further, to the extent that such proposals or efforts have a material adverse effect on other pharmaceutical companies that are prospective corporate partners for the Company, the Company's ability to establish corporate collaborations may be adversely affected. In addition, in both domestic and foreign markets, sales of the Company's products, if any, will be dependent in part on the availability of reimbursement from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services. If the Company succeeds in commercializing products, there can be no assurance that these products will be considered cost effective, that reimbursement will be available, or if available, that the payor's reimbursement policies will be adequate to permit the Company to realize a reasonable return on its investment. CONCENTRATION OF OWNERSHIP Following this offering, the present officers, directors and holders of more than 5% of the Company's stock will beneficially own approximately 60.8% of the outstanding shares of the capital stock of the Company, assuming the exercise of warrants outstanding as of the date of this Prospectus. Accordingly, such persons will have the ability to exercise significant influence over the management and policies of the Company and to control the election of the Company's Board of Directors and most other stockholder actions. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Upon completion of this offering, the 13,811,417 shares of Common Stock outstanding as of August 15, 1996 (after giving effect to the conversion of all shares of preferred stock into Common Stock upon the closing of this offering) will be "restricted securities" as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), and under certain circumstances may be sold without registration pursuant to Rule 144. In addition to the 2,500,000 shares offered hereby, approximately 1,646,315 shares of outstanding Common Stock will be eligible for sale in the public market pursuant to Rule 144(k) under the Securities Act immediately after this offering (excluding approximately 6,863,930 outstanding shares that 13 15 would be eligible for sale in the public market immediately after the offering were they not subject to the lock-up agreements described below). An additional 520,942 shares of outstanding Common Stock will become eligible for sale pursuant to Rules 144 and 701 under the Securities Act beginning 90 days after the effective date of this offering (excluding an additional 2,037,593 outstanding shares that would be eligible for sale in such time were they not subject to the lock-up agreements described below). Holders of 8,901,523 shares of Common Stock are expected to enter into lock-up agreements pursuant to which they will agree not to publicly offer, sell or otherwise dispose of such shares without the consent of the Representatives of the Underwriters for 180 days after the effective date of this offering. The Company is unable to predict the effect that sales made under Rule 144, or otherwise, may have on the then prevailing market price of the Common Stock. As of August 15, 1996, the holders of approximately 8,613,792 shares of Common Stock are entitled to certain piggyback and demand registration rights with respect to such shares. In addition, in connection with the sale of 357,143 shares of Common Stock in the HMRI New Investment, the Company intends to grant to HMRI one demand registration right with respect to such shares exercisable after the expiration of the lock-up agreement. By exercising their registration rights, subject to certain limitations, such holders could cause a large number of shares to be registered and sold in the public market commencing 180 days after the date of this Prospectus. Such sales may have an adverse effect on the market price for the Common Stock and could impair the Company's ability to raise capital through an offering of its equity securities. See "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriters." DILUTION; ABSENCE OF DIVIDENDS Investors purchasing shares of Common Stock in this offering will incur immediate and substantial dilution in net tangible book value per share. In addition, investors purchasing shares of Common Stock in this offering will incur additional dilution to the extent outstanding options and warrants are exercised. See "Dilution," "Management -- 1993 Long-Term Incentive Plan" and "Management -- 1993 Non-Employee Directors' Stock Option Plan" and "Description of Capital Stock -- Warrants." The Company has never paid dividends and does not intend to pay any dividends in the foreseeable future. See "Dividend Policy." CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation and By-laws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of such provisions allow the Company to issue preferred stock with rights senior to those of the Common Stock and impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions. See "Description of Capital Stock -- Preferred Stock" and "Description of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions." ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock. There can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. The public offering price of the Common Stock will be established by negotiations between the Company and the Representatives of the Underwriters. See "Underwriters." The market price of the shares of Common Stock, like that of the common stock of many other early-stage biotechnology companies, may be highly volatile. Factors such as announcements of technological innovations or new commercial products by the Company or its competitors, disclosure of results of clinical testing or regulatory proceedings, governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by the Company and general market conditions may have a significant effect on the market price of the Common Stock. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many biotechnology and pharmaceutical companies for reasons frequently unrelated to or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. 14 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby are estimated to be $31,870,000 ($36,752,500 if the Underwriters exercise the overallotment option in full) at an assumed initial public offering price of $14.00 per share (the mid-point of the filing range) and after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the net proceeds of this offering along with the $5 million to be received from the HMRI New Investment for research, preclinical and clinical product development and other general corporate purposes. The amounts actually expended for each purpose may vary significantly based upon numerous factors including the results of clinical trials, the timing of regulatory approvals, technological advances, determinations concerning commercial potential of particular products, the status of competitive products, the progress of the Company's research and development programs, establishment of collaborative arrangements with other companies and research institutions and the availability of financing. Pending application of the net proceeds of this offering as described above, the Company intends to invest such net proceeds in investment grade, interest-bearing securities or in interest-bearing accounts. Based upon its current operating plan, the Company believes that its available cash, together with the proceeds of this offering and interest income, will be adequate to satisfy its capital needs through 1999. The Company will require substantial funds to conduct research and development and preclinical and clinical testing of its potential products and to manufacture and market any products that are approved for commercial sale. The Company intends to seek additional funding through collaborative arrangements or through public or private financings, but there can be no assurance that additional financing will be available on acceptable terms or at all. See "Risk Factors -- History of Operating Losses; Future Capital Needs; Uncertainty of Additional Funding." DIVIDEND POLICY The Company has never declared or paid cash dividends on its capital stock. The Company currently intends to retain all of its earnings, if any, for use in its business and therefore does not anticipate paying any cash dividends in the foreseeable future. 15 17 DILUTION The pro forma net tangible book value of the Company, as of June 30, 1996, was $60,545,535 or $4.27 per share. Pro forma "net tangible book value per share" is equal to the Company's pro forma total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding, after giving effect to (i) the sale of 1,133,589 shares of Class G Convertible Preferred Stock subsequent to June 30, 1996, (ii) the conversion of all outstanding shares of Preferred Stock (including Class G) into an aggregate of 8,613,792 shares of Common Stock upon the closing of this offering and (iii) the purchase by HMRI of $5 million of Common Stock in the HMRI New Investment. After giving effect to the sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $14.00 per share (the mid-point of the filing range), and after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company, the pro forma net tangible book value of the Company as of June 30, 1996 would have been $92,415,535 or $5.54 per share. This represents an immediate increase of $1.27 per share to existing stockholders and an immediate dilution of $8.46 per share to new investors (the "New Investors"). The following table illustrates this per share dilution: Assumed initial public offering price per share..................... $14.00 Pro forma net tangible book value per share as of June 30, 1996..... $4.27 Increase per share attributable to New Investors.................... 1.27 ----- Pro forma net tangible book value per share as of June 30, 1996 as adjusted for the offering......................................... 5.54 ------ Dilution per share to New Investors................................. $ 8.46 ======
Using the foregoing assumptions, the following table summarizes on a pro forma basis at June 30, 1996 the difference between existing stockholders, HMRI and New Investors with respect to the number of shares purchased from the Company, the total consideration paid to the Company and the average consideration paid per share at an assumed initial public offering price of $14.00 per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- --------- Existing stockholders............ 13,811,417 82.9% $ 88,804,856 68.9% $ 6.43 New Investors.................... 2,500,000 15.0 35,000,000 27.2 14.00 HMRI New Investment(1)........... 357,143 2.1 5,000,002 3.9 14.00 ---------- ------- ------------ ------- Total.................. 16,668,560 100.0% $128,804,858 100.0% ========= ===== =========== =====
- --------------- (1) Reflects the sale to HMRI of 357,143 shares of Common Stock at an assumed initial public offering price of $14.00 pursuant to the HMRI New Investment. The foregoing tables assume no exercise of the Underwriters' overallotment option and no exercise of outstanding options or warrants to purchase Common Stock. At August 15, 1996, there were outstanding options to purchase an aggregate of 875,243 shares of Common Stock for nominal consideration and outstanding warrants to purchase an aggregate of 817,093 shares of Common Stock at exercise prices ranging from $6.22 to $7.78 per share. To the extent these options or warrants are exercised, there will be further dilution to existing stockholders and New Investors. At August 15, 1996, 2,250,000 shares of Common Stock were reserved for issuance under the Company's 1993 Long-Term Incentive Plan and 231,429 shares were reserved for issuance under the Company's 1993 Non-Employee Directors' Stock Option Plan. See "Management -- 1993 Long-Term Incentive Plan" and "Management -- 1993 Non-Employee Directors' Stock Option Plan" and Note 11 of Notes to Financial Statements. 16 18 CAPITALIZATION The following table sets forth (i) the total capitalization of the Company at June 30, 1996, (ii) pro forma capitalization as of such date to give effect to the sale of 1,133,589 shares of Class G Convertible Preferred Stock at a price per share of $22.00 which shares will convert into an aggregate of 1,457,460 shares of Common Stock upon the closing of this offering and give effect to the sale of 357,143 shares of Common Stock in the HMRI New Investment and (iii) as adjusted to reflect the sale by the Company of 2,500,000 shares of Common Stock pursuant to this offering after deduction of underwriting discounts and commissions and estimated expenses payable by the Company as described herein under "Use of Proceeds."
JUNE 30, 1996 ---------------------------------------------- ACTUAL PRO FORMA(1) AS ADJUSTED(2) ------------ ------------ -------------- Redeemable preferred stock: Class A redeemable convertible preferred stock, $1.00 par value, 3,000 shares authorized; 3,000 shares issued and outstanding; none outstanding pro forma and as adjusted............................. $ 4,545,273 $ -- $ -- Stockholders' equity: Class A convertible preferred stock, $1.00 par value, 3,000 shares authorized; 3,000 issued and outstanding; none outstanding pro forma and as adjusted............................................. 3,000 -- -- Class B convertible preferred stock, $1.00 par value, 60,000 shares authorized; 49,339 issued and outstanding; none outstanding pro forma and as adjusted............................................. 49,339 -- -- Class C convertible preferred stock, $1.00 par value, 1,875,000 shares authorized; 1,015,974 issued and outstanding; none outstanding pro forma and as adjusted............................. 1,015,974 -- -- Class D convertible preferred stock, $1.00 par value, 280,367 shares authorized; 280,367 issued and outstanding; none outstanding pro forma and as adjusted............................................. 280,367 -- -- Class E convertible preferred stock, $1.00 par value, 523,560 shares authorized; 523,560 issued and outstanding; none outstanding pro forma and as adjusted............................................. 523,560 -- -- Class F convertible preferred stock, $1.00 par value, 1,071,429 shares authorized; 1,071,429 issued and outstanding; none outstanding pro forma and as adjusted............................. 1,071,429 -- -- Class G convertible preferred stock, $1.00 par value, 1,136,364 shares authorized; 1,133,589 issued and outstanding; none outstanding pro forma and as adjusted............................. -- -- -- Common stock, $.01 par value, 15,000,000 shares authorized; 30,000,000 shares authorized as adjusted; 5,197,662 shares issued and outstanding; 14,168,560 shares issued and outstanding pro forma; 16,668,560 shares issued and outstanding as adjusted(3).... 51,977 141,686 166,686 Undesignated preferred stock, $0.01 par value, none authorized; 10,000,000 shares authorized as adjusted; none issued and outstanding; none issued and outstanding pro forma and as adjusted.......................................................... -- -- -- Additional paid-in capital.......................................... 57,567,805 91,891,767 123,736,767 Accretion of redeemable preferred stock dividends................... (1,545,273) -- -- Deficit accumulated during development stage........................ (31,131,049) (31,131,049) (31,131,049) ------------ ------------ ------------ Total stockholders' equity................................... 27,887,129 60,902,404 92,772,404 ------------ ------------ ------------ Total capitalization.................................... $ 32,432,402 $ 60,902,404 $ 92,772,404 ============ ============ ============ - --------------- (1) Gives effect to (i) the sale of 1,133,589 shares of Class G Convertible Preferred Stock at a price per share of $22.00 subsequent to June 30, 1996, which shares will convert into an aggregate of 1,457,460 shares of Common Stock upon the closing of this offering, (ii) the conversion of all outstanding shares of Preferred Stock (including Class G) into an aggregate of 8,613,792 shares of Common Stock upon the closing of this offering and (iii) the sale of 357,143 shares of Common Stock in the HMRI New Investment. (2) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $14.00 per share (the mid-point of the filing range) after deduction of underwriting discounts and commissions and estimated offering expenses payable by the Company. (3) Excludes 817,093 shares of Common Stock issuable upon exercise of warrants outstanding as of August 15, 1996, 2,250,000 shares of Common Stock reserved for issuance under the Company's 1993 Long-Term Incentive Plan, of which 875,243 shares have been granted as of August 15, 1996, and 231,429 shares of Common Stock reserved for issuance under the Company's 1993 Non-Employee Directors' Stock Option Plan, none of which have been granted as of August 15, 1996. See "Description of Capital Stock -- Warrants" and "Management -- 1993 Long-Term Incentive Plan" and Note 11 of Notes to Financial Statements.
17 19 SELECTED FINANCIAL DATA The following selected financial data of the Company for the five years ended December 31, 1995 are derived from the financial statements of the Company which have been audited by Ernst & Young LLP, independent auditors. The financial statements as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, and the report of Ernst & Young LLP relating thereto are included elsewhere herein. The financial data for the six-month periods ended June 30, 1995 and 1996 are derived from unaudited financial statements included elsewhere herein. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the six months ended June 30, 1996 are not necessarily indicative of results to be expected for the entire year ended December 31, 1996. The following data should be read in conjunction with the Company's Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included herein.
PERIOD FROM SIX MONTHS ENDED JULY 7, 1988 YEAR ENDED DECEMBER 31, JUNE 30, (INCEPTION) --------------------------------------------------- ------------------ THROUGH 1991 1992 1993 1994 1995 1995 1996 JUNE 30, 1996 ------- ------- ------- ------- ------- ------- ------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: License and contract fee revenues.................. $ -- $ -- $ -- $10,000 $15,400 $11,700 $ 1,975 $ 27,375 Costs and expenses: Research and development............ 3,200 4,604 6,253 9,126 10,067 5,205 6,839 43,567 General and administrative......... 1,123 2,043 2,998 4,690 4,290 1,737 1,911 17,793 ------- ------- ------- ------- ------- ------ ------- -------- Total costs and expenses.... 4,323 6,647 9,251 13,816 14,357 6,942 8,750 61,360 Interest income (expense), net....................... (67) 247 168 394 1,116 432 788 2,939 Provision for income taxes..................... -- -- -- -- 85 85 -- 85 ------- ------- ------- ------- ------- ------ ------- -------- Net income (loss)........... $(4,390) $(6,400) $(9,083) $(3,422) $ 2,074 $ 5,105 $(5,987) $ (31,131) ======= ======= ======= ======= ======= ====== ======= ======== Pro forma net income (loss) per share(1).............. $ .14 $ .35 $ (.42) ======= ====== ======= Shares used in computing pro forma net income (loss) per share(1).............. 14,633 14,640 14,255
AS OF DECEMBER 31, ------------------------------------------------------- AS OF JUNE 30, 1991 1992 1993 1994 1995 1996(2) ------- -------- -------- -------- -------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and marketable securities............................. $ 1,566 $ 4,594 $ 6,753 $ 7,579 $ 34,485 $ 28,774 Working capital.......................... 1,228 4,264 5,565 5,948 33,525 27,958 Total assets............................. 3,442 7,129 11,409 13,472 39,218 33,626 Class A redeemable convertible preferred stock.................................. 3,600 3,810 4,020 4,230 4,440 4,545 Deficit accumulated during the development stage...................... (8,314) (14,714) (23,797) (27,218) (25,144) (31,131) Total stockholders' equity (deficit)..... (5,913) 2,776 5,724 7,073 33,541 27,887
- --------------- (1) Computed on the basis described in Note 2 of Notes to Financial Statements. (2) Excludes an aggregate of $24,938,958 of gross proceeds received from the sale of 1,133,589 shares of Class G Convertible Preferred Stock of the Company subsequent to June 30, 1996. 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is engaged in the development and commercialization of therapeutic human proteins produced with the Company's proprietary Gene Activation technology. Initially, the Company is focusing on currently-marketed proteins that are medically useful, have been approved by health authorities and have achieved significant revenues in major markets. The Company also is engaged in the development and commercialization of gene therapy products designed for the long-term treatment of a broad range of chronic human diseases. The Company commenced operations in 1988 and is at an early stage of development. To date, all revenues received by the Company have resulted from research and development agreements, license fees and interest on invested funds; the Company has not received any revenues from the sale of products and does not expect to receive any such revenues for at least several years. The Company has incurred losses in each year of operation since inception, except 1995, and has accumulated losses since inception through June 30, 1996 of approximately $31,131,000. See "Risk Factors -- History of Operating Losses; Future Capital Needs; Uncertainty of Additional Funding." These losses result principally from expenditures under its research and development programs and the Company expects to incur significant operating losses over the next several years due primarily to expanded research and development efforts, preclinical testing and clinical trials of its product candidates, the acquisition of additional technologies, the establishment of manufacturing capability and the performance of commercialization activities. In order to commercialize products, the Company will need to develop genetically engineered cells, scale-up manufacturing, complete preclinical and clinical testing and obtain regulatory approval. The Company's success may depend in large part on its ability to obtain patent protection for its processes and potential products in the U.S. and other countries and, if necessary, to defend successfully patent infringement claims that may be brought by competitors against the Company and to obtain on commercially acceptable terms licenses to use the patents of others in its potential products and processes. The Company's failure to obtain such protection, successfully defend any such claims and obtain the right to use such licenses could have a material adverse effect on the Company's business. See "Risk Factors -- Patents and Proprietary Rights." Furthermore, the Company's success will also depend on its ability to obtain FDA approval to market its products. Compliance with applicable government regulations governing each of the Company's potential products will require a significant commitment of time, money and effort by the Company and there can be no assurances that any approval will ultimately be granted on a timely basis, if at all. See "Risk Factors -- Uncertainty of Government Regulatory Requirements; Lengthy Approval Process." It is not possible to predict the amount of time that will pass before the Company receives revenues from the sale of its products. Results of operations may vary significantly from quarter to quarter 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 collaborative research agreements. Collaborative Arrangements to Date. In May 1994, the Company and HMRI (formerly named Marion Merrell Dow Inc.) entered into an agreement to commercialize the Company's GA-EPO. Under the terms of the agreement, HMRI is obligated to pay the Company up to $58 million, as well as royalties based on net sales, if any, of GA-EPO. Pursuant to this agreement, the Company recognized $10 million of license fees in the second quarter of 1994 for a license to the Gene Activation technology for GA-EPO and received $5 million in that quarter from the sale of 280,367 shares of the Company's Series D Preferred Stock to HMRI. In November 1995, the Company recognized $2 million of collaborative research revenues upon HMRI's acceptance of a cell line suitable for the large-scale manufacture of GA-EPO. The remaining milestones are based on HMRI's achievement of certain stages in clinical development. The Company anticipates that HMRI will commence clinical trials for GA-EPO during the first half of 1997. HMRI is responsible for the worldwide development, manufacturing and marketing of GA-EPO, and the Company will receive a royalty based on net sales, if any. Pursuant to the provisions of the agreement, HMRI will purchase $5 million of 19 21 Common Stock at the initial public offering price (357,143 shares assuming a public offering price of $14.00 per share, the mid-point of the filing range) upon the closing of this offering in the HMRI New Investment. In March 1995, the Company entered into a second agreement with HMRI to commercialize an undisclosed Gene Activation product. Under the terms of this agreement, HMRI is obligated to pay the Company up to $67 million, as well as royalties based on net sales, if any, of the undisclosed Gene Activation product. Pursuant to this agreement, the Company recognized $10 million of license fees in the first quarter of 1995 for a license to the Gene Activation technology for the second protein and received $10 million from the sale of 523,560 shares of the Company's Series E Preferred Stock to HMRI. As part of the agreement, HMRI agreed to fund basic research at the Company for two years at a rate of $3 million per year. The Company is responsible for delivering a cell line sufficient for scale-up to commercial production levels, and upon its acceptance, will be entitled to receive a milestone payment of $2.5 million. The remaining milestones are based on HMRI's achievement of certain stages in clinical development. HMRI is responsible for the worldwide development, manufacturing and marketing of the product and the Company will receive a royalty based on net sales, if any. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1995 AND 1996 The Company's total revenues decreased to $1,975,000 in the six months ended June 30, 1996 from $11,700,000 in the six months ended June 30, 1995. In the six months ended June 30, 1996, the Company's revenues consisted primarily of an additional $475,000 in collaborative research revenues relating to the Company's GA-EPO collaboration with HMRI and $1,500,000 in collaborative research revenues earned under its March 1995 collaboration with HMRI. In the six months ended June 30, 1995 the Company's revenues consisted of $10,000,000 in up-front license fees and $1,700,000 primarily in collaborative research revenues earned under the Company's collaborations with HMRI. The Company's total costs and expenses increased to $8,750,000 in the six months ended June 30, 1996 from $6,943,000 in the six months ended June 30, 1995. Research and development expenses increased 31% to $6,839,000 in the six months ended June 30, 1996 from $5,205,000 in the six months ended June 30, 1995, reflecting growth principally in the Company's Gene Activation and gene therapy programs. Significant contributors to the Company's increased research and development expenses during the first half of fiscal 1996 included an increase in the number of employees engaged in research and development activities, increased purchases of laboratory supplies and increases in equipment depreciation expense. General and administrative expenses increased 10% to $1,911,000 in the six months ended June 30, 1996 from $1,737,000 in the six months ended June 30, 1995, reflecting primarily increased staffing levels. Total compensation and benefits expense of $3,524,000 for the Company, including $481,000 expense from amortization of deferred compensation, was recognized in the six months ended June 30, 1996. In the six months ended June 30, 1995, the Company's total compensation and benefits expense was $2,877,000, including $238,000 from amortization of deferred compensation. Interest income increased to $788,000 in the six months ended June 30, 1996 from $446,000 in the six months ended June 30, 1995, due primarily to higher average cash balances during the 1996 period as compared with the corresponding 1995 period. Interest expense was zero in 1996 as compared to $13,000 for the six months ended June 30, 1995. Interest expense was incurred on a bank loan to finance the purchase of laboratory equipment and supplies and an equipment lease line of credit, both of which were repaid in full in the first quarter of 1995. The Company incurred a net loss of $5,987,000 in the six months ended June 30, 1996 compared to a net income of $5,105,000 in the six months ended June 30, 1995, primarily due to the receipt of up-front license fee revenues in 1995. 20 22 YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 The Company had total revenues of $15,400,000, $10,000,000 and zero in the years ended December 31, 1995, 1994 and 1993, respectively. In 1995, the Company's revenues consisted primarily of $10,000,000 in up-front license fees received and $5,400,000 in collaborative research revenues earned under the two collaborations with HMRI. In 1994, the Company's revenues consisted of $10,000,000 in up-front license fees received under the GA-EPO collaboration with HMRI. The Company's total costs and expenses were $14,357,000, $13,816,000 and $9,251,000 in the years ended December 31, 1995, 1994 and 1993, respectively. Research and development expenses increased 10% to $10,067,000 in 1995 from $9,126,000 in 1994, and increased 46% in 1994 from $6,255,000 in 1993, reflecting growth principally in the Company's Gene Activation and gene therapy programs. Significant contributors to the Company's increased research and development expenses during 1995 and 1994 included an increase in the number of employees engaged in research and development activities to 75 at December 31, 1995 from 65 at December 31, 1994 and 46 at December 31, 1993; increased purchases of laboratory supplies, the expansion of laboratory facilities and increases in equipment depreciation expense. General and administrative expenses decreased 9% in 1995 to $4,290,000 from $4,690,000 in 1994 and increased 56% in 1994 from $2,998,000 in 1993, reflecting primarily increases in staffing levels and certain one-time severance payment expenses incurred in 1994. Interest income was $1,129,000, $471,000 and $169,000 in 1995, 1994 and 1993, respectively, reflecting primarily increasing average cash balances during these periods. Interest expense was $13,000 and $76,000 in 1995 and 1994, respectively, and negligible in 1993. Interest expense was incurred on a bank loan to finance the purchase of laboratory equipment and supplies and an equipment lease line of credit, which was fully repaid in 1995. The Company had net income of $2,074,000 in 1995, and incurred a net loss of $3,422,000 and $9,083,000 in 1994 and 1993, respectively, reflecting primarily the timing and receipt of up-front license fees from HMRI. LIQUIDITY AND CAPITAL RESOURCES From inception through June 30, 1996, the Company financed its operations primarily through private placements of equity securities totaling $56,936,000, up-front license fees and milestone payments totaling $22,000,000 and collaborative research revenues totaling $5,400,000. As of June 30, 1996, the Company had cash, cash equivalents and marketable securities totaling $28,773,000. In July and August 1996, the Company sold shares of its Class G Convertible Preferred Stock in a private placement for $24,939,000. As of August 15, 1996, the Company had cash, cash equivalents and marketable securities totalling $50,423,000. The Company has entered into licensing agreements with various corporations and universities. These licenses provide for the payment of royalties by the Company on net sales of products covered by the licensed technology, certain milestone payments and minimum annual royalty payments under certain circumstances. In 1995, the Company incurred license fees of $122,000 under these agreements. From inception through June 30, 1996, the Company acquired an aggregate of $3,795,000 of laboratory, manufacturing and office equipment. In addition, the Company leases its office, manufacturing and laboratory facilities under operating leases. Through June 30, 1996, the Company expended $5,040,000 for leasehold improvements to those leased facilities. The Company had no material commitments for the acquisition of property and equipment at June 30, 1996. The Company expects to incur substantial additional research and development expenses including continued increases in personnel and costs related to research, preclinical testing and clinical trials. The Company anticipates that its available cash (aggregating $50,423,000 at August 15, 1996), together with the estimated proceeds of this offering will be adequate to satisfy its operating expenses and capital requirements as planned through 1999. The Company will require substantial funds to conduct research and development and preclinical and clinical testing of its potential products and to manufacture and market any 21 23 products that are approved for commercial sale. The Company intends to seek additional funding through collaborative arrangements or through public or private financings, but there can be no assurance that additional financing will be available on acceptable terms or at all. See "Risk Factors -- History of Operating Losses; Future Capital Needs; Uncertainty of Additional Funding." The Company's future capital requirements will depend on many factors, including continued scientific progress in its research and development programs, the magnitude of these programs, the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments, the ability of the Company to establish development arrangements, the cost of manufacturing facilities and effective commercialization activities and arrangements. 22 24 BUSINESS SUMMARY Transkaryotic Therapies, Inc. ("TKT" or the "Company") has developed two proprietary technology platforms, Gene Activation and gene therapy. The Company's Gene Activation technology is a proprietary approach to the large scale production of therapeutic proteins which does not require the cloning of genes and their subsequent insertion into non-human cell lines. Consequently, the Company believes its Gene Activation technology avoids using patented approaches to protein production associated with such conventional genetic engineering techniques which have served as effective barriers to competition in the $11 billion therapeutic protein market. As a result, the Company believes it will be able to develop and successfully commercialize a broad range of gene activated versions of proteins which have proven medical utility, received marketing approval from regulatory authorities and generated significant revenues in major markets. The Company's most advanced Gene Activation development program is for the production of Gene Activated erythropoietin ("GA-EPO") with clinical trials expected to commence in the first half of 1997. The Company's gene therapy technology ("Transkaryotic Therapy") is a non-viral, ex vivo system based on genetically modifying patients' cells to produce and deliver therapeutic proteins for extended periods of time. In preclinical animal studies, the Company's Transkaryotic Therapy system has produced target proteins at therapeutic levels for the lifetime of the animal without any side effects. The Company's initial business strategy is to apply its Gene Activation technology to the development and commercialization of several currently marketed proteins. The Company's two strategic alliances with HMRI are the primary focus of its Gene Activation activities, and TKT is actively pursuing other Gene Activation product candidates for commercialization either with pharmaceutical partners or independently. In parallel, the Company plans to continue research and development of its Transkaryotic Therapy system to develop a novel class of gene therapy treatments for a variety of protein deficiency diseases. Taken together, the Company believes its Gene Activation and gene therapy platforms are complementary opportunities that offer the potential for the development of powerful product pipelines that may have a significant impact in addressing society's healthcare needs. GENE ACTIVATION: TECHNOLOGY BACKGROUND Protein Production: Three Technological Waves. The therapeutic value of certain proteins produced by the human body has been known for decades. One of the major advances in 20th-century medicine was the development of systems for the large-scale production of therapeutic proteins outside the body. For example, prior to the development of a manufacturing process for insulin more than seventy years ago, patients with Type I (juvenile onset) diabetes were offered no effective treatment and generally died of starvation at an early age. Following the development of pharmaceutical insulin preparations for injection, Type I diabetics could live long and relatively normal lives. During this first wave of protein production technology, proteins were generally purified from human or animal tissue. Insulin, for example, was isolated from the pancreas of pigs and cattle, and growth hormone, for the treatment of short stature, was isolated from the pituitaries of cadavers. During the second wave of protein production technology, based on the cloning of human genes, proteins were manufactured using conventional genetic engineering techniques. As a result, by the mid-1980's it became routine to engineer cells to produce therapeutic proteins at levels that were substantially in excess of what could be obtained by purification from tissue. However, since many of the proteins produced by conventional genetic engineering techniques had previously been purified, the patent protection afforded to this second wave of protein production technology tended to focus on the genes encoding therapeutic proteins. Accordingly, many patents have been issued covering isolated and purified DNA sequences encoding such proteins, various vectors used to insert such DNA sequences into production cell lines, and cell lines modified by the insertion of such DNA sequences. See "Patents, Proprietary Rights and Licenses." TKT believes its proprietary Gene Activation technology represents the third wave in the evolution of protein production technology in that it is based on the activation of genes encoding therapeutic proteins in human cells rather than the cloning and transfer of these genes. TKT's Gene Activation technology avoids using the approach to 23 25 protein production associated with the second wave, and the Company believes this will allow it to develop and commercialize a large number of therapeutic proteins, including many that are currently marketed. Gene Structure and Regulation of Gene Expression. Recent advances in molecular biology, cell biology, and genomics have led to a much better understanding of the structure and function of human genes than was possible only a few years ago. It is now generally accepted that virtually all genes contain certain DNA sequences that provide information necessary for the cell to assemble a specific sequence of amino acids that make up a protein ("coding DNA sequences"). Thus each gene can be viewed as the blueprint for a particular protein, and "gene expression" is the process which leads to the synthesis of the protein it encodes. Gene expression is controlled by certain DNA sequences which function as switches that "turn on" the gene and trigger the synthesis of the protein ("regulatory DNA sequences"). See Figure 1. Despite the staggering variety of proteins synthesized by the cells of the body, this process is universal. Figure 1 Gene Structure, the Regulation of Gene Expression and TKT's Gene Activation Technology [The figure shows the regulatory DNA sequences that control gene expression and coding DNA sequences that provide information necessary for the cell to assemble a protein.] Essentially every human cell contains the same set of approximately 100,000 genes, but each cell type actually produces only a subset of the 100,000 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." Conventional Recombinant Protein Production. By the 1970's, the clinical benefits of several proteins were well-known and the potential benefit of many others was envisioned. Based on a series of basic discoveries in the 1960's and 1970's, scientists learned to clone and manipulate genes of therapeutic interest, leading directly to the birth of the biotechnology industry and the large scale production of therapeutic proteins. To produce large quantities of a therapeutic protein using conventional genetic engineering techniques (see Figure 2A), scientists first clone the relevant human gene by isolating the coding DNA sequences for the gene from the human cell and transferring them to bacteria, where large quantities of the gene are copied. The cloned gene is then isolated from the bacteria and placed in a test tube. In this test tube, the cloned gene is then fused to appropriate regulatory DNA sequences, and the resulting DNA fragment containing both the regulatory DNA sequences and the coding DNA sequences is inserted into a non-human (mammalian, yeast, or bacterial) cell. This genetically modified cell is then propagated in large bioreactors for commercial-scale production of the protein. 24 26 Figure 2A The Conventional Approach to Recombinant Protein Production [The figure shows a flowchart diagram of the conventional process to recombinant protein production. A cell containing a gene is used to isolate and purify coding DNA sequences. In the test tube, these coding sequences are fused to regulatory DNA sequences. The resulting DNA fragment is introduced into a non-human cell, which is used to produce the protein.] Figure 2B TKT's Approach to Protein Production by Gene Activation [The figure shows a flowchart diagram of TKT's approach to protein production by Gene Activation.] TKT'S GENE ACTIVATION TECHNOLOGY Although the conventional approach to recombinant protein production is quite powerful, its 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 an effective entry barrier, minimizing competition in the $11 billion (1995) protein therapeutics market. See "Patents, Proprietary Rights and Licenses." In addition, conventional genetic engineering techniques for protein production may face technical limitations arising from the need to first clone the gene of interest. For certain proteins, this step adds to development times, increases costs and is technically challenging. Technical difficulties may also arise from the use of non-human production cell lines, which may result in the production of proteins which may have therapeutically significant differences from those naturally produced by the cells of the human body. Furthermore, production processes based on conventional genetic engineering may not have incorporated recent advances in cell culture systems with significant efficiency and cost advantages as compared to processes originally developed over a decade ago. To overcome these commercial barriers and technical limitations, TKT has developed Gene Activation technology for the production of therapeutic proteins that does not rely on the manipulation of cloned genes. Using its proprietary technology, TKT has succeeded in producing therapeutic proteins in human cells by bypassing regulatory DNA sequences set in the "off position" with regulatory DNA sequences set in the "on position" in order to activate the gene of interest. See Figure 2B. 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." Gene targeting is a technology by which DNA fragments can be "cut and pasted" precisely at pre-selected, desirable locations within the cell's 25 27 genome. Gene targeting can be thought of as molecular surgery, with the surgical tools literally functioning at the molecular level. The technical term for gene targeting, homologous recombination, reflects its underlying mechanism: cells have the capacity to align two homologous DNA sequences (two sequences that are quite similar) and exchange one with the other. In Gene Activation, the new regulatory sequences are flanked with "homing" sequences and structural sequences which allow the cell to exchange the new active regulatory sequences in place of the old inactive ones. The new sequences must be introduced precisely in order to allow the proper initiation of gene expression. In order to manufacture a protein of therapeutic interest using Gene Activation, a human cell line producing the protein must be generated. This cell line will ultimately become the master cell bank for large scale manufacturing and is generated as follows: 1. Determine the sequence of a portion of the regulatory DNA sequences that control the gene of interest; 2. Build a "targeting fragment" by fusing homing sequences to a new regulatory region known to be active in the human cell line chosen for manufacturing; 3. Introduce the targeting fragment into the cell line; 4. Identify and propagate an activated cell line producing the protein of interest; and 5. Optimize protein productivity and prepare the cell line for commercial scale manufacturing. The Company has successfully accomplished all of the steps described above for GA-EPO. The results of TKT's work in this area have led to proof-of-concept that (i) gene targeting can be used to direct the integration of regulatory and structural sequences to a specific, pre-selected position in the genome, (ii) the product of the targeting event is a cell containing an activated gene and (iii) the protein production properties of cells created by Gene Activation are predictable and suitable for, and have been successfully used in, large-scale manufacturing. Accordingly, the Company believes that these methods may be used to express a wide variety of therapeutically valuable proteins at levels suitable for large-scale manufacturing purposes. Because the Gene Activation process avoids many of the technical limitations of conventional recombinant protein production technology, the Company also believes that the Gene Activation process is at least as efficient as, and may be more cost effective than, conventional genetic engineering techniques for protein production. TKT'S GENE ACTIVATION PRODUCTS: GENE ACTIVATED ERYTHROPOIETIN The Company's initial strategy in exploiting its technology is to commercialize Gene Activated proteins that have proven medical utility, have received marketing approval from regulatory authorities and have achieved significant revenues in major markets. These protein products have experienced high rates of acceptance among physicians and health care providers. The total market for the top eight marketed proteins in 1995 was estimated to be about $10.8 billion. See Table I. As the number of new approved protein products increases and as the number of approved indications for such products increases, the Company believes that the market for these protein products will continue to experience substantial growth. The Company also believes that the broad applicability of its Gene Activation technology for protein production and the fact that many additional proteins are currently in clinical development will provide a large number of candidates for commercialization using TKT's Gene Activation technology. 26 28 TABLE I. 1995 WORLDWIDE PROTEIN PRODUCT REVENUES (IN MILLIONS)
PROTEIN PRIMARY INDICATION REVENUES - --------------- ---------------------- -------- Erythropoietin Anemia $2,900 Insulin Diabetes 1,950 G-CSF Neutropenia 1,700 Growth Hormone Short stature 1,500 - -Interferon Hepatitis/Cancer 1,000 Factor VIII Hemophilia A 950 tPA Myocardial infarction 450 - -Interferon Multiple sclerosis 350
Sources: Company Annual Reports, Scrip. TKT has focused its initial Gene Activation efforts on the development of its GA-EPO product in collaboration with HMRI. See "-- Gene Activation Collaborations and Commercialization Strategy." Erythropoiesis is the process by which red blood cells (erythrocytes) are produced. When the body requires additional red blood cells, the kidney normally produces erythropoietin, a circulating protein hormone which stimulates the differentiation of certain progenitor cells in the bone marrow. The kidney's critical role in red blood cell production was determined in the 1950's, and erythropoietin was first isolated and purified from the urine of patients with anemia in the 1970's (the first wave). The gene encoding erythropoietin was cloned in the 1980's and used for production of the protein using conventional genetic engineering techniques (the second wave). Erythropoietins have been successfully used to treat anemia associated with a variety of conditions, including the anemia of kidney failure (which causes a reduction in the body's ability to produce the protein) and the anemia of chemotherapy (which causes the destruction of a large number of bone marrow progenitor cells). GA-EPO Development Status. TKT has successfully applied its Gene Activation technology to produce GA-EPO in human cells (the third wave). To illustrate the underlying concept of the Gene Activation process, consider that essentially all human cells contain the erythropoietin gene, yet only certain cells of the kidney actually produce erythropoietin. In all other cells in the human body, the erythropoietin gene is inactive. The erythropoietin gene is not expressed in most human cells because regulatory sequences in those cells prevent the protein from being made; the gene is controlled by a switch ("regulatory DNA sequences") that is permanently in the "off" position. The goal of TKT's GA-EPO program was to remove this "off switch" in a human cell in which the erythropoietin gene is inactive and, in effect, replace it with regulatory sequences comprising an "on switch" to activate erythropoietin expression. TKT has produced a GA-EPO producing cell line sufficient for scale-up to commercial production levels. To accomplish this, TKT first studied the regulatory region that prevents expression of the erythropoietin gene in most human cells and developed an activation strategy. Next, a targeting fragment was constructed by fusing certain homing sequences to a new regulatory region known to be active in the human cell line chosen for manufacturing. The targeting fragment was then introduced into the cell line under conditions appropriate for homologous recombination to occur, and a resulting cell line that produced GA-EPO was identified. The GA-EPO productivity of the cell line was optimized, and the cells were prepared for commercial-scale manufacturing. At present, a production cell line has been scaled up and successfully used to produce GA-EPO. The purified protein has been subjected to an extensive series of analyses and has the properties expected of a human erythropoietin preparation. In particular, the protein has an appropriate molecular weight, amino acid composition, amino acid sequence, secondary structure, and glycosylation profile. GA-EPO has been shown to function in vitro and in vivo in a dose-dependent manner. Finally, preclinical safety tests performed to date have yielded satisfactory results. The Company believes that GA-EPO will be functional in patients because extensive preclinical testing has demonstrated that the protein has the structural 27 29 and functional characteristics that would be expected of a human erythropoietin preparation. The Company anticipates that HMRI will commence clinical trials on GA-EPO in the first half of 1997. See "-- Gene Activation Collaborations and Commercialization Strategy." The Company believes that GA-EPO is likely to be reviewed within FDA by its Center for Biologics Evaluation and Research ("CBER"). CBER currently has no "bioequivalence" pathway for the rapid approval of related biologics and the Company believes that GA-EPO will require a complete clinical and regulatory program. However, the regulatory and clinical programs have the advantage of focusing on Gene Activated products with conventional counterparts that are well-known to regulatory authorities around the world (in contrast to a typical new biologic, which has no related history concerning its safety and efficacy in humans). Accordingly, TKT believes that clinical development can be accomplished in a focused and timely manner. GENE ACTIVATION COLLABORATIONS AND COMMERCIALIZATION STRATEGY In order to rapidly develop and exploit its Gene Activation technology, TKT has entered into two strategic alliances with HMRI, the first in May 1994 and the second in March 1995. HMRI with its affiliates is the third largest pharmaceutical group in the world based on revenues, with significant distribution capabilities in all major markets. The alliances are focused on the development of two products, GA-EPO and a second, undisclosed protein. TKT has the potential to receive up to $125 million from HMRI consisting of license fees, equity investments, milestones and research funding in addition to royalties on the sales of the two products, of which $42 million has been received to date (excluding the payment for shares of Common Stock purchased in this offering). In addition, HMRI is responsible at its own expense for all worldwide development, manufacturing and marketing activities. In May 1994, TKT and HMRI (formerly named Marion Merrell Dow Inc.) entered into an agreement to commercialize TKT's GA-EPO. Under the terms of the agreement, HMRI is obligated to pay TKT up to $58 million. To date, TKT has received a total of $17 million, which includes up-front fees of $10 million for a license to the Gene Activation technology for GA-EPO, $5 million for the purchase of shares of the Company's Class D Preferred Stock at a price per share of $17.83 and a $2 million milestone payment in November 1995 at which time HMRI accepted a cell line sufficient for scale-up to commercial production levels of GA-EPO. In addition, HMRI will purchase $5 million of Common Stock at the initial public offering price in the HMRI New Investment. See "Certain Transactions." The remaining payments are based on HMRI's achievement of certain GA-EPO clinical development milestones. HMRI is responsible for the worldwide development, manufacturing and marketing of GA-EPO, and TKT will receive a royalty based on net sales. In March 1995, TKT entered into another agreement with HMRI to commercialize a second, undisclosed protein. Pursuant to the agreement, TKT also granted to HMRI an option to commercialize certain aspects of TKT's gene therapy technologies related to this protein. Under the terms of the agreement, HMRI is obligated to pay to TKT up to $67 million. To date, TKT has received a total of approximately $25 million from HMRI under the second agreement, including up-front fees of $10 million for a license to the Gene Activation technology for the second protein, $10 million for the purchase of shares of the Company's Class E Preferred Stock at a price per share of $19.10, and $4.5 million to fund basic research at the Company. The remaining $42 million to be paid by HMRI to TKT consists primarily of milestone payments based on the development of the product resulting from the licensed technology. TKT is responsible for delivering a cell line suitable for large scale manufacturing. HMRI is responsible for the worldwide development, manufacturing and marketing of the product and TKT will receive a royalty based on net sales. In addition to the above transactions, in December 1995, HMRI purchased $7.9 million of the Company's Class F Preferred Stock at a price per share of $14.00. The Company has been able to learn significantly from its interaction with HMRI and believes that this alliance has played a major role in TKT's growth and development. In addition, TKT believes that the global marketing capabilities of HMRI will result in the successful penetration of many markets leading to substantial royalties to TKT. Finally, because of existing patent and license arrangements for the commerciali- 28 30 zation of conventionally produced erythropoietin, it is possible that TKT's GA-EPO will be the only branded erythropoietin capable of being sold in all major markets worldwide. Having completed its responsibilities under its first Gene Activation project by successfully generating a cell line sufficient for scale-up to commercial production levels of GA-EPO that has been accepted by HMRI, TKT is actively pursuing other Gene Activation product candidates. The Company believes that its revenues from the commercialization of Gene Activated proteins will be divided into three stages. In the short term, TKT will attempt to license out additional proteins for development by pharmaceutical partners in return for licensing and milestone payments as well as research funding. In the medium term the Company anticipates that it will receive royalty payments from HMRI with respect to GA-EPO as well as from pharmaceutical partners that successfully manufacture and market its Gene Activated proteins. In the long term, the Company will consider developing Gene Activation products independently. Future Gene Activation products may include currently-marketed proteins, proteins currently in late stage clinical development or proteins that are in much earlier stages of development. At present, TKT intends to focus on the currently-marketed products until products from these latter two categories demonstrate clinical and commercial viability before embarking on development programs. TKT believes that its focus on currently-marketed proteins for near- term commercialization and on development-stage proteins for the long-term appropriately utilizes Company resources, maximizes near-term commercial potential and will allow the Company to build a strong Gene Activation product pipeline for the future. GENE THERAPY TECHNOLOGY TKT's Gene Therapy Approach. The first three waves of protein production have a critical feature in common: regardless of methodology, the proteins are manufactured outside the human body. See "-- Gene Activation." The Company believes that its approach to gene therapy, Transkaryotic Therapy, represents the fourth wave of protein production -- a system that would restore the patient's natural ability to produce a required therapeutic protein. TKT's approach to gene therapy 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. In preclinical animal studies, a single administration of one of the Company's gene therapy products resulted in the lifetime production and delivery of therapeutic proteins. The Company has initiated a Phase I clinical study to determine the safety of its gene therapy system, and preliminary data suggests that the administration of genetically-engineered cells appears to be well-tolerated. See "Gene Therapy -- Clinical Development Status." 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 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- and 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 vs. non-viral -- viral gene therapy approaches use genetically modified viruses to introduce genes into human cells by infection and non-viral approaches use non-infectious (chemical or physical) means to introduce the genes. The second distinction is in vivo vs. ex vivo -- in vivo gene therapies are based on the administration of DNA-based drugs directly to the patient, whereas 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 29 31 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 retroviruses and adenoviruses to infect patients' cells. The Company believes that such viral ex vivo approaches present a significant safety risk due to the possibility of causing new viral infections in patients and have not allowed long-term production of the therapeutic protein in animal models or patients. Furthermore, 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 and are likely 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. In order to develop a safe, effective, non-viral, ex vivo gene therapy system, the Company believes that several major tasks must first be accomplished in basic and preclinical settings. Each of the steps must be carried out to allow the ultimate product to be manufactured efficiently, reproducibly and cost-effectively, to be subjected to rigorous quality control to ensure safety and to direct the long-term production and delivery of the therapeutic protein in the patient. The first step involves the development of techniques for obtaining and propagating the cell types of interest. Next, non-viral methodologies must be developed that allow DNA fragments to be stably introduced into these cells. DNA fragments containing the appropriate DNA regulatory sequences fused to the desired protein encoding sequences, for example, must be constructed and introduced into cells to generate genetically-engineered cells which express the therapeutic protein at clinically relevant levels. After the DNA fragments have been successfully introduced into human cells, methodologies must then be developed which allow the engineered cells to properly process the therapeutic protein. The final step involves the development of methods and formulations for the implantation of the engineered cells. TKT scientists have successfully accomplished all of the above tasks (Table II) and, in model systems, have successfully delivered therapeutic proteins for the lifetime of the experimental animals. Much of TKT's work has focused on gene therapy using fibroblasts, a cell type present in the skin (and throughout the body) that is readily obtained from patients and propagated in culture. The Company has developed a variety of methodologies for the stable transfection of normal human cells. "Stable transfection" means that the introduced DNA fragment becomes part of a chromosome in the treated cell. One such methodology is electroporation, a technique based on subjecting cells to a brief electrical pulse. The pulse transiently opens small pores in the cell membrane that allow the DNA fragments of interest to enter the cell. The technique is simple, reproducible (it works for a variety of cell types and for cells derived from newborns to the elderly), efficient (one electroporation provides many more transfected cells than required for treatment) and cost-effective (less than one dollar per reaction). TABLE II. TKT'S GENE THERAPY SYSTEM: SUMMARY OF SELECTED TECHNICAL ACCOMPLISHMENTS
TASKS ACHIEVEMENT COMMENTS - ------------------------- -------------------------------- -------------------------------- Cell types propagated Fibroblasts, myoblasts, mammary Cells retain normal properties epithelial cells Proteins expressed Factor VIII, Factor IX, Growth All expressed at levels of at Hormone, Insulin, Interleukin-2, least 1 ug/million cells/day LDL receptor, -galactosidase Transfection Electroporation, microinjection, All with efficiencies greater methodologies applied polybrene and calcium phosphate than 1 stably transfected cell precipitation per thousand treated cells Proteins characterized Factor VIII, Factor IX, Growth All with natural Hormone, -galactosidase post-translational modifications In vivo expression Factor VIII, Factor IX, Growth All at physiologic levels in observed Hormone, Insulin animal models
30 32 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 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. 5. The physician would then inject the engineered cells under the patient's skin as an outpatient procedure. The above patient techniques have been successfully carried out in an ongoing Phase I clinical trial. See "-- Clinical Development Status." These procedures might vary based on the disease to be treated. For example, different cell types, sites of implantation and genes of interest could be advantageous for a given disease. TKT'S GENE THERAPY SYSTEM IN PRACTICE To provide an overview of TKT's gene therapy technology in practice, consider a patient diagnosed with Hemophilia A. See Figure 3. Hemophilia A is a bleeding disorder caused by a deficiency in Factor VIII, a protein essential for blood clotting normally found in the blood. As a candidate for a gene therapy treatment, the patient would visit his physician as an out-patient and have a small skin biopsy performed. The piece of skin, less than half the size of a dime, requires only a few minutes to remove. The physician would send the specimen to TKT's manufacturing facility, where the patient's cells would be harvested, genetically engineered to produce the missing clotting factor and characterized to ensure both safety and efficacy. The entire process would require approximately six weeks and, at the end of that time, TKT would return the appropriate number of genetically-engineered cells to the physician. Once again as an out-patient, the cells would be injected back under the patient's skin. The patient should now be capable of producing his own Factor VIII and would no longer suffer bleeding problems. 31 33 Figure 3 Transkaryotic Therapy in Practice TRANSKARYOTIC THERAPY [A figure depicting the Company's Transkaryotic Therapy system in practice.] Clinical Development Status. The Company's approach to initial clinical development of its enabling gene therapy technology is to evaluate product safety in extremely conservative clinical settings. Towards this end, the Company has initiated one Phase I clinical trial for the treatment of cancer cachexia (the gradual wasting of the body) by growth hormone gene therapy and is sponsoring a second Phase I clinical trial for the treatment of renal cancer and malignant melanoma by Interleukin-2 gene therapy. Based on the data generated from these studies, the Company believes it will be well-positioned to perform clinical trials in patients with conditions that are not life-threatening. At present, the Company intends to explore the possibility of further development of these products in conjunction with corporate partners. TKT's first Company-initiated trial began in the U.S. in late 1994 following both validation of TKT's pilot manufacturing facility and FDA review of the Company's IND. The Phase I study is based on the implantation of genetically modified skin fibroblasts to express growth hormone in cancer patients at risk for cachexia. A total of 20 patients will be enrolled with five escalating dosage blocks. Community physicians have injected the modified cells under the skin of subjects; all patient procedures have been performed on an out-patient basis. The major goal of the study is to develop a safety profile of the product in humans. To date, 11 patients have been enrolled in the trial and the therapy appears to be well-tolerated. Due to the extremely conservative inclusion and exclusion criteria for the trial, it is expected to continue well into 1997. The Company has also sponsored a Phase I study at the University of Freiburg based on the delivery of Interleukin-2 by genetically modified skin fibroblasts in order to restore or enhance the ability of the immune system to attack the tumor cells in patients with renal cancer and malignant melanoma. All manufacturing processes have been developed and performed by the University and to date, the product appears to be well-tolerated. See "-- Other Gene Therapy Collaborations." Based on the results described above, the Company believes that Transkaryotic Therapy offers several clinical and commercial advantages over conventional treatments and other gene therapies for targeted diseases, including: - SAFETY. Transkaryotic Therapy does not use infectious agents such as retroviruses to genetically engineer the patient's cells. TKT's non-viral method of producing genetically engineered cells allows for extensive safety testing prior to their implantation in the patient. In studies of TKT's gene therapy system involving over 5,000 animals, no side effects have been observed. 32 34 - LONG-TERM EXPRESSION. Transkaryotic Therapy is designed to produce long-term results with a single treatment. In preclinical animal 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. - CONTROLLABILITY. Transkaryotic Therapy is designed to deliver therapeutic proteins at levels which meet a patient's specific needs. The Company believes that its gene therapy system will allow the physiologic and pharmacologic regulation of expression. 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. - FLEXIBILITY. 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. - EASE OF ADMINISTRATION. 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. - COST-EFFECTIVENESS. 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. TKT'S GENE THERAPY DEVELOPMENT PROGRAMS AND COMMERCIALIZATION STRATEGY The Company is focusing its development efforts on gene therapy products for the treatment of chronic diseases with straightforward and well-characterized etiologies. For certain of these diseases, such as Hemophilia A, effectiveness, dose ranges and safety have been clearly established in the context of currently approved and marketed products. For others, such as Fabry disease, preliminary in vitro and animal model data strongly suggest that the long-term delivery of appropriate therapeutic proteins will effectively treat the disease. The Company believes that this initial focus will provide strategic advantages by allowing evaluation of Transkaryotic Therapy based on well understood clinical parameters, thereby facilitating the regulatory approval process. Furthermore, the Company believes that when administered as part of its proprietary gene therapy system, these proteins may provide therapeutic benefits not achievable using conventional methods of delivery. Hemophilia A. When a blood vessel ruptures, an intricate series of events allows the rapid formation of a clot in normal individuals. One of the best-studied coagulation disorders is Hemophilia A, 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 about 19,000 Hemophilia A patients in the U.S. and Canada, 25,000 in Europe and 4,000 in Japan. 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 is based on the production and delivery of Factor VIII using Transkaryotic Therapy. 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 33 35 is properly processed and achieved protein expression in animals. The Company has initiated preclinical studies for the product and intends to initiate Hemophilia A clinical trials in 1997. In July 1993, the Company entered into a Collaboration and License Agreement with Genetics Institute, Inc. ("GI") relating to a joint development and marketing program for a Hemophilia A gene therapy product based on the Company's non-viral technology. The agreement provides that the parties will collaborate to develop and commercialize a non-viral gene therapy product for the treatment of Hemophilia A using TKT's proprietary technology and GI's patented Factor VIII genes. Under the agreement, GI has granted TKT a nonexclusive 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 agreement is terminable by GI in the event certain product development and regulatory approval milestones are not reached. Fabry Disease. Fabry disease is an X-linked lysosomal storage disease caused by the deficiency of the enzyme -galactosidase. The disorder is characterized by the accumulation of lipids in lysosomes of vascular endothelial and smooth muscle cells and in a wide variety of other tissues. Patients with classic Fabry disease of early onset, generally in adolescence, show diverse clinical manifestations including severe pain and cardiovascular and renal complications. It is estimated that there are about 2,000 patients in the U.S. and a total of approximately 5,000 patients in the developed world. Current treatment of the disease is limited to the reduction of symptoms. Clinical trials of enzyme replacement therapy in the late 1970's have been reported using infusions of -galactosidase purified from placenta, spleen or plasma. The intravenous injection of the enzyme resulted in the transient reduction in the plasma levels of the deleterious lipid but, due to the limited availability of the enzyme obtained from human sources, insufficient quantities were available for further studies. The development of a safe and effective gene therapy product for the direct delivery of -galactosidase using a gene therapy approach could result in an elimination of pain symptoms, the medium- and long-term cardiovascular and renal complications and in an increased life expectancy and improved quality of life. TKT has produced purified -galactosidase from normal human fibroblasts and demonstrated that the enzyme has the desired structural and functional properties. Before proceeding to a gene therapy trial, it is important to determine the safety and pharmacokinetics of the protein in humans. Towards these ends, the Company is planning to file an IND in 1996 to study the protein in a small Phase I clinical trial. Based on the data obtained, it is anticipated that this study will allow the design of a follow-up gene therapy trial in 1997. Long-term Gene Therapy Targets. The Company's long-term gene therapy product development strategy is focused on products for the treatment of commonly occurring diseases including both juvenile- and adult-onset diabetes, hypercholesterolemia and osteoporosis. These are diseases for which either (i) a proven therapeutic protein exists but effective treatment of the disease requires complex patterns of regulation in the patient (for example, insulin is widely used in the treatment of diabetes but delivery of insulin by conventional methods is imprecise and does not prevent the serious complications of the disease) or (ii) no protein has yet been proven effective in treating the disease (for example, many proteins are thought to have potential in the treatment of hypercholesterolemia, but that has yet to be proven conclusively in patients). Manufacturing. One of the critical aspects of any cell-based therapy is the approach to manufacturing. As stated above, the manufacturing process takes up to six weeks and it is essential to optimize the process to allow for a commercially-viable product. The Company believes that this has been accomplished and, for example, the Company believes that the cost for manufacturing its single administration Factor VIII gene therapy product is less than that for manufacture of a one year supply of purified Factor VIII protein required by a typical patient. To produce early clinical materials, TKT has constructed a pilot manufacturing facility that was designed to conform to FDA guidelines for Current Good Manufacturing Practice ("CGMP"). For Phase III clinical trials and commercialization, TKT intends to construct a CGMP-certified facility. 34 36 The Company intends to manufacture its gene therapy products in central manufacturing facilities. Initially, a single facility would be constructed to serve the U.S. As the Company's product pipeline matures, it is anticipated that demand will increase, possibly requiring the Company to construct an additional central manufacturing facility in the U.S. Other gene therapy companies have adopted a strategy wherein every large city (or potentially large hospital) would have a cell processing facility, but TKT believes that the requirements for strict quality control and the benefits of economy of scale are best achieved using the central manufacturing strategy. OTHER GENE THERAPY COLLABORATIONS In 1994, the Company entered into a three-year collaboration with the University of Freiburg. As part of that collaboration, TKT is sponsoring the first gene therapy trial approved in Germany. The Phase I study is based on the delivery of Interleukin-2 by genetically modified skin fibroblasts in order to restore or enhance the ability of the immune system to attack the tumor cells in patients with renal cancer and malignant melanoma. TKT has no role in the manufacturing process. The trial was initiated in 1994 and 14 patients have been enrolled to date. In addition to sponsoring the clinical trial, TKT has certain rights to technologies developed for the non-viral gene therapy of certain cancers. In November 1995, the Company entered into a collaboration with the Institute Pasteur (the "Institute") to study the gene therapy of Hurler disease, a lysosomal storage disorder. The Institute has successfully delivered various proteins in a number of animal models and the Company and the Institute are working to improve expression of the missing enzyme in human cells. In addition, the Company has certain rights to related technologies developed at the Institute. In July 1996, the Company entered into a collaboration with the Women's and Children's Hospital, Adelaide (the "Hospital") to study gene and protein replacement for the mucopolysaccharidoses, a group of lysosomal storage disorders. The Company and the Hospital plan to work towards developing a series of therapies for these related diseases, building on the Hospital's twenty years of experience in their molecular biology and clinical features. PATENTS, PROPRIETARY RIGHTS AND LICENSES Proprietary Issues. 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 believes that, 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. Over the past decade, there has been a dramatic increase in the number of approaches to gene therapy under development in both academic and industrial laboratories. A large number of patent applications have been filed in the U.S. and worldwide relating to this work, and a number of gene therapy patents have issued to date. The Company requested, and the U.S. Patent and Trademark Office (the "PTO") declared, an interference regarding an issued patent with broad claims to ex vivo gene therapy. The participants in the interference are Genetic Therapies, Inc. (a wholly-owned subsidiary of Novartis), Somatix Therapy Corporation and TKT. 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 three parties may receive the desired claims, one party may prevail, or a settlement involving two or more of the parties may be 35 37 reached. There can be no assurance that TKT will prevail in this interference or that, even if it does prevail, that the Company can meaningfully protect its proprietary position. In the event TKT does not prevail, there can be no assurance that TKT could obtain a license to the disputed claims, and, if it can not, commercialization of the Company's gene therapy products in the U.S. could be adversely affected. With the possible exception of the patents involved in the interference, the Company believes its Transkaryotic Therapy technology does not infringe on patents issued to date. Currently, the Company has 19 pending patent applications in the U.S. to protect its proprietary methods and processes; it has also filed corresponding foreign patent applications for certain of these U.S. patent applications. The U.S. patent applications relate to Gene Activation in general, DNA sequences required for Gene Activation, vectors required for Gene Activation, cells modified by Gene Activation, proteins produced by Gene Activation, corresponding Gene Activation methods, Transkaryotic Therapy 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. Where appropriate, the Company intends to file, or cause to be filed on its behalf, additional patent applications relating to future discoveries and improvements. The Company believes that protection of the proprietary nature of its products and technology is important to its business. Accordingly, it has adopted and will 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. 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. 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 will not be challenged, invalidated or circumvented or will afford the Company protection against competitors with similar technology. Should the Company become involved in any litigation or interference proceedings regarding patent or other proprietary rights, such litigation or interference proceedings 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 which 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 in the Gene Activation and gene therapy fields regarding patent and other intellectual property rights. If the Company becomes involved in such litigation, it could consume substantial Company resources. 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 36 38 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 licensing agreements under which it has acquired certain worldwide rights to use proprietary genes and related technology in its non-viral gene therapy products: The Company has a nonexclusive license for certain non-viral gene therapy applications from GI with respect to GI's patented Factor VIII genes and a nonexclusive sublicense for non-viral gene therapy applications from British Technology Group plc ("BTG") with respect to BTG's patented Factor IX gene. 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, subject to earlier termination in the event of the Company's failure to meet certain specified milestones. Although the Company is not currently in default under any of these agreements, there can be no assurance that such defaults will not occur in the future. Should such a default occur and any of these licenses or sublicenses be terminated in the future, the Company could lose the right to continue to develop one or more of its potential products, which loss could have a material adverse effect upon the Company's business. COMPETITION Gene Activation. At present, the Company considers its primary competition with respect to its Gene Activation technology to be companies involved in the current production of therapeutic proteins. These companies have 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 an effective entry barrier in the $11 billion (1995) protein therapeutics market. Several pharmaceutical and biotechnology companies have an established presence in the field of therapeutic protein production. For example, erythropoietin is marketed by Johnson & Johnson and Amgen, Inc. in the U.S.; by Boehringer Mannheim GmbH and Johnson & Johnson in Europe; and by Sankyo Company Ltd. and Chugai Pharmaceutical Co., Ltd. in Japan. These and other 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, obtaining regulatory approvals and manufacturing, marketing and distributing products. 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 the more established treatments or the new approaches and products developed and marketed by its competitors. The Company believes that the primary competitive factors in the market for therapeutic proteins may include product safety, efficacy, distribution channels and 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 these factors, although there is no assurance that it will be able to continue to do so. 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 by the Company and new non-gene therapy treatments which may be developed in the future. A number of commercial entities, including major established biotechnology and pharmaceutical companies, as well as development stage entities, currently are involved in the field of human gene therapy. Additional competitors may enter the field in the future as gene therapy becomes better established. Some of these existing competitors have and certain of these potential competitors may have, substantially greater financial, technical, scientific, marketing or other capabilities and resources than are available to the Company. Smaller companies may obtain access to such skills and resources through collaborative arrangements with pharmaceutical companies or academic institutions. Moreover, existing or potential competitors may possess or acquire patents or other rights to genes or technology which are necessary or useful for certain 37 39 applications of the Company's gene therapies, thereby hampering or preventing the Company from exploiting such applications. See "Risk Factors -- Competition." The Company is developing gene therapy products to address a variety of diseases and conditions. For certain of the Company's potential products, an important competitive factor may be timing of market entry. The speed with which TKT can enter and complete human clinical trials and approval processes may therefore be a significant competitive factor. The Company believes that product efficacy, safety, reliability and price may also be important competitive factors. 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 these competitive factors. 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. GOVERNMENT REGULATION All the Company's products will require regulatory approval by U.S. and foreign government agencies prior to commercialization in such countries. In particular, protein therapeutics are subject to rigorous pre-clinical and clinical testing, and other pre-market approval procedures administered by the FDA and similar authorities in foreign countries. In addition, gene therapy is a new technology, and regulatory approvals may be obtained more slowly than for products produced using conventional technologies. In the U.S., various federal and in some cases state and local, statutes and regulations also govern or influence the manufacturing, labeling, storage, record keeping and marketing of such products. Obtaining approval from the FDA and other regulatory authorities for a therapeutic product may take several years and involve substantial expenditures. Moreover, ongoing compliance with applicable requirements can entail the expenditure of substantial resources. Difficulties or unanticipated costs may be encountered by the Company in its efforts to secure necessary governmental approvals, which could delay or preclude the Company from marketing its products. The activities required before a new pharmaceutical agent may be marketed in the U.S. begin with pre-clinical testing. Pre-clinical tests include laboratory evaluation and animal studies to assess the potential safety and efficacy of the product. The results of these studies must be submitted to the FDA as part of an Investigational New Drug Application ("IND"), which must be reviewed and cleared by the FDA before proposed clinical testing can begin. Clinical trials are conducted in accordance with specific federal regulations (known as Good Clinical Practices). The clinical protocols detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each clinical protocol must be submitted to the FDA as part of an IND. Further, each clinical study must be conducted under the auspices of an independent Institutional Review Board ("IRB") at the institution at which the study will be conducted. Each IRB will consider, among other things, ethical factors, the safety of human subjects, and informed consent. Clinical trials are typically conducted in three sequential phases. In Phase I, clinical trials typically include a small number of subjects (often healthy volunteers) to determine the early safety profile and the pattern of drug distribution and metabolism. In Phase II, clinical trials are conducted with larger groups of patients afflicted with a specific disease in order to further test safety, and determine optimal dose amounts, dose schedules, and routes of drug administration. In Phase III, larger-scale, multi-center, comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for a valid statistical test of efficacy and safety required by the FDA and others. In the case of products for life- threatening disease, the initial human testing may be done in patients rather than healthy volunteers. Since these patients are already afflicted with the target disease, it is possible that such studies may provide results traditionally obtained in Phase II trials. These trials are frequently referred to as Phase I/II trials. Although some of the Company's products are being considered for patients with life-threatening diseases, there can be no assurance that the FDA will allow Phase I/II studies, or that if Phase I/II studies are permitted, that this 38 40 study design would shorten the development time for any of the Company's products. The FDA receives reports on the progress of each phase of clinical testing and it may require the modification, suspension, or termination of clinical trials if an unwarranted risk is presented to patients, or if the design of the trial is insufficient to meet its stated objectives. After completion of clinical trials of a new product, FDA marketing approval must be obtained. The Company expects that its products will be regulated as biologics. Traditionally, both a Product License Application ("PLA") and an Establishment License Application ("ELA") have been required prior to commercial marketing. The Company expects that both licenses will be required for its gene therapy products. Recently the FDA has announced its intention to simplify the licensing process for well-characterized biologics, and put forth a regulatory mechanism to allow for a single license application, a Biologics License Application ("BLA"), for well-characterized biologics. The Company expects that its Gene Activation products will fall into this category and require a single BLA. License applications submitted to the FDA have historically taken, typically, two to five years to receive approval. In 1992, at the same time of passage of the Prescription Drug User Fee Act, the FDA committed to reviewing and acting on a complete license application within 12 months of the submission date. Nevertheless, if FDA determines that an application is incomplete, or that important issues are unanswered by the data in the application, approval times could be delayed significantly. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the license application does not satisfy its criteria for approval. Even if FDA clearances are obtained, a marketed product is subject to continual review. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restriction on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. In addition, the manufacturing facility for the Company's products will be subject to FDA inspection for adherence to CGMP prior to marketing clearance and periodically following approval. This will require the Company to observe rigorous manufacturing specifications. The Company believes that many of its Gene Activation products are likely to be reviewed within FDA by its Center for Biological Evaluation and Research ("CBER"). CBER currently has no "bioequivalence" pathway for the rapid approval of closely-related biologics and the Company believes that its Gene Activated products will be treated as new biologic entities and require a complete regulatory and clinical program. However, these programs will often have the advantage of focusing on Gene Activated products with conventional, previously approved, counterparts that are well-known to regulatory authorities around the world (in contrast to a typical new chemical entity, which has no related history concerning its safety and efficacy in humans). In April 1996, the FDA issued a document entitled "FDA Guidance Concerning Demonstration of Comparability of Human Biological Products, Including Therapeutic Biotechnology-derived Products." This document describes situations in which a manufacturer can establish the equivalence of a modified version of their own product using physical, chemical, and/or pharmacological methods, without the need for additional clinical trials. This is a departure from traditional doctrine, in which biologics were deemed too complex to compare using such methods, and reflects the increased purity of many products and technical advances in the analytical methods currently in use. Although an approval pathway for bioequivalent biologics does not exist, the Company believes that increased analytical sophistication and enhanced purity of biologic products will facilitate the development and regulatory review of its Gene Activation products. In addition to regulations enforced by FDA, the Company is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection 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 involves 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. 39 41 For marketing outside the U.S., the Company also is subject to foreign regulatory requirements governing human clinic 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. FACILITIES TKT currently leases approximately 56,000 square feet of laboratory and office space in a building located in Cambridge, Massachusetts. Approximately 8,000 square feet are utilized as office space, 43,000 square feet are utilized for laboratory space and 5,000 square feet are dedicated to manufacturing of the Company's gene therapy products for clinical testing. The Company has no manufacturing facility for protein production and, under the agreements between the Company and HMRI for the commercialization of GA-EPO, HMRI is responsible for the manufacture of this product. The Company believes that its existing facilities are adequate to meet its current needs. The Company also believes that its current facilities comply with all material zoning requirements and that it has all necessary permits and authorizations for such facilities. LEGAL PROCEEDINGS The Company is currently involved in a patent interference proceeding before the United Stated Patent and Trademark office. See "Patents, Proprietary Rights and Licenses." The Company is not a party to any other legal proceedings. EMPLOYEES As of August 15, 1996, the Company had 117 full-time employees, including 88 scientists and 29 development, manufacturing and administrative personnel. The Company's employees are not covered by any collective bargaining agreement. TKT considers relations with its employees to be good. 40 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The directors, executive officers and key employees of the Company are as follows:
NAME AGE POSITION - -------------------------------------- --- ---------------------------------------------------------- Richard F Selden, M.D., Ph.D. ........ 37 President; Chief Executive Officer; and Director Christoph M. Adams, Ph.D. ............ 39 Vice President, Business Development Kurt Gunter, M.D. .................... 41 Vice President, Clinical and Regulatory Affairs Anthony R. Hall....................... 57 Vice President, Finance and Administration; Chief Financial Officer Douglas A. Treco, Ph.D. .............. 38 Vice President, Director of Research and Development Andrea T. Jeffrey..................... 46 Director of Operations Robert A. Pazzano, Pharm.D. .......... 49 Director of Manufacturing William R. Miller(1)(2)............... 68 Director Rodman W. Moorhead, III(1)............ 52 Director; Chairman of the Board James E. Thomas(2).................... 36 Director; Secretary
- --------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. 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. Prior to founding TKT, Dr. Selden was a post-doctoral fellow in the Department of Genetics at Harvard Medical School and a pediatric resident at Massachusetts General Hospital. From 1989 to 1992, Dr. Selden held an academic appointment as Instructor in the Harvard Medical School Department of Pediatrics. 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. Christoph M. Adams, Ph.D. has served as Vice President, Business Development of the Company since March 1994. From May 1991 to February 1994, Dr. Adams was Business Development Manager and from 1989 to 1991, he was International Product Manager at the Pharmaceuticals Division of Ciba-Geigy AG in Basel, Switzerland. Dr. Adams received a Ph.D. in Organic Chemistry from the University of Zurich and an M.B.A. from INSEAD, Fontainebleau, France. Kurt Gunter, M.D. has served as a consultant to the Company since September 1993 and as Vice President, Clinical and Regulatory Affairs since July 1996. From September 1993 to June 1996, Dr. Gunter worked at Children's National Medical Center, most recently as Director of Stem Cell Processing, Hematology and Blood Donor Center/Hematology Division. From 1988 to 1993, Dr. Gunter worked at the Center for Biologics Evaluation and Research of the U.S. Food and Drug Administration as Acting Deputy Director, Division of Cellular Therapies and Gene Therapies and Chief, Cytokine and Cell Biology Branch. He received a B.S. in Biological Sciences from Stanford University and an M.D. from the University of Kansas School of Medicine. Anthony R. Hall has served as the Vice President, Finance and Administration, and Chief Financial Officer since June 1996. From September 1989 until May 1994, Mr. Hall served as Vice President, Fiduciary and Risk Management, of Bristol-Myers Squibb Company ("BMS"), a pharmaceutical company and from May 1994 to May 1996 as a consultant to BMS. From 1984 to 1989, Mr. Hall served as Corporate Vice President and Assistant Treasurer of Bristol-Myers Company. Mr. Hall is a Fellow of the Chartered Association of Certified Accountants of the United Kingdom and received a B. Comm. from the University of Capetown. 41 43 Douglas A. Treco, Ph.D. has directed research at the Company since its inception in 1988. Since June 1993, he has served as Vice President, Director of Research and Development. From December 1990 to June 1993, he served as Director of Research. From 1988 to 1990, he served as Manager of Research. From 1985 to 1988, Dr. Treco was a Research Fellow in Genetics, Department of Molecular Biology, Massachusetts General Hospital and Department of Genetics, Harvard Medical School. He received a Ph.D. in Biochemistry and Molecular Biology from the State University of New York, Stony Brook. Andrea T. Jeffrey has served as Director of Operations of the Company since July 1993. From January 1992 to June, 1993, Ms. Jeffrey was Facility Director at the Center for Blood Research at Harvard Medical School. From 1982 to 1991, she was Director of Laboratory Services at BioTechnica International, a biotechnology company in Cambridge, Massachusetts. Ms. Jeffrey received a B.S. in Biology from Wheaton College. Robert A. Pazzano, Pharm. D. has served as Director of Manufacturing of the Company since October 1993. From 1988 to 1993, Mr. Pazzano was Director of Manufacturing at Organogenesis Inc. and, from 1981 to 1988, he held related positions at Damon Biotech, Inc., Medchem Products, Inc. and Delmed, Inc. Mr. Pazzano received a B.S. in Pharmacy and a Pharm.D. in Industrial Pharmacy from Massachusetts College of Pharmacy, and an M.S. in Pharmaceutical Business Administration from Northeastern University. William R. Miller has served as a Director since September 1991. In January 1991, he retired as Vice Chairman of the Board of Directors of BMS, which position he had held since 1985. Mr. Miller was a member of the Board of Pharmaceutical Manufacturers Associations from 1981 to 1990 and served as Chairman from 1986 to 1987. He was Vice President and a member of the council of the International Federation of Pharmaceutical Manufacturers Associations from 1988 until 1990. Mr. Miller is a member of the Board of Trustees of the Cold Spring Harbor Laboratory and is a director of Imclone Systems, Inc., Isis Pharmaceuticals, Inc., St. Jude Medical, Inc., and Westvaco Corporation, as well as several private companies. In addition, Mr. Miller serves as Chairman of the Board of Directors of SIBIA Neurosciences, Inc. and Vion Pharmaceuticals, Inc. Rodman W. Moorhead, III has served as Chairman of the Board of Directors since May 1992. Since 1973, he has been with E.M. Warburg, Pincus & Co., Inc. ("Warburg, Pincus"), a private investment firm, where he currently serves as a Senior Managing Director. He is also a director of NeXstar, Inc., Value Health, Inc. and a number of privately held companies. James E. Thomas has served as a Director and Secretary of the Company since May 1992. Mr. Thomas has served as a Managing Director of Warburg, Pincus since January 1994, and prior to that served as Vice President from 1991 to 1994 and Associate from 1989 to 1991. Mr. Thomas is also a director of Anergen, Inc., Celtrix Pharmaceuticals, Inc., Menley & James Laboratories, Inc. and a number of privately held companies. The Company currently has four Directors. All Directors hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified. The officers serve until the next annual meeting of the Board of Directors or until their earlier resignation or removal. All of the current members of the Board of Directors were elected pursuant to an Amended and Restated Voting Rights Agreement. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has a Compensation Committee, which makes recommendations concerning salaries of each employee of the Company entitled to a salary in excess of $150,000 and which exercises the authority of the Board with respect to all incentive or stock option plans or arrangements established by the Company. The Company also has an Audit Committee, which reviews the results and scope of the audit and other services provided by the Company's independent auditors. DIRECTOR COMPENSATION In general, the Company does not compensate Directors for service as Directors but reimburses them for expenses incurred in connection with attendance at meetings of the Board of Directors and committees 42 44 thereof. Mr. Miller is paid $1,000 for attendance at each meeting of the Board. For the fiscal year ending December 31, 1995, Mr. Miller earned $3,000 in Director's fees. SCIENTIFIC ADVISORY BOARD The Company is assisted in its research and development activities by its Scientific Advisory Board ("SAB"), composed of leading scientists who meet several times each year to review the Company's research and development activities, discuss technological advances relevant to the Company and its business, and otherwise assist the Company. In addition to Dr. Selden, who serves as Chairman of the Scientific Advisory Board, and Dr. Treco, the following persons are members of the Scientific Advisory Board: Bruce Furie, M.D. is Professor of Medicine and Biochemistry at Tufts University School of Medicine. Chief of the Division of Hematology-Oncology at New England Medical Center, Director of the Hemophilia Center at New England Medical Center, and Co-Director of the Center for Hemostasis and Thrombosis Research at New England Medical Center. He received an M.D. from the University of Pennsylvania School of Medicine in 1970. Dr. Furie studies the molecular basis of blood coagulation and related clinical disorders, including hemophilia. Barbara C. Furie, Ph.D. is Professor of Medicine and Biochemistry at Tufts University School of Medicine, Co-Director of the Center for Hemostasis and Thrombosis Research at New England Medical Center, and a member of the Division of Hematology-Oncology, New England Medical Center. She received a Ph.D. in Chemistry from the University of Pennsylvania in 1970. Dr. Furie studies the molecular basis of blood coagulation and platelet membrane cell adhesion molecules. Walter Gilbert, Ph.D. is the Carl M. Loeb University Professor at Harvard University. He served as Chairman of the Department of Cellular and Developmental Biology at Harvard University from 1987 to 1993. In 1980, Dr. Gilbert (together with two others) received the Nobel Prize for Chemistry for his work in developing one of the two rapid DNA sequencing techniques that have provided a major stimulus to the study of gene structure. Dr. Gilbert received a Ph.D. from Cambridge University in 1957. His current research interests include molecular biology, molecular evolution and intron/exon gene structure. Howard M. Goodman, Ph.D. is Professor of Genetics at Harvard Medical School and Chief of the Department of Molecular Biology at Massachusetts General Hospital. Dr. Goodman was a Professor of Biochemistry at the University of California, San Francisco from 1970 to 1981. He received a Ph.D. in Biophysics from Massachusetts Institute of Technology in 1964. Dr. Goodman has previously studied the molecular biology of hormones and peptides and is currently engaged in a plant genome project. David D. Moore, Ph.D. is Associate Professor of Genetics in the Department of Molecular Biology at Massachusetts General Hospital and in the Department of Genetics at Harvard Medical School. He received a Ph.D. in Molecular Biology from The University of Wisconsin, Madison in 1979. Dr. Moore studies the molecular basis of hormone action and gene regulation in endocrine systems. Gordon H. Sato, Ph.D. is Director Emeritus of the W. Alton Jones Cell Science Center in Lake Placid, New York. Dr. Sato was Director of the Cell Science Center from 1983 until his retirement in 1993. Dr. Sato received a Ph.D. in Biophysics from the California Institute of Technology in 1955. He was a Professor in the Graduate Department of Biochemistry at Brandeis University from 1958 to 1969, and he was a Professor of Biology at the University of California San Diego from 1969 to 1983. Dr. Sato was elected to the National Academy of Sciences in 1984. Dr. Sato has studied the effects of hormones and growth factors on cells in culture, and he established the first differentiated mammalian cell lines. Jack W. Szostak, Ph.D. is Professor of Genetics in the Department of Molecular Biology at Massachusetts General Hospital and the Department of Genetics at Harvard Medical School. He received a Ph.D. in Biochemistry from Cornell University in 1977. Dr. Szostak studies the mechanism of ribozyme function. Except for Drs. Selden and Treco, each member of the SAB has entered into a consulting agreement with the Company covering the terms of such person's position as a consultant to the Company and member of the 43 45 SAB. All scientific advisors own shares of Common Stock of the Company, some of which shares are subject to vesting. All of the Company's scientific advisors (other than Drs. Selden and Treco) are employed by employers other than the Company and may have other commitments to, or consulting or advisory contracts with, other entities which may conflict or compete with their obligations to the Company. Generally, scientific advisors are not expected to devote a substantial portion of their time to Company matters. EXECUTIVE COMPENSATION The table below sets forth certain compensation information for the Chief Executive Officer of the Company and the three other most highly compensated executive officers of the Company whose salary and bonus for the fiscal year ended December 31, 1995 exceeded $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------ COMPENSATION(1) RESTRICTED -------------------- STOCK ALL OTHER NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($)(2) COMPENSATION($)(3) - --------------------------------------- -------- ------- ------------ ------------------ Richard F Selden....................... $200,000 $86,000(4) -- $ 4,659 President and Chief Executive Officer Douglas A. Treco....................... 134,000 30,000 -- 3,125 Vice President, Director of Research and Development Christoph M. Adams..................... 142,000 17,500 -- 21,193(5) Vice President, Business Development Robert A. Pazzano...................... 106,000 3,000 -- 3,241 Director of Manufacturing
- --------------- (1) In accordance with the rules of the Securities and Exchange Commission, other compensation in the form of perquisites and other personal benefits has been omitted in those instances where the aggregate amount of such perquisites and other personal benefits constituted less than the lesser of $50,000 or 10% of the total amount of annual salary and bonus for the executive officer for the year ended December 31, 1995. (2) No shares of restricted stock were awarded in the year ended December 31, 1995. As of December 31, 1995, Dr. Treco held an aggregate of 17,357 shares of unvested restricted stock valued at $114,615. The value of the restricted stock held by Dr. Treco at December 31, 1995 was determined by multiplying the fair market value of the Common Stock determined by the Board of Directors on the date of grant ($6.60) by the number of shares held and subtracting the aggregate purchase price paid by Dr. Treco for such shares. No dividends were paid in 1995 on the outstanding shares of restricted stock. (3) Includes the following: (a) the Company's contributions for Dr. Selden, Dr. Treco, Dr. Adams and Mr. Pazzano under the Company's 401(k) Plan in the amounts of $3,750, $2,945, $3,750 and $2,725, respectively; (b) the taxable portion of group term life insurance premiums paid by the Company for Dr. Selden, Dr. Treco, Dr. Adams and Mr. Pazzano in the amounts of $180, $180, $180 and $516, respectively. (4) Bonus earned in the year ended December 31, 1995 was paid in 1996. (5) Includes reimbursement by the Company for costs associated with relocation. 44 46 Options Grants. The Company did not grant any stock options to the Named Executive Officers during the fiscal year ended December 31, 1995. In January 1996, the Company granted nonqualified stock options to Dr. Selden (100,000 shares), Dr. Treco (20,000 shares), Dr. Adams (5,000 shares) and Mr. Pazzano (4,000 shares) at an exercise price of $.01 per share. All such options vest in equal annual installments over six years on the anniversary of the grant date and expire on January 17, 2006. Year-End Option Table. The following table sets forth certain information concerning exercisable and unexercisable stock options as of December 31, 1995. None of the Named Executive Officers exercised options during the fiscal year ended December 31, 1995. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ------------------------------------- ------------------------------- ------------------------- Richard F Selden..................... -- -- Douglas A. Treco..................... -- -- Christoph M. Adams................... 8,570/42,858 $119,922 / $599,679 Robert A. Pazzano.................... 5,143/10,286 $ 71,960 / $143,920
- --------------- (1) There was no public trading market for the Common Stock as of December 31, 1995. Accordingly, in accordance with the rules of the Securities and Exchange Commission, these values have been calculated based on the assumed initial public offering price of $14.00 per share (the mid-point of the filing range) less the aggregate exercise price. EMPLOYMENT AGREEMENTS The Company is a party to employment agreements with certain of its executive officers, including Drs. Selden, Adams and Treco and Mr. Pazzano. Each employment agreement contains provisions for establishing the annual base salary of each executive officer. Pursuant to the terms of the employment agreements, the 1996 annual base salary for each of Drs. Selden, Treco and Adams and Mr. Pazzano has been established at $210,000, $152,000, $152,000 and $111,000, respectively. Under the terms of such employment agreements, if the employment of Drs. Selden, Treco or Adams is terminated without cause, the Company is required to pay to such executive severance payments at the executive's base salary rate for 18 months in the case of Dr. Selden and 12 months in the case of Drs. Treco and Adams (a "Severance Period"), to be reduced by an amount equal to the amount of any other compensation earned by such individual during such Severance Period. The executive shall be bound by certain non-compete obligations for two years after termination of employment or such longer period during which severance payments are paid under the employment agreement. 1993 LONG-TERM INCENTIVE PLAN The Company's 1993 Long-Term Incentive Plan (the "1993 Incentive Plan") was approved by the Board of Directors and the Company's stockholders in June 1993. The 1993 Incentive Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock, long-term performance awards and stock grants. Stock options may include options intended to qualify for preferential tax treatment ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options that do not qualify for such treatment. Employees, consultants and advisors of the Company are eligible for awards under the 1993 Incentive Plan, but Directors who are not employees of or consultants to the Company are not eligible for such awards. 45 47 The 1993 Incentive Plan is administered by the Compensation Committee, which has complete authority to make awards thereunder. No member of the Compensation Committee is eligible to receive an award under the 1993 Incentive Plan, and no individual is eligible for membership on the Compensation Committee within one year of having received an award under the 1993 Incentive Plan. As amended to date, a total of 2,250,000 shares of Common Stock have been reserved for issuance under the 1993 Incentive Plan. At August 15, 1996, options to purchase 875,243 shares were outstanding under the 1993 Incentive Plan. 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN The Company's 1993 Non-Employee Directors' Stock Option Plan (the "1993 Directors' Plan") was approved by the Board of Directors and the Company's stockholders in June 1993. The 1993 Directors' Plan provides for automatic option grants to each Director who (i) is not an employee of the Company or of any subsidiary, affiliate or five or more percent stockholder of the Company and (ii) does not own or hold any Common Stock which was purchased prior to the approval of the 1993 Directors' Plan and which remains at the time the Director is being considered for eligibility for any specific grant under the 1993 Directors' Plan subject to substantial risk of forfeiture under an agreement entered into with the Company. Any Director who becomes such an employee shall cease to be eligible for any further option grants under the 1993 Directors' Plan while such an employee, but shall not, by reason of becoming such an employee, cease to be eligible to retain options previously granted under the 1993 Directors' Plan. Under the 1993 Directors' Plan, each eligible Director will receive an option grant on the date immediately following each annual meeting of stockholders. Each option grant shall consist of an option to acquire an aggregate of 6,750 shares of Common Stock exercisable at a price equal to the fair market value of the Common Stock at the time of the grant and vesting over a period of three years. The 1993 Directors' Plan will be administered by the Compensation Committee. A total of 231,429 shares of Common Stock have been reserved for issuance under the 1993 Directors' Plan. To date, no awards have been made under the 1993 Directors' Plan. None of the present Directors are currently eligible to receive options under the 1993 Directors' Plan. 401(K) PLAN In January 1992, the Company established the Company's 401(k) plan (the "401(k) Plan") covering all full-time employees. Generally, an eligible employee may become a participant in the 401(k) Plan on the first day of the month next following completion of six months of employment. Pursuant to the 401(k) Plan, an employee may elect to reduce his or her current compensation by up to 15 percent (subject to an overall dollar limitation under the Code of $9,240 of 1995) and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan allows the Company to make matching contributions to the Plan, and the Company currently makes matching contributions equal to 50 percent of the first five percent contributed to the 401(k) Plan by each employee during each six month period. In 1995, the Company's matching contributions totalled $84,456. The 401(k) Plan is intended to qualify under Section 401 of the Code so that contributions by employees or the Company, and income earned thereon, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Company will be deductible by the Company when made. The administrator of the 401(k) Plan invests each employee's account at the direction of each such employee, who can choose among certain investment alternatives provided. As of December 31, 1995, 86 of the 95 eligible employees were enrolled in the 401(k) Plan. LIMITATIONS ON DIRECTOR'S LIABILITY AND INDEMNIFICATION The Company's Restated Certificate of Incorporation to be filed with the State of Delaware upon the closing of this offering and Restated By-laws to be effective upon the closing of this offering provide that the Company will indemnify its directors and officers and may indemnify its employees and agents to the fullest extent permitted by the Delaware General Corporation Law (the "Delaware Law"). In addition, the Company's Restated Certificate of Incorporation, as amended, provides that, to the fullest extent permitted by 46 48 Delaware Law, the Directors will not be personally liable to the Company and its stockholders for monetary damages for breach of fiduciary duty as Directors. This provision in the Restated Certificate of Incorporation does not eliminate the fiduciary duty as a Director, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware Law. Each Director will continue to be subject to liability for breach of the Director's duty of loyalty to the Company for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, for any willful or negligent violation concerning the unlawful payment of dividends or the unlawful purchase or redemption of stock, and for any transaction from which the Director derived any improper personal benefit. This provision also does not affect a Director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. 47 49 CERTAIN TRANSACTIONS Mr. Rodman W. Moorhead III and Mr. James E. Thomas, each a general partner of Warburg, Pincus & Co., the sole general partner of Warburg, Pincus Capital Company, L.P. ("Warburg"), and Dr. Richard Selden, the President and Chief Executive Officer of the Company, were elected to the Board of Directors of the Company pursuant to the terms of an Amended and Restated Voting Rights Agreement, dated November 3, 1993 and amended on May 18, 1994, March 1, 1995, October 26, 1995, July 10, 1996, and August 7, 1996, by and among the Company and certain stockholders named therein (the "Voting Rights Agreement"). Upon the effectiveness of the Registration Statement of which this Prospectus is a part, this Voting Rights Agreement will be amended to provide that (i) so long as Warburg owns beneficially at least 20% of the outstanding stock of the Company, the stockholders named in the Voting Rights Agreement shall nominate for election as directors of the Company two (2) persons designated by Warburg and (ii) so long as Warburg owns beneficially at least 10% of the outstanding stock of the Company, the stockholders named in the Voting Rights Agreement shall nominate for election as directors of the Company one (1) person designated by Warburg. Mr. William R. Miller was initially elected to the Board of Directors in 1991 pursuant to a Letter Agreement, dated September 1, 1991, by and between Mr. Miller and the Company. The Company is not obligated to continue to nominate Mr. Miller as a director pursuant to this letter agreement. Since July 1988, the Company has sold in private financings shares of Preferred Stock convertible into an aggregate of 8,613,792 shares of Common Stock. In July 1988 and May 1989, the Company sold to Warburg an aggregate of 3,000 shares of Class A Redeemable Convertible Preferred Stock at a price of $1,000 per share. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class A Redeemable Convertible Preferred Stock will automatically convert into 214,286 shares of Common Stock at an assumed initial public offering price of $14.00 per share (the mid-point of the filing range) upon the closing of this offering. In February 1990, the Company sold 3,000 shares of Class A Convertible Preferred Stock at a price of $1,000 per share. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class A Convertible Preferred Stock will automatically convert into 214,285 shares of Common Stock at an assumed initial public offering price of $14.00 per share upon the closing of this offering. In February 1992, the Company sold to Warburg an aggregate of 21,359 shares of Class B Convertible Preferred Stock. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class B Convertible Preferred Stock will automatically convert into 1,261,979 shares of Common Stock upon the closing of this offering. In November 1993, the Company sold to Warburg an aggregate of 625,000 shares of Class C Convertible Preferred Stock. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class C Convertible Preferred Stock will automatically convert into 803,571 shares of Common Stock upon the closing of this offering. In May 1994 and March 1995, the Company entered into two License Agreements (the "License Agreements") with HMRI (formerly named Marion Merrell Dow Inc.) relating to joint research and development programs by the Company and HMRI (the "Programs"). Under the License Agreements, TKT will receive payments from HMRI upon the attainment of various development and commercialization milestones and royalty payments from HMRI based on sales of products developed under the Programs. In connection with the first License Agreement, HMRI purchased 280,367 shares of the Company's Class D Convertible Preferred Stock at a price per share of $17.83 for an aggregate purchase price of $5,000,000. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class D Convertible Preferred Stock will automatically convert into 455,680 shares of Common Stock upon the closing of this offering. In connection with the second License Agreement, HMRI purchased 523,560 shares of the Company's Class E Preferred Stock at a price per share of $19.10 for an aggregate purchase price of $10,000,000. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares will automatically convert into 673,148 shares of Common Stock upon the closing of this offering. 48 50 Pursuant to the provisions of the Class D Preferred Stock Purchase Agreement, at the closing of this offering, the Company agreed to sell to HMRI, and HMRI agreed to purchase, at the initial public offering price, that number of shares of Common Stock of the Company equal to $5,000,000 divided by the initial public offering price. Accordingly, upon the closing of this offering, TKT will sell to HMRI 357,143 shares of Common Stock at the assumed initial public offering price of $14.00 per share (the mid-point of the filing range) for aggregate consideration of $5,000,000. The actual number of shares will be determined by dividing $5,000,000 by the initial public offering price. In addition, with respect to such shares, the Company intends to grant to HMRI one demand registration right exercisable after the expiration of the lock-up agreements on substantially the same terms and conditions as those contained in the Registration Rights Agreement by and among the Company and certain stockholders named therein. In December 1995, the Company sold to HMRI an aggregate of 564,286 shares of Class F Convertible Preferred Stock. Pursuant to the Company's Restated Certificate of Incorporation, as amended, all of such shares of Class F Convertible Preferred Stock will automatically convert into 725,510 shares of Common Stock upon the closing of this offering. Holders of certain shares of Common Stock are entitled to certain registration rights with respect to such shares. See "Description of Capital Stock -- Registration Rights." The Company believes that all transactions with affiliates have been made on terms at least as favorable to the Company as could have been made for similar transactions with unrelated third parties. 49 51 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of August 15, 1996 as adjusted to reflect the sale of the shares offered hereby: (i) by each person known by the Company to beneficially own more than 5% of its Common Stock; (ii) by each Director of the Company; (iii) by each Named Executive Officer; and (iv) by all executive officers and Directors as a group:
SHARES BENEFICIALLY PERCENTAGE OWNERSHIP OWNED PRIOR TO ------------------------------------- NAME OFFERING(1) BEFORE OFFERING AFTER OFFERING(2) - ------------------------------------------------- ------------------- --------------- ----------------- Warburg, Pincus Capital.......................... 5,957,781 41.7% 34.7% Company, L.P.(3) 466 Lexington Avenue New York, NY 10017 Hoechst Marion Roussel, Inc...................... 1,854,338 13.4% 13.3%(4) 9300 Ward Parkway Kansas City, MO 64114 Biotech Target, S.A.............................. 1,168,831 8.5% 7.0% c/o BB Biotech AG c/o Bellevue Asset Management AG Grundstrasse 12 CH-6364 Rotkreuz Switzerland Christoph M. Adams(5)............................ 17,142 * * William R. Miller................................ 28,928 * * Rodman W. Moorhead, III(6)(7).................... 5,957,781 41.7% 34.7% Robert Pazzano(8)................................ 7,714 * * Richard F Selden(9).............................. 806,876 5.8% 4.8% James E. Thomas(6)(7)............................ 5,957,781 41.7% 34.7% Douglas A. Treco(10)............................. 236,404 1.7% 1.4% All Directors and executive officers as a group % % (10 persons)(11)............................... 7,063,523 49.4 41.1
- --------------- * Less than 1% (1) Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. Amounts shown include shares of Common Stock issuable upon exercise of outstanding stock options exercisable within the 60-day period following August 15, 1996. The inclusion herein of shares of Common Stock listed as beneficially owned does not constitute an admission of beneficial ownership. The number and percentage of outstanding shares of Common Stock owned after this offering gives effect to the purchase by HMRI of $5 million of Common Stock to be sold at the initial public offering price pursuant to the HMRI New Investment and assumes that none of the other listed stockholders will purchase additional shares of Common Stock in this offering. The number of shares deemed outstanding for purposes of calculating these percentages includes 13,811,417 shares of Common Stock outstanding as of August 15, 1996 (after giving effect to the conversion into shares of Common Stock of all of the outstanding shares of Preferred Stock) and any shares issuable upon exercise of outstanding stock options held by the person or entity in question exercisable within the 60-day period following August 15, 1996. (2) Assumes no exercise of the Underwriters' overallotment option. The percentages of ownership after the offering were determined by including the shares of Common Stock being offered by the Company hereby including 357,143 shares to be sold to HMRI in the HMRI New Investment. 50 52 (3) Includes 478,967 shares issuable upon the exercise of outstanding warrants and 428,571 shares of Class A Redeemable Convertible Preferred Stock and Class A Convertible Preferred Stock converted at an assumed initial public offering price of $14.00 per share. (4) Includes 357,143 shares to be purchased in the HMRI New Investment at the assumed initial public offering price. See "Certain Transactions." (5) Reflects 17,142 shares of Common Stock issuable upon exercise of outstanding stock options exercisable within the 60-day period following August 15, 1996. (6) Includes 478,967 shares issuable upon exercise of the outstanding warrants, owned by Warburg, Pincus Capital Company, L.P. ("Warburg"). The sole general partner of Warburg is Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg, Pincus & Co., Inc. ("EMW"), through a wholly-owned subsidiary, manages Warburg. WP owns all of the outstanding stock of EMW and, as the sole general partner of Warburg, has a 20% interest in the profits of Warburg. EMW owns 0.9% of the limited partnership interests in Warburg. Lionel I. Pincus is the managing partner of WP and may be deemed to control it. Rodman W. Moorhead, III, Chairman of the Board of Directors, is a Senior Managing Director of EMW and a general partner of WP. As such, Mr. Moorhead may be deemed to have an indirect pecuniary interest in an indeterminate portion of the shares beneficially owned by Warburg. All of the shares indicated as owned by Mr. Moorhead are owned directly by Warburg and are included herein because of Mr. Moorhead's affiliation with Warburg. Mr. Moorhead disclaims "beneficial ownership" of these shares within the meaning of Rule 13d-3 under the Exchange Act. James E. Thomas, a director of the Company, is a Managing Director of EMW and a general partner of WP. As such, Mr. Thomas may be deemed to have an indirect pecuniary interest in an indeterminate portion of the shares beneficially owned by Warburg. All of the shares indicated as owned by Mr. Thomas are owned directly by Warburg and are included herein because of Mr. Thomas' affiliation with Warburg. Mr. Thomas disclaims "beneficial ownership" of these shares within the meaning of Rule 13d-3 under the Exchange Act. (7) Stockholder's address is c/o Warburg, Pincus Capital Company, L.P., 466 Lexington Avenue, New York, New York 10017. (8) Reflects 7,714 shares of Common Stock issuable upon exercise of outstanding stock options exercisable within the 60-day period following August 15, 1996. (9) Dr. Selden's address is c/o the Company, 195 Albany Street, Cambridge, Massachusetts 02139. (10) Includes 17,357 shares of Restricted Stock, of which 5,786 shares will vest on each of June 16, 1997, 1998 and 1999. (11) Includes 24,856 shares of Common Stock that are issuable upon exercise of outstanding stock options exercisable within the 60-day period following August 15, 1996. 51 53 DESCRIPTION OF CAPITAL STOCK After giving effect to the Company's Restated Certificate of Incorporation of the Company to be filed upon the closing of this offering to authorize, among other things, the elimination of the Class A Redeemable Convertible, Class A, Class B, Class C, Class D, Class E, Class F and Class G Convertible Preferred Stock, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"). The following summary contains an accurate description of the material terms of the Company's Common Stock and Preferred Stock. Such summary is subject to, and qualified in its entirety by, applicable law and by the provisions of the Company's Restated Certificate of Incorporation and Restated By-laws, each to be filed and effected, respectively, on or before the closing of this offering and included as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information." COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the outstanding shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend. Upon the liquidation, dissolution or winding-up of the Company, holders of Common Stock are entitled to receive ratably the net assets of the Company available for distribution after the payment of all debts and other liabilities of the Company and subject to the prior rights of any outstanding Preferred Stock. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered hereby will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of Preferred Stock that the Company may designate and issue in the future. As of August 15, 1996, there were 13,811,417 shares of Common Stock outstanding held of record by 168 stockholders, after giving effect to conversion of all outstanding shares of convertible Preferred Stock into an aggregate of 8,613,792 shares of Common Stock effective upon the closing of this offering. Based upon the number of shares of Common Stock outstanding as of that date, and giving effect to (i) the issuance of the 2,500,000 shares of Common Stock offered by the Company hereby (assuming no exercise of the Underwriters' overallotment option), and (ii) the sale to HMRI of 357,143 shares of Common Stock pursuant to the HMRI New Investment, there will be 16,668,560 shares of Common Stock outstanding upon the closing of this offering. An additional 875,243 shares of Common Stock were issuable upon exercise of outstanding stock options granted under the Company's 1993 Long-Term Incentive Plan. WARRANTS The Company has issued warrants (the "Warrants") to various entities exercisable for an aggregate of 817,093 shares of Common Stock with exercise prices ranging from $6.22 to $7.78 per share and a weighted average exercise price of $7.53 per share, in each case subject to adjustment. The Warrants have expiration dates ranging to November 3, 1998. The holders of the Warrants are entitled to certain registration rights with respect to the Common Stock issuable upon the exercise thereof. See "-- Registration Rights." PREFERRED STOCK The Board of Directors will be authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue from time to time up to 10,000,000 shares of Preferred Stock, in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. 52 54 The stockholders of the Company have granted the Board of Directors authority to issue the Preferred Stock and to determine its rights and preferences in order to eliminate delays associated with a stockholder vote on specific issuances. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. Upon the closing of this offering, no shares of Preferred Stock will be outstanding. The Company has no present plans to issue any shares of Preferred Stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The Company is subject to the provisions of Section 203 of the Delaware Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained such status with the approval of the Board of Directors and the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. The Company's Restated Certificate of Incorporation contains certain provisions permitted under the Delaware Law relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. The Company's Restated Certificate of Incorporation also contains provisions obligating the Company to indemnify its directors and officers to the fullest extent permitted by the Delaware Law. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. The Company's Restated Certificate of Incorporation and By-laws also provide that any action required or permitted to be taken by the stockholders of the Company may be taken only at a duly called annual or special meeting of stockholders and that the affirmative vote of the holders of at least two-thirds (66 2/3%) of the Company's outstanding voting securities is required to amend such provision. These provisions could have the effect of delaying until the next stockholders' meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company, particularly since special meetings of stockholders may be called only by the Board of Directors, the Chief Executive Officer or upon the request of the holders of 51% of the Company's voting securities. These provisions may also discourage another person or entity from making a tender offer for the Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders' meeting, and not by written consent. In addition, nomination for election to the Board of Directors at a meeting of stockholders may be made either (i) by the Board of Directors or (ii) by a stockholder who complies with certain notice provisions. The By-laws contain similar advance notice provisions for stockholder proposals for action at stockholder meetings. These provisions prevent stockholders from making nominations for directors and stockholder proposals from the floor at any stockholder meeting and require any stockholder making a nomination or proposal to submit the name of the nominees for Board seats or such proposal, together with certain information about the nominee or proposal prior to the meeting at which such director is to be elected or action is to be taken. These provisions ensure that stockholders have adequate time to consider nominations and proposals before action is required, but they may also have the effect of delaying action if the proper procedures are followed. 53 55 REGISTRATION RIGHTS Under the terms of a Registration Rights Agreement dated as of November 3, 1993 (as amended from time to time, the "Registration Rights Agreement") and subject to certain conditions, certain stockholders are entitled to certain rights with respect to registration under the Act of shares of Common Stock to be received upon conversion of Preferred Stock ("Registrable Securities"). If the Company proposes to register any of its securities under the Act, either for its own account or for the account of other security holders, the Company is required under the Registration Rights Agreement to use its best efforts to include such holders' Registrable Securities in such registration, subject to such reduction as may be required by the Company's underwriters. In addition, subject to certain conditions, the holders of not less than 30% of the Registrable Securities may require the Company on not more than two occasions to file a registration statement under the Act with respect to such Registrable Securities. See "Shares Eligible for Future Sale." The holders of Registrable Securities have waived any rights to include any Registrable Securities in this offering and have agreed not to exercise their respective registration rights for a period of 180 days following the effective date of this offering. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock will be Boston EquiServe. 54 56 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering the Company will have 16,668,560 shares of Common Stock outstanding, assuming no exercise of any of the outstanding options and warrants to purchase Common Stock outstanding as of August 15, 1996. Of these shares, the 2,500,000 shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, except for shares purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 14,168,560 outstanding shares of Common Stock are deemed "Restricted Shares" under Rule 144 and may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including Rule 144. Approximately 1,646,315 of these Restricted Shares will be eligible for sale in the public market immediately after this offering pursuant to Rule 144(k). Approximately 520,942 additional Restricted Shares will be eligible for sale in the public market pursuant to Rule 144 or Rule 701 under the Securities Act beginning 90 days after the effective date of this offering. Beginning 180 days after the effective date of this offering, an additional 9,021,893 Restricted Shares will be eligible for sale pursuant to Rule 144 or Rule 701 when the agreements between such holders and the Underwriters not to sell such Restricted Shares expire. See "Underwriters." The remaining Restricted Shares will become eligible from time to time thereafter upon the expiration of the minimum two-year holding period under Rule 144 from the date such Restricted Shares were acquired. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an Affiliate, who has beneficially owned Restricted Shares for at least two years from the later of the date such Restricted Shares were acquired from the Company and (if applicable) the date they were acquired from an Affiliate, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of the Common Stock (166,685 shares based on the number of shares to be outstanding after this offering) or the average weekly trading volume in the public market during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner and notice of sale and the availability of public information concerning the Company. Affiliates may sell shares not constituting Restricted Shares in accordance with the foregoing volume limitations and other restrictions, but without regard to the two-year holding period. Further, under Rule 144(k), if a period of at least three years has elapsed between the later of the date the Restricted Shares were acquired from the Company or an Affiliate of the Company, a holder of such Restricted Shares who is not an Affiliate of the Company at the time of the sale and has not been an Affiliate of the Company for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume restrictions and other conditions describe above. The Securities and Exchange Commission has proposed an amendment to Rule 144 which would reduce the holding period required for shares subject to Rule 144(k) to become eligible for sale in the public market from three years to two years, and from two years to one year in the case of Rule 144. If this proposal is adopted, approximately 2,167,257 Restricted Shares would be eligible for sale in the public market immediately after this offering pursuant to Rule 144(k) and approximately 30,374 additional Restricted Shares would be eligible for sale in the public market pursuant to Rule 144 or Rule 701 under the Securities Act beginning 90 days after the effective date of this offering. An additional 9,021,893 shares of Common Stock will become eligible for sale to the public within 180 days after the Effective Date when agreements between certain stockholders and the Underwriters not to sell such Restricted Shares expire. The Company intends to file a registration statement under the Securities Act to register all shares of Common Stock issuable under its stock option plan as well certain other outstanding options and shares of Common Stock. This registration statement is expected to be filed as soon as practicable after the date of this Prospectus and is expected to become effective immediately upon filing. Shares covered by that registration 55 57 statement will be eligible for sale in the public market after the effective date of such registration. Beginning 90 days after such effective date, it is anticipated that approximately 48,754 shares of Common Stock will become eligible for immediate resale upon the exercise of such options and upon expiration of the lock-up agreements. Rule 701 under the Securities Act provides an exemption from the registration requirements of the Act for offer, and sales of securities issued pursuant to certain compensatory benefit plans or written contracts of a company not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any employee, officer or director of or consultant to the Company who acquired shares of Common Stock pursuant to the Company's 1993 Long-Term Incentive Plan or any other written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permit non-affiliates to sell such shares without having to comply with the public information, holding period, volume limitation, or notice requirements of Rule 144 and permit Affiliates to sell their Rule 701 shares without having to comply with the holding period requirements of Rule 144 commencing, in each case, 90 days after the date of this Prospectus. Rule 144A permits unlimited resales of Restricted Shares under certain circumstances to Qualified Institutional Buyers, which are generally defined as institutions with over $100 million invested in securities. Rule 144A allows holders of Restricted Shares to sell their shares to such institutional buyers without regard to any volume or other restrictions. The Company, and the Company's officers, directors and other stockholders, holding an aggregate of 8,901,523 shares of Common Stock, are expected to agree that they will not, without the prior written consent of the representatives of the Underwriters, offer for sale, sell, distribute or otherwise dispose of any shares of Common Stock, or sell or grant options, rights or warrants with respect to any shares of Common Stock, for a period of 180 days after the effective date of this offering. At the completion of this offering, certain persons and entities (the "Rightholders") will be entitled to certain rights with respect to the registration under the Act of a total of 8,613,792 shares of Common Stock (the "Registrable Shares") under the terms of the Registration Rights Agreement. The Registration Rights Agreement provides that in the event the Company proposes to register any of its securities under the Act for its own account at any time or times, subject to certain conditions or limitations, including the right of the managing underwriter of any such offering to exclude for certain reasons some or all of such Registrable Shares from such registration, the Rightholders shall be entitled to include Registrable Shares in such registration. Subject to certain conditions, at any time after the completion of this offering, Rightholders holding at least 15% of the Registrable Shares have the right to require the Company to file an unlimited number of registration statements on Form S-3, provided that such right to request the Company to file a registration statement on Form S-3 is not exercised more than once during any consecutive twelve month period. In addition, in connection with the sale of 357,143 shares of Common Stock in the HMRI New Investment, the Company intends to grant to HMRI one demand registration right with respect to such shares exercisable after the expiration of the lock-up agreement. Prior to this offering, there has been no market for the Common Stock and no precise predictions can be made as to the effect, if any, that market sales of shares or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices and could impair the Company's future ability to raise capital through the sale of its equity securities. See "Risk Factors -- Shares Eligible for Future Sale." 56 58 UNDERWRITERS Under the terms and subject to conditions contained in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), each of the Underwriters named below, for whom Morgan Stanley & Co. Incorporated, UBS Securities and Pacific Growth Equities are acting as Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, the respective number of shares of Common Stock set forth opposite their respective names below:
NUMBER OF NAME SHARES -------------------------------------------------------------------------- --------- Morgan Stanley & Co. Incorporated......................................... UBS Securities LLC........................................................ Pacific Growth Equities, Inc. ............................................ --------- Total........................................................... 2,500,000 ========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all the shares of Common Stock offered hereby (other than those covered by the overallotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain other dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Underwriters. The Company has granted to the Underwriters an option, exercisable for thirty days from the date of this Prospectus, to purchase up to 375,000 additional shares of Common Stock at the public offering price set forth on the cover page hereof, less the underwriting discounts and commissions. The Underwriters may exercise such option to purchase solely for the purpose of covering overallotments, if any, made in connection with this offering. To the extent that such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares offered hereby. The Company and the Underwriters have agreed to indemnify each other against certain liabilities under the Securities Act. Each of the Company, the Company's officers, directors and other stockholders, holding an aggregate of 8,901,523 shares of Common Stock, will agree that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period commenced on the date hereof and ending 180 days after the date of this Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are now owned by or hereafter acquired), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common 57 59 Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. In addition, each such stockholder has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, for a period ending 180 days after the date of this Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. The Underwriters have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Common Stock offered by them. PRICING OF THE OFFERING Prior to this offering, these has been no public market for the Common Stock. The initial public offering price has been determined by negotiations among the Company and the Representatives of the Underwriters. Among the factors considered in determining the initial public offering price were the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. There can, however, be no assurance that the prices at which the Common Stock will sell in the public market after this offering will not be lower than the price at which it is sold by the Underwriters. 58 60 LEGAL MATTERS The validity of the Common Stock to be issued in this offering is being passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain patent issues relating to this offering will be passed upon for the Company by Hamilton, Brook, Smith & Reynolds, P.C., Lexington, Massachusetts. Certain legal matters relating to this offering will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS Statements relating to patent matters in the portions of this Prospectus entitled "Risk Factors -- Patents and Proprietary Rights" (except for the last two paragraphs relating to licensing and employee confidentiality) and "Business -- Patents, Proprietary Rights and Licenses," (except for the second paragraph relating to the gene therapy interference and except for the last two paragraphs relating to employee confidentiality and licensing) insofar as they constitute summaries of matters of patent law, have been reviewed and passed on by the Company's patent counsel, Hamilton, Brook, Smith & Reynolds, P.C. as experts in patent laws. The financial statements of Transkaryotic Therapies, Inc. at December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C., a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock being offered hereby. For further information about the Company and the Common Stock offered hereby, reference is made to the Registration Statement and to the financial statements, schedules and exhibits filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including exhibits thereto, may be inspected without charge at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such office after payment of the fees prescribed by the Commission. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. The Company intends to distribute to its stockholders annual reports containing financial statements audited by its independent auditors and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. 59 61 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors........................................................ F-2 Financial Statements Balance Sheets as of December 31, 1994 and 1995, and June 30, 1996 (unaudited)...... F-3 Statements of Operations for the years ended December 31, 1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996 (unaudited) and the period July 7, 1988 (date of inception) through June 30, 1996 (unaudited)....................... F-4 Statements of Stockholders' Equity (Deficit) for the period July 7, 1988 (date of inception) through December 31, 1995 and the six months ended June 30, 1996 (unaudited)...................................................................... F-5 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996 (unaudited) and the period July 7, 1988 (date of inception) through June 30, 1996 (unaudited)....................... F-7 Notes to Financial Statements....................................................... F-9
F-1 62 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Transkaryotic Therapies, Inc. We have audited the accompanying balance sheets of Transkaryotic Therapies, Inc. (A Company in the Development Stage) (the Company) as of December 31, 1994 and 1995, and the related statements of operations, and cash flows for each of the three years in the period ended December 31, 1995 and the statement of stockholders' equity (deficit) for the period July 7, 1988 (date of inception) through December 31, 1995. 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 generally accepted auditing standards. 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 financial position of Transkaryotic Therapies, Inc. (A Company in the Development Stage) at December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Boston, Massachusetts February 23, 1996 F-2 63 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) BALANCE SHEETS
DECEMBER 31, ------------------------- JUNE 30, 1994 1995 1996 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................................. $ 2,606,792 $11,539,531 $17,798,459 Marketable securities..................................................... 4,972,492 22,945,311 10,975,201 Prepaid expenses and other current assets................................. 268,148 97,010 243,139 ---------- ----------- ----------- Total current assets............................................... 7,847,432 34,581,852 29,016,799 Property and equipment, net................................................. 4,902,961 3,998,653 3,754,445 Other assets................................................................ 721,793 637,014 854,318 ---------- ----------- ----------- $13,472,186 $39,217,519 $33,625,562 ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................... $ 352,685 $ 515,335 $ 483,378 Accrued expenses.......................................................... 449,231 541,352 575,382 Current portion of bank debt.............................................. 1,097,945 -- -- ---------- ----------- ----------- Total current liabilities.......................................... 1,899,861 1,056,687 1,058,760 Long-term portion of deferred rent.......................................... 268,800 179,200 134,400 Redeemable Preferred Stock: Class A redeemable preferred stock, $1.00 par value; 3,000 shares authorized, issued and outstanding ($3,540,000 aggregate liquidation preference)............................................................. 4,230,273 4,440,273 4,545,273 Stockholders' equity: Class A preferred stock, $1.00 par value; 3,000 shares authorized, issued and outstanding ($3,327,000 aggregate liquidation preference)........... 3,000 3,000 3,000 Class B convertible preferred stock, $1.00 par value; 60,000 shares authorized; 49,339 shares issued and outstanding ($19,736,000 aggregate liquidation preference)................................................. 49,339 49,339 49,339 Class C convertible preferred stock, $1.00 par value; 1,875,000 shares authorized; 1,015,974 shares issued and outstanding ($8,128,000 aggregate liquidation preference)....................................... 1,015,974 1,015,974 1,015,974 Class D convertible preferred stock, $1.00 par value; 280,367 shares authorized; 280,367 shares issued and outstanding ($5,000,000 aggregate liquidation preference)................................................. 280,367 280,367 280,367 Class E convertible preferred stock, $1.00 par value; 523,560 shares authorized at December 31, 1995 (none in 1994); 523,560 shares issued and outstanding at December 31, 1995 (none in 1994) ($10,000,000 aggregate liquidation preference)....................................... -- 523,560 523,560 Class F convertible preferred stock, $1.00 par value; 1,071,429 shares authorized at December 31, 1995 (none in 1994); 1,071,429 shares issued and outstanding at December 31, 1995 (none in 1994) ($15,000,000 aggregate liquidation preference)....................................... -- 1,071,429 1,071,429 Common stock, $.01 par value; 15,000,000 shares authorized; 5,171,759, 5,197,662 and 5,197,662 (unaudited) shares issued and outstanding at December 31, 1994, 1995 and June 30, 1996, respectively................. 51,718 51,977 51,977 Additional paid-in capital.................................................. 34,140,551 57,087,079 57,567,805 Accretion of redeemable preferred stock dividends........................... (1,230,273) (1,440,273) (1,545,273) Deficit accumulated during the development stage............................ (27,218,176) (25,143,705) (31,131,049) Unrealized gain (loss) on available-for-sale securities..................... (19,248) 42,612 -- ---------- ----------- ----------- Total stockholders' equity......................................... 7,073,252 33,541,359 27,887,129 ---------- ----------- ----------- $13,472,186 $39,217,519 $33,625,562 ========== =========== ===========
See accompanying notes. F-3 64 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF OPERATIONS
PERIOD JULY 7, 1988 YEAR ENDED DECEMBER 31, JUNE 30, (DATE OF ----------------------------------------- -------------------------- INCEPTION) 1993 1994 1995 1995 1996 SIX MONTHS ----------- ----------- ----------- ----------- ----------- ENDED JUNE 30, (UNAUDITED) (UNAUDITED) 1996 ------------ (UNAUDITED) License and contract fee revenues.............. $ -- $10,000,000 $15,400,000 $11,700,000 $ 1,975,000 $ 27,375,000 Costs and expenses: Research and development......... 6,253,051 9,125,732 10,066,700 5,205,074 6,839,398 43,566,814 General and administrative...... 2,998,193 4,690,399 4,289,910 1,737,458 1,911,071 17,793,685 ----------- ----------- ----------- ----------- ----------- ------------ Total costs and expenses............ 9,251,244 13,816,131 14,356,610 6,942,532 8,750,469 61,360,499 ----------- ----------- ----------- ----------- ----------- ------------ Income (loss) from operations............ (9,251,244) (3,816,131) 1,043,390 4,757,468 (6,775,469) (33,985,499) Other income (expense): Interest income....... 168,878 470,888 1,129,301 445,772 788,125 3,247,234 Interest expense...... (393) (76,358) (13,220) (13,220) -- (307,784) ----------- ----------- ----------- ----------- ----------- ------------ Other income, net..... 168,485 394,530 1,116,081 432,552 788,125 2,939,450 ----------- ----------- ----------- ----------- ----------- ------------ Income (loss) before provision for income taxes................. (9,082,759) (3,421,601) 2,159,471 5,190,020 (5,987,344) (31,046,049) Provision for income taxes................. -- -- 85,000 85,000 -- 85,000 ----------- ----------- ----------- ----------- ----------- ------------ Net income (loss)....... $(9,082,759) $(3,421,601) $ 2,074,471 $ 5,105,020 $(5,987,344) $(31,131,049) =========== =========== =========== =========== =========== ============ Pro forma net income (loss) per share (unaudited)........... $ 0.14 $ 0.35 $ (0.42) =========== =========== =========== Shares used in computing pro forma net income (loss) per share (unaudited)........... 14,632,870 14,639,748 14,255,336 =========== =========== ===========
See accompanying notes. F-4 65 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
UNREALIZED CUMULATIVE GAIN ACCRETION (LOSS) ON TOTAL PREFERRED STOCK COMMON STOCK ADDITIONAL OF AVAILABLE- STOCKHOLDERS' ---------------------- -------------------- PAID-IN PREFERRED ACCUMULATED FOR-SALE EQUITY SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT SECURITIES (DEFICIT) --------- ---------- ---------- ------- ----------- ----------- ------------ ---------- ------------- Sale of common stock for cash at September and December 1988.... 3,905,356 $39,054 $ (38,379) $ 675 Preferred stock dividend accretion.. $ (19,753) (19,753) Net loss.... $ (99,731 ) (99,731) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1988.... 3,905,356 39,054 (38,379) (19,753) (99,731 ) (118,809) Sale of common stock for cash at May, June and August 1989.... 227,089 2,270 (2,231) 39 Preferred stock dividend accretion.. (160,520) (160,520) Net loss.... (1,346,189 ) (1,346,189) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1989.... 4,132,445 41,324 (40,610) (180,273) (1,445,920 ) (1,625,479) Sale of common stock for cash at February, May and November 1990.... 71,222 712 (699) 13 Repurchase of common stock for cash at January, May and September 1990.... (50,046) (500 ) 491 (9) Sale of Class A Preferred Stock for cash at February 1990.... 3,000 $ 3,000 2,997,000 3,000,000 Preferred stock dividend accretion.. (210,000) (210,000) Net loss.... (2,478,131 ) (2,478,131) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1990.... 3,000 3,000 4,153,621 41,536 2,956,182 (390,273) (3,924,051 ) (1,313,606) Sale of common stock for cash at April, August and September 1991.... 367,798 3,678 (3,615) 63 Repurchase of common stock for cash at August 1991.... (1,446) (14 ) 14 Preferred stock dividend accretion.. (210,000) (210,000) Net loss.... (4,389,924 ) (4,389,924) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1991.... 3,000 3,000 4,519,973 45,200 2,952,581 (600,273) (8,313,975 ) (5,913,467) Sale of common stock for cash at March, May, June, August and December 1992.... 573,942 5,739 (5,640) 99 Repurchase of common stock for cash at February, March, April, May, July, October and December 1992.... (46,170) (462 ) 454 (8) Sale of Class B preferred stock for cash and notes at February 1992.... 39,459 39,459 15,259,265 15,298,724 Preferred stock dividend accretion.. (210,000) (210,000) Net loss.... (6,399,841 ) (6,399,841) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1992.... 42,459 42,459 5,047,745 50,477 18,206,660 (810,273) (14,713,816 ) 2,775,507 Sale of common stock for cash at March, May and August 1993.... 254,687 2,547 (874) 1,673 Repurchase of common stock for cash at January, February, April, June, July, September and October 1993.... (8,331) (83 ) 73 (10) Sale of Class B preferred stock for April 1993.... 9,880 9,880 3,915,780 3,925,660 Sale of Class C preferred stock for cash at November 1993.... 1,015,974 1,015,974 7,059,222 8,075,196
F-5 66 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
UNREALIZED CUMULATIVE GAIN ACCRETION (LOSS) ON TOTAL PREFERRED STOCK COMMON STOCK ADDITIONAL OF AVAILABLE- STOCKHOLDERS' ---------------------- -------------------- PAID-IN PREFERRED ACCUMULATED FOR-SALE EQUITY SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT SECURITIES (DEFICIT) --------- ---------- ---------- ------- ----------- ----------- ------------ ---------- ------------- Compensation expense related to equity issuances... $ 238,571 $ 238,571 Preferred stock dividend accretion.. $ (210,000) (210,000) Net loss.... $(9,082,759 ) (9,082,759) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1993.... 1,068,313.. $1,068,313 5,294,101 $52,941 29,419,432 (1,020,273) (23,796,575 ) 5,723,838 Repurchase of common stock for cash at January, February, June, August and September 1994.... (122,342) (1,223 ) (99,008) (100,231) Sale of Class D preferred stock for cash at May 1994.... 280,367 280,367 4,455,053 4,735,420 Compensation expense related to equity issues... 365,074 365,074 Preferred stock dividend accretion.. (210,000) (210,000) Unrealized loss on available-for- sale securities... (19,248) (19,248) Net loss.... (3,421,601 ) (3,421,601) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1994.... 1,348,680.. 1,348,680 5,171,759 51,718 34,140,551 (1,230,273) (27,218,176 ) (19,248) 7,073,252 Sale of common stock for cash at June and August 1995.... 30,957 310 (69) 241 Repurchase of common stock for cash at January, June and September 1995.... (5,054) (51 ) 11 (40) Sale of Class E preferred stock for cash at March 1995.... 523,560 523,560 9,344,440 9,868,000 Sale of Class F preferred stock for cash at October and December 1995.... 1,071,429 1,071,429 13,179,894 14,251,323 Compensation expense related to equity issues... 422,252 422,252 Preferred stock dividend accretion.. (210,000) (210,000) Unrealized gain on available-for- sale securities... 61,860 61,860 Net income... 2,074,471 2,074,471 ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1995.... 2,943,669 2,943,669 5,197,662 51,977 57,087,079 (1,440,273) (25,143,705 ) 42,612 33,541,359 Sale of common stock for cash at January and June 1996 (unaudited)... 289 3 (1) 2 Repurchase of common stock for cash at January 1996 (unaudited)... (289) (3 ) 1 (2) Compensation expenses related to equity issues (unaudited)... 480,726 480,726 Preferred stock dividend accretion.. (105,000) (105,000) Unrealized loss on available-for- sale securities (unaudited)... (42,612) (42,612) Net loss (unaudited)... (5,987,344 ) (5,987,344) ----- ------ --------- ------- ---------- --------- ----------- ------- ----------- BALANCE AT JUNE 30, 1996 (UNAUDITED)... 2,943,669 $2,943,669 5,197,662 $51,977 $57,567,805 $(1,545,273) $(31,131,049) $ -- $27,887,129 ===== ====== ========= ======= ========== ========= =========== ======= ===========
See accompanying notes. F-6 67 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS
PERIOD JULY 7, 1988 SIX MONTHS ENDED (DATE OF YEAR ENDED DECEMBER 31, JUNE 30, INCEPTION) ---------------------------------------- --------------------------- THROUGH 1993 1994 1995 1995 1996 JUNE 30, 1996 ----------- ----------- ------------ ------------ ------------ ------------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net income (loss).............. $(9,082,759) $(3,421,601) $ 2,074,471 $ 5,105,020 $ (5,987,344) $ (31,131,049) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization............. 612,666 1,252,734 1,488,318 734,321 789,401 5,232,717 Compensation expense related to equity issuances................ 238,571 365,074 422,252 238,000 480,726 1,506,623 Forgiveness of loan and interest receivable from terminated employee...... 334,000 334,000 Accrued interest on convertible debt......... 217,679 Changes in operating assets and liabilities: (Increase) decrease in prepaid expenses and other current assets..... (214,470) 100,035 171,138 79,378 (146,129) (302,139) Increase (decrease) in accounts payable......... 880,116 (820,943) 162,650 (99,320) (31,957) 483,378 Increase in accrued expenses................. 191,567 276,988 2,521 (141,517) (10,770) 709,782 ----------- ----------- ------------ ------------ ------------ ------------ Net cash provided (used) by operating activities......... (7,374,309) (1,913,713) 4,321,350 5,915,882 (4,906,073) (22,949,009) INVESTING ACTIVITIES Sales of marketable securities................... 6,821,432 41,850,807 29,655,524 27,033,777 75,706,016 Purchases of marketable securities................... (2,398,499) (9,414,673) (59,761,766) (43,718,701) (15,106,279) (86,681,217) Property and equipment additions.................... (2,352,334) (2,837,450) (558,243) (178,301) (526,889) (8,901,132) (Increase) decrease in employee loans........................ 2,507 (20,901) (20,176) (440,868) License additions.............. (10,714) (41,557) (122,403) (32,403) (53,225) (442,899) (Increase) decrease in other assets....................... (156,807) (47,107) 202,316 187,914 (182,383) (331,581) ----------- ----------- ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities......... (4,918,354) (5,516,848) (18,410,190) (14,106,143) 11,165,001 (21,091,681)
F-7 68 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS -- (CONTINUED)
PERIOD YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 7, 1988 ---------------------------------------- JUNE 30, (DATE OF 1993 1994 1995 --------------------------- INCEPTION) ----------- ----------- ------------ 1995 1996 THROUGH ------------ ------------ JUNE 30, 1996 (UNAUDITED) (UNAUDITED) ------------------- (UNAUDITED) FINANCING ACTIVITIES Sale of Class A redeemable preferred (September 1988 and May 1989).................... $ 3,000,000 Sale of Class A preferred stock (February 1990).............. 3,000,000 Sale of Class B convertible stock........................ $ 3,925,660 14,006,705 Sale of Class C convertible stock........................ 8,075,196 8,075,196 Sale of Class D convertible preferred stock.............. $ 4,735,420 4,735,420 Sale of Class E convertible preferred stock.............. $ 9,868,000 $ 9,868,000 9,868,000 Sale of Class F convertible preferred stock.............. 14,251,323 14,251,323 Issuance of convertible debt... 5,000,000 Bank debt proceeds............. 50,000 1,447,147 1,497,147 Bank debt repayments........... (399,202) (1,097,945) (1,097,945) (1,497,147) Sale (repurchase) of common stock, net................... 1,663 (100,231) 201 203 (97,495) ----------- ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities................... 12,052,519 5,683,134.. 23,021,579 8,770,258 61,839,149 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents......... (240,144) (1,747,427) 8,932,739 579,997 $ 6,258,928 17,798,459 Cash and cash equivalents at beginning of period.......... 4,594,363 4,354,219 2,606,792 2,606,792 11,539,531 -- ----------- ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period................ $ 4,354,219 $ 2,606,792 $ 11,539,531 $ 3,186,789 $ 17,798,459 $ 17,798,459 =========== =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Conversion of convertible debt and accrued interest for Class B convertible preferred stock........................ $ 5,217,679 ===========
See accompanying notes. F-8 69 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) 1. BASIS OF PRESENTATION NATURE OF BUSINESS Transkaryotic Therapies, Inc. (the Company) was incorporated in July 1988 and is a development-stage enterprise. The Company is dedicated to the development and commercialization of therapeutic human proteins produced with the Company's gene activation technology, and gene therapy products for the long-term treatment and cure of a broad range of chronic human diseases. Since inception, principal activities have been focused on the discovery and development of technology and products in gene therapy and related fields, the development of business plans, the seeking of financing, and the recruitment and training of personnel. The Company's ability to progress beyond the development stage is dependent upon the completion of additional financings and, ultimately, the successful development and marketing of its products. 2. SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL STATEMENTS (UNAUDITED) The balance sheet at June 30, 1996, the statements of operations and statements of cash flows for the six months ended June 30, 1995 and 1996 and the period from July 7, 1988 (date of inception) through June 30, 1996, and the statement of stockholders' equity for the six months ended June 30, 1996 are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results for these interim periods. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of results to be expected for the entire year. ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which establishes criteria for the recognition and measurement of impairment loss associated with long-lived assets. The Company adopted this standard in the first quarter of 1996. Adoption of this standard did not have a material impact on the Company's financial position or results of operation. MARKETABLE SECURITIES Marketable securities consist of highly liquid investments with a maturity of more than three months when purchased. The Company uses these investments in its cash management program. The investments are classified as available-for-sale. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist of temporary cash investments. The Company maintains cash and cash equivalents with high-credit-quality financial institutions and limits the amount of credit exposure to any one institution. PROPERTY AND EQUIPMENT Equipment, furniture and fixtures are stated at cost and are being depreciated using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are stated at cost and are being amortized using the straight-line method over the term of the lease. F-9 70 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STOCK-BASED COMPENSATION The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its stock-based compensation plans rather than the alternative fair value accounting provided under Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation." REVENUE RECOGNITION Fees received for licenses, research milestones and contract research are recognized when earned. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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. PRO FORMA NET INCOME (LOSS) PER SHARE (UNAUDITED) Pro forma net income (loss) per share is computed using the weighted average number of common shares, convertible preferred shares assuming conversion at date of issuance, and dilutive equivalent shares from stock options and warrants using the treasury stock method. Pursuant to the requirements of the Securities and Exchange Commission, shares and equivalent shares issued by the Company during the twelve-month period prior to the proposed offering have been included in the calculations as if they were outstanding for all periods presented whether or not they are anti-dilutive (using the treasury stock method and using the assumed initial public offering price). Historical earnings per share have not been presented since such amounts are not deemed meaningful due to the significant change in the Company's capital structure that will occur in connection with this offering. All shares of common stock and related per share amounts included in the accompanying financial statements and notes thereto have been retroactively restated to give effect to a 1.285714 for 1 stock split, effected in the form of a stock dividend (see Note 10). 3. AVAILABLE-FOR-SALE SECURITIES The following is a summary of available-for-sale securities at December 31, 1994 and 1995, and June 30, 1996:
DECEMBER 31, 1994 ------------------------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities and obligations of U.S. Government agencies................... $ 2,558,787 $ -- $ (1,591) $ 2,557,196 U.S. corporate securities.................... 3,500,111 -- (5,036) 3,495,075 Foreign corporate securities................. 999,551 -- (12,621) 986,930 ----------- ------- -------- ----------- $ 7,058,449 $ -- $ (19,248) $ 7,039,201 =========== ======= ======== ===========
F-10 71 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 ------------------------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities and obligations of U.S. Government agencies................... $29,750,091 $ 44,886 $ (2,274) $29,792,703 =========== ======= ======== ===========
JUNE 30, 1996 (UNAUDITED) ------------------------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities and obligations of U.S. Government agencies................... $27,074,385 $ -- $ -- $27,074,385 =========== ======= ======== ===========
These securities are classified in the accompanying balance sheet as follows:
DECEMBER 31, -------------------------- JUNE 30, 1994 1995 1996 ---------- ----------- ----------- (UNAUDITED) Cash equivalents............................. $2,066,709 $ 6,847,392 $16,099,184 Marketable securities........................ 4,972,492 22,945,311 10,975,201 --------- ---------- ---------- $7,039,201 $29,792,703 $27,074,385 ========= ========== ==========
The amortized cost and fair value of available-for-sale securities are as follows:
DECEMBER 31, 1995 JUNE 30, 1996 --------------------------- --------------------------- COST FAIR VALUE COST FAIR VALUE ----------- ----------- ----------- ----------- (UNAUDITED) U.S. Treasury securities and obligations of U.S. Government agencies: Due in one year or less....... $18,360,507 $18,371,453 $27,074,385 $27,074,385 Due after one year through three years................. 11,389,584 11,421,250 -- -- ----------- ----------- ----------- ----------- $29,750,091 $29,792,703 $27,074,385 $27,074,385 =========== =========== =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, JUNE 30, ------------------------- 1996 1994 1995 ----------- ---------- ---------- (UNAUDITED) Leasehold improvements......................... $4,912,343 $5,015,967 $ 5,040,767 Laboratory equipment........................... 2,177,368 2,386,082 2,693,876 Office furniture and equipment................. 682,563 927,390 1,101,868 ---------- ---------- ---------- 7,772,274 8,329,439 8,836,511 Less accumulated depreciation and amortization................................. 2,869,313 4,330,786 5,082,066 ---------- ---------- ---------- Property and equipment, net.................... $4,902,961 $3,998,653 $ 3,754,445 ========== ========== ==========
F-11 72 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Depreciation and amortization expense on property and equipment was approximately $597,000, $1,233,000 and $1,463,000 in 1993, 1994 and 1995, respectively. 5. EMPLOYEE LOANS The Company has periodically provided loans to selected management personnel. Outstanding loans of $166,000 at December 31, 1995, classified as other assets in the accompanying balance sheet, will be repaid by 2003 and bear interest at rates derived from the U.S. Treasury secondary market rate. The loans may be prepaid and are secured by the employee's common shares and options to purchase common shares. In 1994, one loan of $275,000 was forgiven as part of a severance arrangement (see Note 13). 6. LICENSES The Company has entered into licensing agreements with various universities and research organizations. Under the terms of these agreements, the Company has received exclusive and nonexclusive licenses to technology and technology claimed in certain patents and patent applications. The Company is required to make payments of nonrefundable license fees and royalties on future sales of products employing the technology. In 1993, 1994 and 1995, the Company paid license fees under these agreements totaling approximately $11,000, $42,000 and $122,000, respectively. 7. ACCRUED EXPENSES
DECEMBER 31, --------------------- JUNE 30, 1994 1995 1996 -------- -------- ----------- (UNAUDITED) Salaries and benefits............................. $204,946 $177,937 $ 172,401 Professional fees................................. 112,896 157,815 257,647 Deferred rent..................................... 89,600 89,600 89,600 Income taxes payable.............................. -- 85,000 -- Other............................................. 41,789 31,000 55,734 -------- -------- -------- $449,231 $541,352 $ 575,382 ======== ======== ========
8. BANK DEBT At December 31, 1994, the Company had borrowed $1,497,000 subject to the terms of a bank loan and a lease line of credit. Funds obtained under these agreements were repayable over a 36-month term at interest rates ranging from 6.42% to 9.75%. In February 1995, the Company paid a fee of $10,000 and repaid the obligations in full under the prepayment terms of these lending arrangements. 9. REDEEMABLE PREFERRED STOCK At December 31, 1995, the Company has authorized, issued and outstanding 3,000 shares of Class A Redeemable preferred stock. Each holder of Class A Redeemable preferred stock is entitled to receive cumulative annual dividends of $70 per share. At December 31, 1995, dividend payments in arrears were $1,440,273. The carrying amount of the Class A Redeemable preferred stock has been increased by periodic accretions equal to the cumulative unpaid dividends. In the event seven consecutive dividend payments are in arrears and until all such dividends are paid, the holders of the Class A Redeemable preferred shares may vote as a class to elect one additional director to the Company's Board of Directors. Class A Redeemable preferred stockholders have preemptive rights to purchase all or part of any new securities that the Company proposes to F-12 73 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) issue. These rights will terminate upon the closing of an initial public offering of the Company's common stock. In 1995, the Class A preferred stockholders agreed to amend the redemption provisions of the stockholders' agreement, moving the commencement date of the redemption from December 31, 1995 to December 31, 1997. Therefore, beginning on December 31, 1997, the Company is required annually to redeem 750 shares of Class A Redeemable preferred stock for $1,000 per share plus all accrued but unpaid dividends. In the event of liquidation, the Class A Redeemable preferred stockholders would be entitled to be paid an amount equal to $700 per share plus all accrued but undeclared and declared but unpaid dividends thereon. Upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus, the Class A Redeemable preferred stock and all rights to accrued dividends thereon will be automatically converted into common stock of the Company at a formula price. 10. STOCKHOLDERS' EQUITY Class A Preferred Stock At December 31, 1995, the Company has authorized, issued and outstanding 3,000 shares of Class A preferred stock. Class A preferred stockholders have preemptive rights to purchase all or part of any new securities that the Company proposes to issue. These rights will terminate upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus. In the event of liquidation, the Class A preferred stockholders would be entitled to be paid an amount equal to $700 per share and cumulative annual dividends of $70 per share. Upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus, the Class A preferred stock will be automatically converted into common stock at a formula price. Convertible Preferred Stock The Company has authorized five classes of convertible preferred stock: Class B, Class C, Class D, Class E and Class F. Each Class has liquidation preference over common stock, but subordinate to Class A preferred stock. Each share of convertible preferred stock may be converted, at the option of the holder, into shares of common stock at a defined ratio and will be automatically converted into common stock upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus. Each share of convertible preferred stock is entitled to one vote for each share of common stock issuable upon conversion thereof. Convertible preferred stockholders have preemptive rights to purchase all or part of any subsequent issue of equity securities by the Company, which rights will terminate upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus. The liquidation preference and conversion ratio per share of each class of convertible preferred stock are as follows:
LIQUIDATION CONVERSION PREFERENCE RATIO ----------- ---------- Class B............................................... $400.00 59:1 Class C............................................... 8.00 1.29:1 Class D............................................... 17.83 1.62:1 Class E............................................... 19.10 1.29:1 Class F............................................... 14.00 1.29:1
In July 1996, the Company authorized 1,136,364 shares of $1.00 par value Class G convertible preferred stock, of which 1,133,589 shares were sold during July and August 1996 raising approximately $23,470,000 after deducting the costs associated with the financing. The Class G convertible preferred stock has liquidation F-13 74 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) preference over the common stock in the amount of $22.00 per share and each share may be converted into 1.29 shares of common stock at the option of the stockholder and will be automatically converted to common stock upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus. Class G convertible preferred stockholders have preemptive rights to purchase, up to certain limits, their pro rata share of any new securities that the Company proposes to issue. These rights will terminate upon the closing of an initial public offering of the Company's common stock, as contemplated in this Prospectus. On July 22, 1996, the Board of Directors authorized, subject to shareholder approval and the completion of the initial public offering as contemplated in this Prospectus, 10,000,000 shares of undesignated preferred stock with a par value of $.01 per share. Common Stock Certain shares of common stock are restricted by terms of stock purchase agreements between the Company and certain employees and consultants. Restricted shares vest at annual rates ranging from 16.7% to 33.3% subject to the terms of the vesting agreements. Upon termination of the services of the employee or consultant, the Company has the right to repurchase any unvested shares at the original issue price of $.01 per share. At December 31, 1995, there were 1,580,974 shares outstanding under these agreements, of which 1,417,262 shares were vested. Cash dividends may not be declared on common stock until all dividend rights of the preferred stockholders have been fulfilled. As of December 31, 1995 a total of 9,932,000 shares of common stock have been reserved for issuance of stock options and warrants and the conversion of preferred stock. For certain equity issuances, the Company recognizes as compensation expense the excess of the deemed value for accounting purposes of the common stock and common stock options (see Note 11) issued over the purchase price of the stock. This compensation expense is amortized over the term of the vesting agreement. As of December 31, 1995 and June 30, 1996, the Company had unamortized deferred compensation associated with unvested equity awards aggregating $1,243,897 and $4,948,576, respectively. Compensation expense recognized on outstanding common stock and options was approximately $231,000, $365,000 and $422,000 for 1993, 1994 and 1995, respectively, and $238,000 and $481,000 for the six months ended June 30, 1995 and 1996, respectively. On July 22, 1996, the Board of Directors authorized, subject to shareholder approval and the completion of the initial public offering as contemplated in this Prospectus, an increase in the authorized shares of common stock from 15,000,000 to 30,000,000 shares. On August 15, 1996, the Board of Directors approved a 1.285714 for 1 stock split of common stock, effected in the form of a stock dividend. All shares of common stock and related per share amounts included in the accompanying financial statements and notes thereto have been retroactively restated to give effect to the stock split. 11. STOCK-BASED INCENTIVE PLANS AND STOCK WARRANTS Under the Company's 1993 Long-Term Incentive Plan, awards in the form of stock options, stock appreciation rights, restricted stock, long-term performance awards and stock grants may be issued to employees, consultants and advisors of the Company at prices to be determined by the Compensation Committee of the Board of Directors. At December 31, 1996, a total of 1,607,143 shares of common stock have been reserved for issuance under the plan. On July 22, 1996, the Board of Directors voted to increase the number of shares available for issuance under the plan to 2,250,000, subject to shareholder approval. Options vest over a period of six years and terminate ten years from date of grant. Options to purchase 7,660 and 289 shares of common stock were exercised during 1995 and the six months ended June 30, 1996, respectively. At F-14 75 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1995 and June 30, 1996, respectively, options to purchase 136,344 and 810,315 shares of common stock at nominal value were outstanding. Options for 27,519 and 39,759 shares were exercisable at December 31, 1995 and June 30, 1996, respectively. The Company's 1993 Non-Employee Directors' Stock Option Plan provides for automatic common stock option grants to each Director who is not an employee of the Company and does not own any common stock of the Company which was purchased prior to June 1993. Such eligible Directors will receive an annual option grant to purchase 6,750 shares of common stock while the Director remains an active member of the Board. The options will be exercisable ratably over a three-year period and must be exercised within ten years from date of grant. The options will entitle the holder to purchase shares at fair market value on the date of grant. A total of 231,429 shares of common stock have been reserved for issuance under the plan. At December 31, 1995, no awards had been made under this plan, and no Directors were eligible to participate. The following exercisable common stock warrants are outstanding at December 31, 1995 and June 30, 1996:
COMMON EXERCISE EXPIRATION SHARES PRICE DATE - ------- -------- -------------- 86,786 $ 6.22 November 1997 77,181 6.91 April 1998 653,126 7.78 November 1998
12. LICENSE AND CONTRACT FEE REVENUES In May 1994 and March 1995, the Company entered into license and stock purchase agreements with a pharmaceutical company (the Partner), whereby the Partner was granted exclusive rights to make, use and sell worldwide two therapeutic products produced under patent rights and technologies owned by the Company. Under the terms of the agreements, the Company received $10 million in each of 1994 and 1995 as nonrefundable licensing fees. In 1995, the Company also received an initial milestone payment of $2 million for successful completion of certain research and $3.4 million for primarily contract research funding under these agreements. In the six month period ended June 30, 1996, the Company received an additional $1.7 million under these agreements. As part of these agreements, the Partner will make additional payments of up to $83.3 million in the form of equity purchases and payments due upon achievement of predetermined milestones. 13. RETIREMENT PLAN AND OTHER BENEFITS The Company maintains a 401(k) matched retirement savings plan which covers substantially all employees who have completed at least six months of service to the Company. The Company may match employee contributions up to 50% of the first 5% of employee compensation. Employees are fully vested in contributions they make to the plan. Employer contributions vest at a rate of 20% per year after the first year of service by the employee. The total expense related to the retirement plan in 1993, 1994 and 1995 was approximately $45,000, $57,000 and $83,000, respectively. In 1994, a former officer and director terminated his association with the Company. As part of the termination agreement, the Company forgave loans and interest of approximately $334,000, repurchased 16,071 shares of its common stock for $100,000 and made severance payments of approximately $210,000 to the former executive. F-15 76 TRANSKARYOTIC THERAPIES, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 14. INCOME TAXES Prior to 1995, the Company had incurred only operating losses; however, no tax benefit for these operating losses had been provided given uncertainty regarding their realization. In 1995, the Company utilized approximately $1.6 million of tax benefit from net operating loss carryforwards to offset the current year tax provision except for $85,000 of income taxes due under the alternative minimum tax rules of the Internal Revenue Code (the Code). At December 31, 1995, the Company had net operating loss carryforwards of approximately $22 million which expire through 2009. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets relating to those carryforwards. The future utilization of net operating loss carryforwards may be subject to limitation under the change in stock ownership rules of the 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. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has no deferred tax liabilities as of December 31, 1994 and 1995. Significant components of the Company's deferred tax assets as of December 31, 1994 and 1995 are as follows (in thousands):
DECEMBER 31, ------------------- 1994 1995 ------- ------- Deferred tax assets: Net operating loss carryforwards............................... $10,975 $ 9,397 Tax credits.................................................... 1,801 2,479 Fixed assets................................................... 519 752 Other.......................................................... 298 40 -------- -------- Total deferred tax assets........................................ 13,593 12,668 Valuation allowance.............................................. (13,593) (12,668) -------- -------- Net deferred tax assets.......................................... $ 0 $ 0 ======== ========
15. COMMITMENTS AND CONTINGENCIES The Company leases its facilities under operating leases. The Company has a five-year lease for additional space at its current facility. The lease allowed for a reduced rental payment in the first year of the lease. For financial reporting purposes, the aggregate rent expense of the entire lease period is recognized ratably over the lease period, thus creating a deferred liability which amounted to $268,800 at December 31, 1995. The lease agreement contains a renewal option to extend the lease for two five-year periods. Future annual minimum payments under all noncancelable operating leases are as follows: Year ended: 1996................................................... $1,154,000 1997................................................... 1,056,000 1998................................................... 1,028,000 ---------- Total.......................................... $3,238,000 ==========
Rent expense was approximately $275,000, $1,087,000 and $992,000 in 1993, 1994 and 1995, respectively. F-16 77 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses to be paid by the Registrant in connection with this offering are as follows: SEC registration fee...................................................... $ 14,871 Nasdaq National Market fee................................................ 50,000 NASD filing fee and expenses.............................................. 4,813 Blue Sky fees and expenses................................................ 17,000 Printing and engraving expenses........................................... 100,000 Accounting fees and expenses.............................................. 100,000 Legal fees and expenses................................................... 370,000 Transfer Agent and Registrar fees......................................... 5,800 Miscellaneous............................................................. 17,516 -------- Total........................................................... $680,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits the Registrant to indemnify directors, officers, employees and agents of the Registrant against actual and reasonable expenses (including attorneys' fees) incurred by them in connection with any action, suit or proceeding brought against them by reason of their status or service as a director, officer, employee or agent by or on behalf of the Registrant, and against expenses (including attorneys' fees), judgments, fines and settlements actually and reasonably incurred by him in connection with any such action, suit or proceeding, if (i) he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and (ii) in the case of a criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. Except as ordered by a court, no indemnification shall be made in connection with any proceeding brought by or in the right of the corporation where the person involved is adjudged to be liable to the Registrant. Article VII of the Registrant's Amended and Restated Certificate of Incorporation provides that a director shall not be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that elimination or limitation of liability is not permitted under the Delaware General Corporation Law as in effect when such liability is determined. Article VIII of the Registrant's Amended and Restated Certificate of Incorporation provides that the Registrant shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become a director or officer of the Registrant, or is or was serving, or has agreed to serve at the request of the Registrant as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided for in Article VIII is expressly not exclusive of any other rights to which those seeking indemnification may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors and administrators of such persons. Article VIII further permits the Board of Directors to authorize the grant of indemnification rights to other employees and agents of the Registrant and such rights may be equivalent to, or greater or less than, those set forth in Article VIII. Article VIII further permits the Registrant to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the Registrant against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position, whether or not the Registrant would have the power to indemnify against such liability under the provisions set forth in Article VIII. II-1 78 Article VIII, Section 8 of the Registrant's By-Laws provides that the Registrant shall indemnify any and all of its directors or officers to the fullest extent permitted by the General Corporation Law of the State of Delaware. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since August 15, 1993, the Registrant has sold and issued the following unregistered securities: On November 3, 1993, the Registrant sold an aggregate of 507,987 Units, each consisting of (i) two shares of Class C Preferred Stock and (ii) one Common Stock Purchase Warrant to certain investors at a purchase price of $16.00 per Unit for an aggregate consideration of $8,127,792.00. On May 18, 1994, the Registrant sold an aggregate of 280,367 shares of Class D Preferred Stock to HMRI (formerly named Marion Merrell Dow Inc.) at a purchase price of $17.8338 per share for an aggregate consideration of $5,000,000 in connection with a License Agreement relating to joint research and development by the Company and HMRI. On March 1, 1995, the Registrant sold an aggregate of 523,560 shares of Class E Preferred Stock to HMRI at a purchase price of $19.10 per share for an aggregate consideration of $10,000,000 in connection with a second License Agreement relating to joint research and development between the Company and HMRI. On October 26, 1995 and December 4, 1995, the Registrant sold an aggregate of 1,071,429 shares of Class F Preferred Stock to certain investors at a purchase price of $14.00 per share for an aggregate consideration of $15,000,000. On July 10, 1996 and August 7, 1996, the registrant sold an aggregate of 1,133,589 shares of Class G Preferred Stock to certain investors at a purchase price of $22.00 per share for an aggregate consideration of $24,938,958. Between August 15, 1993 and August 15, 1996, the Registrant granted options to purchase 930,529 shares of Common Stock to its employees and consultants under its 1993 Long-Term Incentive Plan at an exercise price of $0.01 per share. As of August 15, 1996, options to purchase 7,950 shares have been exercised, options to purchase 47,336 shares have been cancelled and options to purchase 875,243 shares remain outstanding. Between August 15, 1993 and August 15, 1996 the Registrant has granted 24,303 shares of Restricted Common Stock to its employees and consultants. As of August 15, 1996, 15,303 shares have vested, no shares have been cancelled and 9,000 shares remain unvested. No underwriter was engaged in connection with the foregoing sales of securities. Sales of Common Stock to employees have been made in reliance upon the exemption from the registration requirements afforded by Section 3(b) of the Securities Act of 1933 (the "Act") and Rule 701 thereunder as sales of an issuer's securities pursuant to a written contract relating to the compensation of such individuals. Sales of the shares of Preferred Stock and issuances of warrants to purchase shares of Common Stock were made in reliance upon Section 4(2) of the Act as transactions not involving any public offering and Regulation D thereunder. The Registrant has reason to believe that all of the foregoing purchasers were familiar with or had access to information concerning the operations and financial condition of the Registrant, and all of those individuals acquired the shares for investment and not with a view to the distribution thereof. At the time of issuance, all of the foregoing shares of Common Stock and Preferred Stock, or warrants to purchase shares, were deemed to be restricted securities for the purposes of the Act, and the certificates representing such securities bore legends to that effect. II-2 79 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following exhibits are filed herewith: 1.1* -- Form of Underwriting Agreement. 3.1 -- Amended and Restated Certificate of Incorporation of the Registrant. 3.2 -- Form of Amended and Restated Certificate of Incorporation of the Registrant. 3.3 -- By-Laws of the Registrant. 3.4 -- Form of Amended and Restated By-Laws of the Registrant. 4.1* -- Specimen certificate for shares of Common Stock of the Registrant. 5.1 -- Opinion of Palmer & Dodge LLP as to legality of the shares being registered. 9.1 -- Amended and Restated Voting Rights Agreement, dated November 3, 1993 and amended on May 18, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and August 7, 1996, by and among the Registrant and certain holders of the Registrant's Preferred Stock named therein. 10.1 -- Stock Purchase Agreement, dated July 1988, by and between Warburg, Pincus Capital Company, L.P. ("Warburg") and the Registrant. 10.2 -- Stockholders' Agreement, dated September 16, 1988, by and among Warburg, certain individual investors and the Registrant. 10.3 -- Class B Preferred Stock Purchase Agreement, dated February 14, 1992 and amended on April 20, 1993, by and among certain Purchasers and the Registrant. 10.4 -- Class B Preferred Stock Purchase Agreement, dated April 20, 1993, by and among certain Purchasers and the Registrant. 10.5 -- Class C Preferred Stock and Warrant Purchase Agreement, dated November 3, 1993, by and among the Registrant and certain Purchasers named therein. 10.6 -- Class D Preferred Stock Purchase Agreement, dated May 18, 1994, by and among the Registrant and certain Purchasers named therein. 10.7 -- Class E Preferred Stock Purchase Agreement, dated March 1, 1995, by and among the Registrant and certain Purchasers named therein. 10.8 -- Class F Preferred Stock Purchase Agreement, dated October 26, 1995, by and among the Registrant and certain Purchasers named therein. 10.9 -- Class G Preferred Stock Purchase Agreement, dated July 10, 1996, by and among the Registrant and certain Purchasers named therein. 10.10 -- Supplemental Class G Preferred Stock Purchase Agreement, dated August 7, 1996, by and among the Registrant and certain Purchasers named therein. 10.11 -- 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 the Registrant and certain holders of the Registrant's Preferred Stock named therein. 10.12 -- Lease Agreement, dated January 1, 1994, by and between the Trust under the Will of Harry F. Stimpson for office space at 195 Albany Street, Cambridge, Massachusetts. 10.13 -- Sublease Agreement, dated April 7, 1992, by and between the Massachusetts Institute of Technology and the Registrant, for office space located at 185 Albany Street, Cambridge, Massachusetts. 10.14 -- 1993 Non-Employee Directors' Stock Option Plan. 10.15 -- 1993 Long-Term Incentive Plan. 10.16 -- Form of Letter Agreement re: Confidentiality, Inventions and Non-Disclosure. 10.17 -- Form of Letter Agreement re: Restricted Stock. 10.18 -- Form of Scientific Advisor Agreement. 10.19 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the Registrant to Dr. Richard F Selden, in the original principal amount of $125,000. 10.20 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the Registrant to Dr. Douglas A. Treco, in the original principal amount of $60,000.
II-3 80 10.21 -- Amended and Restated Promissory Note, dated April 21, 1995, issued by the Registrant to Dr. Christoph M. Adams, in the original principal amount of $15,000. 10.22 -- Amended and Restated Promissory Note, dated May 5, 1995, issued by the Registrant to Dr. Christoph M. Adams, in the original principal amount of $20,000. 10.23 -- Employment Agreement, dated July 19, 1991, by and between Dr. Richard F Selden and the Registrant. 10.24 -- Pledge Agreement, dated May 14, 1991, by and between Dr. Richard F Selden and the Registrant. 10.25 -- Employment Agreement, dated July 26, 1991, by and between Dr. Douglas A. Treco and the Registrant. 10.26 -- Pledge Agreement, dated August 15, 1991, by and between Dr. Douglas A. Treco and the Registrant. 10.27 -- Employment Agreement, dated November 20, 1993, by and between Dr. Christoph M. Adams and the Registrant. 10.28 -- Pledge Agreement, dated April 21, 1995, by and between Dr. Christoph M. Adams and the Registrant. 10.29 -- Agreement, dated September 1, 1991, by and between Mr. William R. Miller and the Registrant. 10.30 -- Agreement, dated July 30, 1993, by and between Warburg and the Registrant. 10.31 -- Common Stock Purchase Warrant, dated September 12, 1991. 10.32 *+ -- Collaboration and License Agreement, dated July 22, 1993 and amended on May 30, 1996, by and between Genetics Institute, Inc. and the Registrant. 10.33 *+ -- Amended and Restated License Agreement, dated March 1, 1995, by and between Hoechst Marion Roussel, Inc. ("HMRI") and the Registrant. 10.34 *+ -- License Agreement, dated March 1, 1995, by and between HMRI and the Registrant. 11.1 -- Statement re: computation of earnings (loss) per share -- pro forma. 23.1 -- Consent of Palmer & Dodge LLP (included in Exhibit 5.1). 23.2 -- Consent of Hamilton, Brook, Smith & Reynolds, P.C. 23.3 -- Consent of Ernst & Young LLP. 24.1 -- Power of Attorney (included on the signature pages to this Registration Statement) 27 -- Financial Data Schedule
- --------------- * To be filed by amendment. + Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. (b) Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under "Item 14 -- Indemnification of Directors and Officers" above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court II-4 81 of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 82 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on August 26, 1996. TRANSKARYOTIC THERAPIES, INC. By: /s/ RICHARD F SELDEN --------------------------------- Richard F Selden President and Chief Executive Officer Each undersigned person hereby constitutes and appoints Richard F Selden, Anthony R. Hall and Peter Wirth and each of them with full power of substitution and full power to act without the other, as his true and lawful attorney-in-fact and agent, with full power to sign any and all amendments to this Registration Statement on Form S-1 of Transkaryotic Therapies, Inc., and to file the same with the Securities and Exchange Commission, including any and all post-effective amendments and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b) and to execute all other documents and take all other actions on behalf of such undersigned person as may be necessary or advisable in connection with the registration of the shares covered by this Registration Statement under the Securities Act of 1933, hereby ratifying and confirming all that said attorneys-in-fact may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ RICHARD F SELDEN President, Chief Executive August 26, 1996 - ---------------------------- Officer, Treasurer and Director Richard F Selden (principal executive officer) /s/ ANTHONY R. HALL Vice President, Finance and August 26, 1996 - ---------------------------- Administration; Chief Financial Anthony R. Hall Officer (principal financial and accounting officer) /s/ WILLIAM R. MILLER Director August 26, 1996 - ---------------------------- William R. Miller /s/ RODMAN W. MOORHEAD, III Director August 26, 1996 - ---------------------------- Rodman W. Moorhead, III /s/ JAMES E. THOMAS Director August 26, 1996 - ---------------------------- James E. Thomas II-6 83 EXHIBIT INDEX
SEQUENTIALLY NUMBERED PAGE ------------ 1.1* -- Form of Underwriting Agreement. .................................... 3.1 -- Amended and Restated Certificate of Incorporation of the Registrant. ........................................................ 3.2 -- Form of Amended and Restated Certificate of Incorporation of the Registrant. ........................................................ 3.3 -- By-Laws of the Registrant. ......................................... 3.4 -- Form of Amended and Restated By-Laws of the Registrant. ............ 4.1* -- Specimen certificate for shares of Common Stock of the Registrant. ........................................................ 5.1 -- Opinion of Palmer & Dodge LLP as to legality of the shares being registered. ........................................................ 9.1 -- Amended and Restated Voting Rights Agreement, dated November 3, 1993 and amended on May 18, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and August 7, 1996, by and among the Registrant and certain holders of the Registrant's Preferred Stock named therein. ......... 10.1 -- Stock Purchase Agreement, dated July 1988, by and between Warburg, Pincus Capital Company, L.P. ("Warburg") and the Registrant. ....... 10.2 -- Stockholders' Agreement, dated September 16, 1988, by and among Warburg, certain individual investors and the Registrant. .......... 10.3 -- Class B Preferred Stock Purchase Agreement, dated February 14, 1992 and amended on April 20, 1993, by and among certain Purchasers and the Registrant. .................................................... 10.4 -- Class B Preferred Stock Purchase Agreement, dated April 20, 1993, by and among certain Purchasers and the Registrant. ................... 10.5 -- Class C Preferred Stock and Warrant Purchase Agreement, dated November 3, 1993, by and among the Registrant and certain Purchasers named therein. ..................................................... 10.6 -- Class D Preferred Stock Purchase Agreement, dated May 18, 1994, by and among the Registrant and certain Purchasers named therein. ..... 10.7 -- Class E Preferred Stock Purchase Agreement, dated March 1, 1995, by and among the Registrant and certain Purchasers named therein. ..... 10.8 -- Class F Preferred Stock Purchase Agreement, dated October 26, 1995, by and among the Registrant and certain Purchasers named therein. ........................................................... 10.9 -- Class G Preferred Stock Purchase Agreement, dated July 10, 1996, by and among the Registrant and certain Purchasers named therein. ..... 10.10 -- Supplemental Class G Preferred Stock Purchase Agreement, dated August 7, 1996, by and among the Registrant and certain Purchasers named therein. ..................................................... 10.11 -- 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 the Registrant and certain holders of the Registrant's Preferred Stock named therein. ........................................................... 10.12 -- Lease Agreement, dated January 1, 1994, by and between the Trust under the Will of Harry F. Stimpson for office space at 195 Albany Street, Cambridge, Massachusetts. .................................. 10.13 -- Sublease Agreement, dated April 7, 1992, by and between the Massachusetts Institute of Technology and the Registrant, for office space located at 185 Albany Street, Cambridge, Massachusetts. ...... 10.14 -- 1993 Non-Employee Directors' Stock Option Plan. .................... 10.15 -- 1993 Long-Term Incentive Plan. ..................................... 10.16 -- Form of Letter Agreement re: Confidentiality, Inventions and Non-Disclosure. .................................................... 10.17 -- Form of Letter Agreement re: Restricted Stock. ..................... 10.18 -- Form of Scientific Advisor Agreement. ..............................
84
SEQUENTIALLY NUMBERED PAGE ------------ 10.19 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the Registrant to Dr. Richard F Selden, in the original principal amount of $125,000. ................................................ 10.20 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the Registrant to Dr. Douglas A. Treco, in the original principal amount of $60,000. ................................................. 10.21 -- Amended and Restated Promissory Note, dated April 21, 1995, issued by the Registrant to Dr. Christoph M. Adams, in the original principal amount of $15,000. ....................................... 10.22 -- Amended and Restated Promissory Note, dated May 5, 1995, issued by the Registrant to Dr. Christoph M. Adams, in the original principal amount of $20,000. ................................................. 10.23 -- Employment Agreement, dated July 19, 1991, by and between Dr. Richard F Selden and the Registrant. ............................... 10.24 -- Pledge Agreement, dated May 14, 1991, by and between Dr. Richard F Selden and the Registrant. ......................................... 10.25 -- Employment Agreement, dated July 26, 1991, by and between Dr. Douglas A. Treco and the Registrant. ............................... 10.26 -- Pledge Agreement, dated August 15, 1991, by and between Dr. Douglas A. Treco and the Registrant. ....................................... 10.27 -- Employment Agreement, dated November 20, 1993, by and between Dr. Christoph M. Adams and the Registrant. ............................. 10.28 -- Pledge Agreement, dated April 21, 1995, by and between Dr. Christoph M. Adams and the Registrant. ....................................... 10.29 -- Agreement, dated September 1, 1991, by and between Mr. William R. Miller and the Registrant. ......................................... 10.30 -- Agreement, dated July 30, 1993, by and between Warburg and the Registrant. ........................................................ 10.31 -- Common Stock Purchase Warrant, dated September 12, 1991. ........... 10.32 *+ -- Collaboration and License Agreement, dated July 22, 1993 and amended on May 30, 1996, by and between Genetics Institute, Inc. and the Registrant. ........................................................ 10.33 *+ -- Amended and Restated License Agreement, dated March 1, 1995, by and between Hoechst Marion Roussel, Inc. ("HMRI") and the Registrant. ........................................................ 10.34 *+ -- License Agreement, dated March 1, 1995, by and between HMRI and the Registrant. ........................................................ 11.1 -- Statement re: computation of earnings (loss) per share -- pro forma. ............................................................. 23.1 -- Consent of Palmer & Dodge LLP (included in Exhibit 5.1). ........... 23.2 -- Consent of Hamilton, Brook, Smith & Reynolds, P.C. ................. 23.3 -- Consent of Ernst & Young LLP. ...................................... 24.1 -- Power of Attorney (included on the signature pages to this Registration Statement)............................................. 27 -- Financial Data Schedule.............................................
- --------------- * To be filed by amendment. + Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EX-3.1 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 TRANSKARYOTIC THERAPIES, INC. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION The Certificate of Incorporation was filed on July 7, 1988, and the Restated Certificate of Incorporation of the Corporation, filed with the Secretary of State or the State of Delaware on February 14, 1992, as amended on April 16, 1993 and July 1, 1993, respectively, as hereby further amended and restated in its entirety to read as follows: ARTICLE I. The name of the Corporation is Transkaryotic Therapies, Inc. ARTICLE II. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III. The nature of the business of the Corporation and the purposes for which it is Organized are: (a) To engage in research and development in the field of gene therapy and to pursue various commercial applications of such research; (b) to engage in any other lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware; and (c) in general, to possess and exercise all the powers and privileges granted by the General Corporation Law of the State of Delaware or by any other law of the State of Delaware or by this Certificate of Incorporation, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation. ARTICLE IV. This Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and preferred Stock. The total number or shares of Common 2 Stock this Corporation shall have authority to issue is 15,000,000, par value $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 1,941,000, par value $1.00 per share. There shall be three classes of Preferred Stock. The first such class shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second such class shall consist of 66,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); and the third such class shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock," and together with the Class A Preferred Stock and the Class B Preferred Stock, the "Preferred Stock"). The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative powers, preferences and rights, and relative participating, optional or other special rights, and the qualifications, limitations, or restrictions thereof, granted to or imposed on the respective classes and series of the shares of capital stock or the holders thereof are as follows: 1. DIVIDENDS. 1.1. Preferred Stock. (a) Subject to Section 4.1, the holders of the Class A Preferred Stock shall be entitled to receive cumulative dividends, out of any assets at the time legally available, when and as declared by the Board of Directors, on a pro rata basis in accordance with the number of shares of Class A Preferred Stock held by each such holder, which shall accrue from day-to-day at the rate per annum of $70.00 per share, payable quarterly on the last day of each March, June, September and December (commencing March 31, 1992) and an additional amount equal to the amount of the accrued dividend on the preferred stock exchanged by such holder in consideration of Class A Preferred Stock pursuant to the Stock Exchange Agreement dated February 14, 1992, between the Corporation and such holder, and in preference and priority to any payment of any dividend on any Class B Preferred Stock, Class C Preferred Stock and Common Stock of the Corporation. To the extent that such dividends are not paid, because there exist no funds legally available therefor or for any other reason, such dividends shall accrue. (b) No dividend shall be paid on the Class B Preferred Stock, the Class C Preferred Stock or the Common Stock in any year until all declared and accumulated dividends have been paid on the Class A Preferred Stock. In the event the Board of Directors shall have declared and paid, or set apart for payment, dividends at the rate specified in Section 1.1(a) in any one fiscal year, and shall elect to declare additional dividends in that fiscal year out of funds legally available therefor on the Common Stock, such additional dividends shall, subject to Section 1.1(a) hereof, be declared and paid on each share of Class B Preferred Stock and Class C Preferred Stock at the same time as any dividends are declared and paid on the Common Stock, in an amount equal to the additional - 2 - 3 dividends paid on such number of shares of Common Stock into which each share Class B Preferred Stock and Class C Preferred Stock is convertible on the record date for such dividend payment. 1.2. Common Stock. Subject to the preferences and other rights of the Preferred Stock set forth in Section 1.1, the holders of Common Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, on a pro rata basis in accordance with the number of shares of Common Stock held by each such holder. 2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock shall first be entitled to receive, prior and in preference to any distribution or any of the assets of the Corporation to the holders of any other class of Preferred Stock or Common Stock by reason of their ownership of such stock, the amount of $700.00 per share of Class A Preferred Stock, $400.00 per share of Class B Preferred Stock and $8.00 per share of Class C Preferred Stock plus accrued but undeclared and declared but unpaid dividends on each such share. If the assets and funds of the Corporation shall be insufficient to permit the payment in full to such holders of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock of the full aforesaid preferential amount, then the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock in accordance with the aggregate liquidation preference of the shares of Class A Preferred Stock, Class B Preferred Stock and/or Class C Preferred Stock held by each of them. (b) After payment has been made to the holders of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock, the holders of the Class B Preferred Stock and the holders of the Class C Preferred Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held by them, assuming conversion of the Class B Preferred Stock and the Class C Preferred Stock at the respective Conversion Prices then in effect. (c) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation immediately prior to the merger or consolidation do not own more than fifty percent (50%) of the outstanding voting power (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants) or the surviving corporation, or the sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation. Approval of any of the foregoing events by the holders of at least a majority of the Preferred Stock pursuant to Section 5 hereof shall be deemed an election not to treat any of the foregoing events as a liquidation, dissolution or winding up hereunder. - 3 - 4 3. VOTING RIGHTS. 3.1. Generally. Subject to Section 5 hereof and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote in respect of each share of Common Stock and the holder of each share of Class B Preferred Stock and/or Class C Preferred Stock issued and outstanding shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Class B Preferred Stock and/or Class C Preferred Stock can be converted at the record date for determination of those entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is obtained, such votes to be counted together with all other shares of stock of the Corporation having voting power in the election of directors and not separately as a class. Except as otherwise provided by law or in this Certificate of Incorporation, the holders of Class A Preferred Stock shall not be entitled to notice of, or to vote at, any meeting of the stockholders of the Corporation or to vote on any matter relating to the business of affairs of the Corporation. Record holders of Common Stock, Class B Preferred Stock and/or Class C Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the By-laws of the Corporation. 3.2. Class. A Preferred Stock Director. Notwithstanding the provisions of Section 3.1: (a) In an event that seven (7) consecutive quarterly dividends with respect to the Class A Preferred Stock as set forth in Section 1.1(a) shall be in arrears and shall not have been paid in full, whether or not earned, or in the event the Corporation shall be more than one year in arrears in the redemption of Class A Preferred Stock, then, upon notice to the Corporation given by the holders of not less than 50% of the Class A Preferred Stock then outstanding, the holders of the Class A Preferred Stock shall as a class become entitled to elect one member to the Board of Directors until all accumulated and unpaid dividends thereon and all redemptions in arrears shall have been paid, whereupon such right of the holders of the Class A Preferred Stock to elect one director shall cease, subject to being again revived from time to time upon the reoccurrence of the conditions above described. Failure by the holders of the Class A Preferred Stock to exercise their rights under this Section 3.2 promptly upon the occurrence of the conditions giving rise to such rights shall not be deemed to be a waiver of such rights, such rights being exercisable at any time such conditions shall have occurred and be continuing. (b) Immediately upon accrual of such right of the holders of Class A Preferred Stock to elect a director pursuant to paragraph (a) above, the number of directors of the Corporation shall, ipso facto, be increased by one, and the directors of the Corporation shall thereupon be divided into classes. One such class shall consist of one director (the "Preferred Director") elected solely by the holders of Class A Preferred Stock (voting as a class), and the other class shall consist of the remaining directors. Whenever the number of directors of the Corporation shall have been so increased, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and without the vote of the holders of Class A Preferred Stock, provided that no such action shall impair the right of the holders of Class A - 4 - 5 Preferred Stock to elect the Preferred Director. The holders of the Class A Preferred Stock may at their option at any time exercise their rights under this Section 3.2 by written consent without a meeting in accordance with the General Corporation Law of Delaware. (c) Each Preferred Director elected by the holders of Class A Preferred Stock shall serve for a term of one year and until his or her successor is elected and qualified, or, if earlier, until the right to elect such director ceases in accordance with paragraph (a) above. So long as the holders of Class A Preferred Stock are entitled to elect a Preferred Director, any vacancy in the position of Preferred Director may be filled only by the holders of the Class A Preferred Stock entitled to vote thereon. The Class A Preferred Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Class A Preferred Stock called for such purpose, or the written consent, of the holders of record of a majority of the then outstanding shares of Class A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent. (d) Upon the termination of the right of holders of Class A Preferred Stock to elect a Preferred Director, the term of office of the Preferred Director shall forthwith terminate and the number of directors of the Corporation shall thereupon be appropriately decreased. 4. CONVERSION. 4.1. Optional Conversion. The holders of the Class B Preferred Stock and the Class C Preferred Stock (together, the "Additional Preferred Stock") shall have conversion rights as follows (the "Additional Preferred Conversion Rights"). Each share of Additional Preferred Stock shall be convertible (at the option of the holder thereof) any time at the office of the Corporation or any transfer agent for the Additional Preferred Stock into the number of shares of the Common Stock of the Corporation obtained by dividing the Original Issuance Price (as defined below) for such class of Preferred Stock by the conversion price in effect at the time of conversion, determined as hereinafter provided (the "Conversion Price"). For the Class C Preferred Stock, the Original Issuance Price is $8.00 and the initial Conversion Price is $8.00. All calculations under this Section 4 shall be made to the nearest cent. 4.2. Automatic Conversion. (a) Class A Preferred Stock. Immediately upon the closing of an initial public offering of TKT Common Stock at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combination, or similar recapitalizations occurring after the date hereof) and which results in gross proceeds to the Corporation of at least ten million dollars ($10,000,000) ("Qualified Public Offering"), and simultaneously with the conversion of the Class B Preferred Stock and the Class C Preferred Stock into Common Stock, all Class A Preferred Stock then outstanding and all rights to any and all then unpaid accrued dividends thereon shall automatically be converted into the number of original issue shares of Common Stock produced by dividing (a) six million - 5 - 6 dollars ($6,000,000) by (b) the price per share at which Common Stock is offered in the Qualified Public Offering. (b) Additional Preferred Stock. At any time upon the closing of a Qualified Public Offering, each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price of such class of Preferred Stock. In the event of the automatic conversion of Additional Preferred Stock upon a Qualified Public Offering, the party entitled to receive the Common Stock issuable upon such conversion of Additional Preferred Stock shall not be deemed to have converted such Additional Preferred Stock until such party has received from the Corporation all declared and unpaid dividends and accrued but undeclared dividends owed with respect to such party's Additional Preferred Stock and, in any event, until immediately prior to the closing of the Qualified Public Offering. Each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for such class of Preferred Stock upon the vote to so convert of the holders of at least 66 2/3% of such class of Additional Preferred Stock then outstanding. Each share of Class B Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class B Preferred Stock in the event at least 66 2/3% of the Class B Preferred Stock purchased pursuant to (i) the Class B Preferred Stock Purchase Agreement dated as of February 14, 1992 among the Corporation and the purchasers listed on Schedule A thereto (the "1992 Class B Agreement") and (ii) the Class B Preferred Stock Purchase Agreement dated as of April 20, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the 1993 Class B Agreement"), collectively as one group, have been converted into Common Stock. Each share of Class C Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class C Preferred Stock in the event at least 66 2/3% of the Class C Preferred Stock purchased pursuant to the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "Class A Agreement") have been converted into Common Stock. 4.3. Mechanics of Conversion. Before any holder of Additional Preferred Stock shall be entitled to convert such Stock into shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing the shares of Additional Preferred Stock to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for the Additional Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4.2, the outstanding shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class A Preferred - 6 - 7 Stock or Additional Preferred Stock, as the case may be, are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Class A Preferred Stock or Additional Preferred Stock, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled hereunder and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock plus all accrued and unpaid dividends on such holder's Additional Preferred Stock, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Additional Preferred Stock to be converted, or in the case of automatic conversion immediately prior to closing of the qualified conversion of Class A Preferred Stock or Additional Preferred Stock described in Sections 4.1 and 4.2, as applicable, and the party entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4.4. Adjustment of Conversion Prices due to Issuance of Additional Shares. The Conversion Price in effect from time to time for the Additional Preferred Stock shall be subject to adjustment as follows: (a) Special Definitions. For purposes of this Section 4.4, the following definitions shall apply: (i) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (ii) "Original Issue Date" shall mean the date on which the class of such Additional Preferred Stock is first issued by the Corporation. (iii) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (iv) "Additional Shares of Common Stock" shall mean all shares of Common stock issued (or, pursuant to Subsection 4.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Additional Preferred Stock authorized herein; (B) as a dividend or distribution on the Class A Preferred Stock or Additional Preferred Stock or any event for which adjustment is made pursuant to Section 4.4(f) hereof; - 7 - 8 (C) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B) or this clause (C); (D) out of those 1,250,000 shares of Common Stock reserved for issuance pursuant to the 1993 Long-Term Incentive Plan or out of those 180,000 shares of Common Stock reserved for issuance pursuant to the 1993 Non-Employee Directors' Stock Option Plan or pursuant to any other stock option, stock bonus or other employee stock plan approved by the holders of at least a majority of the Additional Preferred Stock voting as one class, which approval shall include the number of shares of Common Stock available for distribution under any such plan; or (E) upon the exercise of any options or warrants outstanding on the Original Issue Date. (b) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior, to such issue. (c) Deemed Issuance of Additional Shares of Common Stock - Options and Convertible Securities. Except as provided in Section 4.4(a) or Section 4.4(b) hereof, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the document relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4.4(e) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued. (i) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provided, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, - 8 - 9 upon the exercise, conversion or exchange thereof, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if, (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any actually issue upon the exercise of such Options of the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no readjustment pursuant to clause (ii) or (iii) above all have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date, or (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (d) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4(c)) for a consideration per share less than the applicable Conversion Price of a class of Additional Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, the applicable Conversion Price for such class of Additional Preferred Stock shall be recomputed, concurrently with such issue (calculated to the nearest cent) by dividing (x) an among equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior such issue multiplied by the effective Conversion Price and (2) the consideration, if any, deemed received by the Corporation upon such issue by (y) - 9 - 10 the total number of shares of Common Stock deemed to be outstanding immediately after such issue; and provided that, for the purpose of this Section 4.4(d), all shares of Common Stock outstanding and issuable upon conversion of outstanding Options, Convertible Securities and the Additional Preferred Stock shall be deemed to be outstanding, other than shares of Common Stock excluded from the definition of Additional Shares of Common Stock in this Section 4.4. In no event will the Conversion Price be adjusted as the result of a particular issuance of securities to a price less than the price per share of the Additional Shares of Common Stock issued in such issuance nor shall any adjustment be made in the Conversion Price of any class of Additional Preferred Stock as a result of any issuance of any Additional Shares of Common Stock at a price per share in excess of the initial Conversion Price of such class of Additional Preferred Stock nor any adjustments made in such Conversion Price which would result in a Conversion Price higher than the then applicable Conversion Price. (e) Determination of Consideration. for purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property. such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and (C) insofar as Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided n clauses (A) and (B) above, as determined in good faith by the Board of Directors of the Corporation. (ii) Options and Convertible Securities. the consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4(c)(i), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by - 10 - 11 (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Adjustments for Subdivisions, Stock Dividend Combinations, or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be increased by way of stock issued as a dividend for no consideration or subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such increase or subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 4.5. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of the Corporation other than shares of Common Stock, securities of other persons, evidences or indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4.4(c), then, in each such case for the purpose of this Section 4.5, the holders of the Additional Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the corporation into which their shares of such Additional Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 4.6. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Amended and Restated Certificate of Incorporation), provision shall be made so that the holders of the Additional Preferred Stock shall thereafter be entitled to receive upon conversion of the Additional Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Additional Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such class of Additional Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 4.7. No Impairment. The Corporation will not, by further amendment of its Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to - 11 - 12 protect the conversion rights of the holders of the Class A Preferred Stock and Additional Preferred Stock against impairment. 4.8. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any share of Class A or Additional Preferred Stock. If, upon conversion of any share of Class A or Additional Preferred Stock, the registered holder would, except for the provisions of this Section 4.8, be entitled to receive a fractional share of Common Stock, then an amount equal to such fractional share multiplied by the then applicable Conversion Price shall be paid by the Corporation in cash to such registered holder. 4.9. Reservation of Shares. The Corporation agrees that, so long as any share of Class A or Additional Preferred Stock shall remain outstanding, the Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized capital stock, for the purpose of issue upon conversion of the Class A or Additional Preferred Stock, the full number of shares of Common Stock then issuable upon exercise of the Class A and Additional Preferred Stock. 4.10. Validity of Shares. The Corporation agrees that it will from time to time take all such actions as may be requisite to assure that all shares of Common Stock which may be issued upon conversion of any share of the Class A or Additional Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the foregoing, the Corporation agrees that it will from time to time take all such action as may be requisite to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient of the then current par value of the Class A, Class B and Class C Preferred Stock divided by the number of shares of Common Stock into which each share of Class A, Class B or Class C Preferred Stock can, from time to time, be converted. 4.11. Notice of Adjustment. Upon each adjustment of the Conversion Price, the Corporation shall give prompt written notice thereof addressed to the registered holder of each share of the class of Additional Preferred Stock so affected at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares issuable upon the conversion of such holder's shares of Additional Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based together with a certificate of the chief financial officer of the Corporation stating that he or she has examined such notice and certifying that the information contained therein is accurate. 4.12. Notice of Capital Changes. If at any time: (a) the Corporation shall declare any dividend or distribution payable to the holders of its Common Stock; - 12 - 13 (b) The Corporation shall offer for subscription pro rate to the holders of Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation or business organization; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any such case, the Corporation shall give the registered holders of the Additional Preferred Stock written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining stockholders entitled to vote upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and of the date when any such transaction shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least twenty (20) days prior to the record date with respect thereto. 4.13. Taxes. The Corporation will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of the Additional Preferred Stock. 4.14. Waiver of Adjustment. (a) With the consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the then currently outstanding shares of Class B Preferred Stock or Class C Preferred Stock, any antidilution adjustment to which such class of preferred stock would otherwise be entitled under this Section 4 may be limited or waived in its entirety. In the event of such a limitation or waiver, the Corporation shall not be required to make any adjustment whatsoever with respect to the Conversion Price of such class of Preferred Stock, or to make any adjustment with respect to such class of Preferred Stock in excess of such limit, as the terms of such consent may dictate. (b) Any holder of Additional Preferred Stock shall also be permitted to waive in whole or in part, currently or prospectively, by contract or any other writing, any antidilution adjustment to which such holder would otherwise be entitled pursuant to the provisions of this Section 4. 5. COVENANTS. In addition to any other rights provided by law, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then issued and outstanding shares of the applicable class of Preferred Stock: - 13 - 14 (a) amend or repeal any provision of the Corporation's Amended and Restated Certificate of Incorporation so as to adversely affect the rights, preferences, or privileges of such class of Preferred Stock; (b) authorize or issue additional shares of any class or series of stock of the Corporation other than series of stock of the Corporation ranking equal or junior in rights to such class of Preferred Stock as to dividends or redemption or rights on liquidation, dissolution or winding up; (c) increase the authorized number of shares of such existing class of Preferred Stock or authorize the reissuance thereof after repurchase or redemption; (d) authorize any liquidation, dissolution, winding up of the affairs of the Corporation, consolidation or merger of the Corporation into or with another corporation or corporations, sale of all or substantially all of the Corporation's assets (unless after such consolidation or merger all the terms of such class of Preferred Stock would remain in effect and be assumed by the consolidated or surviving corporation), or distribution of the Corporation's assets by way of return of capital; (e) change the par value of such class of Preferred Stock; (f) alter in any way the voting rights of such class of Preferred Stock. 6. REDEMPTION. (a) The Corporation shall redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price of One Thousand Dollars ($1,000) per share, plus an amount equal to any and all dividends accrued and unpaid, but without interest, on the 31st day of December (the "Redemption Date") of each of the years of 1995 through 1998 Seven hundred fifty (750) shares of Class A Preferred Stock (or such lesser number as shall then be outstanding). If the Corporation is unable on any Redemption Date to redeem any shares of Class A Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. (b) The Corporation shall have the right, at its option, to redeem as a whole, or from time to time in part, shares of Class A Preferred Stock at the redemption price specified in the preceding paragraph plus an amount equal to any and all dividends accrued and unpaid, but without interest. The Corporation may credit against any mandatory redemption specified in paragraph (a) any shares of Class A Preferred Stock redeemed pursuant to this paragraph (b) or otherwise acquired by the Corporation. Any such credit shall be applied against mandatory redemptions in the inverse order of the above-stated redemption requirements. - 14 - 15 (c) In case of redemption of any part of the shares of Class A Preferred Stock at any time outstanding, the Corporation shall designate by lot the shares so to be redeemed. Subject to the limitations and provisions herein contained, the Board of Directors shall have full power and authority to prescribe the manner in which the drawings by lot shall be conducted. (d) Notice of every redemption provided for in this Section 6 shall be given by mailing the same to every holder of record, any of whose shares are then to be redeemed, not less than fifteen (15) nor more than thirty (30) days prior to the date fixed as the date of the redemption thereof, at the respective addresses of such holders as the same shall appear on the stock transfer books of the Corporation. The notice shall state the shares specified in such notice will be redeemed by the Corporation at the redemption price and on the date specified in such notice, upon the surrender for cancellation at the placed designated in such notice, or the certificates representing the shares so the be redeemed, properly endorsed in blank for transfer in blank, bearing any necessary transfer tax stamps thereto affixed and cancelled, or accompanied by cash or a certified check in the amount of any stock transfer tax applicable to such transaction. On and after the date in the notice described above, each holder of shares called for redemption, upon presentation and surrender in accordance with such notice of the certificates for shares held by such holder and called for redemption, shall be entitled to receive therefor the applicable redemption price. If the Corporation shall give notice of redemption as aforesaid (and unless the Corporation shall fail to pay the redemption price of shares presented for redemption in accordance with such notice), all shares called for redemption shall be deemed to have been redeemed on the date specified in such notice whether or not the certificates for such shares be surrendered for redemption and cancellation, and such shares so called for redemption shall from and after such date cease to represent any interest whatever in the Corporation or its property, and the holders thereof shall have no rights other than the right to receive such redemption price but without any interest thereon from or after such date. (e) Notwithstanding any other provision of this Section 6, if the holders of at least a majority of the Class A Preferred Stock elect not to have the Corporation redeem the Class A Preferred Stock, then the Corporation shall not redeem any shares of Class A Preferred Stock. 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Class A, Class B or Class C Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and limited from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of any such class of Preferred Stock accordingly. 8. AMENDMENTS AND WAIVERS. (a) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class A Preferred Stock shall become effective and binding upon all holders of Class A Preferred Stock if the same is - 15 - 16 approved by the vote or written consent of the holders of at least a majority of the Class A Preferred Stock then issued and outstanding. (b) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class B Preferred Stock shall become effective and binding upon all holders of Class B Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class B Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Restated Certificate of Incorporation. (c) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class C Preferred Stock shall become effective and binding upon all holders of Class C Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class C Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Restated Certificate of Incorporation. ARTICLE V. Except as otherwise provided in Section 3.2 of Article IV, the number of directors of the Corporation shall be fixed from time to time in the manner provided in the By-laws of the Corporation and may be increased or decreased from time to time in the manner provided in such By-laws. Election of directors need not be by written ballot except and to the extent provided in the By-laws of the Corporation. ARTICLE VI. The Board of Directors of the Corporation is expressly authorized to make, alter, or repeal the By-laws of the Corporation, but such authorization shall not divest the stockholders of the power, nor limit their power, to adopt, amend, or repeal such By-laws. ARTICLE VII. 1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except as to liability (i) for any breach of the director's duty to loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for violations of Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended to further eliminate or limit the liability of a director, then, in addition to the elimination and limitation upon liability provided by the preceding sentence, the liability of each director shall be eliminated or limited to the fullest extent provided or permitted by the amended Delaware General Corporation Law. - 16 - 17 2. Any repeal or modification of the foregoing Section 1 by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE VIII. The Corporation shall, to the fullest extent permitted by Delaware law as in effect from time to time, indemnify any person against all liability and expense (including reasonable attorneys' fees) incurred by reason of the fact that such person is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, such person is or was serving at the request of the Corporation as a director, officer, partner or trustee of, or in any smaller managerial or fiduciary position of, or as an employee or agent of, another corporation, partnership, joint venture, trust, association, or other entity. The Corporation may, to the fullest extent permitted by Delaware law, as in effect from time to time, indemnify any person against all liability and expense (including attorneys' fees) by reason of fact that he is or was an employee, fiduciary or agent of the Corporation or, while serving as an employee, fiduciary or agent of the Corporation, such person is or was serving at the request of the Corporation as a director, officer, partner or trustee of, or in any similar managerial or fiduciary position of, or an employee or agent of, another corporation, partnership, joint venture, trust, association or other entity. The Corporation may enter into indemnity contracts with directors, officers, employees, fiduciaries and agents of the Corporation setting forth such terms and conditions for the indemnification of such persons as the Corporation's Board of Directors deems advisable subject to the obligations set forth in this Article VIII. Expenses (including reasonable attorneys' fees) incurred in defending an action, suit, or proceeding to the full extent and under the circumstances permitted by Delaware law. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the Corporation against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position, whether or not the Corporation would have the power to indemnify against such liability under the provisions of this Article VIII. The indemnification provided by this Article VIII shall not be deemed exclusive of any other rights to which those indemnified may be entitled under this Certificate of Incorporation, any by-law, agreement, vote of stockholders or disinterested directors statute, or otherwise, and shall inure to the benefit of their heirs, executors and administrators. The provisions of this Article VIII shall not be deemed to preclude the Corporation from indemnifying other persons from similar or other expenses and liabilities as the Board of Directors or the stockholders may determine in a specific instance or by resolution of general application. ARTICLE IX. Meetings of the stockholders of the Corporation may be held within or without the State of Delaware, as the By-laws may provide. The books and records of the Corporation may be kept within or outside the State of Delaware at such place or places as may be - 17 - 18 designated from time to time by the By-laws and/or the Board of Directors of the Corporation. ARTICLE X. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in manner as the said court directs. If a majority in number representing three-fourths in value of the stockholders or class of stockholders of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said - 18 - 19 application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case maybe, and also on this Corporation. ARTICLE XI. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in any manner now or hereafter prescribed by law, and all rights conferred upon stockholders herein are granted subject to such reservation. This Amended and Restated Certificate of Incorporation has been duly adopted by the Stockholders of the Corporation upon the recommendation of the Board of Directors in accordance with the provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Amended and Restated Certificate of Incorporation to be signed by its President and attested by is Secretary this 5th day of November, 1993. TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest --------------------------- K. Michael Forrest ATTEST: /s/ Leslie H. Shapiro - ---------------------------- Leslie H. Shapiro Assistant Secretary [Corporate Seal] - 19 - 20 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: 1. The name of the corporation is Transkaryotic Therapies, Inc. 2. An Amended and Restated Certificate of Incorporation was filed by the Secretary of State of Delaware on November 3, 1993 and said Certificate requires correction as permitted by subsection (E) of Section 103 of The General Corporation Law of the State of Delaware. 3. The inaccuracy of said Certificate to be corrected is the number of shares of Preferred Stock designated Class B Preferred Stock, which said Certificate stated to be 66,000 shares. The correct number of shares of Preferred Stock designated Class B Preferred Stock is 60,000 shares. (a) The first paragraph of Article IV as filed reads as follows: "This Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue 15,000,000, par value $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 1,941,000, par value $1.00 per share. There shall be three classes of Preferred Stock. The first such class shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second such class shall consist of 66,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); and the third such class shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock," and together with the Class A Preferred Stock and the Class B Preferred Stock, the "Preferred Stock")." (b) The first paragraph of Article IV is corrected to read as follows: "This Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue 15,000,000, par value $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 1,941,000, par value $1.00 per share. There shall be three classes of Preferred Stock. The first such class shall consist of 6,000 shares designated Class A Preferred 21 Stock (the "Class A Preferred Stock"); the second such class shall consist of 60,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); and the third such class shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock," and together with the Class A Preferred Stock and the Class B Preferred Stock, the "Preferred Stock")." IN WITNESS WHEREOF, said Transkaryotic Therapies, Inc. has caused this certificate to be signed by K. Michael Forrest, its duly authorized President and Chief Executive Officer, and attested by Leslie H. Shapiro, its duly authorized Assistant Secretary, this 17th day of November, 1993. TRANSKARYOTIC THERAPIES, INC. By:/s/ K. Michael Forrest -------------------------------- K. Michael Forrest President and Chief Executive Officer ATTEST: /s/ Leslie H. Shapiro - ---------------------------- Leslie H. Shapiro Assistant Secretary [Corporate Seal] - 21 - 22 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: At a meeting of the Board of Directors of the Corporation a resolution was duly adopted, pursuant to Section 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation duly approved said amendment by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and notice has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The resolution provides that the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: Article Fourth of the Certificate of Incorporation of the Corporation is hereby deleted in its entirety and replaced with the following: ARTICLE IV. This Corporation is authorized to issue five classes of shares to be designated respectively Common Stock and four classes of Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue is 15,000,000, par value $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 2,221,367, par value $1.00 per share. The first class of Preferred Stock shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second class of Preferred Stock shall consist of 60,000 shares 23 designated Class B Preferred Stock (the "Class B Preferred Stock"); the third class of Preferred Stock shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock"); and the fourth class of Preferred Stock shall consist of 280,367 shares of Class D Preferred Stock (the "Class D Preferred Stock," and together with the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock, the "Preferred Stock"). The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative powers, preferences and rights, and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, granted to or imposed on the respective classes and series of the shares of capital stock or the holders thereof are as follows: 1. DIVIDENDS. 1.1. Preferred Stock. (a) Subject to Section 4.1, the holders of the Class A Preferred Stock shall be entitled to receive cumulative dividends, out of any assets at the time legally available, when and as declared by the Board of Directors, on a pro rata basis in accordance with the number of shares of Class A Preferred Stock held by each such holder, which shall accrue from day-to-day at the rate per annum of $70.00 per share, payable quarterly on the last day of each March, June, September and December (commencing March 31, 1992) and an additional amount equal to the amount of the accrued dividend on the preferred stock exchanged by such holder in consideration of Class A Preferred Stock pursuant to the Stock Exchange Agreement dated February 14, 1992, between the Corporation and such holder, and in preference and priority to any payment of any dividend on any Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Common Stock of the Corporation. To the extent that such dividends are not paid, because there exist no funds legally available therefor or for any other reason, such dividends shall accrue. (b) No dividend shall be paid on the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock or the Common Stock in any year until all declared and accumulated dividends have been paid on the Class A Preferred Stock. In the event the Board of Directors shall have declared and paid, or set apart for payment, dividends at the rate specified in Section 1.1(a) in any one fiscal year, and shall elect to declare additional dividends in that fiscal year out of funds legally available therefor on the Common Stock, such additional dividends shall, subject to Section 1.1(a) hereof, be declared and paid on each share of Class B Preferred Stock, Class C Preferred Stock, and Class D Preferred Stock at the same time as any dividends are declared and paid on the Common Stock, in an amount equal to the additional dividends paid on such number of shares of - 23 - 24 Common Stock into which each share of Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock is convertible on the record date for such dividend payment. 1.2. Common Stock. Subject to the preferences and other rights of the Preferred Stock set forth in Section 1.1, the holders of Common Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, on a basis in accordance with the number of shares of Common Stock held by each such holder. 2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock shall first be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class of Preferred Stock or Common Stock by reason of their ownership of such stock, the amount of $700.00 per share of Class A Preferred Stock, $400.00 per share of Class B Preferred Stock, $8.00 per share of Class C Preferred Stock and $17.8338 per share of Class D Preferred Stock plus accrued but undeclared and declared but unpaid dividends on each such share. If the assets and funds of the Corporation shall be insufficient to permit the payment in full to such holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock of the full aforesaid preferential amount, then the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock in accordance with the aggregate liquidation preference of the shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and/or Class D Preferred Stock held by each of them. (b) After payment has been made to the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock, the holders of the Class B Preferred Stock, the holders of the Class C Preferred Stock and the holders of the Class D Preferred Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held by them, assuming conversion of the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock at the respective Conversion Prices then in effect. (c) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation immediately prior to the merger or consolidation do not own more than fifty percent (50%) of the outstanding voting power (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants) of the surviving corporation, or the sale of all or substantially all of the - 24 - 25 assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation. Approval of any of the foregoing events by the holders of at least a majority of the Preferred Stock pursuant to Section 5 hereof shall be deemed an election not to treat any of the foregoing events as a liquidation, dissolution or winding up hereunder. 3. VOTING RIGHTS. 3.1. Generally. Subject to Section 5 hereof and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote in respect of each share of Common Stock and the holder of each share of Class B Preferred Stock, Class C Preferred Stock and/or Class D Preferred Stock issued and outstanding shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Class B Preferred Stock, Class C Preferred Stock and/or Class D Preferred Stock can be converted at the record date for determination of those entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is obtained, such votes to be counted together with all other shares of stock of the Corporation having voting power in the election of directors and not separately as a class. Except as otherwise provided by law or in this Certificate of Incorporation, the holders of Class A Preferred Stock shall not be entitled to notice of, or to vote at, any meeting of the stockholders of the Corporation or to vote on any matter relating to the business or affairs of the Corporation. Record holders of Common Stock, Class B Preferred Stock, Class C Preferred Stock and/or Class D Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the by-laws of the Corporation. 3.2. Class A Preferred Stock Director. Notwithstanding the provisions of Section 3.1: (a) In the event that seven (7) consecutive quarterly dividends with respect to the Class A Preferred Stock as set forth in Section 1.1(a) shall be in arrears and shall not have been paid in full, whether or not earned, or in the event the Corporation shall be more than one year in arrears in the redemption of Class A Preferred Stock, then, upon notice to the Corporation given by the holders of not less than 50% of the Class A Preferred Stock then outstanding, the holders of the Class A Preferred shall as a class become entitled to elect one member to the Board of Directors until all accumulated and unpaid dividends thereon and all redemptions in arrears shall have been paid, whereupon such right of the holders of the Class A Preferred Stock to elect one director shall cease, subject to being again revived from time to time upon the reoccurrence of the conditions above described. Failure by the holders of the Class A Preferred Stock to exercise their rights under this Section 3.2 promptly upon the occurrence of the conditions giving rise to such rights shall not be deemed to be a waiver of such rights, such rights being exercisable at any time such conditions shall have occurred and be continuing. (b) Immediately upon accrual of such right of the holders of Class A Preferred Stock to elect a director pursuant to paragraph (a) above, the number of directors of the Corporation shall, ipso facto, be increased by one, and the directors - 25 - 26 of the Corporation shall thereupon be divided into classes. One such class shall consist of one director (the "Preferred Director") elected solely by the holders of Class A Preferred Stock (voting as a class), and the other class shall consist of the remaining directors. Whenever the number of directors of the Corporation shall have been so increased, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and without the vote of the holders of Class A Preferred Stock, provided that no such action shall impair the right of the holders of Class A Preferred Stock to elect the Preferred Director. The holders of the Class A Preferred Stock may at their option at any time exercise their rights under this Section 3.2 by written consent without a meeting in accordance with the General Corporation Law of Delaware. (c) Each Preferred Director elected by the holders of Class A Preferred Stock shall serve for a term of one year and until his or her successor is elected and qualified, or, if earlier, until the right to elect such director ceases in accordance with paragraph (a) above. So long as the holders of Class A Preferred Stock are entitled to elect a Preferred Director, any vacancy in the position of Preferred Director may be filled only by the holders of the Class A Preferred Stock entitled to vote thereon. The Class A Preferred Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Class A Preferred Stock called for such purpose, or the written consent, of the holders of record of a majority of the then outstanding shares of Class A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent. (d) Upon the termination of the right of holders of Class A Preferred Stock to elect a Preferred Director, the term of office of the Preferred Director shall forthwith terminate and the number of directors of the Corporation shall thereupon be appropriately decreased. 4. CONVERSION. 4.1. Optional Conversion. The holders of Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock (together, the "Additional Preferred Stock") shall have conversion rights as follows (the "Additional Preferred Conversion Rights"). Each share of Additional Preferred Stock shall be convertible (at the option of the holder thereof) any time at the office of the Corporation or any transfer agent for the Additional Preferred Stock into the number of shares of the Common Stock of the Corporation obtained by dividing the Original Issuance Price (as defined below) for such class of Preferred Stock by the conversion price in effect at the time of conversion, determined as hereinafter provided (the "Conversion Price"). For the Class B Preferred Stock, the Original Issuance Price is $400.00 and the present Conversion Price is $8.71. For the Class C Preferred Stock, the Original Issuance Price is $8.00 and the initial Conversion Price is $8.00. For the Class D Preferred Stock, the Original Issuance Price is $17.83 and the initial Conversion Price is $17.83. All calculations under this Section 4 shall be made to the nearest cent. 4.2. Automatic Conversion. - 26 - 27 (a) Class A Preferred Stock. Immediately upon the closing of an initial public offering of the Corporation's Common Stock at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combination, or similar recapitalizations occurring after the date hereof) and which results in gross proceeds to the Corporation of at least ten million dollars ($10,000,000) ("Qualified Public Offering"), and simultaneously with the conversion of the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock into Common Stock, all Class A Preferred Stock then outstanding and all rights to any and all then unpaid accrued dividends thereon shall automatically be converted into the number of original issue shares of Common Stock produced by dividing (a) six million dollars ($6,000,000) by (b) the price per share at which Common Stock is offered in the Qualified Public Offering. (b) Additional Preferred Stock. At any time upon the closing of a Qualified Public Offering, each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price of such class of Preferred Stock. In the event of the automatic conversion of Additional Preferred Stock upon a Qualified Public Offering, the party entitled to receive the Common Stock issuable upon such conversion of Additional Preferred Stock shall not be deemed to have converted such Additional Preferred Stock until such party has received from the Corporation all declared and unpaid dividends and accrued but undeclared dividends owed with respect to such party's Additional Preferred Stock and, in any event, until immediately prior to the closing of the Qualified Public Offering. Each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for such class of Preferred Stock upon the vote to so convert of the holders of at least 66-2/3% of such class of Additional Preferred Stock then outstanding. Each share of Class B Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class B Preferred Stock in the event at least 66-2/3% of the Class B Preferred Stock purchased pursuant to (i) the Class B Preferred Stock Purchase Agreement dated as of February 14, 1992 among the Corporation and the purchasers listed on Schedule A thereto (the "1992 Class B Agreement") and (ii) the Class B Preferred Stock Purchase Agreement dated as of April 20, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "1993 Class B Agreement"), collectively as one group, have been converted into Common Stock. Each share of Class C Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class C Preferred Stock in the event at least 66-2/3% of the Class C Preferred Stock purchased pursuant to the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "Class C Agreement") have been converted into Common Stock. Each share of Class D Preferred Stock shall automatically be converted into - 27 - 28 shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class D Preferred Stock in the event at least 66- 2/3% of the Class D Preferred Stock purchased pursuant to the Class D Preferred Stock Purchase Agreement dated as of May ___, 1994 among the Corporation and Marion Merrell Dow, Inc. (the "Class D Agreement") have been converted into Common Stock. 4.3. Mechanics of Conversion. Before any holder of Additional Preferred Stock shall be entitled to convert such Stock into shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing the shares of Additional Preferred Stock to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for the Additional Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4.2, the outstanding shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Class A Preferred Stock or Additional Preferred Stock, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled hereunder and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock plus all accrued and unpaid dividends on such holder's Additional Preferred Stock, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Additional Preferred Stock to be converted, or in the case of automatic conversion immediately prior to closing of the Qualified Public Offering or the date of the shareholder vote or conversion of Class A Preferred Stock or Additional Preferred Stock described in Sections 4.1 and 4.2, as applicable, and the party entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4.4. Adjustment of Conversion Prices due to Issuance of Additional Shares. The Conversion Price in effect from time to time for the Additional Preferred Stock shall be subject to adjustment as follows: (a) Special Definitions. For purposes of this Section 4.4, the following definitions shall apply: - 28 - 29 (i) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (ii) "Original Issue Date" shall mean the date on which the class of such Additional Preferred Stock is first issued by the Corporation. (iii) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Additional Preferred Stock authorized herein; (B) as a dividend or distribution on the Class A Preferred Stock or Additional Preferred Stock or any event for which adjustment is made pursuant to Section 4.4(f) hereof; (C) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B) or this clause (C); (D) out of those 1,250,000 shares of Common Stock reserved for issuance pursuant to the 1993 Long-Term Incentive Plan or out of those 180,000 shares of Common Stock reserved for issuance pursuant to the 1993 Non-Employee Directors' Stock Option Plan or pursuant to any other stock option, stock bonus or other employee stock plan approved by the holders of at least a majority of the Additional Preferred Stock voting as one class, which approval shall include the number of shares of Common Stock available for distribution under any such plan; or (E) upon the exercise of any options or warrants outstanding on the Original Issue Date. (b) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior, to such issue. - 29 - 30 (c) Deemed Issuance of Additional Shares of Common Stock - Options and Convertible Securities. Except as provided in Section 4.4(a) or Section 4.4(b) hereof, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the document relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4.4(e) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued, (i) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if, (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration - 30 - 31 actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date, or (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (d) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4(c)) for a consideration per share less than the applicable Conversion Price of a class of Additional Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, the applicable Conversion Price for such class of Additional Preferred Stock shall be recomputed, concurrently with such issue (calculated to the nearest cent) by dividing (x) an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issue multiplied by the then effective Conversion Price and (2) the consideration, if any, deemed received by the Corporation upon such issue by (y) the total number of shares of Common Stock deemed to be outstanding immediately after such issue; and provided that, for the purposes of this Section 4.4(d), all shares of Common Stock outstanding and issuable upon conversion of outstanding Options, Convertible Securities and the Additional Preferred Stock shall be deemed to be outstanding, other than shares of Common Stock excluded from the definition of Additional Shares of Common Stock in this Section 4.4. In no event will the Conversion Price be adjusted as the result of a particular issuance of securities to a price less than the price per share of the Additional Shares of Common Stock issued in such issuance nor shall any adjustment be made in the Conversion Price of any class of Additional Preferred Stock as a result of any issuance of any Additional Shares of Common Stock at a price per share in excess of the initial Conversion Price of such class of Additional - 31 - 32 Preferred Stock nor any adjustments made in such Conversion Price which would result in a Conversion Price higher than the then applicable Conversion Price. (e) Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and (C) insofar as Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors of the Corporation. (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4(c) (i), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. - 32 - 33 (f) Adjustments for Subdivisions, Stock Dividends, Combinations, or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be increased by way of stock issued as a dividend for no consideration or subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such increase or subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 4.5. Provision Regarding Adjustment of Conversion Price for Class D Preferred Stock. Notwithstanding any other provision of this Article IV, the Conversion Price of the Class D Preferred Stock shall be reduced, in the event that a Qualified Public Offering does not close on or before March 31, 1995, to $14.12 as of such date, or to such lesser amount as may be required under other provisions of this Article IV. 4.6. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of the Corporation other than shares of Common Stock, securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4.4(c), then, in each such case for the purpose of this Section 4.6, the holders of the Additional Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of such Additional Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 4.7. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Amended and Restated Certificate of Incorporation), provision shall be made so that the holders of the Additional Preferred Stock shall thereafter be entitled to receive upon conversion of the Additional Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Additional Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such class of Additional Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 4.8. No Impairment. The Corporation will not, by further amendment of its Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, - 33 - 34 but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Class A Preferred Stock and Additional Preferred Stock against impairment. 4.9. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any share of Class A or Additional Preferred Stock. If, upon conversion of any share of Class A or Additional Preferred Stock, the registered holder would, except for the provisions of this Section 4.9, be entitled to receive a fractional share of Common Stock, then an amount equal to such fractional share multiplied by the then applicable Conversion Price shall be paid by the Corporation in cash to such registered holder. 4.10. Reservation of Shares. The Corporation agrees that, so long as any share of Class A or Additional Preferred Stock shall remain outstanding, the Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized capital stock, for the purpose of issue upon conversion of the Class A or Additional Preferred Stock, the full number of shares of Common Stock then issuable upon conversion of the Class A and Additional Preferred Stock. 4.11. Validity of Shares. The Corporation agrees that it will from time to time take all such actions as may be requisite to assure that all shares of Common Stock which may be issued upon conversion of any share of the Class A or Additional Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the foregoing, the Corporation agrees that it will from time to time take all such action as may be requisite to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient of the then current par value of the Class A, Class B, Class C and Class D Preferred Stock divided by the number of shares of Common Stock into which each share of Class A, Class B, Class C or Class D Preferred Stock can, from time to time, be converted. 4.12. Notice of Adjustment. Upon each adjustment of the Conversion Price, the Corporation shall give prompt written notice thereof addressed to the registered holder of each share of the class of Additional Preferred Stock so affected at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares issuable upon the conversion of such holder's shares of Additional Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based together with a certificate of the chief financial officer of the Corporation stating that he or she has examined such notice and certifying that the information contained therein is accurate. - 34 - 35 4.13. Notice of Capital Changes. If at any time: (a) the Corporation shall declare any dividend or distribution payable to the holders of its Common Stock; (b) the Corporation shall offer for subscription to the holders of Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation or business organization; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any such case, the Corporation shall give the registered holders of the Additional Preferred Stock written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining stockholders entitled to vote upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and of the date when any such transaction shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least twenty (20) days prior to the record date with respect thereto. 4.14. Taxes. The Corporation will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of the Additional Preferred Stock. 4.15. Waiver of Adjustment. (a) With the consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then currently outstanding shares of Class B Preferred Stock, Class C Preferred Stock or Class D Preferred Stock, any antidilution adjustment to which such class of Preferred Stock would otherwise be entitled under this Section 4 may be limited or waived in its entirety. In the event of such a limitation or waiver, the Corporation shall not be required to make any adjustment whatsoever with respect to the Conversion Price of such class of Preferred Stock, or to make any adjustment with respect to such class of Preferred Stock in excess of such limit, as the terms of such consent may dictate. (b) Any holder of Additional Preferred Stock shall also be permitted to waive in whole or in part, currently or prospectively, by contract or any other writing, any antidilution adjustment to which such holder would otherwise be entitled pursuant to the provisions of this Section 4. - 35 - 36 5. COVENANTS. In addition to any other rights provided by law, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then issued and outstanding shares of the applicable class of Preferred Stock: (a) amend or repeal any provision of the Corporation's Amended and Restated Certificate of Incorporation so as to adversely affect the rights, preferences, or privileges of such class of Preferred Stock; (b) authorize or issue additional shares of any class or series of stock of the Corporation other than a class or series of stock of the Corporation ranking equal or junior in rights to such class of Preferred Stock as to dividends or redemption or rights on liquidation, dissolution or winding up; (c) increase the authorized number of shares of such existing class of Preferred Stock or authorize the reissuance thereof after repurchase or redemption; (d) authorize any liquidation, dissolution, winding up of the affairs of the Corporation, consolidation or merger of the Corporation into or with another corporation or corporations, sale of all or substantially all of the Corporation's assets (unless after such consolidation or merger all the terms of such class of Preferred Stock would remain in effect and be assumed by the consolidated or surviving corporation), or distribution of the Corporation's assets by way of return of capital; (e) change the par value of such class of Preferred Stock; or (f) alter in any way the voting rights of such class of Preferred Stock. 6. REDEMPTION (a) The Corporation shall redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price of One Thousand Dollars ($1,000) per share, plus an amount equal to any and all dividends accrued and unpaid, but without interest, on the 31st day of December (the "Redemption Date") of each of the years of 1995 through 1998 seven hundred fifty (750) shares of Class A Preferred Stock (or such lesser number as shall then be outstanding). If the Corporation is unable on any Redemption Date to redeem any shares of Class A Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. (b) The Corporation shall have the right, at its option, to redeem as a whole, or from time to time in part, shares of Class A Preferred Stock at the redemption price specified in the preceding paragraph plus an amount equal to any and all dividends accrued and unpaid, but without interest. The Corporation may credit against any mandatory redemption specified in paragraph (a) any shares of Class A Preferred Stock redeemed pursuant to this paragraph (b) or otherwise acquired by the Corporation. Any such credit - 36 - 37 shall be applied against mandatory redemptions in the inverse order of the above-stated redemption requirements. (c) In case of redemption of only part of the shares of Class A Preferred Stock at any time outstanding, the Corporation shall designate by lot the shares so to be redeemed. Subject to the limitations and provisions herein contained, the Board of Directors shall have full power and authority to prescribe the manner in which the drawings by lot shall be conducted. (d) Notice of every redemption provided for in this Section 6 shall be given by mailing the same to every holder of record, any of whose shares are then to be redeemed, not less than fifteen (15) nor more than thirty (30) days prior to the date fixed as the date of the redemption thereof, at the respective addresses of such holders as the same shall appear on the stock transfer books of the Corporation. The notice shall state that the shares specified in such notice will be redeemed by the Corporation at the redemption price and on the date specified in such notice, upon the surrender for cancellation at the places designated in such notice, of the certificates representing the shares so to be redeemed, properly endorsed in blank for transfer, or accompanied by proper instruments of assignment and transfer in blank, bearing any necessary transfer tax stamps thereto affixed and cancelled, or accompanied by cash or a certified check in the amount of any stock transfer tax applicable to such transaction. On and after the date specified in the notice described above, each holder of shares called for redemption, upon presentation and surrender in accordance with such notice of the certificates for shares held by such holder and called for redemption, shall be entitled to receive therefor the applicable redemption price. If the Corporation shall give notice of redemption as aforesaid (and unless the Corporation shall fail to pay the redemption price of shares presented for redemption in accordance with such notice), all shares called for redemption shall be deemed to have been redeemed on the date specified in such notice whether or not the certificates for such shares be surrendered for redemption and cancellation, and such shares so called for redemption shall from and after such date cease to represent any interest whatever in the Corporation or its property, and the holders thereof shall have no rights other than the right to receive such redemption price but without any interest thereon from or after such date. (e) Notwithstanding any other provision of this Section 6, if the holders of at least a majority of the Class A Preferred Stock elect not to have the Corporation redeem the Class A Preferred Stock, then the Corporation shall not redeem any shares of Class A Preferred Stock. 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Class A, Class B, Class C or Class D Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and limited from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of any such class of Preferred Stock accordingly. - 37 - 38 8. AMENDMENTS AND WAIVERS. (a) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class A Preferred Stock shall become effective and binding upon all holders of Class A Preferred Stock if the same is approved by the vote or written consent of the holders of at least a majority of the Class A Preferred Stock then issued and outstanding. (b) Any action, approval, request, consent, notice or waiver which is required or permitted under Article IV with respect to the Class B Preferred Stock shall become effective and binding upon all holders of Class B Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class B Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (c) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class C Preferred Stock shall become effective and binding upon all holders of Class C Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class C Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (d) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class D Preferred Stock shall become effective and binding upon all holders of Class D Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class D Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. - 38 - 39 IN WITNESS WHEREOF, the Corporation has caused the Certificate of Amendment to be signed by its President and attested by its Secretary this 17th day of May, 1994. Transkaryotic Therapies, Inc. By: /s/ K. Michael Forrest ------------------------------- K. Michael Forrest President ATTEST: /s/ James E. Thomas - ------------------------- James Thomas Secretary - 39 - 40 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: At a meeting of the Board of Directors of the Corporation a resolution was duly adopted, pursuant to Section 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation duly approved said amendment by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and notice has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The resolution provides that the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: Article Fourth of the Certificate of Incorporation of the Corporation is hereby deleted in its entirety and replaced with the following: ARTICLE IV. This Corporation is authorized to issue six classes of shares to be designated respectively Common Stock and five classes of Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue is 15,000,000, par value 41 $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 2,744,927, par value $1.00 per share. The first class of Preferred Stock shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second class of Preferred Stock shall consist of 60,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); the third class of Preferred Stock shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock"); the fourth class of Preferred Stock shall consist of 280,367 shares of Class D Preferred Stock (the "Class D Preferred Stock"); and the fifth class of Preferred Stock shall consist of 523,560 shares of Class E Preferred Stock (the "Class E Preferred Stock," and together with the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D Preferred Stock, the "Preferred Stock"). The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative powers, preferences and rights, and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, granted to or imposed on the respective classes and series of the shares of capital stock or the holders thereof are as follows: 1. DIVIDENDS. 1.1. Preferred Stock. (a) Subject to Section 4.1, the holders of the Class A Preferred Stock shall be entitled to receive cumulative dividends, out of any assets at the time legally available, when and as declared by the Board of Directors, on a pro rata basis in accordance with the number of shares of Class A Preferred Stock held by each such holder, which shall accrue from day-to-day at the rate per annum of $70.00 per share, payable quarterly on the last day of each March, June, September and December (commencing March 31, 1992) and an additional amount equal to the amount of the accrued dividend on the preferred stock exchanged by such holder in consideration of Class A Preferred Stock pursuant to the Stock Exchange Agreement dated February 14, 1992, between the Corporation and such holder, and in preference and priority to any payment of any dividend on any Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Common Stock of the Corporation. To the extent that such dividends are not paid, because there exist no funds legally available therefor or for any other reason, such dividends shall accrue. (b) No dividend shall be paid on the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock or the Common Stock in any year until all declared and accumulated dividends have been paid on the Class A Preferred Stock. In the event the Board of Directors shall have declared and paid, or set apart for payment, dividends at the rate specified in Section 1.1(a) in any one fiscal year, and shall elect to declare additional dividends in that fiscal year out of funds legally available - 2 - 42 therefor on the Common Stock, such additional dividends shall, subject to Section 1.1(a) hereof, be declared and paid on each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, and Class E Preferred Stock at the same time as any dividends are declared and paid on the Common Stock, in an amount equal to the additional dividends paid on such number of shares of Common Stock into which each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Class E Preferred Stock is convertible on the record date for such dividend payment. 1.2. Common Stock. Subject to the preferences and other rights of the Preferred Stock set forth in Section 1.1, the holders of Common Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, on a basis in accordance with the number of shares of Common Stock held by each such holder. 2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock shall first be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class of Preferred Stock or Common Stock by reason of their ownership of such stock, the amount of $700.00 per share of Class A Preferred Stock, $400.00 per share of Class B Preferred Stock, $8.00 per share of Class C Preferred Stock, $17.8338 per share of Class D Preferred Stock and $19.10 per share of Class E Preferred Stock plus accrued but undeclared and declared but unpaid dividends on each such share. If the assets and funds of the Corporation shall be insufficient to permit the payment in full to such holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock of the full aforesaid preferential amount, then the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock in accordance with the aggregate liquidation preference of the shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and/or Class E Preferred Stock held by each of them. (b) After payment has been made to the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock, the holders of the Class B Preferred Stock, the holders of the Class C Preferred Stock, the holders of the Class D Preferred Stock and the holders of the Class E Preferred Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held by them, assuming conversion of the Class B Preferred Stock, - 3 - 43 the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock at the respective Conversion Prices then in effect. (c) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation immediately prior to the merger or consolidation do not own more than fifty percent (50%) of the outstanding voting power (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants) of the surviving corporation, or the sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation. Approval of any of the foregoing events by the holders of at least a majority of the Preferred Stock pursuant to Section 5 hereof shall be deemed an election not to treat any of the foregoing events as a liquidation, dissolution or winding up hereunder. 3. VOTING RIGHTS. 3.1. Generally. Subject to Section 5 hereof and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote in respect of each share of Common Stock and the holder of each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and/or Class E Preferred Stock issued and outstanding shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and/or Class E Preferred Stock can be converted at the record date for determination of those entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is obtained, such votes to be counted together with all other shares of stock of the Corporation having voting power in the election of directors and not separately as a class. Except as otherwise provided by law or in this Certificate of Incorporation, the holders of Class A Preferred Stock shall not be entitled to notice of, or to vote at, any meeting of the stockholders of the Corporation or to vote on any matter relating to the business or affairs of the Corporation. Record holders of Common Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and/or Class E Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the by-laws of the Corporation. 3.2. Class A Preferred Stock Director. Notwithstanding the provisions of Section 3.1: (a) In the event that seven (7) consecutive quarterly dividends with respect to the Class A Preferred Stock as set forth in Section 1.1(a) shall be in arrears and shall not have been paid in full, whether or not earned, or in the event the Corporation shall be more than one year in arrears in the redemption of Class A Preferred Stock, then, upon notice to the Corporation given by the holders of not less than 50% of the Class A Preferred Stock then outstanding, the holders of the Class A Preferred shall as a class become entitled to elect one member to the Board of Directors until all accumulated and unpaid dividends thereon and all redemptions in arrears shall have been paid, whereupon such right of the holders of the Class A - 4 - 44 Preferred Stock to elect one director shall cease, subject to being again revived from time to time upon the reoccurrence of the conditions above described. Failure by the holders of the Class A Preferred Stock to exercise their rights under this Section 3.2 promptly upon the occurrence of the conditions giving rise to such rights shall not be deemed to be a waiver of such rights, such rights being exercisable at any time such conditions shall have occurred and be continuing. (b) Immediately upon accrual of such right of the holders of Class A Preferred Stock to elect a director pursuant to paragraph (a) above, the number of directors of the Corporation shall, ipso facto, be increased by one, and the directors of the Corporation shall thereupon be divided into classes. One such class shall consist of one director (the "Preferred Director") elected solely by the holders of Class A Preferred Stock (voting as a class), and the other class shall consist of the remaining directors. Whenever the number of directors of the Corporation shall have been so increased, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and without the vote of the holders of Class A Preferred Stock, provided that no such action shall impair the right of the holders of Class A Preferred Stock to elect the Preferred Director. The holders of the Class A Preferred Stock may at their option at any time exercise their rights under this Section 3.2 by written consent without a meeting in accordance with the General Corporation Law of Delaware. (c) Each Preferred Director elected by the holders of Class A Preferred Stock shall serve for a term of one year and until his or her successor is elected and qualified, or, if earlier, until the right to elect such director ceases in accordance with paragraph (a) above. So long as the holders of Class A Preferred Stock are entitled to elect a Preferred Director, any vacancy in the position of Preferred Director may be filled only by the holders of the Class A Preferred Stock entitled to vote thereon. The Class A Preferred Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Class A Preferred Stock called for such purpose, or the written consent, of the holders of record of a majority of the then outstanding shares of Class A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent. (d) Upon the termination of the right of holders of Class A Preferred Stock to elect a Preferred Director, the term of office of the Preferred Director shall forthwith terminate and the number of directors of the Corporation shall thereupon be appropriately decreased. 4. CONVERSION. 4.1. Optional Conversion. The holders of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Class E Preferred Stock (together, the "Additional Preferred Stock") shall have conversion rights as follows (the "Additional Preferred Conversion Rights"). Each share of Additional Preferred Stock shall be convertible (at the option of the holder thereof) any time at the office of the Corporation or - 5 - 45 any transfer agent for the Additional Preferred Stock into the number of shares of the Common Stock of the Corporation obtained by dividing the Original Issuance Price (as defined below) for such class of Preferred Stock by the conversion price in effect at the time of conversion, determined as hereinafter provided (the "Conversion Price"). For the Class B Preferred Stock, the Original Issuance Price is $400.00 and the present Conversion Price is $8.71. For the Class C Preferred Stock, the Original Issuance Price is $8.00 and the initial Conversion Price is $8.00. For the Class D Preferred Stock, the Original Issuance Price is $17.83 and the initial Conversion Price is $17.83. For the Class E Preferred Stock, the Original Issuance Price is $19.10 and the initial Conversion Price is $19.10. All calculations under this Section 4 shall be made to the nearest cent. 4.2. Automatic Conversion. (a) Class A Preferred Stock. Immediately upon the closing of an initial public offering of the Corporation's Common Stock at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combination, or similar recapitalizations occurring after the date hereof) and which results in gross proceeds to the Corporation of at least ten million dollars ($10,000,000) ("Qualified Public Offering"), and simultaneously with the conversion of the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E Preferred Stock into Common Stock, all Class A Preferred Stock then outstanding and all rights to any and all then unpaid accrued dividends thereon shall automatically be converted into the number of original issue shares of Common Stock produced by dividing (a) six million dollars ($6,000,000) by (b) the price per share at which Common Stock is offered in the Qualified Public Offering. (b) Additional Preferred Stock. At any time upon the closing of a Qualified Public Offering, each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price of such class of Preferred Stock. In the event of the automatic conversion of Additional Preferred Stock upon a Qualified Public Offering, the party entitled to receive the Common Stock issuable upon such conversion of Additional Preferred Stock shall not be deemed to have converted such Additional Preferred Stock until such party has received from the Corporation all declared and unpaid dividends and accrued but undeclared dividends owed with respect to such party's Additional Preferred Stock and, in any event, until immediately prior to the closing of the Qualified Public Offering. Each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for such class of Preferred Stock upon the vote to so convert of the holders of at least 66-2/3% of such class of Additional Preferred Stock then outstanding. Each share of Class B Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class B Preferred Stock in the event at least 66-2/3% of the Class B Preferred Stock purchased pursuant to (i) the - 6 - 46 Class B Preferred Stock Purchase Agreement dated as of February 14, 1992 among the Corporation and the purchasers listed on Schedule A thereto (the "1992 Class B Agreement") and (ii) the Class B Preferred Stock Purchase Agreement dated as of April 20, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "1993 Class B Agreement"), collectively as one group, have been converted into Common Stock. Each share of Class C Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class C Preferred Stock in the event at least 66-2/3% of the Class C Preferred Stock purchased pursuant to the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "Class C Agreement") have been converted into Common Stock. Each share of Class D Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class D Preferred Stock in the event at least 66- 2/3% of the Class D Preferred Stock purchased pursuant to the Class D Preferred Stock Purchase Agreement dated as of May 18, 1994 among the Corporation and Marion Merrell Dow Inc. (the "Class D Agreement") have been converted into Common Stock. Each share of Class E Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class E Preferred Stock in the event at least 66-2/3% of the Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement dated as of March 1, 1995 among the Corporation and Marion Merrell Dow Inc. (the "Class E Agreement") have been converted into Common Stock. 4.3. Mechanics of Conversion. Before any holder of Additional Preferred Stock shall be entitled to convert such Stock into shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing the shares of Additional Preferred Stock to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for the Additional Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4.2, the outstanding shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Class A Preferred Stock or Additional Preferred Stock, as the case may be, a certificate or certificates for the number of - 7 - 47 shares of Common Stock to which such holder shall be entitled hereunder and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock plus all accrued and unpaid dividends on such holder's Additional Preferred Stock, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Additional Preferred Stock to be converted, or in the case of automatic conversion immediately prior to closing of the Qualified Public Offering or the date of the shareholder vote or conversion of Class A Preferred Stock or Additional Preferred Stock described in Sections 4.1 and 4.2, as applicable, and the party entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4.4. Adjustment of Conversion Prices due to Issuance of Additional Shares. The Conversion Price in effect from time to time for the Additional Preferred Stock shall be subject to adjustment as follows: (a) Special Definitions. For purposes of this Section 4.4, the following definitions shall apply: (i) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (ii) "Original Issue Date" shall mean the date on which the class of such Additional Preferred Stock is first issued by the Corporation. (iii) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Additional Preferred Stock authorized herein; (B) as a dividend or distribution on the Class A Preferred Stock or Additional Preferred Stock or any event for which adjustment is made pursuant to Section 4.4(f) hereof; (C) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B) or this clause (C); - 8 - 48 (D) out of those 1,250,000 shares of Common Stock reserved for issuance pursuant to the 1993 Long-Term Incentive Plan or out of those 180,000 shares of Common Stock reserved for issuance pursuant to the 1993 Non-Employee Directors' Stock Option Plan or pursuant to any other stock option, stock bonus or other employee stock plan approved by the holders of at least a majority of the Additional Preferred Stock voting as one class, which approval shall include the number of shares of Common Stock available for distribution under any such plan; or (E) upon the exercise of any options or warrants outstanding on the Original Issue Date. (b) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior, to such issue. (c) Deemed Issuance of Additional Shares of Common Stock - Options and Convertible Securities. Except as provided in Section 4.4(a) or Section 4.4(b) hereof, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the document relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4.4(e) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued, (i) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the - 9 - 49 applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if, (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date, or (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (d) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4(c)) for a consideration per share less than the applicable - 10 - 50 Conversion Price of a class of Additional Preferred Stock (other than the Class E Preferred Stock) in effect on the date of and immediately prior to such issue, or in the case of the Class E Preferred Stock for consideration per share less than $14.00 per share, the applicable Conversion Price for such class of Additional Preferred Stock, shall be recomputed, concurrently with such issue (calculated to the nearest cent) by dividing (x) an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issue multiplied by the then effective Conversion Price and (2) the consideration, if any, deemed received by the Corporation upon such issue by (y) the total number of shares of Common Stock deemed to be outstanding immediately after such issue; and provided that, for the purposes of this Section 4.4(d), all shares of Common Stock outstanding and issuable upon conversion of outstanding Options, Convertible Securities and the Additional Preferred Stock shall be deemed to be outstanding, other than shares of Common Stock excluded from the definition of Additional Shares of Common Stock in this Section 4.4.; and provided further that no adjustment to the Conversion Price of the Class E Preferred Stock shall be made pursuant to this Section 4.4(d) unless the Corporation shall issue Additional Shares of Common Stock for a consideration per share less than $14.00. In no event will the Conversion Price be adjusted as the result of a particular issuance of securities to a price less than the price per share of the Additional Shares of Common Stock issued in such issuance nor shall any adjustment be made in the Conversion Price of any class of Additional Preferred Stock as a result of any issuance of any Additional Shares of Common Stock at a price per share in excess of the initial Conversion Price of such class of Additional Preferred Stock nor any adjustments made in such Conversion Price which would result in a Conversion Price higher than the then applicable Conversion Price. (e) Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and (C) insofar as Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors of the Corporation. - 11 - 51 (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4(c) (i), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Adjustments for Subdivisions, Stock Dividends, Combinations, or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be increased by way of stock issued as a dividend for no consideration or subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such increase or subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 4.5. Provision Regarding Adjustment of Conversion Price for Class D Preferred Stock. Notwithstanding any other provision of this Article IV, the Conversion Price of the Class D Preferred Stock shall be reduced, in the event that a Qualified Public Offering does not close on or before March 31, 1995, to $14.12 as of such date, or to such lesser amount as may be required under other provisions of this Article IV. 4.6. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of the Corporation other than shares of Common Stock, securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4.4(c), then, in each such case for the purpose of this Section 4.6, the holders of the Additional Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of such Additional Preferred Stock are convertible as of the record date fixed for the - 12 - 52 determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 4.7. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Amended and Restated Certificate of Incorporation), provision shall be made so that the holders of the Additional Preferred Stock shall thereafter be entitled to receive upon conversion of the Additional Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Additional Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such class of Additional Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 4.8. No Impairment. The Corporation will not, by further amendment of its Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Class A Preferred Stock and Additional Preferred Stock against impairment. 4.9. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any share of Class A or Additional Preferred Stock. If, upon conversion of any share of Class A or Additional Preferred Stock, the registered holder would, except for the provisions of this Section 4.9, be entitled to receive a fractional share of Common Stock, then an amount equal to such fractional share multiplied by the then applicable Conversion Price shall be paid by the Corporation in cash to such registered holder. 4.10. Reservation of Shares. The Corporation agrees that, so long as any share of Class A or Additional Preferred Stock shall remain outstanding, the Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized capital stock, for the purpose of issue upon conversion of the Class A or Additional Preferred Stock, the full number of shares of Common Stock then issuable upon conversion of the Class A and Additional Preferred Stock. 4.11. Validity of Shares. The Corporation agrees that it will from time to time take all such actions as may be requisite to assure that all shares of Common Stock which may be issued upon conversion of any share of the Class A or Additional Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the - 13 - 53 foregoing, the Corporation agrees that it will from time to time take all such action as may be requisite to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient of the then current par value of the Class A, Class B, Class C, Class D and Class E Preferred Stock divided by the number of shares of Common Stock into which each share of Class A, Class B, Class C, Class D or Class E Preferred Stock can, from time to time, be converted. 4.12. Notice of Adjustment. Upon each adjustment of the Conversion Price, the Corporation shall give prompt written notice thereof addressed to the registered holder of each share of the class of Additional Preferred Stock so affected at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares issuable upon the conversion of such holder's shares of Additional Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based together with a certificate of the chief financial officer of the Corporation stating that he or she has examined such notice and certifying that the information contained therein is accurate. 4.13. Notice of Capital Changes. If at any time: (a) the Corporation shall declare any dividend or distribution payable to the holders of its Common Stock; (b) the Corporation shall offer for subscription to the holders of Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation or business organization; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any such case, the Corporation shall give the registered holders of the Additional Preferred Stock written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining stockholders entitled to vote upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and of the date when any such transaction shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least twenty (20) days prior to the record date with respect thereto. - 14 - 54 4.14. Taxes. The Corporation will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of the Additional Preferred Stock. 4.15. Waiver of Adjustment. (a) With the consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then currently outstanding shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock or Class E Preferred Stock, any antidilution adjustment to which such class of Preferred Stock would otherwise be entitled under this Section 4 may be limited or waived in its entirety. In the event of such a limitation or waiver, the Corporation shall not be required to make any adjustment whatsoever with respect to the Conversion Price of such class of Preferred Stock, or to make any adjustment with respect to such class of Preferred Stock in excess of such limit, as the terms of such consent may dictate. (b) Any holder of Additional Preferred Stock shall also be permitted to waive in whole or in part, currently or prospectively, by contract or any other writing, any antidilution adjustment to which such holder would otherwise be entitled pursuant to the provisions of this Section 4. 5. COVENANTS. In addition to any other rights provided by law, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then issued and outstanding shares of the applicable class of Preferred Stock: (a) amend or repeal any provision of the Corporation's Amended and Restated Certificate of Incorporation so as to adversely affect the rights, preferences, or privileges of such class of Preferred Stock; (b) authorize or issue additional shares of any class or series of stock of the Corporation other than a class or series of stock of the Corporation ranking equal or junior in rights to such class of Preferred Stock as to dividends or redemption or rights on liquidation, dissolution or winding up; (c) increase the authorized number of shares of such existing class of Preferred Stock or authorize the reissuance thereof after repurchase or redemption; (d) authorize any liquidation, dissolution, winding up of the affairs of the Corporation, consolidation or merger of the Corporation into or with another corporation or corporations, sale of all or substantially all of the Corporation's assets (unless after such consolidation or merger all the terms of such class of Preferred Stock would remain in effect and be assumed by the consolidated or surviving corporation), or distribution of the Corporation's assets by way of return of capital; (e) change the par value of such class of Preferred Stock; or (f) alter in any way the voting rights of such class of Preferred Stock. - 15 - 55 6. REDEMPTION (a) The Corporation shall redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price of One Thousand Dollars ($1,000) per share, plus an amount equal to any and all dividends accrued and unpaid, but without interest, on the 31st day of December (the "Redemption Date") of each of the years of 1995 through 1998 seven hundred fifty (750) shares of Class A Preferred Stock (or such lesser number as shall then be outstanding). If the Corporation is unable on any Redemption Date to redeem any shares of Class A Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. (b) The Corporation shall have the right, at its option, to redeem as a whole, or from time to time in part, shares of Class A Preferred Stock at the redemption price specified in the preceding paragraph plus an amount equal to any and all dividends accrued and unpaid, but without interest. The Corporation may credit against any mandatory redemption specified in paragraph (a) any shares of Class A Preferred Stock redeemed pursuant to this paragraph (b) or otherwise acquired by the Corporation. Any such credit shall be applied against mandatory redemptions in the inverse order of the above-stated redemption requirements. (c) In case of redemption of only part of the shares of Class A Preferred Stock at any time outstanding, the Corporation shall designate by lot the shares so to be redeemed. Subject to the limitations and provisions herein contained, the Board of Directors shall have full power and authority to prescribe the manner in which the drawings by lot shall be conducted. (d) Notice of every redemption provided for in this Section 6 shall be given by mailing the same to every holder of record, any of whose shares are then to be redeemed, not less than fifteen (15) nor more than thirty (30) days prior to the date fixed as the date of the redemption thereof, at the respective addresses of such holders as the same shall appear on the stock transfer books of the Corporation. The notice shall state that the shares specified in such notice will be redeemed by the Corporation at the redemption price and on the date specified in such notice, upon the surrender for cancellation at the places designated in such notice, of the certificates representing the shares so to be redeemed, properly endorsed in blank for transfer, or accompanied by proper instruments of assignment and transfer in blank, bearing any necessary transfer tax stamps thereto affixed and cancelled, or accompanied by cash or a certified check in the amount of any stock transfer tax applicable to such transaction. On and after the date specified in the notice described above, each holder of shares called for redemption, upon presentation and surrender in accordance with such notice of the certificates for shares held by such holder and called for redemption, shall be entitled to receive therefor the applicable redemption price. If the Corporation shall give notice of redemption as aforesaid (and unless the Corporation shall fail to pay the redemption price of shares presented for redemption in accordance with such notice), all shares called for redemption shall be deemed to have been redeemed on the date specified in such notice whether or not the certificates for such shares be surrendered for redemption and - 16 - 56 cancellation, and such shares so called for redemption shall from and after such date cease to represent any interest whatever in the Corporation or its property, and the holders thereof shall have no rights other than the right to receive such redemption price but without any interest thereon from or after such date. (e) Notwithstanding any other provision of this Section 6, if the holders of at least a majority of the Class A Preferred Stock elect not to have the Corporation redeem the Class A Preferred Stock, then the Corporation shall not redeem any shares of Class A Preferred Stock. 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Class A, Class B, Class C, Class D or Class E Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and limited from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of any such class of Preferred Stock accordingly. 8. AMENDMENTS AND WAIVERS. (a) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class A Preferred Stock shall become effective and binding upon all holders of Class A Preferred Stock if the same is approved by the vote or written consent of the holders of at least a majority of the Class A Preferred Stock then issued and outstanding. (b) Any action, approval, request, consent, notice or waiver which is required or permitted under Article IV with respect to the Class B Preferred Stock shall become effective and binding upon all holders of Class B Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class B Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (c) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class C Preferred Stock shall become effective and binding upon all holders of Class C Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class C Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (d) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class D Preferred Stock shall become effective and binding upon all holders of Class D Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class D Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. - 17 - 57 (e) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class E Preferred Stock shall become effective and binding upon all holders of Class E Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class E Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. IN WITNESS WHEREOF, the Corporation has caused the Certificate of Amendment to be signed by its President and attested by its Secretary this 1st day of March, 1995. Transkaryotic Therapies, Inc. By:/s/ Richard F. Selden ----------------------------------- Richard F. Selden, M.D., Ph.D. Chief Executive Officer - 18 - 58 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: At a meeting of the Board of Directors of the Corporation a resolution was duly adopted, pursuant to Section 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation duly approved said amendment by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and notice has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The resolution provides that the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: Article Fourth of the Certificate of Incorporation of the Corporation is hereby deleted in its entirety and replaced with the following: ARTICLE IV. This Corporation is authorized to issue seven classes of shares to be designated respectively Common Stock and six classes of Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue is 15,000,000, par value 59 $0.01 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 3,816,356, par value $1.00 per share. The first class of Preferred Stock shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second class of Preferred Stock shall consist of 60,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); the third class of Preferred Stock shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock"); the fourth class of Preferred Stock shall consist of 280,367 shares of Class D Preferred Stock (the "Class D Preferred Stock"); the fifth class of Preferred Stock shall consist of 523,560 shares of Class E Preferred Stock (the "Class E Preferred Stock,"); and the sixth class of Preferred Stock shall consist of 1,071,429 shares of Class F Preferred Stock (the "Class F Preferred Stock", and together with the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, and the Class E Preferred Stock, the "Preferred Stock"). The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative powers, preferences and rights, and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, granted to or imposed on the respective classes and series of the shares of capital stock or the holders thereof are as follows: 1. DIVIDENDS. 1.1. Preferred Stock. (a) Subject to Section 4.1, the holders of the Class A Preferred Stock shall be entitled to receive cumulative dividends, out of any assets at the time legally available, when and as declared by the Board of Directors, on a pro rata basis in accordance with the number of shares of Class A Preferred Stock held by each such holder, which shall accrue from day-to-day at the rate per annum of $70.00 per share, payable quarterly on the last day of each March, June, September and December (commencing March 31, 1992) and an additional amount equal to the amount of the accrued dividend on the Preferred Stock exchanged by such holder in consideration of Class A Preferred Stock pursuant to the Stock Exchange Agreement dated February 14, 1992, between the Corporation and such holder, and in preference and priority to any payment of any dividend on any Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Common Stock of the Corporation. To the extent that such dividends are not paid, because there exists no funds legally available therefor or for any other reason, such dividends shall accrue. (b) No dividend shall be paid on the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock or the Common Stock in any year until all declared and accumulated - 2 - 60 dividends have been paid on the Class A Preferred Stock. In the event the Board of Directors shall have declared and paid, or set apart for payment, dividends at the rate specified in Section 1.1(a) in any one fiscal year, and shall elect to declare additional dividends in that fiscal year out of funds legally available therefor on the Common Stock, such additional dividends shall, subject to Section 1.1(a) hereof, be declared and paid on each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, and Class F Preferred Stock, at the same time as any dividends are declared and paid on the Common Stock, in an amount equal to the additional dividends paid on such number of shares of Common Stock into which each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock is convertible on the record date for such dividend payment. 1.2. Common Stock. Subject to the preferences and other rights of the Preferred Stock set forth in Section 1.1, the holders of Common Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, on a basis in accordance with the number of shares of Common Stock held by each such holder. 2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock shall first be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class of Preferred Stock or Common Stock by reason of their ownership of such stock, the amount of $700.00 per share of Class A Preferred Stock, $400.00 per share of Class B Preferred Stock, $8.00 per share of Class C Preferred Stock, $17.8338 per share of Class D Preferred Stock, $19.10 per share of Class E Preferred Stock, and $14.00 per share of Class F Preferred Stock plus accrued but undeclared and declared but unpaid dividends on each such share. If the assets and funds of the Corporation shall be insufficient to permit the payment in full to such holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock of the full aforesaid preferential amount, then the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock in accordance with the aggregate liquidation preference of the shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and/or Class F Preferred Stock held by each of them. (b) After payment has been made to the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock of the - 3 - 61 full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock, the holders of the Class B Preferred Stock, the holders of the Class C Preferred Stock, the holders of the Class D Preferred Stock, the holders of the Class E Preferred Stock and the holders of the Class F Preferred Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held by them, assuming conversion of the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock at the respective Conversion Prices then in effect. (c) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation immediately prior to the merger or consolidation do not own more than fifty percent (50%) of the outstanding voting power (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants) of the surviving corporation, or the sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation. Approval of any of the foregoing events by the holders of at least a majority of the Preferred Stock pursuant to Section 5 hereof shall be deemed an election not to treat any of the foregoing events as a liquidation, dissolution or winding up hereunder. 3. VOTING RIGHTS. 3.1. Generally. Subject to Section 5 hereof and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote in respect of each share of Common Stock and the holder of each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and/or Class F Preferred Stock issued and outstanding shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and/or Class F Preferred Stock can be converted at the record date for determination of those entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is obtained, such votes to be counted together with all other shares of stock of the Corporation having voting power in the election of directors and not separately as a class. Except as otherwise provided by law or in this Certificate of Incorporation, the holders of Class A Preferred Stock shall not be entitled to notice of, or to vote at, any meeting of the stockholders of the Corporation or to vote on any matter relating to the business or affairs of the Corporation. Record holders of Common Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and/or Class F Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the By-laws of the Corporation. 3.2. Class A Preferred Stock Director. Notwithstanding the provisions of Section 3.1: (a) In the event that seven (7) consecutive quarterly dividends with respect to the Class A Preferred Stock as set forth in Section 1.1(a) shall be in arrears and - 4 - 62 shall not have been paid in full, whether or not earned, or in the event the Corporation shall be more than one year in arrears in the redemption of Class A Preferred Stock, then, upon notice to the Corporation given by the holders of not less than 50% of the Class A Preferred Stock then outstanding, the holders of the Class A Preferred shall as a class become entitled to elect one member to the Board of Directors until all accumulated and unpaid dividends thereon and all redemptions in arrears shall have been paid, whereupon such right of the holders of the Class A Preferred Stock to elect one director shall cease, subject to being again revived from time to time upon the reoccurrence of the conditions above described. Failure by the holders of the Class A Preferred Stock to exercise their rights under this Section 3.2 promptly upon the occurrence of the conditions giving rise to such rights shall not be deemed to be a waiver of such rights, such rights being exercisable at any time such conditions shall have occurred and be continuing. (b) Immediately upon accrual of such right of the holders of Class A Preferred Stock to elect a director pursuant to paragraph (a) above, the number of directors of the Corporation shall, ipso facto, be increased by one, and the directors of the Corporation shall thereupon be divided into classes. One such class shall consist of one director (the "Preferred Director") elected solely by the holders of Class A Preferred Stock (voting as a class), and the other class shall consist of the remaining directors. Whenever the number of directors of the Corporation shall have been so increased, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and without the vote of the holders of Class A Preferred Stock, provided that no such action shall impair the right of the holders of Class A Preferred Stock to elect the Preferred Director. The holders of the Class A Preferred Stock may at their option at any time exercise their rights under this Section 3.2 by written consent without a meeting in accordance with the General Corporation Law of Delaware. (c) Each Preferred Director elected by the holders of Class A Preferred Stock shall serve for a term of one year and until his or her successor is elected and qualified, or, if earlier, until the right to elect such director ceases in accordance with paragraph (a) above. So long as the holders of Class A Preferred Stock are entitled to elect a Preferred Director, any vacancy in the position of Preferred Director may be filled only by the holders of the Class A Preferred Stock entitled to vote thereon. The Class A Preferred Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Class A Preferred Stock called for such purpose, or the written consent, of the holders of record of a majority of the then outstanding shares of Class A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent. (d) Upon the termination of the right of holders of Class A Preferred Stock to elect a Preferred Director, the term of office of the Preferred Director shall forthwith terminate and the number of directors of the Corporation shall thereupon be appropriately decreased. - 5 - 63 4. CONVERSION. 4.1. Optional Conversion. The holders of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock (together, the "Additional Preferred Stock") shall have conversion rights as follows (the "Additional Preferred Conversion Rights"). Each share of Additional Preferred Stock shall be convertible (at the option of the holder thereof) any time at the office of the Corporation or any transfer agent for the Additional Preferred Stock into the number of shares of the Common Stock of the Corporation obtained by dividing the Original Issuance Price (as defined below) for such class of Preferred Stock by the conversion price in effect at the time of conversion, determined as hereinafter provided (the "Conversion Price"). For the Class B Preferred Stock, the Original Issuance Price is $400.00 and the present Conversion Price is $8.71. For the Class C Preferred Stock, the Original Issuance Price is $8.00 and the initial Conversion Price is $8.00. For the Class D Preferred Stock, the Original Issuance Price is $17.83 and the initial Conversion Price is $17.83. For the Class E Preferred Stock, the Original Issuance Price is $19.10 and the initial Conversion Price is $19.10. For the Class F Preferred Stock, the Original Issuance Price is $14.00 and the initial Conversion Price is $14.00. All calculations under this Section 4 shall be made to the nearest cent. 4.2. Automatic Conversion. (a) Class A Preferred Stock. Immediately upon the closing of an initial public offering of the Corporation's Common Stock at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combination, or similar recapitalizations occurring after the date hereof) and which results in gross proceeds to the Corporation of at least ten million dollars ($10,000,000) ("Qualified Public Offering"), and simultaneously with the conversion of the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock into Common Stock, all Class A Preferred Stock then outstanding and all rights to any and all then unpaid accrued dividends thereon shall automatically be converted into the number of original issue shares of Common Stock produced by dividing (a) six million dollars ($6,000,000) by (b) the price per share at which Common Stock is offered in the Qualified Public Offering. (b) Additional Preferred Stock. At any time upon the closing of a Qualified Public Offering, each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price of such class of Preferred Stock. In the event of the automatic conversion of Additional Preferred Stock upon a Qualified Public Offering, the party entitled to receive the Common Stock issuable upon such conversion of Additional Preferred Stock shall not be deemed to have converted such Additional Preferred Stock until such party has received from the Corporation all declared and unpaid dividends and accrued but undeclared dividends owed with respect to such party's Additional Preferred Stock and, in any event, until immediately prior to the closing of the Qualified Public Offering. - 6 - 64 Each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for such class of Preferred Stock upon the vote to so convert of the holders of at least 66-2/3% of such class of Additional Preferred Stock then outstanding. Each share of Class B Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class B Preferred Stock in the event at least 66-2/3% of the Class B Preferred Stock purchased pursuant to (i) the Class B Preferred Stock Purchase Agreement dated as of February 14, 1992 among the Corporation and the purchasers listed on Schedule A thereto (the "1992 Class B Agreement") and (ii) the Class B Preferred Stock Purchase Agreement dated as of April 20, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "1993 Class B Agreement"), collectively as one group, have been converted into Common Stock. Each share of Class C Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class C Preferred Stock in the event at least 66-2/3% of the Class C Preferred Stock purchased pursuant to the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 among the Corporation and the purchasers listed on Schedule A thereto (the "Class C Agreement") have been converted into Common Stock. Each share of Class D Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class D Preferred Stock in the event at least 66- 2/3% of the Class D Preferred Stock purchased pursuant to the Class D Preferred Stock Purchase Agreement dated as of May 18, 1994 among the Corporation and Marion Merrell Dow Inc. (the "Class D Agreement") have been converted into Common Stock. Each share of Class E Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class E Preferred Stock in the event at least 66-2/3% of the Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement dated as of March 1, 1995 among the Corporation and Marion Merrell Dow Inc. (the "Class E Agreement") have been converted into Common Stock. Each share of Class F Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class F Preferred Stock in the event at least 66-2/3% of the Class F Preferred Stock purchased pursuant to the Class F Preferred Stock Purchase Agreement dated as of October 26, 1995 among the Corporation and the purchasers listed on Schedule A thereto (the "Class F Agreement") have been converted into Common Stock. 4.3. Mechanics of Conversion. Before any holder of Additional Preferred Stock shall be entitled to convert such Stock into shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing the shares of Additional Preferred Stock to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for the Additional Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4.2, the - 7 - 65 outstanding shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Class A Preferred Stock or Additional Preferred Stock, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled hereunder and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock plus all accrued and unpaid dividends on such holder's Additional Preferred Stock, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Additional Preferred Stock to be converted, or in the case of automatic conversion immediately prior to closing of the Qualified Public Offering or the date of the shareholder vote or conversion of Class A Preferred Stock or Additional Preferred Stock described in Sections 4.1 and 4.2, as applicable, and the party entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4.4. Adjustment of Conversion Prices due to Issuance of Additional Shares. The Conversion Price in effect from time to time for the Additional Preferred Stock shall be subject to adjustment as follows: (a) Special Definitions. For purposes of this Section 4.4, the following definitions shall apply: (i) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (ii) "Original Issue Date" shall mean the date on which the class of such Additional Preferred Stock is first issued by the Corporation. (iii) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. - 8 - 66 (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Additional Preferred Stock authorized herein; (B) as a dividend or distribution on the Class A Preferred Stock or Additional Preferred Stock or any event for which adjustment is made pursuant to Section 4.4(f) hereof; (C) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B) or this clause (C); (D) out of those 1,250,000 shares of Common Stock reserved for issuance pursuant to the 1993 Long-Term Incentive Plan or out of those 180,000 shares of Common Stock reserved for issuance pursuant to the 1993 Non-Employee Directors' Stock Option Plan or pursuant to any other stock option, stock bonus or other employee stock plan approved by the holders of at least a majority of the Additional Preferred Stock voting as one class, which approval shall include the number of shares of Common Stock available for distribution under any such plan; or (E) upon the exercise of any options or warrants outstanding on the Original Issue Date. (b) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior, to such issue. (c) Deemed Issuance of Additional Shares of Common Stock - Options and Convertible Securities. Except as provided in Section 4.4(a) or Section 4.4(b) hereof, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the document relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such - 9 - 67 record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4.4(e) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued, (i) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if, (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration - 10 - 68 actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date, or (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (d) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4(c)) for a consideration per share less than the applicable Conversion Price of a class of Additional Preferred Stock (other than the Class E Preferred Stock) in effect on the date of and immediately prior to such issue, or in the case of the Class E Preferred Stock for consideration per share less than $14.00 per share, the applicable Conversion Price for such class of Additional Preferred Stock, shall be recomputed, concurrently with such issue (calculated to the nearest cent) by dividing (x) an amount equal to the sum of (1) the number of shares of Common Stock deemed to be outstanding immediately prior to such issue multiplied by the then effective Conversion Price and (2) the consideration, if any, deemed received by the Corporation upon such issue by (y) the total number of shares of Common Stock deemed to be outstanding immediately after such issue; and provided that, for the purposes of this Section 4.4(d), all shares of Common Stock outstanding and issuable upon conversion of outstanding Options, Convertible Securities and the Additional Preferred Stock shall be deemed to be outstanding, other than shares of Common Stock excluded from the definition of Additional Shares of Common Stock in this Section 4.4.; and provided further that no adjustment to the Conversion Price of the Class E Preferred Stock shall be made pursuant to this Section 4.4(d) unless the Corporation shall issue Additional Shares of Common Stock for a consideration per share less than $14.00. In no event will the Conversion Price be adjusted as the result of a particular issuance of securities to a price less than the price per share of the Additional Shares of Common Stock issued in such issuance nor shall any adjustment be made in the Conversion Price of any class of Additional Preferred Stock as a result of any issuance of any Additional Shares of Common Stock at a price per share in excess of the initial Conversion Price of such class of Additional Preferred Stock nor any adjustments made in such Conversion Price which would result in a Conversion Price higher than the then applicable Conversion Price. (e) Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: - 11 - 69 (i) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and (C) insofar as Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors of the Corporation. (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4(c) (i), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Adjustments for Subdivisions, Stock Dividends, Combinations, or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be increased by way of stock issued as a dividend for no consideration or subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such increase or subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by - 12 - 70 reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 4.5. Provision Regarding Adjustment of Conversion Price for Class D Preferred Stock. Notwithstanding any other provision of this Article IV, the Conversion Price of the Class D Preferred Stock shall be reduced, in the event that a Qualified Public Offering does not close on or before March 31, 1995, to $14.12 as of such date, or to such lesser amount as may be required under other provisions of this Article IV. 4.6. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of the Corporation other than shares of Common Stock, securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4.4(c), then, in each such case for the purpose of this Section 4.6, the holders of the Additional Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of such Additional Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 4.7. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Amended and Restated Certificate of Incorporation), provision shall be made so that the holders of the Additional Preferred Stock shall thereafter be entitled to receive upon conversion of the Additional Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Additional Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such class of Additional Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 4.8. No Impairment. The Corporation will not, by further amendment of its Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Class A Preferred Stock and Additional Preferred Stock against impairment. - 13 - 71 4.9. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any share of Class A or Additional Preferred Stock. If, upon conversion of any share of Class A or Additional Preferred Stock, the registered holder would, except for the provisions of this Section 4.9, be entitled to receive a fractional share of Common Stock, then an amount equal to such fractional share multiplied by the then applicable Conversion Price shall be paid by the Corporation in cash to such registered holder. 4.10. Reservation of Shares. The Corporation agrees that, so long as any share of Class A or Additional Preferred Stock shall remain outstanding, the Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized capital stock, for the purpose of issue upon conversion of the Class A or Additional Preferred Stock, the full number of shares of Common Stock then issuable upon conversion of the Class A and Additional Preferred Stock. 4.11. Validity of Shares. The Corporation agrees that it will from time to time take all such actions as may be requisite to assure that all shares of Common Stock which may be issued upon conversion of any share of the Class A or Additional Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the foregoing, the Corporation agrees that it will from time to time take all such action as may be requisite to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient of the then current par value of the Class A, Class B, Class C, Class D, Class E and Class F Preferred Stock divided by the number of shares of Common Stock into which each share of Class A, Class B, Class C, Class D, Class E or Class F Preferred Stock can, from time to time, be converted. 4.12. Notice of Adjustment. Upon each adjustment of the Conversion Price, the Corporation shall give prompt written notice thereof addressed to the registered holder of each share of the class of Additional Preferred Stock so affected at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares issuable upon the conversion of such holder's shares of Additional Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based together with a certificate of the chief financial officer of the Corporation stating that he or she has examined such notice and certifying that the information contained therein is accurate. 4.13. Notice of Capital Changes. If at any time: (a) the Corporation shall declare any dividend or distribution payable to the holders of its Common Stock; (b) the Corporation shall offer for subscription to the holders of Common Stock any additional shares of stock of any class or other rights; - 14 - 72 (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation or business organization; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any such case, the Corporation shall give the registered holders of the Additional Preferred Stock written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining stockholders entitled to vote upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and of the date when any such transaction shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least twenty (20) days prior to the record date with respect thereto. 4.14. Taxes. The Corporation will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of the Additional Preferred Stock. 4.15. Waiver of Adjustment. (a) With the consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then currently outstanding shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock or Class F Preferred Stock, any antidilution adjustment to which such class of Preferred Stock would otherwise be entitled under this Section 4 may be limited or waived in its entirety. In the event of such a limitation or waiver, the Corporation shall not be required to make any adjustment whatsoever with respect to the Conversion Price of such class of Preferred Stock, or to make any adjustment with respect to such class of Preferred Stock in excess of such limit, as the terms of such consent may dictate. (b) Any holder of Additional Preferred Stock shall also be permitted to waive in whole or in part, currently or prospectively, by contract or any other writing, any antidilution adjustment to which such holder would otherwise be entitled pursuant to the provisions of this Section 4. 5. COVENANTS. In addition to any other rights provided by law, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then issued and outstanding shares of the applicable class of Preferred Stock: - 15 - 73 (a) amend or repeal any provision of the Corporation's Amended and Restated Certificate of Incorporation so as to adversely affect the rights, preferences, or privileges of such class of Preferred Stock; (b) authorize or issue additional shares of any class or series of stock of the Corporation other than a class or series of stock of the Corporation ranking equal or junior in rights to such class of Preferred Stock as to dividends or redemption or rights on liquidation, dissolution or winding up; (c) increase the authorized number of shares of such existing class of Preferred Stock or authorize the reissuance thereof after repurchase or redemption; (d) authorize any liquidation, dissolution, winding up of the affairs of the Corporation, consolidation or merger of the Corporation into or with another corporation or corporations, sale of all or substantially all of the Corporation's assets (unless after such consolidation or merger all the terms of such class of Preferred Stock would remain in effect and be assumed by the consolidated or surviving corporation), or distribution of the Corporation's assets by way of return of capital; (e) change the par value of such class of Preferred Stock; or (f) alter in any way the voting rights of such class of Preferred Stock. 6. REDEMPTION (a) The Corporation shall redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price of One Thousand Dollars ($1,000) per share, plus an amount equal to any and all dividends accrued and unpaid on each share to be redeemed, but without interest, on the 31st day of December (the "Redemption Date") of each of the years of 1997 through 2000 seven hundred fifty (750) shares of Class A Preferred Stock (or such lesser number as shall then be outstanding). If the Corporation is unable on any Redemption Date to redeem any shares of Class A Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. (b) The Corporation shall have the right, at its option, to redeem as a whole, or from time to time in part, shares of Class A Preferred Stock at the redemption price specified in the preceding paragraph plus an amount equal to any and all dividends accrued and unpaid, but without interest. The Corporation may credit against any mandatory redemption specified in paragraph (a) any shares of Class A Preferred Stock redeemed pursuant to this paragraph (b) or otherwise acquired by the Corporation. Any such credit shall be applied against mandatory redemptions in the inverse order of the above-stated redemption requirements. - 16 - 74 (c) In case of redemption of only part of the shares of Class A Preferred Stock at any time outstanding, the Corporation shall designate by lot the shares so to be redeemed. Subject to the limitations and provisions herein contained, the Board of Directors shall have full power and authority to prescribe the manner in which the drawings by lot shall be conducted. (d) Notice of every redemption provided for in this Section 6 shall be given by mailing the same to every holder of record, any of whose shares are then to be redeemed, not less than fifteen (15) nor more than thirty (30) days prior to the date fixed as the date of the redemption thereof, at the respective addresses of such holders as the same shall appear on the stock transfer books of the Corporation. The notice shall state that the shares specified in such notice will be redeemed by the Corporation at the redemption price and on the date specified in such notice, upon the surrender for cancellation at the places designated in such notice, of the certificates representing the shares so to be redeemed, properly endorsed in blank for transfer, or accompanied by proper instruments of assignment and transfer in blank, bearing any necessary transfer tax stamps thereto affixed and cancelled, or accompanied by cash or a certified check in the amount of any stock transfer tax applicable to such transaction. On and after the date specified in the notice described above, each holder of shares called for redemption, upon presentation and surrender in accordance with such notice of the certificates for shares held by such holder and called for redemption, shall be entitled to receive therefor the applicable redemption price. If the Corporation shall give notice of redemption as aforesaid (and unless the Corporation shall fail to pay the redemption price of shares presented for redemption in accordance with such notice), all shares called for redemption shall be deemed to have been redeemed on the date specified in such notice whether or not the certificates for such shares be surrendered for redemption and cancellation, and such shares so called for redemption shall from and after such date cease to represent any interest whatever in the Corporation or its property, and the holders thereof shall have no rights other than the right to receive such redemption price but without any interest thereon from or after such date. (e) Notwithstanding any other provision of this Section 6, if the holders of at least a majority of the Class A Preferred Stock elect not to have the Corporation redeem the Class A Preferred Stock, then the Corporation shall not redeem any shares of Class A Preferred Stock. 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Class A, Class B, Class C, Class D, Class E or Class F Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of any such class of Preferred Stock accordingly. - 17 - 75 8. AMENDMENTS AND WAIVERS. (a) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class A Preferred Stock shall become effective and binding upon all holders of Class A Preferred Stock if the same is approved by the vote or written consent of the holders of at least a majority of the Class A Preferred Stock then issued and outstanding. (b) Any action, approval, request, consent, notice or waiver which is required or permitted under Article IV with respect to the Class B Preferred Stock shall become effective and binding upon all holders of Class B Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class B Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (c) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class C Preferred Stock shall become effective and binding upon all holders of Class C Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class C Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (d) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class D Preferred Stock shall become effective and binding upon all holders of Class D Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class D Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (e) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class E Preferred Stock shall become effective and binding upon all holders of Class E Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class E Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (f) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class F Preferred Stock shall become effective and binding upon all holders of Class F Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class F Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. - 18 - 76 IN WITNESS WHEREOF, the Corporation has caused the Certificate of Amendment to be signed by its President this 25th day of October, 1995. Transkaryotic Therapies, Inc. By:/s/ Richard F. Selden ---------------------------------- Richard F. Selden, M.D., Ph.D. President - 19 - 77 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: At a meeting of the Board of Directors of the Corporation a resolution was duly adopted, pursuant to Section 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation duly approved said amendment by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware and notice has been given as provided in Section 228 of the General Corporation Law of the State of Delaware. The resolution provides that the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: Article Fourth of the Certificate of Incorporation of the Corporation is hereby deleted in its entirety and replaced with the following: ARTICLE IV. This Corporation is authorized to issue eight classes of shares to be designated Common Stock and seven classes of Preferred Stock, respectively. The total number of shares of Common Stock this Corporation shall have authority to issue is 15,000,000, par value $1.00 per share, and the total number of shares of Preferred Stock this Corporation 78 shall have authority to issue is 4,952,720, par value $1.00 per share. The first class of Preferred Stock shall consist of 6,000 shares designated Class A Preferred Stock (the "Class A Preferred Stock"); the second class of Preferred Stock shall consist of 60,000 shares designated Class B Preferred Stock (the "Class B Preferred Stock"); the third class of Preferred Stock shall consist of 1,875,000 shares of Class C Preferred Stock (the "Class C Preferred Stock"); the fourth class of Preferred Stock shall consist of 280,367 shares of Class D Preferred Stock (the "Class D Preferred Stock"); the fifth class of Preferred Stock shall consist of 523,560 shares of Class E Preferred Stock (the "Class E Preferred Stock,"); the sixth class of Preferred Stock shall consist of 1,071,429 shares of Class F Preferred Stock (the "Class F Preferred Stock,"); and the seventh class of Preferred Stock shall consist of 1,136,364 shares of Class G Preferred Stock (the "Class G Preferred Stock;" together with the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock, the "Preferred Stock"). The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock. The relative powers, preferences and rights, and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, granted to or imposed on the respective classes and series of the shares of capital stock or the holders thereof are as follows: 1. DIVIDENDS. 1.1. Preferred Stock. (a) Subject to Section 4.1, the holders of the Class A Preferred Stock shall be entitled to receive cumulative dividends, out of any assets at the time legally available, when and as declared by the Board of Directors, on a pro rata basis in accordance with the number of shares of Class A Preferred Stock held by each such holder, which shall accrue from day-to-day at the rate per annum of $70.00 per share, payable quarterly on the last day of each March, June, September and December (commencing March 31, 1992) and an additional amount equal to the amount of the accrued dividend on the Preferred Stock exchanged by such holder in consideration of Class A Preferred Stock pursuant to the Stock Exchange Agreement dated February 14, 1992, between the Corporation and such holder, and in preference and priority to any payment of any dividend on any Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock, Class G Preferred Stock and Common Stock of the Corporation. To the extent that such dividends are not paid, because there exists no funds legally available therefor or for any other reason, such dividends shall accrue. - 2 - 79 (b) No dividend shall be paid on the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock, the Class G Preferred Stock or the Common Stock in any year until all declared and accumulated dividends have been paid on the Class A Preferred Stock. In the event the Board of Directors shall have declared and paid, or set apart for payment, dividends at the rate specified in Section 1.1(a) in any one fiscal year, and shall elect to declare additional dividends in that fiscal year out of funds legally available therefor on the Common Stock, such additional dividends shall, subject to Section 1.1(a) hereof, be declared and paid on each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock, at the same time as any dividends are declared and paid on the Common Stock, in an amount equal to the additional dividends paid on such number of shares of Common Stock into which each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock is convertible on the record date for such dividend payment. 1.2. Common Stock. Subject to the preferences and other rights of the Preferred Stock set forth in Section 1.1, the holders of Common Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, on a basis in accordance with the number of shares of Common Stock held by each such holder. 2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock shall first be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class of Preferred Stock or Common Stock by reason of their ownership of such stock, the amount of $700.00 per share of Class A Preferred Stock, $400.00 per share of Class B Preferred Stock, $8.00 per share of Class C Preferred Stock, $17.8338 per share of Class D Preferred Stock, $19.10 per share of Class E Preferred Stock, $14.00 per share of Class F Preferred Stock and $22.00 per share of Class G Preferred Stock, plus accrued but undeclared and declared but unpaid dividends on each such share. If the assets and funds of the Corporation shall be insufficient to permit the payment in full to such holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock of the full aforesaid preferential amount, then the entire assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and - 3 - 80 Class G Preferred Stock in accordance with the aggregate liquidation preference of the shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and/or Class G Preferred Stock held by each of them. (b) After payment has been made to the holders of the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock of the full amounts to which they shall be entitled as aforesaid, the holders of the Common Stock, the holders of the Class B Preferred Stock, the holders of the Class C Preferred Stock, the holders of the Class D Preferred Stock, the holders of the Class E Preferred Stock, the holders of the Class F Preferred Stock and the holders of the Class G Preferred Stock shall be entitled to share ratably in the remaining assets, based on the number of shares of Common Stock held by them, assuming conversion of the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock at the respective Conversion Prices then in effect. (c) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation immediately prior to the merger or consolidation do not own more than fifty percent (50%) of the outstanding voting power (assuming conversion of all convertible securities and the exercise of all outstanding options and warrants) of the surviving corporation, or the sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation. Approval of any of the foregoing events by the holders of at least a majority of the Preferred Stock pursuant to Section 5 hereof shall be deemed an election not to treat any of the foregoing events as a liquidation, dissolution or winding up hereunder. 3. VOTING RIGHTS. 3.1. Generally. Subject to Section 5 hereof and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote in respect of each share of Common Stock and the holder of each share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and/or Class G Preferred Stock issued and outstanding shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and/or Class G Preferred Stock can be converted at the record date for determination of those entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is obtained, such votes to be counted together with all other shares of stock of the Corporation having voting power in the election of directors and not separately as a class. - 4 - 81 Except as otherwise provided by law or in this Certificate of Incorporation, the holders of Class A Preferred Stock shall not be entitled to notice of, or to vote at, any meeting of the stockholders of the Corporation or to vote on any matter relating to the business or affairs of the Corporation. Record holders of Common Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and/or Class G Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the By-laws of the Corporation. 3.2. Class A Preferred Stock Director. Notwithstanding the provisions of Section 3.1: (a) In the event that seven (7) consecutive quarterly dividends with respect to the Class A Preferred Stock as set forth in Section 1.1(a) shall be in arrears and shall not have been paid in full, whether or not earned, or in the event the Corporation shall be more than one year in arrears in the redemption of Class A Preferred Stock, then, upon notice to the Corporation given by the holders of not less than 50% of the Class A Preferred Stock then outstanding, the holders of the Class A Preferred shall as a class become entitled to elect one member to the Board of Directors until all accumulated and unpaid dividends thereon and all redemptions in arrears shall have been paid, whereupon such right of the holders of the Class A Preferred Stock to elect one director shall cease, subject to being again revived from time to time upon the reoccurrence of the conditions above described. Failure by the holders of the Class A Preferred Stock to exercise their rights under this Section 3.2 promptly upon the occurrence of the conditions giving rise to such rights shall not be deemed to be a waiver of such rights, such rights being exercisable at any time such conditions shall have occurred and be continuing. (b) Immediately upon accrual of such right of the holders of Class A Preferred Stock to elect a director pursuant to paragraph (a) above, the number of directors of the Corporation shall, ipso facto, be increased by one, and the directors of the Corporation shall thereupon be divided into classes. One such class shall consist of one director (the "Preferred Director") elected solely by the holders of Class A Preferred Stock (voting as a class), and the other class shall consist of the remaining directors. Whenever the number of directors of the Corporation shall have been so increased, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and without the vote of the holders of Class A Preferred Stock, provided that no such action shall impair the right of the holders of Class A Preferred Stock to elect the Preferred Director. The holders of the Class A Preferred Stock may at their option at any time exercise their rights under this Section 3.2 by written consent without a meeting in accordance with the General Corporation Law of Delaware. - 5 - 82 (c) Each Preferred Director elected by the holders of Class A Preferred Stock shall serve for a term of one year and until his or her successor is elected and qualified, or, if earlier, until the right to elect such director ceases in accordance with paragraph (a) above. So long as the holders of Class A Preferred Stock are entitled to elect a Preferred Director, any vacancy in the position of Preferred Director may be filled only by the holders of the Class A Preferred Stock entitled to vote thereon. The Class A Preferred Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the affirmative vote, at a special meeting of holders of Class A Preferred Stock called for such purpose, or the written consent, of the holders of record of a majority of the then outstanding shares of Class A Preferred Stock. Any vacancy created by such removal may also be filled at such meeting or by such consent. (d) Upon the termination of the right of holders of Class A Preferred Stock to elect a Preferred Director, the term of office of the Preferred Director shall forthwith terminate and the number of directors of the Corporation shall thereupon be appropriately decreased. 4. CONVERSION. 4.1. Optional Conversion. The holders of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock (together, the "Additional Preferred Stock") shall have conversion rights as follows (the "Additional Preferred Conversion Rights"). Each share of Additional Preferred Stock shall be convertible (at the option of the holder thereof) any time at the office of the Corporation or any transfer agent for the Additional Preferred Stock into the number of shares of the Common Stock of the Corporation obtained by dividing the Original Issuance Price (as defined below) for such class of Preferred Stock by the conversion price in effect at the time of conversion, determined as hereinafter provided (the "Conversion Price"). For the Class B Preferred Stock, the Original Issuance Price is $400.00 and the present Conversion Price is $8.71. For the Class C Preferred Stock, the Original Issuance Price is $8.00 and the initial Conversion Price is $8.00. For the Class D Preferred Stock, the Original Issuance Price is $17.83 and the initial Conversion Price is $17.83. For the Class E Preferred Stock, the Original Issuance Price is $19.10 and the initial Conversion Price is $19.10. For the Class F Preferred Stock, the Original Issuance Price is $14.00 and the initial Conversion Price is $14.00. For the Class G Preferred Stock, the Original Issuance Price is $22.00 and the initial Conversion Price is $22.00. All calculations under this Section 4 shall be made to the nearest cent. 4.2. Automatic Conversion. (a) Class A Preferred Stock. Immediately upon the closing of an initial public offering of the Corporation's Common Stock at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combination, or similar recapitalizations occurring after the date hereof) and which - 6 - 83 results in gross proceeds to the Corporation of at least ten million dollars ($10,000,000) ("Qualified Public Offering"), and simultaneously with the conversion of the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock into Common Stock, all Class A Preferred Stock then outstanding and all rights to any and all then unpaid accrued dividends thereon shall automatically be converted into the number of original issue shares of Common Stock produced by dividing (a) six million dollars ($6,000,000) by (b) the price per share at which Common Stock is offered in the Qualified Public Offering. (b) Additional Preferred Stock. At any time upon the closing of a Qualified Public Offering, each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price of such class of Preferred Stock. In the event of the automatic conversion of Additional Preferred Stock upon a Qualified Public Offering, the party entitled to receive the Common Stock issuable upon such conversion of Additional Preferred Stock shall not be deemed to have converted such Additional Preferred Stock until such party has received from the Corporation all declared and unpaid dividends and accrued but undeclared dividends owed with respect to such party's Additional Preferred Stock and, in any event, until immediately prior to the closing of the Qualified Public Offering. Each share of Additional Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for such class of Preferred Stock upon the vote to so convert of the holders of at least 66-2/3% of such class of Additional Preferred Stock then outstanding. Each share of Class B Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class B Preferred Stock in the event at least 66-2/3% of the Class B Preferred Stock purchased pursuant to (i) the Class B Preferred Stock Purchase Agreement dated as of February 14, 1992 among the Corporation and the purchasers listed on Schedule A thereto and (ii) the Class B Preferred Stock Purchase Agreement dated as of April 20, 1993 among the Corporation and the purchasers listed on Schedule A thereto, collectively as one group, have been converted into Common Stock. Each share of Class C Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class C Preferred Stock in the event at least 66-2/3% of the Class C Preferred Stock purchased pursuant to the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 among the Corporation and the purchasers listed on Schedule A thereto have been converted into Common Stock. Each share of Class D Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class D Preferred Stock in the event at least 66-2/3% of the - 7 - 84 Class D Preferred Stock purchased pursuant to the Class D Preferred Stock Purchase Agreement dated as of May 18, 1994 among the Corporation and Marion Merrell Dow Inc. have been converted into Common Stock. Each share of Class E Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class E Preferred Stock in the event at least 66-2/3% of the Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement dated as of March 1, 1995 among the Corporation and Marion Merrell Dow Inc. have been converted into Common Stock. Each share of Class F Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class F Preferred Stock in the event at least 66-2/3% of the Class F Preferred Stock purchased pursuant to the Class F Preferred Stock Purchase Agreement dated as of October 26, 1995 among the Corporation and the purchasers listed on Schedule A thereto have been converted into Common Stock. Each share of Class G Preferred Stock shall automatically be converted into shares of Common Stock pursuant to the formula set forth in Section 4.1 hereof at the then effective Conversion Price for Class G Preferred Stock in the event at least 66-2/3% of the Class G Preferred Stock purchased pursuant to the Class G Preferred Stock Purchase Agreement dated as of ____ __, 1996 among the Corporation and the purchasers listed on Schedule A thereto have been converted into Common Stock. 4.3. Mechanics of Conversion. Before any holder of Additional Preferred Stock shall be entitled to convert such Stock into shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing the shares of Additional Preferred Stock to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for the Additional Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section 4.2, the outstanding shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class A Preferred Stock or Additional Preferred Stock, as the case may be, are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Class A Preferred Stock or Additional Preferred Stock, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled hereunder and a check payable to the holder in the amount of any cash amounts payable as the result of a - 8 - 85 conversion into fractional shares of Common Stock plus all accrued and unpaid dividends on such holder's Additional Preferred Stock, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Additional Preferred Stock to be converted, or in the case of automatic conversion immediately prior to closing of the Qualified Public Offering or the date of the shareholder vote or conversion of Class A Preferred Stock or Additional Preferred Stock described in Sections 4.1 and 4.2, as applicable, and the party entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4.4. Adjustment of Conversion Prices due to Issuance of Additional Shares. The Conversion Price in effect from time to time for the Additional Preferred Stock shall be subject to adjustment as follows: (a) Special Definitions. For purposes of this Section 4.4, the following definitions shall apply: (i) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (ii) "Original Issue Date" shall mean the date on which the class of such Additional Preferred Stock is first issued by the Corporation. (iii) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 4.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Additional Preferred Stock authorized herein; (B) as a dividend or distribution on the Class A Preferred Stock or Additional Preferred Stock or any event for which adjustment is made pursuant to Section 4.4(f) hereof; (C) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B) or this clause (C); - 9 - 86 (D) out of those 1,250,000 shares of Common Stock reserved for issuance pursuant to the 1993 Long-Term Incentive Plan or out of those 180,000 shares of Common Stock reserved for issuance pursuant to the 1993 Non-Employee Directors' Stock Option Plan or pursuant to any other stock option, stock bonus or other employee stock plan approved by the holders of at least a majority of the Additional Preferred Stock voting as one class, which approval shall include the number of shares of Common Stock available for distribution under any such plan; or (E) upon the exercise of any options or warrants outstanding on the Original Issue Date. (b) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior, to such issue. (c) Deemed Issuance of Additional Shares of Common Stock - Options and Convertible Securities. Except as provided in Section 4.4(a) or Section 4.4(b) hereof, in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the document relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4.4(e) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued, (i) no further adjustment in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration - 10 - 87 payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if, (A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (A) the applicable Conversion Price on the original adjustment date, or (B) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. - 11 - 88 (d) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4(c)) for a consideration per share less than the applicable Conversion Price of a class of Additional Preferred Stock (other than the Class E Preferred Stock) in effect on the date of and immediately prior to such issue or, in the case of the Class E Preferred Stock, for consideration per share less than $14.00 per share, the applicable Conversion Price for such class of Additional Preferred Stock, shall be recomputed, concurrently with such issue (calculated to the nearest cent) by dividing (x) an amount equal to the sum of (1) the number of shares of Common Stock deemed to be outstanding immediately prior to such issue multiplied by the then effective Conversion Price and (2) the consideration, if any, deemed received by the Corporation upon such issue by (y) the total number of shares of Common Stock deemed to be outstanding immediately after such issue; and provided that, for the purposes of this Section 4.4(d), all shares of Common Stock outstanding and issuable upon conversion of outstanding Options, Convertible Securities and the Additional Preferred Stock shall be deemed to be outstanding, other than shares of Common Stock excluded from the definition of Additional Shares of Common Stock in this Section 4.4; and provided further that no adjustment to the Conversion Price of the Class E Preferred Stock shall be made pursuant to this Section 4.4(d) unless the Corporation shall issue Additional Shares of Common Stock for a consideration per share less than $14.00. In no event will the Conversion Price be adjusted as the result of a particular issuance of securities to a price less than the price per share of the Additional Shares of Common Stock issued in such issuance nor shall any adjustment be made in the Conversion Price of any class of Additional Preferred Stock as a result of any issuance of any Additional Shares of Common Stock at a price per share in excess of the initial Conversion Price of such class of Additional Preferred Stock nor any adjustments made in such Conversion Price which would result in a Conversion Price higher than the then applicable Conversion Price. (e) Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and - 12 - 89 (C) insofar as Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors of the Corporation. (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4(c) (i), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Adjustments for Subdivisions, Stock Dividends, Combinations, or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be increased by way of stock issued as a dividend for no consideration or subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such increase or subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 4.5. Provision Regarding Adjustment of Conversion Price for Class D Preferred Stock. Notwithstanding any other provision of this Article IV, the Conversion Price of the Class D Preferred Stock shall be reduced, in the event that a Qualified Public Offering does not close on or before March 31, 1995, to $14.12 as of such date, or to such lesser amount as may be required under other provisions of this Article IV. - 13 - 90 4.6. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of the Corporation other than shares of Common Stock, securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4.4(c), then, in each such case for the purpose of this Section 4.6, the holders of the Additional Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of such Additional Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 4.7. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Amended and Restated Certificate of Incorporation), provision shall be made so that the holders of the Additional Preferred Stock shall thereafter be entitled to receive upon conversion of the Additional Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Additional Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such class of Additional Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 4.8. No Impairment. The Corporation will not, by further amendment of its Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Class A Preferred Stock and Additional Preferred Stock against impairment. 4.9. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any share of Class A or Additional Preferred Stock. If, upon conversion of any share of Class A or Additional Preferred Stock, the registered holder would, except for the provisions of this Section 4.9, be entitled to receive a fractional share of Common Stock, then an amount equal to such fractional share multiplied by the then applicable Conversion Price shall be paid by the Corporation in cash to such registered holder. 4.10. Reservation of Shares. The Corporation agrees that, so long as any share of Class A or Additional Preferred Stock shall remain outstanding, the Corporation shall at all - 14 - 91 times reserve and keep available, free from preemptive rights, out of its authorized capital stock, for the purpose of issue upon conversion of the Class A or Additional Preferred Stock, the full number of shares of Common Stock then issuable upon conversion of the Class A and Additional Preferred Stock. 4.11. Validity of Shares. The Corporation agrees that it will from time to time take all such actions as may be requisite to assure that all shares of Common Stock which may be issued upon conversion of any share of the Class A or Additional Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the foregoing, the Corporation agrees that it will from time to time take all such action as may be requisite to assure that the par value per share, if any, of the Common Stock is at all times equal to or less than the lowest quotient of the then current par value of the Class A, Class B, Class C, Class D, Class E, Class F and Class G Preferred Stock divided by the number of shares of Common Stock into which each share of Class A, Class B, Class C, Class D, Class E, Class F or Class G Preferred Stock can, from time to time, be converted. 4.12. Notice of Adjustment. Upon each adjustment of the Conversion Price, the Corporation shall give prompt written notice thereof addressed to the registered holder of each share of the class of Additional Preferred Stock so affected at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares issuable upon the conversion of such holder's shares of Additional Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based together with a certificate of the chief financial officer of the Corporation stating that he or she has examined such notice and certifying that the information contained therein is accurate. 4.13. Notice of Capital Changes. If at any time: (a) the Corporation shall declare any dividend or distribution payable to the holders of its Common Stock; (b) the Corporation shall offer for subscription to the holders of Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation or business organization; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; - 15 - 92 then, in any such case, the Corporation shall give the registered holders of the Additional Preferred Stock written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining stockholders entitled to vote upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and of the date when any such transaction shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least twenty (20) days prior to the record date with respect thereto. 4.14. Taxes. The Corporation will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of the Additional Preferred Stock. 4.15. Waiver of Adjustment. (a) With the consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the then currently outstanding shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock or Class G Preferred Stock, any antidilution adjustment to which such class of Preferred Stock would otherwise be entitled under this Section 4 may be limited or waived in its entirety. In the event of such a limitation or waiver, the Corporation shall not be required to make any adjustment whatsoever with respect to the Conversion Price of such class of Preferred Stock, or to make any adjustment with respect to such class of Preferred Stock in excess of such limit, as the terms of such consent may dictate. (b) Any holder of Additional Preferred Stock shall also be permitted to waive in whole or in part, currently or prospectively, by contract or any other writing, any antidilution adjustment to which such holder would otherwise be entitled pursuant to the provisions of this Section 4. 5. COVENANTS. In addition to any other rights provided by law, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then issued and outstanding shares of the applicable class of Preferred Stock: (a) amend or repeal any provision of the Corporation's Amended and Restated Certificate of Incorporation so as to adversely affect the rights, preferences, or privileges of such class of Preferred Stock; (b) authorize or issue additional shares of any class or series of stock of the Corporation other than a class or series of stock of the Corporation ranking equal or - 16 - 93 junior in rights to such class of Preferred Stock as to dividends or redemption or rights on liquidation, dissolution or winding up; (c) increase the authorized number of shares of such existing class of Preferred Stock or authorize the reissuance thereof after repurchase or redemption; (d) authorize any liquidation, dissolution, winding up of the affairs of the Corporation, consolidation or merger of the Corporation into or with another corporation or corporations, sale of all or substantially all of the Corporation's assets (unless after such consolidation or merger all the terms of such class of Preferred Stock would remain in effect and be assumed by the consolidated or surviving corporation), or distribution of the Corporation's assets by way of return of capital; (e) change the par value of such class of Preferred Stock; or (f) alter in any way the voting rights of such class of Preferred Stock. 6. REDEMPTION (a) The Corporation shall redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Delaware) at a price of One Thousand Dollars ($1,000) per share, plus an amount equal to any and all dividends accrued and unpaid on each share to be redeemed, but without interest, on the 31st day of December (the "Redemption Date") of each of the years of 1997 through 2000 seven hundred fifty (750) shares of Class A Preferred Stock (or such lesser number as shall then be outstanding). If the Corporation is unable on any Redemption Date to redeem any shares of Class A Preferred Stock then to be redeemed because such redemption would violate the applicable laws of the State of Delaware, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws. (b) The Corporation shall have the right, at its option, to redeem as a whole, or from time to time in part, shares of Class A Preferred Stock at the redemption price specified in the preceding paragraph plus an amount equal to any and all dividends accrued and unpaid, but without interest. The Corporation may credit against any mandatory redemption specified in paragraph (a) any shares of Class A Preferred Stock redeemed pursuant to this paragraph (b) or otherwise acquired by the Corporation. Any such credit shall be applied against mandatory redemptions in the inverse order of the above-stated redemption requirements. (c) In case of redemption of only part of the shares of Class A Preferred Stock at any time outstanding, the Corporation shall designate by lot the shares so to be redeemed. Subject to the limitations and provisions herein contained, the Board of Directors shall have full power and authority to prescribe the manner in which the drawings by lot shall be conducted. - 17 - 94 (d) Notice of every redemption provided for in this Section 6 shall be given by mailing the same to every holder of record, any of whose shares are then to be redeemed, not less than fifteen (15) nor more than thirty (30) days prior to the date fixed as the date of the redemption thereof, at the respective addresses of such holders as the same shall appear on the stock transfer books of the Corporation. The notice shall state that the shares specified in such notice will be redeemed by the Corporation at the redemption price and on the date specified in such notice, upon the surrender for cancellation at the places designated in such notice, of the certificates representing the shares so to be redeemed, properly endorsed in blank for transfer, or accompanied by proper instruments of assignment and transfer in blank, bearing any necessary transfer tax stamps thereto affixed and cancelled, or accompanied by cash or a certified check in the amount of any stock transfer tax applicable to such transaction. On and after the date specified in the notice described above, each holder of shares called for redemption, upon presentation and surrender in accordance with such notice of the certificates for shares held by such holder and called for redemption, shall be entitled to receive therefor the applicable redemption price. If the Corporation shall give notice of redemption as aforesaid (and unless the Corporation shall fail to pay the redemption price of shares presented for redemption in accordance with such notice), all shares called for redemption shall be deemed to have been redeemed on the date specified in such notice whether or not the certificates for such shares be surrendered for redemption and cancellation, and such shares so called for redemption shall from and after such date cease to represent any interest whatever in the Corporation or its property, and the holders thereof shall have no rights other than the right to receive such redemption price but without any interest thereon from or after such date. (e) Notwithstanding any other provision of this Section 6, if the holders of at least a majority of the Class A Preferred Stock elect not to have the Corporation redeem the Class A Preferred Stock, then the Corporation shall not redeem any shares of Class A Preferred Stock. 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Class A, Class B, Class C, Class D, Class E, Class F or Class G Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of any such class of Preferred Stock accordingly. 8. AMENDMENTS AND WAIVERS. (a) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class A Preferred Stock shall become effective and binding upon all holders of Class A Preferred Stock if the same is approved by the vote or written consent of the holders of at least a majority of the Class A Preferred Stock then issued and outstanding. - 18 - 95 (b) Any action, approval, request, consent, notice or waiver which is required or permitted under Article IV with respect to the Class B Preferred Stock shall become effective and binding upon all holders of Class B Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class B Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (c) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class C Preferred Stock shall become effective and binding upon all holders of Class C Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class C Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (d) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class D Preferred Stock shall become effective and binding upon all holders of Class D Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class D Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (e) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class E Preferred Stock shall become effective and binding upon all holders of Class E Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class E Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (f) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class F Preferred Stock shall become effective and binding upon all holders of Class F Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class F Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. (g) Any action, approval, request, consent, notice or waiver which is required or permitted under this Article IV with respect to the Class G Preferred Stock shall become effective and binding upon all holders of Class G Preferred Stock if the same is approved by the vote or written consent of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Class G Preferred Stock then issued and outstanding, except as expressly provided otherwise in this Amended and Restated Certificate of Incorporation. - 19 - 96 IN WITNESS WHEREOF, the Corporation has caused the Certificate of Amendment to be signed by its President this 9th day of July, 1996. Transkaryotic Therapies, Inc. By:/s/ Richard F. Selden ----------------------------------- Richard F. Selden, M.D., Ph.D. President - 20 - EX-3.2 3 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANSKARYOTIC THERAPIES, INC. Transkaryotic Therapies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows: 1. The Corporation filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on July 7, 1988. A Restated Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on February 14, 1992, which was subsequently amended on April 16, 1993 and July 1, 1993. A Restated Certificate of Incorporation of the Corporation was filed with the Secretary of State or the State of Delaware on November 3, 1993, which was subsequently amended on May 17, 1994, March 1, 1995 and July 10, 1996. 2. At a meeting of the Board of Directors, a resolution was duly adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, setting forth an Amended and Restated Certificate of Incorporation of the Corporation and declaring said Amended and Restated Certificate of Incorporation advisable. The stockholders of the Corporation duly approved said proposed Amended and Restated Certificate of Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of such consent 2 has been given to all stockholders who have not consented to said restatement. The resolution setting forth the Amended and Restated Certificate of Incorporation is as follows: RESOLVED: That the Certificate of Incorporation of the Corporation be, and hereby is, amended and restated in its entirety so that the same shall read as follows: ARTICLE I. The name of the Corporation is Transkaryotic Therapies, Inc. ARTICLE II. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III. The nature of the business of the Corporation and the purposes for which it is Organized are: 1. To engage in research and development in the field of gene therapy and to pursue various commercial applications of such research; 2. To engage in any other lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware; and 3. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of the State of Delaware or by any other law of the State of Delaware or by this Certificate of Incorporation, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation. ARTICLE IV. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 40,000,000 shares, consisting of (i) 30,000,000 shares of Common Stock, $.01 par value per share (the "Common Stock") and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. - 2 - 3 A. COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the - 3 - 4 generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise specifically provided in this Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. ARTICLE V. Except as otherwise provided in Section 3.2 of Article IV, the number of directors of the Corporation shall be fixed from time to time in the manner provided in the By-laws of the Corporation and may be increased or decreased from time to time in the manner provided in such By-laws. Election of directors need not be by written ballot except and to the extent provided in the By-laws of the Corporation. ARTICLE VI. The Board of Directors of the Corporation is expressly authorized to make, alter, or repeal the By-laws of the Corporation, but such authorization shall not divest the stockholders of the power, nor limit their power, to adopt, amend, or repeal such By-laws. ARTICLE VII. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. ARTICLE VIII. 1. Actions, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee - 4 - 5 benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. 3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits - 5 - 6 or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as - 6 - 7 authorized in this Article. Such undertaking may be accepted without reference to the financial ability of such person to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), (b) if no such quorum is obtainable, a majority vote of a committee of two or more disinterested directors, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (d) independent legal counsel (who may be regular legal counsel to the Corporation), or (e) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. - 7 - 8 9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. 12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right - 8 - 9 of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. Subsequent Legislation. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. ARTICLE IX. 1. Meetings of the stockholders of the Corporation may be held within or without the State of Delaware, as the By-laws may provide. The books and records of the Corporation may be kept within or without the State of Delaware at such place or places as may be designated from time to time by the By-laws and/or the Board of Directors of the Corporation. 2. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provisions of law, the Certificate of Incorporation or the By-Laws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article IX. ARTICLE X. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in manner as the said court directs. If a majority in number representing three-fourths in value of the stockholders or class of stockholders of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all - 9 - 10 the stockholders or class of stockholders, of this Corporation, as the case maybe, and also on this Corporation. ARTICLE XI. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in any manner now or hereafter prescribed by law, and all rights conferred upon stockholders herein are granted subject to such reservation. ARTICLE XII Special meetings of stockholders may be called at any time by only the Chairman of the Board of Directors, the Chief Executive Officer (or if there is no Chief Executive Officer, the President), the Board of Directors or the holders of a majority of the outstanding capital stock of the Corporation entitled to vote. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provision of law, this Certificate of Incorporation or the By-Laws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article XII. ARTICLE XIII Section 203 of the General Corporation Law of Delaware, as it may be amended from time to time, shall apply to the Corporation. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Amended and Restated Certificate of Incorporation to be signed by its President this __________ day of ______________, 1996. TRANSKARYOTIC THERAPIES, INC. By: _________________________________ Richard F. Selden, M.D., Ph.D. President - 10 - EX-3.3 4 AMENDED & RESTATED BY-LAWS 1 EXHIBIT 3.3 TRANSKARYOTIC THERAPIES, INC. AMENDED AND RESTATED BY-LAWS ARTICLE I OFFICERS. Transkaryotic Therapies, Inc. (the "Corporation") shall maintain a registered office in the State of Delaware. The Corporation may also have other offices at such other places either within or without the State of Delaware, as the Board of Directors may from time to time designate or the business of the Corporation may require. ARTICLE II STOCKHOLDERS. Section 1. Annual Meeting: The annual meeting of Stockholders for the election of Directors and the transaction of any other business as may properly come before such meeting shall be held on the first Monday in June of each year, or as soon after such date as may be practicable, in such City and State and at such time and place as may be designated by the Board of Directors, and set forth in the notice of such meeting. If said day be a legal holiday, said meeting shall be held on the next succeeding business day. At the annual meeting any business may be transacted and any Corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute or the Certificate of Incorporation Section 2. 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. 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. Section 3. Notice of Meetings: Written notice of the date, time and place of any Stockholders' meeting, whether annual or special, shall be given to each Stockholder entitled to vote thereat, by mailing the same to him at his address as the same appears upon the records or the Corporation not less than ten (10) nor more than sixty (60) days prior to the date of such meeting. Notice of any adjourned meeting need not be given other than by announcement at the meeting so adjourned, unless otherwise ordered 2 in connection with such adjournment. Such further notice, if any, shall be given as may be required by law. Section 4. Waiver of Notice: Notice of meeting need not be given to any Stockholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any Stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 5. Quorum: Any number of Stockholders, together holding at least a majority of the capital stock of the Corporation issued and outstanding and entitled to vote, who shall be present in person or by proxy at any meeting duly called, shall constitute a quorum for all purposes except as may otherwise be provided by law. Section 6. Adjournment of Meetings: If less than a quorum shall attend at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority vote of the Stockholders present or by proxy and entitled to vote thereat, without notice other than by announcement at the meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the Stockholders present in person or by proxy and entitled to vote thereat. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. Section 7. Voting: Each Stockholder entitled to vote at any meeting may vote either in person or by proxy, duly appointed by instrument in writing subscribed by such Stockholder and bearing a date not more than eleven months prior to said meeting, unless said proxy provides for a longer period. The holders of Common Stock shall be entitled to one vote in respect of each share held on all matters submitted to a vote of shareholders. At all meetings or Stockholders all matters, except as otherwise provided by law, the Certificate of Incorporation, or these By-laws shall be determined by a majority vote of the Stockholders present in person or by proxy and entitled to vote thereat. Section 8. Action by Stockholders Without a Meeting: Whenever under the General Corporation Law of Delaware Stockholders are required or permitted to take any action by vote, such action may be taken without a meeting upon written consent, setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an - 2 - 3 officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. ARTICLE III DIRECTORS. Section 1. Number and Qualifications: The Board of Directors shall consist of not less than three (3) nor more than seven (7) Directors. The Directors need not be Stockholders. Section 2. Responsibilities: The general management of the affairs of the Corporation shall be vested in the Board of Directors, which may delegate to Officers, employees and to committees of Directors such powers and duties as it may from time to time see fit, subject to the limitations hereinafter set forth, and except as may otherwise be provided by law. Section 3. Election and Term of Office: The Directors shall be elected by the Stockholders at the annual meeting of Stockholders. If the election of Directors shall not be held on the day designated by the By-laws, the Directors shall cause the same to be held as soon thereafter as may be convenient. The Directors chosen at any annual meeting shall hold office except as hereinafter provided, until the next annual election and until the election and qualification of their successors. Section 4. Removal and Resignation of Directors: Any Director may be removed from the Board of Directors, with or without cause, by the holders of a majority of the shares of outstanding stock entitled to vote at any special meeting of the Stockholders called for that purpose, and the office of such Director shall forthwith become vacant. Any Director may resign at any time. Such resignation shall take effect at the time specified therein, and if no time be specified at the time of its receipt by the Chairman of the Board or if no Chairman has been elected, by the President and Chief Executive Officer, or by the Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless so specified therein. Section 5. Filling of Vacancies: Any vacancy among the Directors, occurring from any cause whatsoever, may be filled by a majority of the remaining Directors, though less than a quorum, provided, however, that the Stockholders removing any Director may at the same meeting fill the vacancy caused by such removal, and provided further, that if the Directors fail to fill any such vacancy, the Stockholders may at any special meeting called for that purpose fill such vacancy. In case of any increase in the number of Directors, the additional Directors may be elected by the Directors in office prior to such increase. Any person elected to fill a vacancy shall hold office, subject to the right of removal as hereinbefore provided, until the next annual election and until the election and qualification of his successor. - 3 - 4 Section 6. Regular Meetings: The Board of Directors shall hold an annual meeting for the purpose of organization and the transaction of any business immediately after the annual meeting of the Stockholders, provided a quorum is present. Other regular meetings may be held at such times as may be determined from time to time by resolution of the Board of Directors. Section 7. Special Meetings: Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors, if any, or by the President and Chief Executive Officer. Section 8. Notice and Place of Meetings: Regular meetings of the Board of Directors may be held without notice at such time and place as shall be designated by resolution of the Board of Directors. Notice shall be required, however, for special meetings. Notice of any special meeting shall be sufficiently given if mailed to each Director at his residence or usual place of business at least two (2) days before the day on which the meeting is to be held, or if sent to him at such place by telegraph or cable, or delivered personally or by telephone not later than 24 hours prior to the time at which the meeting is to be held. No notice of the annual meeting shall be required if held immediately after the annual meeting or the Stockholders and if a quorum is present. Notice of a meeting need not be given to any Director who submits a signed waiver of notice before or after the meeting, nor to any Director who attends the meeting without protesting the lack of notice prior thereto or at its commencement. Section 9. Business Transacted at Meetings: Any business may be transacted and any corporate action may be taken at any regular or special meeting of the Board of Directors at which a quorum shall be present, whether such business or proposed action be stated in the notice of such meeting or not, unless special notice of such business or proposed action shall be required by law. Section 10. Quorum: A majority of the entire Board of Directors shall be necessary to constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors, unless otherwise provided by law, the Certificate of Incorporation or these By-laws. If a quorum is not present at a meeting of the Board of Directors, a majority of the Directors present may adjourn the meeting to such time and place as they may determine without notice other than announcement at the meeting until enough Directors to constitute a quorum shall attend. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any Directors. Section 11. Action Without a Meeting: Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution - 4 - 5 authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Section 12. Participation by Telephone: Any one or more members of the Board or any committee thereof may participate in a meeting of the Board or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 13. Compensation: The Board of Directors may establish by resolution reasonable compensation of all Directors for services to the Corporation as Directors, including a fixed fee, if any, incurred in attending each meeting. Nothing herein contained shall preclude any Director from serving the Corporation in any other capacity, as an Officer, agent or otherwise, and receiving compensation therefor. ARTICLE IV COMMITTEES. Section 1. Executive Committee: The Board of Directors, by resolution passed by a majority of the entire Board, may designate three (3) or more Directors to constitute an Executive Committee to hold office at the pleasure of the Board, which Committee shall, during the intervals between meetings of the Board of Directors, have and exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, Subject only to such restrictions or limitations as the Board of Directors may from time to time specify, or as limited by the Delaware General Corporation Law, and shall have power to authorize the seal of the Corporation to be affixed to all instruments which may require it. Any member of the Executive Committee may be removed at any time, with or without cause, by a resolution of a majority of the entire Board of Directors. Any person ceasing to be a Director shall ipso facto cease to be a member of the Executive Committee. Any vacancy in the Executive Committee occurring from any cause whatsoever may be filled from among the Directors by a resolution of a majority of the entire Board of Directors. Section 2. Other Committees: Other committees whose members are to be Directors, may be appointed by the Board of Directors, which committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors or the committee appointing them. Any member of such a committee may be removed at any time, with or without cause, by the Board of Directors or the committee - 5 - 6 appointing such committee. Any vacancy in a committee occurring from any cause whatsoever may be filled by the Board of Directors or the committee appointing such committee. Section 3. Resignation: Any member of a committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chairman of the Board, if any, the President and Chief Executive Officer or the Secretary. The acceptance of a resignation shall not be necessary to make it effective unless so specified therein. Section 4. Quorum: A majority of the members of a committee shall constitute a quorum. The act of a majority of the members of a committee present at any meeting at which a quorum is present shall be the act of such committee. The members of a committee shall act only as a committee, and the individual members thereof shall have no powers as such. Section 5. Record of Proceedings: Each committee shall keep a record of its acts and proceedings, and shall report the same to the Board of Directors when and as required by the Board of Directors. Section 6. Organization, Meetings, Notices: A committee may hold its meetings at the principal office of the Corporation, or at any other place upon which a majority of the committee may at any time agree. Each committee may make such rules as it may deem expedient for the regulation and carrying on of its meetings and proceedings, Unless otherwise ordered by the Executive Committees any notice of a meeting of such committee may be given by the Secretary or by the chairman of the committee and shall be sufficiently given if mailed to each member at his residence or usual place of business at least five (5) days before the day on which the meeting is to be held, or if sent to him at such place by telecopy, telegraph or cable, or delivered personally or by telephone not later than 24 hours prior to the time at which the meeting is to be held. Section 7. Compensation: The members of any committee shall be entitled to such compensation as may be established by resolution of the Board of Directors. ARTICLE V OFFICERS. Section l. Number: The Officers of the Corporation shall be a President and Chief Executive Officer, a Secretary and a Treasurer, and such Vice Presidents and other Officers as may be appointed in accordance with the provisions of Section 3 of this Article V. The Board of Directors, in its discretion, may also elect a Chairman of the Board of Directors. - 6 - 7 Section 2. Election, Term of Office and Qualifications: The Officers, except as provided in Section 3 of this Article V, shall be chosen annually by the Board of Directors. Each such Officer shall, except as herein otherwise provided, hold office until the selection and qualification of his successor. Any two or more offices may be held by the same person, except the offices of President and Chief Executive Officer and Secretary. Section 3. Other Officers: Other Officers, including, without limitation, one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers, may from time to time be appointed by the Board of Directors, which other Officers shall have such powers and perform such duties as may be assigned to them by the Board of Directors or the Officer or committee appointing them. All such Officers shall be corporate officers of the Corporation with the power to hind the Corporation by acts within the scope or their authority. Section 4. Removal of Officers: Any Officer of the Corporation may be removed from office, with or without cause, by a vote of a majority of the Board of Directors. Section 5. Resignation: Any Officer of the Corporation may resign at any time. Such resignation shall be in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chairman of the Board, if any, the President and Chief Executive Officer or the Secretary. The acceptance of a resignation shall not be necessary in order to make it effective, unless so specified therein. Section 6. Filling of Vacancies: A vacancy in any office shall be filled by the Board of Directors. Section 7. Compensation: The compensation of the Officers shall be fixed by the Board of Directors, or by any committee upon whom such power may be conferred by the Board of Directors. Section 8. Chairman of the Board of Directors: The Chairman of the Board of Directors, if one is elected, shall be a Director and shall preside at all meetings of the Board of Directors and of the Stockholders at which he shall be present. He shall have power to call special meetings of the Stockholders or of the Board of Directors or of the Executive Committee at any time and shall have such power and perform such other duties as may from time to time be assigned to him by the Board of Directors. Section 9. President and Chief Executive Officer: The President and Chief Executive Officer shall have responsibility for the general direction of the business affairs and property of the Corporation, and of its several Officers, and shall have and exercise all such powers and discharge such duties as usually pertain to the office of President and Chief Executive Officer. He shall have responsibility for the day-to-day affairs of the Corporation, subject to the control of the Board of Directors. He shall perform such duties as may be assigned to him from time to time by the Board of Directors and shall, in the absence of the - 7 - 8 Chairman of the Board, perform and carry out the functions of the Chairman of the Board. Section 10. Secretary: The Secretary shall attend all meetings of the Board of Directors and of the Stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for any Committee appointed by the Board. He shall give or cause to be given notice of all meetings of Stockholders and special meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the Corporation and affix it to any instrument when so authorized by the Board of Directors. Section 11. Treasurer: The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may he ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and Chief Executive Officer and Directors at the regular meetings of the Board, or whenever they may require, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He may be required to give bond for the faithful discharge of his duties. ARTICLE VI CAPITAL STOCK. Section 1. Issue of Certificates of Stock: Certificates of capital stock shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issue, and shall be signed by the Chairman of the Board of Directors, the President and Chief Executive Officer or any Vice President, and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary, and the seal of the Corporation or a facsimile thereof shall be impressed, affixed or reproduced thereon. In case any Officer or Officers who shall have signed any such certificate or certificates shall cease to be such Officer or Officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates have not ceased to be such Officer or Officers of the Corporation. Section 2. Registration and Transfer of Shares: The name of each person owning a share of the capital stock or the Corporation shall be entered on the books of the Corporation together with the number of shares held by him, the numbers of the certificates covering such shares and the dates of issue of such certificates. The shares of stock of the Corporation shall be transferable on the - 8 - 9 books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment of power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates for stock. Section 3. Lost, Destroyed and Mutilated Certificates: The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the Certificates therefor. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it and alleged to have been lost, stolen or destroyed. The Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representatives, to give the Corporation a bond, in such sum not exceeding trouble the value of the stock and with such surety or sureties as they may require, to indemnify it against any claim that may be made against it by reason of the issue of such new certificate and against all other liability in the premises, or may remit such owner to such remedy or remedies as he may have under the laws of the State of Delaware. ARTICLE VII DIVIDENDS AND SURPLUS. Section 1. General Discretion of Directors: The Board of Directors shall have power to fix and vary the amount to be set aside or reserved as working capital of the Corporation, or as reserves, or for other proper purposes of the Corporation, and, subject to the requirements of the Certificate of Incorporation, to determine whether any part of the surplus or net profits of the Corporation shall be declared in dividends and paid to the Stockholders, and to fix the date or dates for the payment of dividends. ARTICLE VIII MISCELLANEOUS PROVISIONS. Section l. Fiscal Year: The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December. Section 2. Corporate Seal: The corporate seal shall be in such form as approved by the Board of Directors and may be altered at its pleasure. The corporate seal may be used by causing it or - 9 - 10 a facsimile thereof to be impressed, affixed or reproduced by the Secretary or Assistant Secretary of the Corporation. Section 3. Notices: Except as otherwise expressly provided, any notice required by these By-laws to be given shall be sufficient if given by depositing the same in a post office or letter box in a sealed wrapper with first class postage prepaid thereon and addresses to the person entitled thereto at his address, as the same appears upon the books of the Corporation, or by telecopying, telegraphing or cabling the same to such person at such address; and such notice shall be deemed to be given at the time it was mailed, telecopied, telegraphed or cabled. Section 4. Waiver it Notice: Any Stockholder or Director may at any time, by writing or by telecopy, telegraph or cable, waive any notice required to be given under these By-laws, and if any Stockholder or Director shall be present at any meeting his presence shall constitute a waiver of such notice. Section 5. Contracts, Checks, Drafts: The Board of Directors, except as may otherwise be required by law, may authorize any Officer or Officers, agent or agents, in the name of and on behalf of the Corporation to enter into any contract or execute or deliver any instrument. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such Officer or Officers, agent or agents of the Corporation, and in such manner, as shall be designated from time to time by resolution of the Board of Directors. Section 6. Deposits: All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such bank or banks, trust companies or other depositaries as the Board of Directors may select, and, for the purpose of such deposit, checks, drafts, warrants and other orders for the payment of money which are payable to the order of the Corporation, may be endorsed for deposit, assigned and delivered by any Officer of the Corporation, or by such agents of the Corporation as the Board of Directors, the Chairman of the Board, if any, or the President and a Chief Executive Officer may authorize for that purpose. Section 7. Voting Stock of Other Corporations: Except as otherwise ordered by the Board of Directors or the Executive Committee, the Chairman of the Board, if any, or the President and Chief Executive Officer shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting, and at any such meeting the Chairman of the Board, if any, or the President and Chief Executive Officer or the holder of any such proxy, as the case may be, shall possess and may exercise any and all rights and powers incident to ownership of such stock and which, as owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee may from time to time confer like powers upon any other person or - 10 - 11 persons. Section 8. Indemnification of Officers and Directors: The Corporation shall indemnify any and all of its Directors or Officers, who shall serve as an Officer or Director of this Corporation or of any other corporation at the request of this Corporation, to the fullest extent permitted under and in accordance with the laws of the State of Delaware. ARTICLE IX AMENDMENTS. These By-laws may be amended or repealed, or new By-laws may be adopted, at any annual or special meeting of the Stockholders, by vote of the Stockholders entitled to vote in the election of Directors; provided, however, that the notice of such meetings shall have been given as provided in these By-laws, which notice shall mention that amendment or repeal of these By-laws, or the adoption of new By-laws, is one of the purposes of such a meeting; and provided, further, that By-laws adopted by the Stockholders shall not be rescinded, altered, amended or repealed by the Board of Directors if such By-laws adopted by the Stockholders so express. These By-laws may also be amended or repealed, or new By-laws may be adopted, by the Board of Directors at any meeting thereof; provided, however, that notice of such meeting shall have been given as provided in these bylaws, which notice shall mention that amendment or the repeal of the By-laws, or the adoption of new By-laws, is one of the purposes of such meeting; and provided, further, that By-laws adopted by the Board of Directors may be amended or repealed by the Stockholders as hereinabove provided. Dated: May 27, 1992. - 11 - EX-3.4 5 FORM OF AMENDED & RESTATED BY-LAWS 1 EXHIBIT 3.4 TRANSKARYOTIC THERAPIES, INC. FORM OF AMENDED AND RESTATED BY-LAWS ARTICLE I OFFICERS Transkaryotic Therapies, Inc. (the "Corporation") shall maintain a registered office in the State of Delaware. The Corporation may also have other offices at such other places either within or without the State of Delaware, as the Board of Directors may from time to time designate or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Annual Meeting: The annual meeting of Stockholders for the election of Directors and the transaction of any other business as may properly come before such meeting shall be held on the first Monday in June of each year, or as soon after such date as may be practicable, in such City and State and at such time and place as may be designated by the Board of Directors, and set forth in the notice of such meeting. If said day be a legal holiday, said meeting shall be held on the next succeeding business day. At the annual meeting any business may be transacted and any Corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute or the Certificate of Incorporation Section 2. 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. 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. Section 3. Notice of Meetings: Written notice of the date, time and place of any Stockholders' meeting, whether annual or special, shall be given to each Stockholder entitled to vote thereat, by mailing the same to him at his address as the same appears upon the records or the Corporation not less than ten (10) nor more than sixty (60) days prior to the date of such meeting. Notice of any adjourned meeting need not be given other than by announcement at the meeting so adjourned, unless otherwise ordered in connection with such adjournment. Such further notice, if any, shall be given as may be required by law. 2 Section 4. Waiver of Notice: Notice of meeting need not be given to any Stockholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any Stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 5. Quorum: Any number of Stockholders, together holding at least a majority of the capital stock of the Corporation issued and outstanding and entitled to vote, who shall be present in person or by proxy at any meeting duly called, shall constitute a quorum for all purposes except as may otherwise be provided by law. Section 6. Adjournment of Meetings: If less than a quorum shall attend at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority vote of the Stockholders present or by proxy and entitled to vote thereat, without notice other than by announcement at the meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the Stockholders present in person or by proxy and entitled to vote thereat. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. Section 7. Voting: Each Stockholder entitled to vote at any meeting may vote either in person or by proxy, duly appointed by instrument in writing subscribed by such Stockholder and bearing a date not more than eleven months prior to said meeting, unless said proxy provides for a longer period. The holders of Common Stock shall be entitled to one vote in respect of each share held on all matters submitted to a vote of shareholders. When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the Stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-laws. Any election by Stockholders shall be determined by a plurality of the votes cast by the Stockholders entitled to vote at the election. Section 8. Nomination of Directors: Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nomination for election to the Board of Directors of the Corporation at a meeting of Stockholders may be made by the Board of Directors or by any Stockholder of the Corporation entitled to vote for the election of Directors at such meeting who complies with the notice procedures set forth in this Section 8. Such nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered to mailed by first class United States mail, postage prepaid, to the Secretary, and received not less than 60 days nor more than 90 days prior to such meeting; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the meeting is given to Stockholders, such nomination shall have been mailed or delivered to the Secretary not later than the close of business of the 10th day following the date on which the notice of the meeting was mailed or such public disclosure was made, whichever - 2 - 3 occurs first. Such notice shall set forth (a) as to each proposed nominee (i) the name, age, business address and, if known, residence address of each such nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee, and (iv) any other information concerning the nominee that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to be named as a nominee and to serve as a Director if elected); and (b) as to the Stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such Stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such Stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 9. Notice of Business at Annual Meetings: At an annual meeting of the Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before an annual meeting by a Stockholder. For business to be properly brought before an annual meeting by a Stockholder, if such business relates to the election of Directors of the Corporation, the procedures in Section 8 must be complied with. If such business relates to any other matter, the Stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a Stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to Stockholders, notice by the Stockholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first. A Stockholder's notice to the Secretary shall set forth as to each matter the Stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the Stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the Stockholder, and (d) any material interest of the Stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 9 and except that any Stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any successor provision) promulgated under the Securities Exchange Act of 1934, as amended, and is to be included in the Corporation's proxy statement for an - 3 - 4 annual meeting of Stockholders shall be deemed to comply with the requirements of this Section 9. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 9, and if he should so determine, the chairman shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted. Section 10. Action Without Meeting: Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken by Stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Each such written consent shall bear the date of signature of each Stockholder who signs the consent. No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a number of Stockholders sufficient to take such action are delivered to the Corporation in the manner specified in this paragraph within sixty days of the earliest dated consent so delivered. If action is taken by consent of Stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such consent. If action is taken by less than unanimous consent of Stockholders, prompt notice of the taking of such action without a meeting shall be given to those who have not consented in writing and a certificate signed and attested to by the Secretary of the Corporation that such notice was given shall be filed with the records of the meetings of stockholders. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the General Corporation Law of the State of delaware, if such action had been voted upon by the Stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning a vote of Stockholders, that written consent has been given under Section 228 of said General Corporation Law and that written notice has been given as provided in such Section 228. Notwithstanding the foregoing, if at any time the Corporation shall have a class of stock registered pursuant to the provisions of the Securities Exchange Act of 1934, as amended, for so long as such class is registered, any action by the Stockholders of such class must be taken at an annual or special meeting of Stockholders and may not be taken by written consent. - 4 - 5 Section 11. Organization. The Chairman of the Board, or in his absence the Vice Chairman of the Board designated by the Chairman of the Board, or the President, in the order named, shall call meetings of the Stockholder to order, and shall act as chairman of such meeting; provided, however, that the Board of Directors may appoint any Stockholder to act as chairman of any meeting in the absence of the Chairman of the Board. The Secretary of the Corporation shall act as secretary at all meetings of the Stockholders; but in the absence of the Secretary at any meeting of the Stockholders, the presiding officer may appoint any person to act as secretary of the meeting. ARTICLE III DIRECTORS Section 1. Number and Qualifications: The Board of Directors shall consist of not less than three (3) nor more than seven (7) Directors. The Directors need not be Stockholders. Section 2. Responsibilities: The general management of the affairs of the Corporation shall be vested in the Board of Directors, which may delegate to Officers, employees and to committees of Directors such powers and duties as it may from time to time see fit, subject to the limitations hereinafter set forth, and except as may otherwise be provided by law. Section 3. Election and Term of Office: The Directors shall be elected by the Stockholders at the annual meeting of Stockholders. If the election of Directors shall not be held on the day designated by the By-laws, the Directors shall cause the same to be held as soon thereafter as may be convenient. The Directors chosen at any annual meeting shall hold office except as hereinafter provided, until the next annual election and until the election and qualification of their successors. Section 4. Removal and Resignation of Directors: Any Director may be removed from the Board of Directors, only for cause, by the holders of two-thirds of the shares of outstanding stock entitled to vote at any special meeting of the Stockholders called for that purpose, and the office of such Director shall forthwith become vacant. Any Director may resign at any time. Such resignation shall take effect at the time specified therein, and if no time be specified at the time of its receipt by the Chairman of the Board or if no Chairman has been elected, by the President and Chief Executive Officer, or by the Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless so specified therein. Section 5. Filling of Vacancies: Any vacancy among the Directors, occurring from any cause whatsoever, may be filled by a majority of the remaining Directors, though less than a quorum, provided, however, that the Stockholders removing any Director may at the same meeting fill the vacancy caused by such removal, and provided further, that if the Directors fail to fill any such vacancy, the Stockholders may at any special meeting called for that purpose fill such vacancy. In case of any increase in the number of Directors, the additional Directors may be elected by the Directors in office prior to such increase. Any person elected to fill a vacancy shall hold office, subject to the right of removal as hereinbefore provided, until the next annual election and until the election and qualification of his successor. - 5 - 6 Section 6. Regular Meetings: The Board of Directors shall hold an annual meeting for the purpose of organization and the transaction of any business immediately after the annual meeting of the Stockholders, provided a quorum is present. Other regular meetings may be held at such times as may be determined from time to time by resolution of the Board of Directors. Section 7. Special Meetings: Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors, if any, or by the President and Chief Executive Officer. Section 8. Notice and Place of Meetings: Regular meetings of the Board of Directors may be held without notice at such time and place as shall be designated by resolution of the Board of Directors. Notice shall be required, however, for special meetings. Notice of any special meeting shall be sufficiently given if mailed to each Director at his residence or usual place of business at least two (2) days before the day on which the meeting is to be held, or if sent to him at such place by telegraph or cable, or delivered personally or by telephone not later than 24 hours prior to the time at which the meeting is to be held. No notice of the annual meeting shall be required if held immediately after the annual meeting or the Stockholders and if a quorum is present. Notice of a meeting need not be given to any Director who submits a signed waiver of notice before or after the meeting, nor to any Director who attends the meeting without protesting the lack of notice prior thereto or at its commencement. Section 9. Business Transacted at Meetings: Any business may be transacted and any corporate action may be taken at any regular or special meeting of the Board of Directors at which a quorum shall be present, whether such business or proposed action be stated in the notice of such meeting or not, unless special notice of such business or proposed action shall be required by law. Section 10. Quorum: A majority of the entire Board of Directors shall be necessary to constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors, unless otherwise provided by law, the Certificate of Incorporation or these By-laws. If a quorum is not present at a meeting of the Board of Directors, a majority of the Directors present may adjourn the meeting to such time and place as they may determine without notice other than announcement at the meeting until enough Directors to constitute a quorum shall attend. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any Directors. Section 11. Action Without a Meeting: Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Section 12. Participation by Telephone: Any one or more members of the Board or any committee thereof may participate in a meeting of the Board or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in - 6 - 7 the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 13. Compensation: The Board of Directors may establish by resolution reasonable compensation of all Directors for services to the Corporation as Directors, including a fixed fee, if any, incurred in attending each meeting. Nothing herein contained shall preclude any Director from serving the Corporation in any other capacity, as an Officer, agent or otherwise, and receiving compensation therefor. ARTICLE IV COMMITTEES Section 1. Executive Committee: The Board of Directors, by resolution passed by a majority of the entire Board, may designate three (3) or more Directors to constitute an Executive Committee to hold office at the pleasure of the Board, which Committee shall, during the intervals between meetings of the Board of Directors, have and exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, Subject only to such restrictions or limitations as the Board of Directors may from time to time specify, or as limited by the Delaware General Corporation Law, and shall have power to authorize the seal of the Corporation to be affixed to all instruments which may require it. Any member of the Executive Committee may be removed at any time, with or without cause, by a resolution of a majority of the entire Board of Directors. Any person ceasing to be a Director shall ipso facto cease to be a member of the Executive Committee. Any vacancy in the Executive Committee occurring from any cause whatsoever may be filled from among the Directors by a resolution of a majority of the entire Board of Directors. Section 2. Other Committees: Other committees whose members are to be Directors, may be appointed by the Board of Directors, which committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors or the committee appointing them. Any member of such a committee may be removed at any time, with or without cause, by the Board of Directors or the committee appointing such committee. Any vacancy in a committee occurring from any cause whatsoever may be filled by the Board of Directors or the committee appointing such committee. Section 3. Resignation: Any member of a committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chairman of the Board, if any, the President and Chief Executive Officer or the Secretary. The acceptance of a resignation shall not be necessary to make it effective unless so specified therein. Section 4. Quorum: A majority of the members of a committee shall constitute a quorum. The act of a majority of the members of a committee present at any meeting at which a quorum is present shall be the act of such committee. The members of a committee shall act only as a committee, and the individual members thereof shall have no powers as such. - 7 - 8 Section 5. Record of Proceedings: Each committee shall keep a record of its acts and proceedings, and shall report the same to the Board of Directors when and as required by the Board of Directors. Section 6. Organization, Meetings, Notices: A committee may hold its meetings at the principal office of the Corporation, or at any other place upon which a majority of the committee may at any time agree. Each committee may make such rules as it may deem expedient for the regulation and carrying on of its meetings and proceedings, Unless otherwise ordered by the Executive Committees any notice of a meeting of such committee may be given by the Secretary or by the chairman of the committee and shall be sufficiently given if mailed to each member at his residence or usual place of business at least five (5) days before the day on which the meeting is to be held, or if sent to him at such place by telecopy, telegraph or cable, or delivered personally or by telephone not later than 24 hours prior to the time at which the meeting is to be held. Section 7. Compensation: The members of any committee shall be entitled to such compensation as may be established by resolution of the Board of Directors. ARTICLE V OFFICERS Section l. Number: The Officers of the Corporation shall be a President and Chief Executive Officer, a Secretary and a Treasurer, and such Vice Presidents and other Officers as may be appointed in accordance with the provisions of Section 3 of this Article V. The Board of Directors, in its discretion, may also elect a Chairman of the Board of Directors. Section 2. Election, Term of Office and Qualifications: The Officers, except as provided in Section 3 of this Article V, shall be chosen annually by the Board of Directors. Each such Officer shall, except as herein otherwise provided, hold office until the selection and qualification of his successor. Any two or more offices may be held by the same person, except the offices of President and Chief Executive Officer and Secretary. Section 3. Other Officers: Other Officers, including, without limitation, one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers, may from time to time be appointed by the Board of Directors, which other Officers shall have such powers and perform such duties as may be assigned to them by the Board of Directors or the Officer or committee appointing them. All such Officers shall be corporate officers of the Corporation with the power to hind the Corporation by acts within the scope or their authority. Section 4. Removal of Officers: Any Officer of the Corporation may be removed from office, with or without cause, by a vote of a majority of the Board of Directors. Section 5. Resignation: Any Officer of the Corporation may resign at any time. Such resignation shall be in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chairman of the Board, if any, the President and - 8 - 9 Chief Executive Officer or the Secretary. The acceptance of a resignation shall not be necessary in order to make it effective, unless so specified therein. Section 6. Filling of Vacancies: A vacancy in any office shall be filled by the Board of Directors. Section 7. Compensation: The compensation of the Officers shall be fixed by the Board of Directors, or by any committee upon whom such power may be conferred by the Board of Directors. Section 8. Chairman of the Board of Directors: The Chairman of the Board of Directors, if one is elected, shall be a Director and shall preside at all meetings of the Board of Directors and of the Stockholders at which he shall be present. He shall have power to call special meetings of the Stockholders or of the Board of Directors or of the Executive Committee at any time and shall have such power and perform such other duties as may from time to time be assigned to him by the Board of Directors. Section 9. President and Chief Executive Officer: The President and Chief Executive Officer shall have responsibility for the general direction of the business affairs and property of the Corporation, and of its several Officers, and shall have and exercise all such powers and discharge such duties as usually pertain to the office of President and Chief Executive Officer. He shall have responsibility for the day-to-day affairs of the Corporation, subject to the control of the Board of Directors. He shall perform such duties as may be assigned to him from time to time by the Board of Directors and shall, in the absence of the Chairman of the Board, perform and carry out the functions of the Chairman of the Board. Section 10. Secretary: The Secretary shall attend all meetings of the Board of Directors and of the Stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for any Committee appointed by the Board. He shall give or cause to be given notice of all meetings of Stockholders and special meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the Corporation and affix it to any instrument when so authorized by the Board of Directors. Section 11. Treasurer: The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may he ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and Chief Executive Officer and Directors at the regular meetings of the Board, or whenever they may require, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He may be required to give bond for the faithful discharge of his duties. - 9 - 10 ARTICLE VI CAPITAL STOCK Section 1. Issue of Certificates of Stock: Certificates of capital stock shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issue, and shall be signed by the Chairman of the Board of Directors, the President and Chief Executive Officer or any Vice President, and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary, and the seal of the Corporation or a facsimile thereof shall be impressed, affixed or reproduced thereon. In case any Officer or Officers who shall have signed any such certificate or certificates shall cease to be such Officer or Officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates have not ceased to be such Officer or Officers of the Corporation. Section 2. Registration and Transfer of Shares: The name of each person owning a share of the capital stock or the Corporation shall be entered on the books of the Corporation together with the number of shares held by him, the numbers of the certificates covering such shares and the dates of issue of such certificates. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment of power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates for stock. Section 3. Lost, Destroyed and Mutilated Certificates: The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the Certificates therefor. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it and alleged to have been lost, stolen or destroyed. The Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representatives, to give the Corporation a bond, in such sum not exceeding trouble the value of the stock and with such surety or sureties as they may require, to indemnify it against any claim that may be made against it by reason of the issue of such new certificate and against all other liability in the premises, or may remit such owner to such remedy or remedies as he may have under the laws of the State of Delaware. - 10 - 11 ARTICLE VII DIVIDENDS AND SURPLUS Section 1. General Discretion of Directors: The Board of Directors shall have power to fix and vary the amount to be set aside or reserved as working capital of the Corporation, or as reserves, or for other proper purposes of the Corporation, and, subject to the requirements of the Certificate of Incorporation, to determine whether any part of the surplus or net profits of the Corporation shall be declared in dividends and paid to the Stockholders, and to fix the date or dates for the payment of dividends. ARTICLE VIII MISCELLANEOUS PROVISIONS Section l. Fiscal Year: The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December. Section 2. Corporate Seal: The corporate seal shall be in such form as approved by the Board of Directors and may be altered at its pleasure. The corporate seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced by the Secretary or Assistant Secretary of the Corporation. Section 3. Notices: Except as otherwise expressly provided, any notice required by these By-laws to be given shall be sufficient if given by depositing the same in a post office or letter box in a sealed wrapper with first class postage prepaid thereon and addresses to the person entitled thereto at his address, as the same appears upon the books of the Corporation, or by telecopying, telegraphing or cabling the same to such person at such address; and such notice shall be deemed to be given at the time it was mailed, telecopied, telegraphed or cabled. Section 4. Waiver it Notice: Any Stockholder or Director may at any time, by writing or by telecopy, telegraph or cable, waive any notice required to be given under these By-laws, and if any Stockholder or Director shall be present at any meeting his presence shall constitute a waiver of such notice. Section 5. Contracts, Checks, Drafts: The Board of Directors, except as may otherwise be required by law, may authorize any Officer or Officers, agent or agents, in the name of and on behalf of the Corporation to enter into any contract or execute or deliver any instrument. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such Officer or Officers, agent or agents of the Corporation, and in such manner, as shall be designated from time to time by resolution of the Board of Directors. Section 6. Deposits: All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such bank or banks, trust companies or other depositaries as the Board of Directors may select, and, for the purpose of such deposit, checks, drafts, warrants and other orders for the payment of money which are payable to the order of the Corporation, may be endorsed for deposit, assigned and delivered by any Officer of the Corporation, or by - 11 - 12 such agents of the Corporation as the Board of Directors, the Chairman of the Board, if any, or the President and a Chief Executive Officer may authorize for that purpose. Section 7. Voting Stock of Other Corporations: Except as otherwise ordered by the Board of Directors or the Executive Committee, the Chairman of the Board, if any, or the President and Chief Executive Officer shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting, and at any such meeting the Chairman of the Board, if any, or the President and Chief Executive Officer or the holder of any such proxy, as the case may be, shall possess and may exercise any and all rights and powers incident to ownership of such stock and which, as owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee may from time to time confer like powers upon any other person or persons. Section 8. Indemnification of Officers and Directors: The Corporation shall indemnify any and all of its Directors or Officers, who shall serve as an Officer or Director of this Corporation or of any other corporation at the request of this Corporation, to the fullest extent permitted under and in accordance with the laws of the State of Delaware. ARTICLE IX AMENDMENTS Section 1. By the Board of Directors: These By-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the Directors present at any regular or special meeting of the Board of Directors at which a quorum is present. Section 2. By the Stockholders: Except as otherwise provided in Section 3, these Bylaws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote at any regular or special meeting of Stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such regular or special meeting. Section 3. Certain Provisions: Notwithstanding any other provision of law, the Certificate of Incorporation or these By-laws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with Sections 2, 7, 8, 9, 10 and 11 of Article II, Article III or Article IX of these By-laws. Dated: ________ __, 1996. - 12 - EX-5.1 6 OPINION OF PALMER & DODGE LLP 1 EXHIBIT 5.1 PALMER & DODGE LLP ONE BEACON STREET BOSTON, MA 02108-3190 TELEPHONE: (617) 573-0100 FACSIMILE: (617) 227-4420 August 23, 1996 Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, Massachusetts 02139 We are rendering this opinion in connection with the Registration Statement on Form S-1 (the "Registration Statement") filed by Transkaryotic Therapies, Inc. (the "Company") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or about the date hereof. The Registration Statement relates to up to 2,500,000 shares (2,875,000 shares if the underwriters' over-allotment option is exercised in full) of the Company's Common Stock, $0.01 par value per share (the "Shares"). We understand that the Shares are to be offered and sold in the manner described in the Registration Statement. We have acted as your counsel in connection with the preparation of the Registration Statement. We are familiar with the proceedings of the Board of Directors on July 22, 1996 in connection with the authorization, issuance and sale of the Shares (the "Resolutions"). We have examined such other documents as we consider necessary to render this opinion. Based upon the foregoing, we are of the opinion that the Shares have been duly authorized and, when issued and delivered by the Company against payment therefor at the price to be determined pursuant to the Resolutions, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as a part of the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus filed as part thereof. Very truly yours, /s/ PALMER & DODGE LLP PALMER & DODGE LLP EX-9.1 7 VOTING RIGHTS AGREEMENT 1 EXHIBIT 9.1 AMENDED AND RESTATED VOTING RIGHTS AGREEMENT This Amended and Restated Voting Rights Agreement (the "AGREEMENT") is made as of this 3rd day of November, 1993 by and among Transkaryotic Therapies, Inc. (the "Company'), the holders of the Company's Class B Preferred Stock (the "CLASS B HOLDERS"), and the Purchasers listed on Exhibit A hereto (the "CLASS C PURCHASERS" and together with the Class B Holders, the "PURCHASERS"). W I T N E S S E T H: WHEREAS, simultaneously with the execution of this Agreement, the Purchasers and the Company are entering into a Class C Preferred Stock and Warrant Purchase Agreement (the "STOCK PURCHASE AGREEMENT") pursuant to which the Class C Purchasers are purchasing certain "Units," each of which consists of two shares of the Class C Preferred Stock, par value $1.00 of the Company (the "CLASS C PREFERRED STOCK") and a common stock purchase warrant (the "Warrants") for the purchase of one share of the Common Stock, par value $.01 per share, of the Company; and WHEREAS, this Agreement will become effective, and shall amend and restate the Voting Rights Agreement, dated as of February 14, 1992, among the Company and the parties listed therein (the "PRIOR VOTING AGREEMENT"), only upon the execution and delivery hereof by Class B Holders holding at least 66 and 2/3% of the Class B Preferred Stock, par value $1.00 per share, of the Company (the "CLASS B PREFERRED STOCK"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter contained, the parties agree with each other as follows: 1. Definitions. ----------- 1.1. GENERALLY. Terms defined in the Stock Purchase Agreement and not otherwise defined herein shall have the same meaning herein as therein. 1.2. "VOTING SECURITIES" shall mean (i) the Common Stock held by Warburg Pincus Capital Company L.P. ("Warburg"), (ii) the Class B Preferred Stock held by the Class B Holders, (iii) the Class C Preferred Stock held by the Purchasers, (iv) all shares of Common Stock issued to the Class B Holders or the Purchasers upon conversion of the Class B or Class C Preferred Stock or upon exercise of the Warrants, and (v) all shares of Common Stock issued to Warburg upon exercise of the Common Stock Purchase Warrant, dated September 12, 1991, held by Warburg. Voting Securities will continue to be Voting Securities in the hands of transferees of any holder of the Voting Securities (other than the Company and purchasers pursuant to a registered public offering or Rule 144 2 transaction). 2. VOTING RIGHTS. Each Purchaser hereby agrees to vote its respective Voting Securities, and otherwise to use its respective best efforts as a shareholder, director and/or officer of the Company, to fix the number of directors of the Company at six (6) and to elect to the Board of Directors (i) two members designated by the holders of a majority of the Class A Preferred Stock, (ii) two members designated by management of the Company, (iii) one member designated by the holders of the Class B Preferred Stock and Class C Preferred Stock (collectively, the "ADDITIONAL PREFERRED STOCK") voting together as one class (the number of votes of each such holder being equal to the number of shares of Common Stock into which such shares of preferred stock are convertible on the applicable record date), and (iv) one member designated by the Board of Directors (each a "DESIGNATING PARTY"). In the absence of any designation by a Designating Party, the director(s) previously designated by it and then serving shall be reelected if still eligible to serve as provided herein. Any vacancy on the Board of Directors created by the resignation, removal, incapacity or death of any person designated under this Section 2 shall be filled by another person designated by the Designating Party entitled to designate a director to fill such vacancy. The Purchasers shall vote their respective Voting Securities in accordance with the new designation, and any such vacancy shall not be filled in the absence of a new designation by such Designating Party. 3. TERMINATION. This Agreement shall terminate on the earlier to occur of (i) the date on which the Company closes an Initial Public Offering (as defined in the Stock Purchase Agreement), (ii) the tenth anniversary of the Closing or (iii) the date on which there are no shares of Class B Preferred Stock and Class C Preferred Stock outstanding. 4. LEGEND. The Company shall cause each certificate representing Voting Securities to include the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A VOTING AGREEMENT DATED AS OF NOVEMBER 3, 1993, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION. Notwithstanding the foregoing, the Company shall be under no obligation to cancel and reissue any outstanding certificate representing Class B Preferred Stock for the purpose of adding the foregoing legend, provided, however, that at such time as any Class B Holder transfers any shares of Class B Preferred Stock or requests a replacement certificate or transfers, the Company agrees to include the legend set forth below on such new or replacement certificates issued in connection therewith. 5. REMEDIES. Each party to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision - 2 - 3 of this Agreement, and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction in order to enforce or prevent any violations of the provisions of this Agreement. 6. NOTICES. All notices or other communications required or permitted to be delivered hereunder shall be in writing signed by the party giving the notice: to the Company at Transkaryotic Therapies, Inc. 195 Albany Street, Cambridge, Massachusetts 02139, Attention: President and Chief Executive Officer, with a copy to the Company's Founder and Chief Scientific Officer, and a copy to Leslie H. Shapiro, Esq., Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts 02110; to each Purchaser at its address given in writing from time to time to the Company, with a copy to Hale & Dorr, 60 State Street, Boston, Massachusetts 02109, Attention: John A. Burgess, Esq. and Willkie, Farr and Gallagher, One Citicorp Center, 155 East 53rd Street, New York, New York 10022, Attention: Deborah Bode, Esq.; or to such other address as may be furnished in writing to the other parties hereto. Notices shall be deemed effectively given upon actual receipt, or if earlier, five (5) business days after (a) deposit in the United States mail, postage prepaid, or (b) prepaid delivery to a nationally recognized courier service, in each case, addressed to the recipient at the address set forth above. 7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the matters contemplated herein. This Agreement supersedes any and all prior oral or written understandings as to the subject matter of this Agreement. 7A. NEW PURCHASERS. The Company will not issue any shares of Class B Preferred Stock, or any shares of Class C Preferred Stock pursuant to the Stock Purchase Agreement, unless the purchaser of such shares shall have first executed an Instrument of Accession in the form of Exhibit B hereto if such Person is not already a party to this Agreement. 8. AMENDMENTS, WAIVERS AND CONSENTS. Any amendments to this Agreement, and any waivers of the provisions hereof, shall be in writing. Any provision of this Agreement relating to the rights of holders of the Additional Preferred Stock may be waived with the concurrence of the holders of at least 66 2/3% of the Additional Preferred Stock voting together as one class as set forth in Section 2 above. This Agreement may be amended or terminated with respect to the holders of the Additional Preferred Stock at any time with the concurrence of the holders of at least 66 2/3% of the Additional Preferred Stock voting together as one class as set forth in Section 2 above. 9. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the personal representatives, successors, transferees and assigns of the respective parties hereto (other than the Company and purchasers pursuant to a registered offering or Rule 144(k) transaction). No party to this Agreement may assign any right granted or implied by this Agreement apart from a transfer of Voting Securities. No party to this Agreement may transfer Voting Securities to any person (other than the Company and purchasers pursuant to a registered offering or Rule 144 transaction) until such person has agreed to be bound by the provisions of this Agreement. - 3 - 4 10. MISCELLANEOUS. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. In this Agreement the singular includes the plural; the plural, the singular; the masculine gender includes the neuter, masculine and feminine genders. This Agreement shall be governed by and construed under the internal laws of the State of Delaware. 11. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any. provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. Signed, sealed and delivered as of the date first written above. COMPANY: ------- TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest --------------------------------- Title: President and CEO -------------------------- PURCHASERS: ---------- WARBURG PINCUS CAPITAL COMPANY, L.P. (312,500 units) By: Warburg Pincus & Co., General Partner By: /s/ Rodman W. Moorhead, III ----------------------------- Title:Managing Director --------------------------- - 4 - 5 TKT PARTNERS LIMITED PARTNERSHIP (62,500 units) By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke ------------------------------ Title: Managing Partner --------------------------- /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, Ph.D. (12,500 units) H&Q HEALTHCARE INVESTORS** (12,500 units) By: /s/ Kimberley L. Carroll ---------------------------------- Title:Treasurer -------------------------------- **LIMITATION OF LIABILITY. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&Q LIFE SCIENCES INVESTORS*** (6,250 units) By: /s/ Kimberley L. Carroll ----------------------------------- Title:Treasurer -------------------------------- ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. - 5 - 6 HUGO de NEUFVILLE & JOHN P. de NEUFVILLE, TTEES, UAD 7/01/92, HUGO de NEUFVILLE REVOCABLE TRUST: (6,500 units) By: /s/ John P. de Neufville ---------------------------------- Title:Trustee -------------------------------- MARGARET W. de NEUFVILLE & JOHN P. de NEUFVILLE, TTEES, UAD 7/01/92, MARGARET W. de NEUFVILLE REVOCABLE TRUST: (6,500 units) By: /s/ John P. de Neufville ---------------------------------- Title:Trustee -------------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO CAROL de NEUFVILLE (6,500 units) By: /s/ John P. de Neufville ----------------------------------- Title:Trustee -------------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DTD 12/23/76 FBO DAVID T. de NEUFVILLE (6,500 units) By: /s/ John P. de Neufville ----------------------------------- Title:Trustee -------------------------------- - 6 - 7 JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, UAD 12/23/76 FBO JOHN HOWARD de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville ----------------------------------- Title:Trustee -------------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DATED 12/23/76 FBO JOHN P. de NEUFVILLE (6,500 units) By: /s/ John P. de Neufville ---------------------------------- Title:Trustee -------------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70 FBO PETER BAYON de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville ----------------------------------- Title:Trustee -------------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70 FBO SUSAN de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville ---------------------------------- Title:Trustee -------------------------------- - 7 - 8 JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 12/2/70 FBO THOMAS PIKE de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville ----------------------------------- Title:Trustee -------------------------------- /s/ John W. Jackson -------------------------------------- John W. Jackson (3,000 units) TAB PRODUCTS CO. PENSION PLAN (4,500 units) By: * ----------------------------------- TEMPLE INLAND MASTER TRUST (25,000 units) By: * ----------------------------------- By: BEA ASSOCIATES, Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Title:Managing Director -------------------------------- ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN (22,000 units) By: # ----------------------------------- #By: BEA ASSOCIATES, as Investment Advisor - 8 - 9 By: /s/ Albert L. Zesiger ----------------------------------- Title:Managing Director -------------------------------- CLASS B HOLDERS: --------------- WARBURG PINCUS CAPITAL COMPANY, L.P. (21,359 shares) By: Warburg Pincus & Co., General Partner By: /s/ Rodman W. Moorhead, III ----------------------------------- Title: Managing Director ------------------------------- H&Q HEALTHCARE INVESTORS** (3,268 shares) By: /s/ Kimberley L. Carroll ----------------------------------- Title:Treasurer -------------------------------- **LIMITATION OF LIABILITY. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&G Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&Q LIFE SCIENCES INVESTORS*** (1,500 units) By: /s/ Kimberley L. Carroll ----------------------------------- Title:Treasurer -------------------------------- ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as - 9 - 10 amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. H&Q VENTURE INVESTORS L.P. (807 shares) By: /s/ Jackie Berterretche ----------------------------------- Title: -------------------------------- Jackie Berterretche Attorney-in-Fact /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, Ph.D. (688 shares) /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, M.D. (1,000 shares) /s/ Alex Zaffaroni -------------------------------------- Alex Zaffaroni (139 shares) /s/ Lea Zaffaroni -------------------------------------- Lea Zaffaroni (1,000 shares) A. CAREY ZESIGER REVOCABLE TRUST (60 shares) By: * ---------------------------------- * -------------------------------------- Sheana Butler (125 shares) * -------------------------------------- Nicola Zesiger (60 shares) * -------------------------------------- Albert L. Zesiger, custodian for Alexa L. Zesiger (60 shares) - 10 - 11 * -------------------------------------- Barrie Ramsay Zesiger (351 shares) * -------------------------------------- Lucy Butler Finley (60 shares) DEAN WITTER FOUNDATION (250 shares) By: * ----------------------------------- * -------------------------------------- Domenic Mizio (275 shares) * -------------------------------------- Leonard Kingsley (125 shares) * -------------------------------------- Andrew Heiskell (351 shares) * -------------------------------------- Elizabeth Heller Mandell, trustee for Elizabeth Heller Mandell (185 shares) * -------------------------------------- Lewis Butler Finley (60 shares) * -------------------------------------- Serra Butler Finley (60 shares) AMERICAN MEDICAL INTERNATIONAL, INC. PENSION PLAN (600 shares) By: * ----------------------------------- - 11 - 12 ALZA CORPORATION RETIREMENT PLAN (125 shares) By: * ---------------------------------- /s/ Albert L. Zesinger -------------------------------------- Albert L. Zesiger (848 shares) *By: BEA ASSOCIATES Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------- Albert L. Zesiger Managing Director - 12 - 13 Exhibit A --------- CLASS C PURCHASERS ------------------ PURCHASER - --------- Arthur D. Little Employee (BEA) Investment Plan (Kane & Co.) de Neufville, John P. (various trusts) H&Q Healthcare Investors H&Q Life Sciences Investors Jackson, John Tab Products Co. Pension Plan (BEA) (Craig & Co.) Temple Inland Master Trust (BEA) (Batterbox & Co.) TKT Partners Limited Partnership Warburg, Pincus Capital Company, L.P. Zaffaroni, Alejandro - 13 - 14 Exhibit B --------- INSTRUMENT OF ACCESSION ----------------------- Reference is made to that certain Amended and Restated Voting Rights Agreement dated as of November 3, 1993, a copy of which is attached hereto (as amended and in effect from time to time, the "Voting Rights Agreement"), among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company") and the Purchasers (as defined therein). The undersigned, __________________, in order to become the owner or holder of _____ shares (the "Purchased Shares") of Class C Convertible Preferred Stock, $1.00 par value per share, of the Company, hereby agrees that by the undersigned's execution hereof (a) the undersigned is a Purchaser party to the Voting Rights Agreement subject to all of the restrictions and conditions applicable to Purchasers set forth in the Voting Rights Agreement, and (b) all of the Purchased Shares constitute Voting Securities subject to all the restrictions and conditions applicable to Voting Securities as set forth in the Voting Rights Agreement. This Instrument of Accession shall take effect and shall become a part of the Voting Rights Agreement immediately upon execution. Executed as of the date set forth below under the laws of the State of Delaware. Signature: ___________________________ Address: _____________________________ ___________________________________ Date: __________________________________ ACCEPTED: TRANSKARYOTIC THERAPIES, INC. BY: ___________________________ Date: _________________________ - 14 - 15 Amendment to Amended and Restated Voting Rights Agreement This Amendment to the Amended and Restated Voting Rights Agreement dated as of November 3, 1993 (the "Voting Rights Agreement") by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), the holders of the Company's Class B Preferred Stock and the Purchasers listed on EXHIBIT A thereto (collectively, the "Purchasers") is dated as of May 18, 1994 (the "Amendment") by and among the Company, Marion Merrell Dow, Inc., a Delaware corporation ("MMD"), and the holders (the "Holders") of at least 66 2/3% of the Additional Preferred Stock, as such term is defined in the Voting Rights Agreement. WHEREAS, pursuant to the Voting Rights Agreement, each Purchaser has agreed to vote its respective Voting Securities (as defined in the Voting Rights Agreement) in accordance with the terms of the Voting Rights Agreement; and WHEREAS, in connection with the purchase of shares of the Company's Class D Preferred Stock, $.01 par value per share (the "Class D Preferred Stock") by MMD, the Company and the Purchasers desire to amend the Voting Rights Agreement to include MMD as a Purchaser under the Voting Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF VOTING RIGHTS AGREEMENT. The Voting Rights Agreement is hereby amended as follows: 1.1 The Voting Rights Agreement is hereby amended to include MMD as a Purchaser under the Voting Rights Agreement. 1.2 The term "Voting Securities", as defined in Section 1.2 of the Voting Rights Agreement, is hereby amended to include (i) the Class D Preferred Stock held by MMD and (ii) all shares of Common Stock issued to MMD upon conversion of the Class D Preferred Stock. 1.3 The first paragraph of Section 2 of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: 2. VOTING RIGHTS. Each Purchaser hereby agrees to vote its respective Voting Securities, and otherwise to use its respective best efforts as a shareholder, director and/or officer of the Company, to fix the number of directors of the Company at six (6) and to elect to the Board of Directors (i) two members designated by the holders of a majority of the Class A Preferred Stock, (ii) two members designated by management of the Company, (iii) one member designated by the holders of the Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock (collectively, the "Additional Preferred Stock") voting together as one class (the number of votes of each such holder being equal to the number of shares of Common Stock into which such shares of Preferred Stock are convertible on the applicable record date), and (iv) one member designated by the Board of Directors (each a "Designating Party"). - 15 - 16 1.4 Section 3, clause (iii) of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: (iii) the date on which there are no shares of Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock outstanding. 1.5 Except as expressly amended hereby, the Voting Rights Agreement shall remain in full force and effect. 2 Miscellaneous. ------------- 2.1 NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be delivered personally or by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: (a) if to MMD: Marion Merrell Dow, Inc. 9300 Ward Parkway, P.O. Box 8480 Kansas City, Missouri 64114-0480 Attention: General Counsel Telephone: (816) 966-4000 Telecopy: (816) 966-3805 with copies to: Shook, Hardy & Bacon P.C. One Kansas City Place 1200 Main Street Kansas City, Missouri 64105 Attention: Randall B. Sunberg, Esq. Telephone: (816) 474-6550 Telecopy: (816) 421-5547 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, Massachusetts 02139 Attention: Chief Executive Officer Telephone: (617) 349-0200 Telecopy: (617) - 16 - 17 with a copy to: Palmer & Dodge One Beacon Street Boston, Massachusetts 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 (c) if to the Purchasers: at the addresses indicated in the Voting Rights Agreement or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of a facsimile, and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 2.2 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.3 HEADINGS. The headings contained in this Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Amendment. 2.4 COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 17 - 18 IN WITNESS WHEREOF, the Company, the Holders and MMD have each caused this Amendment to Amended and Restated Voting Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ K. Michael Forrest -------------------------------------------- By: K. Michael Forrest Its: President and CEO MARION MERRELL DOW, INC. /s/ Terry J. Shelton -------------------------------------------- By: Terry J. Shelton Its: V.P., Licensing and Business Development PURCHASERS WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ----------------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Kimberley L. Carroll ----------------------------------------- Title: Treasurer - 18 - 19 H&Q LIFE SCIENCES INVESTORS By: /s/ Kimberley L. Carroll ------------------------------------ Title: Treasurer TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ------------------------------------ Title: Managing Director TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ------------------------------------ Title: Managing Director ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: BEA Associates, as Investment Advisor By: /s/ Albert L. Zesiger ------------------------------------ Title: Managing Director - 19 - 20 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke ------------------------------------ Title: Managing Director - 20 - 21 Second Amendment to Amended and Restated Voting Rights Agreement This Second Amendment to the Amended and Restated Voting Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), the holders of the Company's Class B Preferred Stock and the Purchasers listed on EXHIBIT A thereto (collectively, the "Purchasers"), as amended by the Amendment to Amended and Restated Voting Rights Agreement dated as of May 18, 1994 (the "Voting Rights Agreement"), is dated as of March 1, 1995 (the "Second Amendment") by and among the Company and the holders (the "Holders") of at least 66 2/3% of the Additional Preferred Stock, as such term is defined in the Voting Rights Agreement. WHEREAS, pursuant to the Voting Rights Agreement, each Purchaser has agreed to vote its respective Voting Securities (as defined in the Voting Rights Agreement) in accordance with the terms of the Voting Rights Agreement; and WHEREAS, in connection with the purchase of shares of the Company's Class E Preferred Stock, $.01 par value per share (the "Class E Preferred Stock") by Marion Merrell Dow Inc. ("MMD"), the Company and the Purchasers desire to amend the Voting Rights Agreement to include the Class E Preferred Stock as Voting Securities under the Voting Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF VOTING RIGHTS AGREEMENT. The Voting Rights Agreement is hereby amended as follows: 1.1 The term "Voting Securities", as defined in Section 1.2 of the Voting Rights Agreement, is hereby amended to include (i) the Class E Preferred Stock held by MMD and (ii) all shares of Common Stock issued to MMD upon conversion of the Class E Preferred Stock. 1.2 The first paragraph of Section 2 of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: 2. VOTING RIGHTS. Each Purchaser hereby agrees to vote its respective Voting Securities, and otherwise to use its respective best efforts as a shareholder, director and/or officer of the Company, to fix the number of directors of the Company at six (6) and to elect to the Board of Directors (i) two members designated by the holders of a majority of the Class A Preferred Stock, (ii) two members designated by management of the Company, (iii) one member designated by the holders of the Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Class E Preferred Stock (collectively, the "Additional Preferred Stock") voting together as one class (the number of votes of each such holder being equal to the number of shares of Common Stock into which such shares of Preferred Stock are convertible on the applicable record date), and (iv) one member designated by the Board of Directors (each a "Designating Party"). - 21 - 22 1.3 Section 3, clause (iii) of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: (iii) the date on which there are no shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Class E Preferred Stock outstanding. 1.4 Except as expressly amended hereby, the Voting Rights Agreement shall remain in full force and effect. 2 Miscellaneous. ------------- 2.1 GOVERNING LAW. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Second Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Second Amendment. 2.3 COUNTERPARTS. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 22 - 23 IN WITNESS WHEREOF, the Company and the Holders have each caused this Second Amendment to Amended and Restated Voting Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ------------------------------------------- By: Richard F. Selden Its: President and CEO HOLDERS MARION MERRELL DOW, INC. /s/ Terry J. Shelton ------------------------------------------- By: Terry J. Shelton Its: V.P., Licensing and Business Development WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ---------------------------------------- Title: Managing Director H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr ---------------------------------------- Title: President - 23 - 24 H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr ---------------------------------------- Title: President TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------------- Title: Managing Director TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------------- Title: Managing Director ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: BEA Associates, as Investment Advisor By: /s/ Albert L. Zesiger ---------------------------------------- Title: Managing Director - 24 - 25 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke ---------------------------------------- Title: President - 25 - 26 Third Amendment to Amended and Restated Voting Rights Agreement This Third Amendment to the Amended and Restated Voting Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), the holders of the Company's Class B Preferred Stock and the Purchasers listed on EXHIBIT A thereto (collectively, the "Purchasers"), as amended by the Amendment to Amended and Restated Voting Rights Agreement dated as of May 18, 1994 and as further amended by the Second Amendment to Amended and Restated Voting Rights Agreement dated as of March 1, 1995 (the "Voting Rights Agreement"), is dated as of October 26, 1995 (the "Third Amendment") by and among the Company and the holders (the "Holders") of at least 66 2/3% of the Additional Preferred Stock, as such term is defined in the Voting Rights Agreement. WHEREAS, pursuant to the Voting Rights Agreement, each Purchaser has agreed to vote its respective Voting Securities (as defined in the Voting Rights Agreement) in accordance with the terms of the Voting Rights Agreement; and WHEREAS, in connection with the purchase of shares of the Company's Class F Preferred Stock, $.01 par value per share (the "Class F Preferred Stock") by the Purchasers (the "Class F Purchasers") listed on SCHEDULE A hereto, the Company and the Purchasers desire to amend the Voting Rights Agreement to include the Class F Preferred Stock as Voting Securities under the Voting Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF VOTING RIGHTS AGREEMENT. The Voting Rights Agreement is hereby amended as follows: 1.1 The term "VOTING SECURITIES", as defined in Section 1.2 of the Voting Rights Agreement, is hereby amended to include (i) the Class F Preferred Stock held by the Class F Purchasers and (ii) all shares of Common Stock issued to the Class F Purchasers upon conversion of the Class F Preferred Stock. 1.2 The first paragraph of Section 2 of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: 2. VOTING RIGHTS. Each Purchaser hereby agrees to vote its respective Voting Securities, and otherwise to use its respective best efforts as a shareholder, director and/or officer of the Company, to fix the number of directors of the Company at six (6) and to elect to the Board of Directors (i) two members designated by the holders of a majority of the Class A Preferred Stock, (ii) two members designated by management of the Company, (iii) one member designated by the holders of the Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock (collectively, the "Additional Preferred Stock") voting together as one class (the number of votes of each such holder being equal to the number of shares of Common Stock into which such shares of Preferred Stock are convertible on - 26 - 27 the applicable record date), and (iv) one member designated by the Board of Directors (each a "Designating Party"). 1.3 Section 3, clause (iii) of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: (iii) the date on which there are no shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock outstanding. 1.4 Except as expressly amended hereby, the Voting Rights Agreement shall remain in full force and effect. 2 Miscellaneous. ------------- 2.1 GOVERNING LAW. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Third Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Third Amendment. 2.3 COUNTERPARTS. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 27 - 28 IN WITNESS WHEREOF, the Company, the Holders and the Purchasers have each caused this Third Amendment to Amended and Restated Voting Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ------------------------------------------- By: Richard F. Selden Its: President and CEO HOLDERS HOECHST MARION ROUSSEL, INC. /s/ Terry J. Shelton ------------------------------------------- By: Terry J. Shelton Its: V.P. Licensing and Business Devlopment WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ---------------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr ---------------------------------------- Title: President - 28 - 29 H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr ----------------------------------------- Title: President TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Michael E. Guarasici, Jr. ----------------------------------------- Title: V.P. Finance TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Michael E. Guarasici, Jr. ----------------------------------------- Title: V.P. Finance ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: Zesiger Capital Group, Attorney-in-Fact By: /s/ Mary Estabil ----------------------------------------- Title: Private Placement Administrator - 29 - 30 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ A.S. Gadicke ----------------------------------------- Title: President AUDA SECURITIES GmbH By: /s/ Marcel Giacommetti ----------------------------------------- Title: Officer /s/ Franz Burda /s/ M. Bacher -------------------------------------------- Franz Burda Frieder Burda HANSEATIC CORPORATION By: /s/ Paul Biddleman ----------------------------------------- Title: Treasurer /s/ L. Frances /s/ D. Rush -------------------------------------------- Oppenheim Vermogenstreuhand GmbH /s/ Klaus Neugebauer -------------------------------------------- Dr. Klaus Neugebauer - 30 - 31 Fourth Amendment to Amended and Restated Voting Rights Agreement This Fourth Amendment to the Amended and Restated Voting Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), the holders of the Company's Class B Preferred Stock and the Purchasers listed on EXHIBIT A thereto (collectively, the "Purchasers"), as amended by the Amendment to Amended and Restated Voting Rights Agreement dated as of May 18, 1994, as amended by the Second Amendment to Amended and Restated Voting Rights Agreement dated as of March 1, 1995 and as further amended by the Third Amendment to the Amended and Restated Voting Rights Agreement dated as of October 26, 1995 (the "Voting Rights Agreement"), is dated as of July 10, 1996 (the "Fourth Amendment") by and among the Company and the holders (the "Holders") of at least 66 2/3% of the Additional Preferred Stock, as such term is defined in the Voting Rights Agreement. WHEREAS, pursuant to the Voting Rights Agreement, each Purchaser has agreed to vote its respective Voting Securities (as defined in the Voting Rights Agreement) in accordance with the terms of the Voting Rights Agreement; and WHEREAS, in connection with the purchase of shares of the Company's Class G Preferred Stock, $.01 par value per share (the "Class G Preferred Stock") by the Purchasers (the "Class G Purchasers") listed on SCHEDULE A hereto, the Company and the Purchasers desire to amend the Voting Rights Agreement to include the Class G Preferred Stock as Voting Securities under the Voting Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF VOTING RIGHTS AGREEMENT. The Voting Rights Agreement is hereby amended as follows: 1.1 The term "VOTING SECURITIES", as defined in Section 1.2 of the Voting Rights Agreement, is hereby amended to include (i) the Class G Preferred Stock held by the Class G Purchasers and (ii) all shares of Common Stock issued to the Class G Purchasers upon conversion of the Class G Preferred Stock. 1.2 The first paragraph of Section 2 of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: 2. VOTING RIGHTS. Each Purchaser hereby agrees to vote its respective Voting Securities, and otherwise to use its respective best efforts as a shareholder, director and/or officer of the Company, to fix the number of directors of the Company at six (6) and to elect to the Board of Directors (i) two members designated by the holders of a majority of the Class A Preferred Stock, (ii) two members designated by management of the Company, (iii) one member designated by the holders of the Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock (collectively, the "Additional Preferred Stock") voting together as one class (the number of votes of each such holder being equal to the number of shares of Common Stock into which such shares of Preferred Stock are - 31 - 32 convertible on the applicable record date), and (iv) one member designated by the Board of Directors (each a "Designating Party"). 1.3 Section 3, clause (iii) of the Voting Rights Agreement is hereby deleted in its entirety and the following is substituted therefor: (iii) the date on which there are no shares of Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock outstanding. 1.4 Except as expressly amended hereby, the Voting Rights Agreement shall remain in full force and effect. 2 Miscellaneous. ------------- 2.1 GOVERNING LAW. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Fourth Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Fourth Amendment. 2.3 COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 32 - 33 IN WITNESS WHEREOF, the Company, the Holders and the Purchasers have each caused this Fourth Amendment to Amended and Restated Voting Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ---------------------------------------- By: Richard F. Selden Title: President and CEO HOLDERS HOECHST MARION ROUSSEL, INC. /s/ Charles W. Dalton ---------------------------------------- By: Charles W. Dalton Title: Vice President WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ------------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr ------------------------------------- Title: President - 33 - 34 H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr ------------------------------------- Title: President H&Q VENTURE INVESTORS By: ------------------------------------- Title: --------------------------------- KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ Elline Hildebrandt ------------------------------------- Title: Vice President PURCHASERS BIOTECH TARGET, S.A. By: /s/ Hans Jorge Graf ------------------------------------- Title: --------------------------------- By: /s/ Andreas Bremer ------------------------------------- Title: --------------------------------- - 34 - EX-10.1 8 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.1 TRANSKARYOTIC THERAPIES, INC. STOCK PURCHASE AGREEMENT July , 1988 Warburg, Pincus Capital Company, L.P. 466 Lexington Avenue New York, New York 10017 Dear Sirs: Transkaryotic Therapies, Inc., a Delaware Corporation (the "Company") hereby agrees with Warburg, Pincus Capital Company, L.P. (the "Investor") as follows: SECTION 1: PURCHASE AND SALE OF STOCK -------------------------- Subject to the terms and conditions hereof, the Company hereby agrees to sell to the Investor and the Investor hereby subscribes for and agrees to purchase from the Company, 50,000 shares of common stock of the Company, par value $0.01 per share ("Common Stock") at a price per share of $0.01, and 1,000 shares of preferred stock of the Company, par value $1.00 per share ("Preferred Stock"), at a price per share of $1000.00 such sums totalling $1,000,500 in the aggregate. Such sales and purchases shall be effected simultaneously with the execution of this Agreement by the Company executing and delivering to the Investor duly executed stock certificates evidencing the shares of Preferred Stock and Common Stock to be purchased, duly registered in the name of the Investor, against delivery by the Investor of a check in the amount of $1,000,500 to the Company. SECTION 2. WARRANTIES AND REPRESENTATIONS OF THE COMPANY --------------------------------------------- The Company warrants and represents to the Investor that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Annexed hereto as Exhibits A and B respectively, are true and complete copies of the Certificate of Incorporation and By-Laws of the Company. (b) The Company has been recently formed and does not yet conduct any business. The Company has no assets and its only liabilities are those incurred in connection with the Company's incorporation. (c) The Board of Directors of the Company has authorized the execution, delivery, and performance of this Agreement, and each of the transactions contemplated hereby. No other 2 corporate action is necessary to authorize such execution and delivery, and upon such execution and delivery, the Agreement shall constitute a valid and binding obligation of the Company. The Board of Directors has authorized the issuance and delivery of the Common Stock, and the Preferred Stock in accordance with this Agreement. (d) The shares of Preferred Stock to be issued and sold by the Company pursuant to this Agreement, when delivered for the consideration specified herein, will be validly issued by the Company, fully paid and nonassessable shares of the Company, and no shareholder of the Company has any preemptive rights to subscribe for any shares of such Preferred Stock. The shares of Common Stock to be issued and sold by the Company pursuant to this Agreement when issued will be validly issued by the Company, fully paid and nonassessable shares of the Company, and no shareholder of the Company has any preemptive rights to subscribe for any shares of such Common Stock. (e) Neither the nature of the business which the Company proposes to conduct, nor any relationship between the Company and any other Person, nor any circumstance in connection with the creation, authorization, issuance, offer or sale of the Preferred Stock or Common Stock is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Company or the vote, consent or approval in any manner of the holders of any Security of the Company as a condition to the execution and delivery of this Agreement or the creation, authorization, issuance, offer, and sale of the Preferred Stock and the Common Stock. The execution and delivery by the Company of this Agreement and the performance by the Company of this Agreement and the performance by the Company of its obligations hereunder will not violate (i) the terms and conditions of the Company's Certificate of Incorporation, or By-Laws, or any agreement to which the Company is a party or (ii) any federal or state law. SECTION 3. INVESTOR REPRESENTATIONS. ------------------------ The Investor represents and agrees with the Company as follows: 3.1 Offering Exemption. ------------------ The Investor understands that the shares of Preferred Stock and the shares of Common Stock have not been registered under the Securities Act of 1933 as amended (the "Act"), nor qualified under any state securities laws, and that they are being offered and sold pursuant to an exemption from such registration and qualification based in part upon the representations of the Investor contained herein. 3.2 Knowledge of Offer. ------------------ The Investor has been given the opportunity to obtain from the Company all information from the Company that it has requested regarding its business plans and prospects. - 2 - 3 3.3 Knowledge and Experience; Ability to Bear Economic Risks. -------------------------------------------------------- The Investor has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement; the Investor is able to bear the economic risk of its investment in the Company (including a complete loss of its investment). 3.4 Limitations on Disposition. -------------------------- The Investor recognizes that no public market exists for the Preferred Stock or the Common Stock, and no representation has been made to the Investor that such public market will exist in the future. The Investor understands that the Investor must bear the economic risk of this investment indefinitely unless its shares of Preferred Stock or Common Stock are registered pursuant to the Act or an exemption from such registration is available, and unless the disposition of such shares is qualified under applicable state securities laws or an exemption from such qualification is available, and that, except as provided in Section 5 of this Agreement, the Company has no obligation or present intention of so registering the Preferred Stock or the Common Stock. The Investor further understands that there is no assurance that any exemption from the Act will be available, or, if available, that such exemption will allow the Investor to dispose of or otherwise transfer any or all of the Preferred Stock or the Common Stock, in the amounts, or at the times the Investor might propose. The Investor understands at the present time Rule 144 promulgated under the Act by the Securities and Exchange Commission ("Rule 144") is not applicable to sales of the Preferred Stock or the Common Stock because neither are registered under Section 12 of the Exchange Act and there is not publicly available the information concerning the Company specified in Rule 144. The Investor further acknowledges that the Company is not presently under any obligation to register under Section 12 of the Exchange Act or to make publicly available the information specified in Rule 144 and that it may never be required to do so. 3.5 Investment Purpose. ------------------ The Investor is acquiring the Preferred Stock and Common Stock solely for its own account for investment and not with a view toward the resale, transfer, or distribution thereof, nor with any present intention of distributing the Preferred Stock or Common Stock. No other person has any right with respect to or interest in the Preferred Stock or Common Stock to be purchased by the Investor, nor has the Investor agreed to give any person any such interest or right in the future. 3.6 Capacity. -------- The Investor has full power and legal right to execute and deliver this Agreement and to perform its obligations hereunder. - 3 - 4 SECTION 4. COVENANTS OF THE PARTIES ------------------------ 4.1 Election of Directors. --------------------- The Company shall take all necessary corporate action, to elect Peter Stalker, III, and Patrick J. Mahaffy to the Board of Directors of the Company. The Company shall annually nominate and shall use its best efforts to solicit the Company's shareholders to elect as directors, two individuals designated by the Investor as long as the Investor continues to own at least ten percent (10%) of the then outstanding number of shares of Common Stock and one individual designated by the Investor as long as the Investor continues to own at least two percent (2%) of the then outstanding number of Shares of Common Stock. 4.2 Resale of Securities. -------------------- (a) The Investor covenants that it will not sell or otherwise transfer any shares of Preferred Stock or shares of Common Stock except pursuant to an effective registration under the Act or in a transaction which, in the opinion of counsel reasonably satisfactory to the Company, qualifies as an exempt transaction under the Act and the rules and regulations promulgated thereunder. (b) The certificates evidencing the shares of Preferred Stock and the certificates evidencing the shares of Common Stock will bear the following legend reflecting the foregoing restrictions on the transfer of such securities: "The securities evidenced hereby have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be transferred except pursuant to an effective registration under the Act or in a transaction which, in the opinion of counsel reasonably satisfactory to the Company, qualifies as an exempt transaction under the Act and the rules and regulations promulgated thereunder." 4.3 Right of First Refusal. ---------------------- If at any time after the date hereof, the Company proposes to sell equity securities of any kind (the term "equity securities" shall include for these purposes any warrants, options or other rights to acquire equity securities and debt securities convertible into equity securities) of the Company, (other than the issuance of securities (x) to the public in a firm commitment underwriting pursuant to a registration statement filed under the Act, (y) pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other form of reorganization or (z) pursuant to an employee stock option plan, stock bonus plan, stock purchase plan or other management equity program) pursuant to a bona fide offer to purchase, the Company shall give the Investor written notice setting forth in reasonable detail (i) the designation and all of the terms and provisions of the securities proposed to be sold, including, where applicable, the voting powers, preferences and relative, participating, optional or other special rights, and the qualification, limitations or restrictions thereof and interest rate and maturity; (ii) the price and other terms of the proposed sale of such securities; (iii) the - 4 - 5 amount of such securities proposed to be sold; and (iv) such other information as the Investor may reasonably request in order to evaluate the proposed sale. The Investor shall have the prior right to purchase all, or such portion, of such securities proposed to be sold at the price and upon the terms of such proposed sale described in such notice. The Investor shall have thirty (30) days after receipt of such notice and the furnishing of all reasonably requested information within which to notify the Company as to whether and to what extent Investor elects to purchase securities pursuant to such proposed sale. The election by the Investor not to exercise its right of first refusal in any instance shall not affect its right of first refusal as to any subsequent proposed sale. Any sale of such securities by the Company without first giving the Investor the right of first refusal described above shall be void and of no force and effect. If the Investor does not exercise the above right of first refusal with respect to the securities proposed to be sold by the Company, or does not elect to purchase all of such securities, the Company may proceed to sell such securities within ninety (90) days following the expiration of the thirty day period described above, but only upon the terms of proposed sale as described in the notice referred to above. The rights provided by this Section 4.3 shall expire upon the closing of a firm commitment underwritten public offering of Common Stock of the Company. 4.4 Accounting Firm. --------------- Within 90 days after the date hereof, the Company shall retain as its auditors an accounting firm of recognized national standing reasonably acceptable to the Investor. 4.5 Insurance. --------- The Company shall maintain with financially sound and reputable insurance companies insurance on the business and properties of the Company (including, without limitation, product liability coverage, and directors and officers liability insurance) in at least such amounts and against at least such risks as are usually insured against by companies engaged in similar businesses and as shall be reasonably acceptable to the Issuer. 5. REGISTRATION RIGHTS ------------------- 5.1 Definitions. ----------- As used in this Section 5: (a) the terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; (b) the term "Registrable Securities" means (A) shares of Common Stock issued to the Investor pursuant to this Agreement or thereafter acquired by the Investor, including shares of Common Stock issuable upon conversion of any convertible security of the Company or upon - 5 - 6 any exercise of a warrant or right to acquire Common Stock and (B.) any capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Common Stock referred to in clause (A) above; (c) the term "Holder" shall mean any holder of Registrable Securities; (d) the term "Initiating Holder" shall mean any Holder or Holders who in the aggregate are Holders of more than 50% of the then outstanding Registrable Securities; (e) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act; (f) "Registration Expenses" shall mean all expenses incurred by the Company in compliance with Sections 5.2 and 5.3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company); and (g) "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for each of the Holders. 5.2 Requested Registration. ---------------------- (a) REQUEST FOR REGISTRATION. If the Company shall receive from an Initiating Holder, at any time, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders of Registrable Securities; and (ii) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 10 business days after written notice from the Company is given under Section 5.2 (a)(i) above; provided that the Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 5.2: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in - 6 - 7 such jurisdiction and except as may be required by the Act or applicable rules or regulations thereunder; or (B) After the Company has effected two (2) such registrations pursuant to this Section 5.2(a) and such registrations have been declared or ordered effective and the sales of such Registrable Securities shall have closed. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 5.2(b) below, include other securities of the Company which are held by officers or directors of the Company, or which are held by persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration, but the Company shall have no absolute right to include any of its securities in any such registration. The registration rights set forth in this Section 5.2 shall be assignable, in whole or in part, to any transferee of Common Stock (who shall be bound by all obligations of this Section 5). (b) UNDERWRITING. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 5.2. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to Section 5.2, or if holders of securities of the Company other than Registrable Securities who are entitled, by contract with the Company or otherwise, to have securities included in such a registration (the "Other Shareholders") request such inclusion, the Holders shall offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section 5. The Company shall (together with all officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 5.2, if the representative advises the Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors (other than Registrable Securities) of the Company and the securities held by Other Shareholders shall be excluded from such registration to the extent so required by such limitation. If, after the exclusion of shares of the Company and Other Shareholders, further reductions are still required, the number of shares included in the registration by each Holder shall be reduced on a pro rata basis, by such minimum number of shares as is necessary to comply with such request. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities so withdrawn shall also be withdrawn from registration. If the underwriter has not limited the number of Registrable Securities or other securities to be underwritten, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number - 7 - 8 of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited. 5.3 Company Registration. -------------------- (a) If the Company shall determine to register any of its securities either for its own account or for the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each of the Holders a written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by the Holders within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 5.3(b) below. Such written request may specify all or a part of the Holders' Registrable Securities. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise each of the Holders as a part of the written notice given pursuant to Section 5.3(a)(i). In such event, the right of each of the Holders to registration pursuant to this Section 5.3 shall be conditioned upon such Holders' participation in such underwriting and the inclusion of such Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders shall (together with the Company and the Other Shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this Section 5.3, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (x) if such registration is the first registered offering of the Company's securities to the public, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto, and (y) if such registration is other than the first registered offering of the Company's securities to the public, the underwriter may (subject to the allocation priority set forth below) limit the is number of Registrable Securities to be included in the registration and underwriting to not less than twenty five percent (25%) of the securities included therein (based on aggregate market values). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner: The securities of the Company held by officers, directors and Other Shareholders of the Company (other than Registrable Securities and other than securities held by holders who by contractual right demanded such registration ("Demanding - 8 - 9 Holders")) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting by each of the Holders and Demanding Holders shall be reduced, on a pro rata basis, by such minimum number of shares as is necessary to comply with such limitation. If any of the Holders or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) NUMBER AND TRANSFERABILITY. Each of the Holders shall be entitled to have its shares included in an unlimited number of registrations pursuant to this Section 5.3. The registration rights granted pursuant to this Section shall be assignable, in whole or in part, to any transferee of the Common Stock (who shall be bound by all obligations of this Section 5). 5.4 Expenses of Registration. ------------------------ All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Section 5 shall be borne by the Company, and all Selling Expenses shall be borne by the Holders of the securities so registered pro rata on the basis of the number of their shares so registered; provided, however, that the Company shall not be required to pay any Registration Expenses if, as a result of the withdrawal of a request for registration by any of the Holders, as applicable, the registration statement does not become effective, in which case each of the Holders and Other Shareholders requesting registration shall bear such Registration Expenses pro rata on the basis of the number of their shares so included in the registration request, and provided, further, that such registration shall not be counted as a registration pursuant to Section 5.2(a)(ii)(3). 5.5 Registration Procedures. ----------------------- In the case of each registration effected by the Company pursuant to Section 5, the Company will keep the Holders, as applicable, advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Keep such registration effective for a Period of one hundred twenty (120) days or until the Holders, as applicable, have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period during which the Holders, as applicable, refrain from selling any securities included in such registration in accordance with provisions in paragraph 5.9 hereof; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration - 9 - 10 statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Furnish such number of prospectuses and other documents incident thereto as each of the Holders, as applicable, from time to time may reasonably request; and (c) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 5.2 hereof, the Company will enter into any underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement is with an underwriter reasonably acceptable to the Company and contains customary underwriting provisions and provided further that if the underwriter so requests the underwriting agreement will contain customary contribution provisions. 5.6 Indemnification. --------------- (a) The Company will indemnify each of the Holders, as applicable, each of its officers, directors and partners, and each person controlling each of the Holders, with respect to each registration which has been effected pursuant to this Section 5, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Holders, each of its officers, directors and partners, and each person controlling each of the Holders, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Holders or underwriter and stated to be specifically for use therein. (b) Each of the Holders will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Act and the rules and regulations thereunder, each Other Shareholder and each of their officers, directors, and partners, and each person controlling such Other Shareholder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document made by such Holder, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading by - 10 - 11 such Holder, and will reimburse the Company and such Other Shareholders, directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of each of the Holders hereunder shall be limited to an amount equal to the proceeds to such Holder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 5.6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party's expense (unless (i) the employment of counsel by such Indemnified Party has been authorized by the Indemnifying Party, (ii) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 5.7 Information by the Holders. -------------------------- Each of the Holders and each Other Shareholder holding securities included in any registration, shall furnish to the Company such information regarding such Holder or Other Shareholder and the distribution proposed by such Holder or Other Shareholder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 5. 5.8 Rule 144 Reporting. ------------------ With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the restricted securities to the public without registration, the Company agrees to: - 11 - 12 (a) Make and keep public information available as those terms are understood and defined in Rule 144 under the Act, at all times from and after ninety (90) days following the effective date of the first registration under the Act filed by the Company for an offering of its securities to the general public; (b) Use its best efforts to file with the Commission ) in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (c) so long as the Investor owns any Registrable Securities, furnish to the Investor upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the company, and such other reports and documents so filed as the Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing the Investor to sell any such securities without registration. 5.9 "Market Stand-off" Agreement. --------------------------- Each of the Holders shall agree, if requested by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder during the ninety (90) day period following the effective date of a registration statement of the Company filed under the Act, provided that: (a) such agreement only applies to the first such registration statement of the Company which includes securities to be sold on the Company's behalf to the public in an underwritten offering; and (b) all Other Shareholders and officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said ninety (90) day period. SECTION 6. INFORMATION AS TO COMPANY AND RELATED COVENANTS ----------------------------------------------- 6.1 Financial and Business Information. ---------------------------------- From and after the date hereof, the Company shall deliver to the Investor so long as it holds at least 10% of the outstanding Common Stock or holds other securities which may be converted into a number of shares of Common Stock as would equal at least 10% of the Common Stock outstanding upon such conversion: - 12 - 13 (a) MONTHLY AND QUARTERLY STATEMENTS, as soon as practicable, and in any event within thirty (30) days of the close of each month of each fiscal year of the Company in the case of Monthly Statements and forty-five (45) days after the close of each of the first three fiscal quarters of each fiscal year of the Company in the case of Quarterly Statements, a consolidated balance sheet, statement of income and statement of changes in financial position of the Company and its Subsidiaries, if any, as of the close of such month or quarter, as the case may be, and covering operations for such month or quarter and the portion of the Company's fiscal year ending on the last day of such month or quarter, all in reasonable detail and prepared in accordance with generally accepted accounting principles, consistently applied, subject to audit and year end adjustments, setting forth in each case in comparative form the figures for the comparable period of the previous fiscal year; (b) ANNUAL STATEMENTS, as soon as practicable after the end of each fiscal year of the Company, and in any event within 120 days thereafter, a copy of: (i) consolidated and consolidating balance sheets of the Company and its Subsidiaries, if any, at the end of such year, and (ii) consolidated and consolidating statements of income, stockholders' equity and changes in financial position of the Company and its Subsidiaries, if any, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Company and reasonably acceptable to the Investor, which opinion shall state that such financial statements fairly present the financial position of the Company and its Subsidiaries, if any, on a consolidated basis and have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and that the examination of such accountants has been made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) BUSINESS PLAN; PROJECTIONS, prior to the by commencement of each fiscal year of the Company, an annual business plan of the Company and projections of operating results, prepared on a monthly basis, and a three year business plan of the Company and projections of operating results. Within 45 days of the close of each fiscal quarter of the Company, if so requested by the Investor, the Company shall provide the Investor with a comparison of actual year-to-date results with the corresponding budgeted figures; (d) AUDIT REPORTS, promptly upon receipt thereof, one copy of each other financial report and internal control letter submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company and its Subsidiaries, if any; (e) RESEARCH STATUS REPORTS, as soon as practicable and in any event within fifteen (15) days of the end of each quarter of each fiscal year of the Company, a status report as regards - 13 - 14 the research and development conducted by the Company in the prior quarter and to be conducted by the Company in the forthcoming quarter; (f) OTHER REPORTS, promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to its shareholders generally, of each financial statement, report, notice or proxy statement sent by the Company or any of its Subsidiaries to the Commission or any successor agency, if applicable, of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Company or any of its Subsidiaries with, or received by such Person in connection therewith from, any securities exchange or the Commission or any successor agency, of any press release issued by the Company or any of its Subsidiaries, and of any material of any nature whatsoever prepared by the Commission, or any successor agency thereto or any state blue sky or securities law commission which relates to or affects in any way the Company or any of its Subsidiaries; and (g) REQUESTED INFORMATION, with reasonable promptness, the Company shall furnish the Investor with such other data and information as from time to time may be reasonably requested. 6.2 INSPECTION. As long as the Investor holds at least 10% of the outstanding Common Stock or holds other securities convertible into a number of shares of Common Stock outstanding upon such conversion, the Company shall permit the Investor, its nominee, assignee, and its representative to visit and inspect any of the properties of the Company, to examine all its books of account, records, reports and other papers not contractually required of the Company to be confidential or secret, to make copies and extracts therefrom, and to discuss its affairs, finances and accounts with its officers, directors, key employees and independent public accountants or any of them (and by this provision the Company authorizes said accountants to discuss with the Investor, its nominee, assign and representatives the finances and affairs of the Company and its Subsidiaries, if any), all at such reasonable times and as often as may be reasonably requested. 6.3 Confidentiality. --------------- As to so much of the information and other material furnished under or in connection with this Agreement (whether furnished before, on or after the date hereof) as constitutes or contains confidential business, financial or other information of the Company or its Subsidiaries, if any, the Investor covenants for itself and its directors, officers and partners that it will use due care to prevent its respective officers, directors, employees, counsel, accountants and other representatives from disclosing such information to persons other than their respective authorized employees, counsel, accountants, shareholders, partners, limited partners and other authorized representatives; provided, however, that the Investor may disclose or deliver any information or other material disclosed to or received by the Investor should such disclosure or delivery be required by law. - 14 - 15 SECTION 7. INTERPRETATION OF THIS AGREEMENT -------------------------------- 7.1 Terms Defined. ------------- As used in this Agreement, the following terms have the respective meaning set forth below or set forth in the Section hereof following such term: ACT: the Securities Act of 1933, as amended. COMMISSION: see Section 5.1 hereof. COMMON STOCK: Common Stock par value $0.01 of the Company. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended. PERSON: an individual, partnership, joint-stock company, corporation, trust or unincorporated organization, and a government or agency or political, subdivision thereof. PREFERRED STOCK: Preferred Stock par value $1.00 of the Company SECURITY, SECURITIES: as defined in Section 2(1) of the Act. SUBSIDIARY: a corporation of which the Company owns, directly or indirectly, more than 50% of the Voting Stock. VOTING STOCK: securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). 7.2 Accounting Principles. --------------------- Where the character or amount of any asset or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with generally accepted accounting principles at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. 7.3 Directly or Indirectly. ---------------------- Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. - 15 - 16 7.4 Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 7.5 Paragraph and Section Headings. ------------------------------ The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof. SECTION 8. MISCELLANEOUS ------------- 8.1 Notices. ------- (a) All communications under this Agreement shall be in writing and shall be mailed by registered or certified mail, postage prepaid: (i) if to the Investor, at the addresses shown below, marked for attention as there indicated, or at such other address as the Investor may have furnished the Company in writing; Warburg, Pincus Capital Company, L.P. 466 Lexington Avenue New York, New York 10017 Attention: Peter Stalker, III (ii) if to the Company, at its address shown at the beginning of this Agreement, marked for the attention of the President of the Company, or at such other address as it may have furnished in writing to each of the Investors. (b) Any notice so addressed and mailed by registered or certified mail shall be deemed to be given on the third business day after the date the same is so mailed. 8.2 Expenses and Taxes. ------------------ The Company will pay, and save the Investor harmless from any and all liabilities (including interest and penalties) with respect to, or resulting from any delay or failure in paying, stamp and other taxes (other than income taxes), if any, which may be payable or determined to be payable on the execution and delivery of this Agreement or acquisition of its capital stock pursuant to this Agreement. 8.3 Reproduction of Documents. ------------------------- This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received - 16 - 17 by the Investor pursuant hereto (except for certificates evidencing the Preferred Stock and Common Stock itself) and (c) financial statements, certificates and other information previously or hereafter furnished to the Investor, may be reproduced by the Investor by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and the Investor may destroy any original document so reproduced. All parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Investor in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. 8.4 Successors and Assigns. ---------------------- This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. The Investor may assign all or any portion of its rights herein to any purchaser of some or all of the capital stock of the Company purchased by it; provided, however, that (i) such assignees make representations to the Company comparable to those contained in Section 3 hereof, (ii) such assignees agree to be bound by the provisions of Section 4.2 hereof and (iii) the Company is furnished within a reasonable time of its request, such information as it shall reasonably request relating to such assignees. 8.5 Entire Agreement; Amendment and Waiver. -------------------------------------- This Agreement constitutes the entire understanding of the parties hereto and supersedes all prior understandings among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company and the Investor. Very truly yours, TRANSKARYOTIC, THERAPIES INC. By: /s/ Peter Stalker, III ----------------------------- ACCEPTED & AGREED: WARBURG, PINCUS CAPITAL COMPANY, L.P. By: /s/ Peter Stalker, III --------------------------------- - 17 - EX-10.2 9 STOCK HOLDERS AGREEMENT 1 EXHIBIT 10.2 STOCKHOLDERS' AGREEMENT AGREEMENT, dated as of this 16th day of September, 1988, among: TRANSKARYOTIC THERAPIES, INC., (herein called the "Company"), a corporation organized under the laws of the State of Delaware and having its mailing address at, c/o Warburg, Pincus Capital Company, L.P., 466 Lexington Avenue, New York, New York 10017; WARBURG, PINCUS CAPITAL COMPANY, L.P., a Delaware limited partnership ("Warburg") having an address at 466 Lexington Avenue, New York, New York 10017; and Each of the individuals listed on Schedule I hereto (the "Individual Investors") (Warburg and the Individual Investors being herein referred to collectively as the "Stockholders"). WHEREAS, the parties hereto collectively own all of the issued and outstanding capital stock of the Company as of the date hereof; and WHEREAS, such parties desire to promote their mutual interest and the interests of the Company by imposing certain obligations and restrictions on the shares of stock of the Company owned by the Company's stockholders and on the conduct of the Stockholders. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Definitions ----------- As used herein, the following terms, unless the context clearly indicates otherwise, shall have the following meanings: (a) "COMMON STOCK" shall mean the Common Stock of the Company, $0.01 par value per share. 2. Securities Act Matters ---------------------- (a) Each Stockholder acknowledges on his or its own behalf that such Stockholder is holding the shares of capital stock of the Company owned by him or it for his or its own investment account. Each Stockholder has been advised that (i) his or its shares of capital stock of the Company have not been registered under the Securities Act of 1933, as amended (the "Act"), (ii) such shares may not be disposed of unless such shares are registered pursuant to the Act or an exemption from such registration is available, and that, the Company has no obligation or present intention of so registering such shares. Each Stockholder further understands that there is no assurance that any exemption from the Act will be available, or, if available, that such exemption will allow him or it to dispose of or otherwise transfer any or all of the shares of capital stock of the Company under the circumstances, in the amounts, or at the times such Stockholder might propose. Each Stockholder understands that at the present time Rule 144 2 promulgated under the Act by the Securities and Exchange Commission ("Rule 144") is not applicable to sales of the capital stock of the Company because it is not registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and there is not publicly available the information concerning the Company specified in Rule 144. Each Stockholder further acknowledges that the Company is not presently under any Obligation to register under Section 12 of the Exchange Act or to make publicly available the information specified in Rule 144 and that it may never be required to do so. (b) Each Stockholder severally covenants and agrees that such Stockholder shall not sell or otherwise distribute his or its shares of capital stock of the Company except in a transaction which, in the opinion of counsel for the Company, qualifies as an exempt transaction under the Act and the rules and regulations promulgated thereunder or pursuant to a then current and effective registration statement under the Act. The certificates evidencing the Stockholder's shares of capital stock of the Company will bear legends reflecting the foregoing restrictions on transfer as well as the legend described in Paragraph 6 hereof. 3. Transfers of Stock ------------------ No Individual Investor shall transfer any of the shares of capital stock of the Company owned by such Individual Investor (except to members of such Individual Investor's family or trusts therefor, PROVIDED in each instance that such transferee agrees to be bound by the provisions of this Agreement as if such transferee were an original signatory hereto), unless the Individual Investor desiring to make the transfer (hereinafter referred to as the "Transferor") shall have first made the offers to sell to the Company and then to the other Stockholders contemplated by this Paragraph 3, and such offers shall not have been accepted. (a) OFFER BY TRANSFEROR. (i) Copies of the Transferor's offer shall be given to the Company and the other Stockholders and shall consist of an offer to sell to the Company or, failing its election to purchase, then to the other Stockholders all of the shares then proposed to be transferred by the Transferor (the "Subject Shares") pursuant to a bona fide offer of a third party, to which copies shall be attached a statement of intention to transfer to such third party, the name and address of the prospective third party transferee, the number of shares of Common Stock involved in the proposed transfer, and terms of such transfer. (ii) If the Company shall not elect to purchase the Subject Shares or is legally unable to do so, the Transferor shall forthwith so notify the other Stockholders, whereupon the other Stockholders shall have the right to purchase such Shares in the proportions provided in subparagraph (h) below. (b) ACCEPTANCE OF OFFER. (i) Within 20 days after the receipt of the offer described in subparagraph (a)(i) above, the Company may, at its option, elect to purchase all, but not less than all, of the Subject Shares. The Company shall exercise such option by giving notice thereof to the Transferor and to the other Stockholders within such 20 day period. (ii) In the event that the Company does not exercise its option to purchase, the other Stockholders may exercise their election to purchase by giving notice thereof to the Transferor and to the Company within 15 days after receipt of notice from the Transferor in accordance with subparagraph (a)(ii) above to the effect that the Company did not exercise its option to purchase. (iii) In either event, the notice required to be given by the purchasing party or parties shall specify a date for the closing of the purchase which shall not be more than 20 days after the date of the giving of such notice. - 2 - 3 (c) PURCHASE PRICE. The purchase price per share for the Subject Shares shall be the price per share offered to be paid by the prospective transferee described in the offer, which price shall be paid in cash or, if so provided in the offer of the prospective transferee, cash plus deferred payments of cash in the same proportions, and with the same terms of deferred payment as therein set forth. (d) CONSIDERATION OTHER THAN CASH. If the offer of Subject Shares under this Paragraph 3 is for consideration other than cash or cash plus deferred payments of cash, the Company or any purchasing Stockholders shall pay the cash equivalent of such other consideration. If the Transferor and the Company or any purchasing Stockholders cannot agree on the amount of such cash equivalent within 10 days after the beginning of the 20-day period under subparagraph (b)(iii), any of such parties may, by 3 days' written notice to the other, initiate appraisal proceedings under subparagraph (e) for determination of the cash equivalent. The Company or any purchasing Stockholder may give notice to the Transferor revoking an election to purchase the Subject Shares within 10 days after determination of the appraised value, if they choose not to purchase the Subject Shares. The other purchasing parties shall then have 10 days in which to elect to purchase the Subject Shares not purchased because of such revocation. (e) APPRAISAL PROCEDURE. If any party shall initiate an appraisal procedure to determine the amount of the cash equivalent of any consideration for Subject Shares under subparagraph (d), then the Transferor, jointly on the one hand, and the Company or the purchasing Stockholders, jointly on the other hand, shall each promptly appoint as an appraiser an individual who shall be a member of a nationally-recognized investment banking firm. Each appraiser shall, within 30 days of appointment, separately investigate the value of the consideration for the Subject Shares as of the proposed transfer date and shall submit a notice of an appraisal of that value to each party. Each appraiser shall be instructed to determine such value without regard to income tax consequences to the Transferor as a result of receiving cash rather than other consideration. If the appraised values of such consideration (the "Earlier Appraisals") vary by less than 10%, the average of the two appraisals on a per share basis shall be controlling as the amount of the cash equivalent. If the appraised values vary by more than 10%, the appraisers, within 10 days of the submission of the last appraisal, shall appoint a third appraiser who shall be member of a nationally recognized investment banking firm. The third appraiser shall, within 30 days of his appointment, appraise the value of the consideration for the Subject Shares as of the proposed transfer date and submit notice of his appraisal to each party. The value determined by the third appraiser shall be controlling as the amount of the cash equivalent unless that value is greater than the two Earlier Appraisals, in which case the higher of the two Earlier Appraisals will control, and unless that value is lower than the two Earlier Appraisals, in which case the lower of the two Earlier Appraisals will control. If any party fails to appoint an appraiser or if one of the two initial appraisers fails after appointment to submit his appraisal within the required period, the appraisal submitted by the remaining appraiser shall be controlling. The cost of the foregoing appraisals shall be shared one-half by the Transferor and one-half by the Company or the purchasing Stockholders. (f) CLOSING OF PURCHASE. The closing of the purchase shall take place at the office of the Company or such other location as shall be mutually agreeable and the purchase price, to the extent comprised of cash, shall be paid at the closing, and cash equivalents and documents - 3 - 4 evidencing any deferred payments of cash permitted pursuant to subparagraph (c) above shall be delivered at the closing. At the closing, the Transferor shall deliver to the purchaser(s) of the Subject Shares the certificates evidencing the Subject Shares to be conveyed, duly endorsed and in negotiable form with all the requisite documentary stamps affixed thereto. (g) RELEASE FROM RESTRICTION; TERMINATION OF RIGHTS. (i) If the offer is neither accepted by the Company nor by the other Stockholders, the Transferor may make a bona fide transfer to the prospective transferee named in the statement attached to the offer in accordance with the agreed upon terms of such transfer, provided, that (A) such transfer shall be made only -in strict accordance with the terms therein stated and (B) the transferee agrees, in writing, to be bound by the provisions of this Agreement as if he were an Individual Investor. However, if the Transferor shall fail to make such transfer within 30 days following the expiration of the time hereinabove provided for the election by the other Stockholders, such Shares shall again become subject to all the restrictions of this Paragraph 3. (h) RIGHT OF ELECTION. The right of each of the other Stockholders to elect to purchase Subject Shares as provided in this Paragraph 3 shall be, with respect to such number of Subject Shares so offered, in the same proportion as each such other Stockholder's shares of Common Stock bears to the total shares of Common Stock then owned by all Stockholders, and if one of such persons shall reject in whole or in part the shares j offered to him or it, then the other Stockholders shall be entitled to purchase all of the rejected stock offered, in the same proportion as each other Stockholder's then owned shares of Common Stock bears to the total shares of Common Stock owned by the other Stockholders who have not so rejected the stock offered, provided that the Transferor shall not be obliged to sell any of the Subject Shares so offered under this Paragraph 3 unless all of such offered Subject Shares are accepted for purchase by one or more of the Stockholders or the Company, as the case may be. (i) TERMINATION UPON PUBLIC OFFERING. The provisions of this Paragraph shall terminate simultaneously with the consummation of the first underwritten public offering of the Company's securities. 4. Additional Shareholders ----------------------- The Company covenants that it shall not issue or cause to be issued any shares of capital stock of the Company to any person who is an employee, consultant, officer or director of the Company unless as a condition to such issuance such person agrees to become a party to this Agreement and to be bound by all the obligations of an Individual Investor under this Agreement. Such agreement shall be evidenced by the execution of a counterpart signature page in the form of Exhibit B hereto. Stock certificates issued to such persons shall be marked as provided in Section 6 hereof. No shares of capital stock of the Company shall be transferred on the books of the Company until all the applicable provisions of this Agreement have been complied with. 5. Reporting --------- The Company shall furnish to each of the Stockholders within 120 days after the end of its fiscal year, a copy of an annual report consisting of statements of income, stockholders' - 4 - 5 equity and changes in financial position of the Company and its subsidiaries, if any, for such year, all in reasonable detail, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing. 6. Legends ------- In addition to the legend described in Paragraph 2 hereof and any other legend which may be called for by the terms of any employment or consulting or Scientific Advisor agreement, the Company and each Individual Investor agree that certificates evidencing Common Stock held by Individual Investors will bear the following legend reflecting the provisions of this Agreement: "The shares of stock represented by this certificate are subject to all the terms of that certain Stockholders' Agreement, dated as of July _, 1988, among Transkaryotic Therapies, Inc. and certain of its Stockholders, a copy of which is on file at the office of Transkaryotic Therapies, Inc. Such agreement provides that the shares represented hereby are subject to rights of first refusal in favor of certain Stockholders and Transkaryotic Therapies, Inc." 7. Notices ------- All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given as delivered or mailed, registered mail, return receipt requested to the respective Stockholder at his or its address as shown at the beginning of this Agreement, on Schedule I hereto or on a counterpart signature page, or to such other addresses or persons as any such party shall have last designated by written notice to the other parties hereto. Any item so mailed shall be deemed to have been delivered on the third day following the date on which it was so mailed. 8. Term ---- The term of this Agreement shall commence on the date hereof and, except as otherwise herein expressly provided, shall continue as to each party to this Agreement for so long as any such party owns such stock of the Company. 9. Assignment ---------- This Agreement shall not be assignable by any party hereto, except that each Stockholder may assign all or any portion of its rights under this Agreement to any transferee of all or a portion of the shares of the Company's capital stock held by such Stockholder. 10. Specific Performance -------------------- The parties hereby declare that it is impossible to measure in money the damages which will accrue to a party hereto by reason of a failure to perform any of the obligations under this Agreement. Therefore, all parties hereto shall have the right to specific performance of the obligations of the other parties under this Agreement, and if any party hereto shall institute any - 5 - 6 action or proceeding to enforce the provisions hereof, any person (including the Company) against ) whom such action or proceeding is brought hereby waives the claim or defense therein that such party has or have an adequate remedy at law, and such person shall not urge in any such action or proceeding the claim or defense that such remedy at law exists. 11. Modification ------------ This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and shall not be modified or amended except by an instrument in writing signed by or on behalf of all of the then parties hereto. 12. Prior Agreement --------------- This Agreement Supersedes any and all previously executed Stockholders Agreements between the Company and any signatory hereto, and from and after the date hereof, no party to such prior agreements shall have any further rights or obligations thereon. 13. Governing Law ------------- This Agreement shall be governed by, and construed and C enforced in accordance with, the laws of the State of Delaware. 14. Counterparts ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15. Paragraph Headings ------------------ The paragraph headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provisions hereof. Reference to numbered paragraphs and subparagraphs and lettered exhibits refer to paragraphs and subparagraphs of this Agreement and exhibits annexed thereto. - 6 - 7 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date and year first above written. TRANSKARYOTIC THERAPIES INC. By: /s/ Peter Stalker, III ------------------------------ Peter Stalker, III President WARBURG, PINCUS CAPITAL CAPITAL, L.P. By: /s/ Peter Stalker, III ------------------------------ Vice President INDIVIDUAL INVESTORS: /s/ Richard F. Selden - ---------------------------------- Dr. Richard Selden /s/ Howard Goodman - ---------------------------------- Dr. Howard Goodman /s/ David Moore - ---------------------------------- Dr. David Moore /s/ Douglas Treco - ---------------------------------- Dr. Douglas Treco - 7 - 8 Schedule I ---------- Name and Address of Individual Investors Warburg, Pincus Capital Company, L.P. 466 Lexington Avenue New York, New York Howard Goodman #10 The Ledges Road Newton Center Boston, MA 02159 Dr. Richard Selden 123 Reed Street Cambridge, MA 02140 Dr. David Moore 1 Longfellow Place #2415 Boston, MA 02114 Dr. Douglas Treco 71 Ansden Street 8 Arlington, MA 02174 - 8 - EX-10.3 10 CLASS B PREFERRED STOCK PURCHASE AGMT 2/14/92 1 EXHIBIT 10.3 TRANSKARYOTIC THERAPIES, INC. CLASS B PREFERRED STOCK PURCHASE AGREEMENT This Class B Preferred Stock Purchase Agreement (the "Agreement") is made as of the 14th day of February, 1992 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company") and the purchasers listed on Schedule A hereto (each individually, a "Purchaser" and together, the "Purchasers"). In consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF CLASS B CONVERTIBLE PREFERRED STOCK. . 1.1. Purchase and Sale of Shares. (a) On the Closing Date (as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Purchasers, and each of the Purchasers agrees to purchase from the Company, the number of shares of the Company's Class B Convertible Preferred Stock, $1.00 par value per share ("Class B Preferred Stock"), set forth opposite the name of each such Purchaser on Schedule A hereto at a price of $400.00 per share. The aggregate or any portion of the shares of Class B Preferred Stock to be purchased from the Company by the Purchasers pursuant to this Agreement are herein referred to as the "Shares." (b) To the extent that 45,600 Shares are not sold at the Closing (as defined in Section 1.2 below), the Company may, up to 120 days after the Closing, sell and issue additional shares of Class B Preferred Stock on substantially the same terms and conditions as the sale of the Shares purchased pursuant to this Agreement, provided that each person or entity acquiring such shares becomes a party to this Agreement as a Purchaser prior to such acquisition by executing an Instrument of Accession hereto in the form of Exhibit V hereto and an Instrument of Accession to the Voting Rights Agreement referred to in Section 5.5 hereof in the form of Exhibit B thereto. The closing of each such sale of additional shares of Class B Preferred stock shall be held at such time and place as may be agreed upon by the parties thereto, upon the same terms and conditions as those applicable to the initial sale of Shares hereunder, provided that the Company's representations and warranties shall be subject to such changes and additions as are necessary to reflect the consummation of the initial sale of Shares hereunder and any and all intervening events occurring between the date hereof and the date of such closing. From and after any such sale of additional shares of Class B Preferred Stock, the purchaser of such shares shall be deemed a "Purchaser" under this Agreement and the shares so purchased shall be deemed "Shares" for all purposes of this Agreement. (c) The sale of Shares by the Company to each of the Purchasers is a separate 2 sale to the same extent as if set forth in a separate agreement. 1.2. Closing. The closing of the initial purchase and sale of Shares hereunder (the "Closing") shall take place at the offices of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts at 2:00 p.m., Boston local time, on February 18, 1992 or at such other time and date as the Company and the Purchasers may agree upon in writing (the "Closing Date"). At the Closing, the Company will deliver to each Purchaser certificates evidencing the Shares to be purchased by such Purchaser, as set forth on Schedule A, against payment of the entire purchase price for the Shares in lawful money of the United States of America by cancellation of indebtedness, bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by such Purchaser and the Company. 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants, to each of the Purchasers that, as of the date of this Agreement, except as otherwise described on Schedule B hereto, the following are true and correct: 2.1. Organization and Standing of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copies of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation"), and By-laws which are attached as Exhibits I and II hereto, respectively, are true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. Subsidiaries. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. Capitalization. The Company's entire authorized capital stock consists of: 200,000 shares of Common Stock, $.01 par value per share (the "Common Stock"); and 53,500 shares of Preferred Stock, $1.00 par value per share (the "Preferred Stock"), of which 6,000 shares have been designated as Class A Convertible Preferred Stock (the "Class A Preferred Stock"), and 47,500 shares have been designated as Class B Convertible Preferred Stock (the "Class B Preferred Stock"). Of the authorized shares of Common Stock, 78,795 shares are issued to the persons named on Schedule D hereto under the heading "Common Stock". Of the authorized shares of Preferred Stock, 6,000 shares are issued to the party named on Schedule D hereto under the heading "Preferred Stock," all of which Preferred Stock is being exchanged for Class A Preferred Stock pursuant to the Stock Exchange Agreement dated as of the date hereof between Warburg Pincus Capital Company L.P. ("Warburg") and the Company (the "Exchange Agreement"). Immediately prior to the Closing, no shares of Class B Preferred Stock are issued or outstanding. No shares of Common Stock or Preferred Stock are held in the 2 3 Company's treasury. The Company has reserved 39,250 shares of Common Stock for issuance to future management employees and consultants. In addition, the Company has reserved 10,000 shares of Common Stock for issuance upon conversion of the Class A Preferred Stock and 47,500 shares of Common Stock for issuance upon Conversion of the Class B Preferred Stock (such shares reserved for issuance upon conversion of the Class B Preferred Stock hereinafter referred to as the "Underlying Shares"). The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "Securities Act"), except as provided in this Agreement or Article IV of the Company's Certificate of Incorporation, ("Article IV"). The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in Article IV. All outstanding shares of Common Stock and Preferred Stock have been validly issued and are fully paid and nonassessable, and were issued in accordance with applicable state and federal securities laws. The Shares, when issued in accordance with this Agreement, and the Underlying Shares, when issued in accordance with this Agreement and the Certificate of Incorporation, will be validly authorized, issued and outstanding, fully paid and nonassessable and, based in part upon representations of the Purchasers in Sections 3 and 4 hereof, will be issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than as indicated on Schedule a hereto, and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at the Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, and by the Certificate of Incorporation and By-laws of the Company and the Company will not voluntarily place any restrictions on the transfer of the Shares or the Underlying Shares except to the extent set forth herein or contemplated hereby. 2.4. Financial Information. The Company has delivered to the Purchasers a copy of (a) its audited balance sheet (the "Balance Sheet") as of December 31, 1990 (the "Financial Statement Date") and the related statements of income and retained earnings and changes in financial position for the year then ended (with the Balance Sheet, the "Audited Financials") and (b) its unaudited balance sheet as of December 31, 1991 and the related statements of income and retained earnings and changes in financial position for the period then ended (the "Unaudited Financials") and together with the Audited Financials, the "Financial Statements"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended; provided, however, that the Unaudited Financials are subject to year-end adjustments and may not contain all footnotes required under generally accepted accounting principles. 3 4 2.5. Absence of Undisclosed Liabilities. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business or reflected in the Unaudited Financials. 2.6. Absence of Certain Chances. Since the Financial Statement Date, other than as described in the Unaudited Financials or as indicated on Schedule a hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. Taxes. For all periods ended on or prior to the Financial Statement Date, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority 4 5 or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. Title to Properties; Liens and Encumbrances. Except as indicated on Schedule B hereto, the Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $5,000. 2.9. Intellectual Property Rights. Attached hereto as Schedule C is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company, are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Company's operations violate or infringe rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in Schedule C, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of said patents, trademarks, service marks, trade names, trade secrets, copyrights or rights or licenses to use the same or similar proprietary information, or any and all applications therefor. 2.10. Government Approvals and Licenses. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. Contracts. Other than as set forth in Schedule B or described elsewhere in this Section 2, the Company has no presently existing contract, obligation or commitment (a) involving payment by or to the Company of more than $10,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are 5 6 not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers, and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters or intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the 6 7 acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on Schedule B have been made available to the Purchasers. The Company has complied with all the material provisions of said contracts and commitments set forth in Schedule B hereto and of all other material contracts and commitments to which it is a party, and is not in default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. 2.12. Shareholders, Directors, and Officers. Schedule D hereto contains a true, correct and complete list showing the name of each shareholder of record of the Company and the number of the shares of the Company's capital stock owned by each shareholder. Schedule E hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. Litigation. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company, or the Company's properties nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. Authorization. The execution, delivery and performance by the Company of this Agreement and the Exchange Agreement, the issue and sale of the Shares and the issuance of the Underlying Shares upon the conversion of the Class B Preferred Stock have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the issuance of the Underlying Shares upon the conversion of the Class B Preferred Stock will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. Brokers. Except as described on Schedule B, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the 7 8 transactions contemplated by this Agreement. 2.16. Governmental Consents. Based in part on the representations made by the Purchasers in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issue, sale or delivery of the Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. Securities Laws. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchasers' representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at the Closing and on the date of the issuance of the Underlying Shares, the offering and sale of the Shares and the issuance of the Underlying Shares upon conversion of the Shares are each exempt or will be exempt from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. Legal Compliance. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. Insurance. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. Nondisclosure Agreements. The Company has entered into nondisclosure and noncompete agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. Disclosures. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate or instrument furnished to any of the Purchasers or their special counsel in connection with the transactions contemplated by this Agreement, including without limitation 8 9 the Confidential Private Placement Memorandum of the Company dated November, 1991 (the "Memorandum"), when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in Schedule B. Each projection furnished in the Memorandum was prepared in good faith based on reasonable assumptions and represents the Company's best estimate of future results based on information available as of the date of the Memorandum. 2.22. U.S. Real Property Holding Corporation. The Company is not now and has never been a "United States Real Property Holding Corporation" as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue Service. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the Purchasers, severally and not jointly, represents and warrants to the Company that the following are true and correct in all material respects: 3.1. Authority. Such Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of such Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. Brokers. Such Purchaser has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 3.3. Accredited Investor Statues. Such Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares; provided that the disposition of its property shall at all times be and remain within its control. It further represents that it is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Such Purchaser further represents that it is acquiring the Shares for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.3, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.4. Formation. Such Purchaser was not organized for the purpose of making an investment in the Company. 3.5. Receipt of Information. Such Purchaser has been furnished such information and 9 10 documents as such Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. Registration of Shares. Each Purchaser, severally and not jointly, represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. Each Purchaser, severally and not jointly, further represents and warrants to the Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. Financial Matters. Each Purchaser, severally and not jointly, represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, such Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. Transfer Legends and Restrictions. The Transfer (as defined in Section 8.1) of the Shares will be restricted in accordance with the terms hereof. Each certificate evidencing the Shares, including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such Shares shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS B PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF FEBRUARY 14, 1992 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." 10 11 The Holder (as defined in Section 8.1) of any Shares by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on the certificates evidencing the Shares, prior to any Transfer of any of the Shares (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Shares in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Shares shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Shares issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Shares, the Company shall remove the foregoing legend from the certificates evidencing such Shares and issue to such Holder new certificates therefor free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel selected by the Holder, such counsel and opinion to be reasonably satisfactory to counsel to the Company, to the effect that any Transfers by such Holder of such Shares may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. 4.4. Rule 144. The Purchasers recognize that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c)(1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by the Purchasers, the Company will furnish any Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 4.5. Warburg Class A Preferred Stock. All representations, warranties, and covenants made by Warburg in Sections 3 and 4 of this Agreement relating to this Agreement and the Shares are also hereby made by Warburg, mutatis mutandi, with respect to the Exchange Agreement and the Class A Preferred Stock acquired by Warburg pursuant to the Exchange Agreement (the "Class A Shares"), and the provisions of Sections 3 and 4 of this Agreement shall be applicable to the Class A Shares in the same manner as the Shares. 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each of the Purchasers to purchase and pay for the Shares is subject to the following: 5.1. Representations and Warranties. The representations and warranties of the 11 12 Company made herein shall be true, correct and complete in all material respects on and as of the Closing Date, with the same force and effect as if they had been made on and as of the Closing Date. 5.2. Performance. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the company on or prior to the Closing Date shall have been performed or complied with. 5.3. Compliance Certificate. The Company shall have delivered to the Purchasers a certificate (to be signed by its chief executive officer) dated the Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. Exchange Agreement. The Exchange Agreement shall have been executed and delivered by the Company and Warburg. 5.5. Voting Rights Agreement. A Voting Rights Agreement substantially in the form of Exhibit III hereto shall have been executed and delivered by the Company and the Purchasers. 5.6. Opinion of Company's Counsel. The Purchasers shall have received an opinion of Bingham, Dana & Gould, counsel to the Company, substantially in the form of Exhibit IV hereto and which opinion shall be satisfactory in form and substance to the Purchasers' special counsel. 5.7. Restated is Certificate of Incorporation. A Restated Certificate of Incorporation for the Company in the form attached as Exhibit I hereto shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.8. Blue Sky Matters. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares, and the Underlying Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.9. Corporate Proceedings and Consents. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and their special counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 12 13 6.1. Representations and Warranties. The representations and warranties of the Purchasers made herein shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. Performance. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchasers on or prior to the Closing Date shall have been performed or complied with. 6.4. Authorizations. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares to the Purchasers as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with each of the Purchasers as follows, such covenants to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public at a price per share that is not less than $600.00 per share (as adjusted for any stock dividends, stock splits, combinations, or similar recapitalizations occurring after the date hereof), and which results in aggregate net proceeds to the Company of not less than $10,000,000 (the "Initial Public Offering"); provided, that the Company may refrain from compliance with any such covenant to the extent that such compliance would, in the good faith judgment of the Board of Directors of the Company, violate applicable securities laws: 7.1. Quarterly Financial Statements. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to each Qualifying Holder (as hereinafter defined) copies of the Company's unaudited, balance sheet as of the end of, and statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries. In no event will any Purchaser make any use or disclosure of the financial statements referred to in this Section 7.1 or Section 7.2 or other information 13 14 acquired pursuant to Section 7.3 or 7.4, except in connection with evaluating its investment in the Company. For purposes of this Agreement, requalifying Holder shall mean each Purchaser for so long as such Purchaser holds at least fifteen percent (15%) of the number of Shares purchased by it hereunder. 7.2. Annual Financial Statements. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each Qualifying Holder financial statements analogous to those required by Section 7.1 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.3. Budget. As soon as available, but in no event later than ten (10) days before the beginning of each fiscal year (commencing with the fiscal year beginning January 1, 1993), the Company will deliver to each of the Qualifying Holders an operating plan for such fiscal year, together with budgeted financial statements, in a format approved by the Directors of the Company. 7.4. Other Information. Upon the reasonable request of a Qualifying Holder, the Company will deliver to such Qualifying Holder other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit each Qualifying Holder, at the expense of such Qualifying Holder, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as a Qualifying Holder may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; provide, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.5. SEC Reports. Promptly after each such filing, the Company will furnish each Purchaser with copies of all registration statements, and amendments thereto, and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 7.6. Use of Proceeds. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.7. Insurance. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any 14 15 premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall within a reasonable period of time obtain "Key Man Insurance" on of the lives of K. Michael Forrest and Richard F. Selden in an aggregate face amount of not less than $1,000,000 per person and shall maintain such insurance on each such person for so long as such person is employed by the Company. 7.8. Payment of Taxes. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; provided, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.9. Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, provided, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.10. Maintenance of Properties. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.11. Reservation of Common Stock. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of Underlying Shares into which the Shares are convertible and the Company further agrees that in the event that the 15 16 conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.11. 8. REGISTRATION OF SHARES. 8.1. Certain Definitions. As used in this Section 8 and elsewhere in this Agreement, the following terms shall have the following respective meanings: (a) "Class A Shares" shall mean shares of Class A Preferred Stock issued to Warburg pursuant to the Exchange Agreement. (b) "Registrable Shares" shall mean (i) the shares of Common Stock issued or issuable upon conversion of the Shares, (ii) any shares of Common Stock issuable to the Purchasers pursuant to Section 9 of this Agreement (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to investors than those contained herein), and (iii) any other shares of Common Stock issued with respect to the Shares, or the shares enumerated in clauses (i) or (ii) above by reason of stock dividends, stock splits, recapitalizations, reorganizations, or similar Corporate action. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, or to a number or percentage of Registrable Shares held by a Holder, such reference shall include shares of Common Stock issuable upon conversion of the Shares even though such conversion has not yet been effected. (c) "Holders" shall mean any Purchaser (in its capacity as holder of any Shares or Registrable Shares and for so long as it holds such Shares or Registrable Shares), and such of its respective successors and assigns who acquire Shares or Registrable Shares from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Shares or Registrable Shares subject to all the restrictions hereof but in no event shall "Holders" include any transferee of Registrable Shares pursuant to sales made under a registration statement filed under the Securities Act. (d) "Commission" shall mean the Securities and Exchange Commission or other successor federal agency. (e) "Registration Expenses" and "Selling Expenses" shall mean the expenses so described in Section 8.6. (f) "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 16 17 (g) "Transfer" or "Transfers" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or Registrable Shares or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. (h) "Other Holders" shall mean all holders of the Company's securities except the Holders and except the holders of Additional Registrable Securities. (i) "Additional Registrable Securities" shall mean (l) any shares of the capital stock of the Company that are held by persons or entities who are parties to, or assignees of a party to, an agreement (other than this Agreement) with the Company granting registration rights to such holder and that were sold pursuant to such agreement, and (2) any securities issued with respect to the capital stock referred to in clause (l) above, by reason of stock dividends, stock splits or combinations, recapitalizations, reorganizations or other similar corporate action. 8.2. Company ("Piggyback") Registration. If (but without any obligation to do so) the Company for itself or any of its security holders shall at any time or times determine to register under the Securities Act any shares of its capital stock or other securities (other than (a) the registration of an offer, sale or other disposition of securities to employees of, or other persons providing services to, the Company or any subsidiary pursuant to an employee or similar benefit plan, registered on Form S-8, a comparable or successor form or another form which is used solely for the purpose of registering such plan, or exempt from registration pursuant to Regulation A or a comparable or successor rule; or (b) relating to a merger, acquisition or other transaction of the type described in Rule 145 or comparable or successor rule, registered on Form S-4 or similar or successor forms) the Company will notify each Holder of such determination at least thirty (30) days prior to the filing of such registration statement, and upon the request of any Holder given in writing within twenty (20) days after the effective date of such notice, the Company will use its best efforts as soon as practicable thereafter to cause any of the Registrable Shares specified by such Holder to be included in such registration statement to the extent and under the conditions such registration is permissible under the Securities Act. Notwithstanding the foregoing, in the event the proposed registration is in whole or in part an underwritten public offering and if the managing underwriter(s) determines and advises in writing that the inclusion of some or all of the Registrable Shares of such Holders, the Additional Registrable Securities and all shares of the Company's capital stock to be offered by the Company and by Other Holders, whether originally covered by requests for registration or otherwise included, would interfere with the successful marketing of such securities, then the number of shares of capital stock otherwise to be included in the registration statement by Holders, holders of Additional Registrable Securities and Other Holders shall be reduced as follows: (i) there shall first be excluded shares proposed to be included by Other Holders; (ii) any further reduction shall be pro rata among Holders and holders of Additional Registrable Securities in the proportion of the number of shares of the Company's capital stock then owned by each, except, however, in the event of a registration initiated by Warburg pursuant to the terms of the 1988 Agreement (as defined herein) in which case the shares of Common Stock 17 18 issued to Warburg pursuant to the 1988 Agreement and the shares of Class A Preferred Stock received by Warburg pursuant to the Exchange Agreement in exchange for the Preferred Stock issued to Warburg pursuant to the 1988 Agreement shall be the last to be excluded. For purposes of apportionment in the immediately preceding sentence, for any Holder which is a partnership, the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of Shares carrying registration rights owned by all entities and individuals included with such "Holder", as defined in this sentence. Any Holder whose Registrable Shares are registered shall, as a condition to participation, comply with Section 8.4 hereof and such other reasonable requirements as nay be imposed by the managing underwriters to effect an orderly distribution of the Registrable Shares. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriters. Any Registrable Shares withdrawn from such underwriting shall be withdrawn from such registration. The Company shall be under no obligation to complete any offering of its securities described in this Section 8.2 and shall incur no liability to any Holder for its failure to do so. The Company shall not be obligated to offer the Holders the right to participate in more than three registrations pursuant to this Section 8.2. 8.3. Demand Registration. At any time after February 14, 1995, the Holder(s) (as defined herein) of at least thirty percent (30%) of the then outstanding Registrable Shares (as defined herein), may notify the Company in writing that such Holders intend to offer or cause to be offered for sale a number of Registrable Shares which represents not less than fifteen percent (15%) of the Registrable Shares held by such Holder(s), and may request the Company to cause such Registrable Shares to be registered under the Securities Act. Such rights to request the Company to register the Holders' Registrable Shares shall be available to the Holders no more than once during any consecutive twelve month period. To the extent and under the condition that such registration is permissible under the Securities Act, the Company will use its best efforts as soon as practicable after such notification and request by such Holder(s) to prepare and file a registration statement covering such Registrable Shares (together with any other Registrable Shares requested by the Holders, or the holders of Additional Registrable Securities or the Other Holders to be included in such registration pursuant to Section 8.2 within twenty (20) days after receipt of a notice from the Company pursuant to said Section 8.2). Such right to require registration shall be in addition to the rights of the Holders under Section 8.2, provided that no such request shall be made, or if made shall be effective, during the period commencing with the date of notice, if any, by the Company under Section 8.2 of an intention to register its securities and ending three months after the earlier of the effective date of such registration or the abandonment by the Company of its intent to register such securities, and shall be available to Holders on not more than two occasions (exclusive of registration statements on Form S-3 or comparable or successor form, as provided below); provided that except as otherwise provided in Section 8.6.1. hereof, any such registration right shall be deemed to have been used only (i) if the Holders requesting registration have at least seventy-five percent (75%) of the Registrable Shares which they have requested in good faith to be registered included in 18 19 such registration statement; and (ii) upon such registration statement becoming and remaining effective in accordance with the provisions hereof. Notwithstanding the foregoing, in no event shall the Holder's right to require registration under this Section 8.3 be available to Holders on more than two occasions (exclusive of registration statements on Form S-3 or comparable or successor form, as provided below). Anything contained herein to the contrary notwithstanding, with respect to each registration requested pursuant to this Section 8.3, the Company may, in its discretion, include in any registration pursuant to this Section 8.3 any authorized but unissued shares of Common Stock for sale by the Company or any securities for sale by Other Holders or holders of Additional Registrable Securities. However, neither the Company, the holders of Additional Registrable Securities, nor any Other Holder(s) may include any securities in any registration statement requested pursuant to this Section 8.3 unless in the case of an underwritten offering, the managing underwriters shall determine and advise that such inclusion will not interfere with the successful marketing of the securities to be offered by the requesting Holder(s). In the event that the managing underwriter(s) fails to approve the inclusion of any Additional Registrable Securities in any registration under this Section 8.3 or limits the number of shares which may be included in any registration pursuant to this Section 8.3, then the number of shares of capital stock otherwise to be included in the registration statement by Holders, holders of Additional Registrable Securities, Other Holders and the Company shall be reduced as follows: (i) there shall first be excluded shares proposed to be included by the Company and Other Holders; (ii) any further reduction shall be pro rata among Holders and holders of Additional Registrable Securities in the proportion of the number of shares of the Company's capital stock then owned by each, except, however, that the Registrable Securities of the Holders requesting such demand registration shall be the last to be excluded. For purposes of apportionment in the immediately preceding sentence, for any Holder which is a partnership, the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of Shares carrying registration rights owned by all entities and individuals included with such holder", as defined in this sentence. The Company shall have the privilege of postponing action under this Section 8.3 for a reasonable period of time not exceeding ninety (90) days) if the filing of such registration statement would, in the opinion of the Board of Directors of the Company, adversely affect a material financing project or a material proposed or pending acquisition, merger or other similar corporate event to which the Company is or expects to be a party. Further, at any time after the Company's consummation of an underwritten public offering pursuant to an effective registration statement on Form S-1 (or successor form) covering the offer and sale of its Common Stock, Holders of at least fifteen percent (15%) of the then outstanding Registrable Shares shall have the right to require the Company to file an unlimited number of registration statements on Form S-3, if available, or comparable or successor form under the Securities Act (in which case the minimum number of Registrable Shares to be covered by any such registration statement shall be such number of Registrable Shares having probable gross proceeds to the Holders of at least $1,000,000, as such probable gross proceeds are determined in good faith by the managing underwriter(s) of the offering (or, if there is none, by the Board of Directors of the Company)); and provided, further, that such rights to request the Company to file registration statements on 19 20 Form S-3 shall be available to the Holders no more than once during any consecutive twelve (12) month period. Any registration pursuant to this Section 8.3 (other than registration statements on Form S-3 and other registrations in connection with distributions by Holders to their respective affiliates) shall be by means of a firm commitment underwriting managed by one or more underwriters chosen by the Company and reasonably satisfactory to the Holder exercising rights contained in this Section 8.3 or if more than one such Holder is exercising such rights, reasonably satisfactory to the Holder of the greatest number of Registrable Shares requested to be included. Any Holder(s) intending to request a registration pursuant to this Section 8.3 shall notify all other Holders in writing of such request at least ten (10) days prior to making the request and permit each other Holder to join such request; provided, that such other Holder(s), within five (5) days of receipt of such notification, so indicates such other Holder's intention in writing to the Holder (or Holders) from which such notification was received. 8.4. Conditions to Obligation to Register Registrable Shares. As conditions to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Shares to be included in a registration statement, each selling Holder shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) have agreed to convert its Shares into the Registrable Shares to be included, such conversion to be effective simultaneously with the closing of the sale of the Registrable Shares pursuant to such registration statement, (c) agree to sell its Registrable Shares on the basis provided in any underwriting arrangements, and (d) on a timely basis, complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. 8.5. Registration Procedures. If and whenever the Company is required by the provisions of this Section 8 to use its best efforts to include any of the Registrable Shares in a registration statement filed under the Securities Act, the Company shall, as expeditiously as possible: 8.5.1. Prepare and file with the Commission a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become and remain effective. 8.5.2. Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for not more than three months from the date of its effectiveness (plus such additional time during which any Holder must cease making offers and sales, as provided in Section 8.5.5) or (unless otherwise required by the Securities Act) until the Registrable Shares covered thereunder have been sold, whichever is earlier. 8.5.3. Furnish to each selling Holder such number of copies of the prospectus contained 20 21 in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such Holder. 8.5.4. Use its best efforts to register or qualify the Registrable Shares covered by such registration statement under the securities or blue sky laws of such jurisdictions as the managing underwriter(s) shall reasonably request, and use its best efforts to do any and all other acts and things which may be necessary or advisable so to register or qualify the Registrable Shares to enable such Holder to consummate the disposition of the Registrable Shares owned by such Holder in such jurisdictions during the period covered in Section 8.5.2; provide that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the registration statement in any jurisdiction where it is not then so subject. 8.5.5. Notify each selling Holder of any Registrable Shares covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Each Holder agrees, upon receipt of such notice, forthwith to cease making offers and sales of the Registrable Shares pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose and to return to the Company, for modification and exchange, the copies of such prospectus not theretofore delivered by such Holder; provided, that the Company shall forthwith prepare and furnish to such Holder, after securing such approvals as may be necessary, a reasonable number of copies of any supplement to or amendment of such prospectus that may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 8.5.6. Provide an institutional transfer agent for the Registrable Shares no later than the effective date of the first registration of any of such Registrable Shares under the Securities Act. 8.5.7. Immediately notify all selling Holders of any stop order or similar proceeding initiated by state or federal regulatory bodies and use its best efforts to take all steps necessary to expeditiously remove such stop order or similar proceeding. 8.5.8. Furnish, at the request of any Holder requesting registration of Registrable Shares 21 22 pursuant to Section 8.3, on the date that such Registrable Shares are delivered to the underwriters for sale in connection with a registration pursuant to Section 8.3, if such securities are being sold through underwriters, or, if such securities are not sold through underwriters, on the date that the registration statement with respect to such securities becomes effective: (a) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holder making such request; and (b) two letters, one dated the effective date and one dated the closing date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and, if none, then to the Holder making such request 8.6. Description of Expenses. All expenses incurred by the Company in complying with any of the foregoing provisions of this Section 8, including without limitation all federal (including Securities and Exchange Commission and National Association of Securities Dealers, Inc.) and state registration, qualification and filing fees, printing expenses, any premium involved in securing a policy or policies of registration insurance (but only if the Company in its sole discretion shall choose to secure such a policy or policies, such policy or policies to be herein referred to as "registration insurance"), fees and disbursements of counsel for the Company, and accountants fees and expenses (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), incident to or required by any such registration are herein called Registration Expenses". Registration Expenses shall also include (a) in the case of a registration pursuant to Section 8.2, the reasonable fees and disbursements of one firm selected by the Holder or Holders of a majority of the Shares to be included, and serving as counsel to the selling Holder or Holders and other selling shareholders, if any, with respect to such registration and (b) in the case of a registration pursuant to Section 8.3 other than on Form S-3, the reasonable fees and disbursements of one firm selected by the Holder or Holders of a majority of the Shares to be included requesting such registration and serving as counsel to the selling Holder or Holders and other selling shareholders, if any, with respect to such registration. All underwriting discounts, selling commissions and transfer taxes applicable to the sale of the Shares hereunder are herein called "Selling Expenses". If the Company is required by the provisions of this Section 8 to use its best efforts to effect the registration of any of the Shares under the Securities Act, the Registration Expenses and Selling Expenses in connection with such registration shall be borne as follows: 8.6.1. All Registration Expenses incurred in connection with (a) all registrations under Section 8.2, (b) all registrations under Section 8.3 (excluding the second demand registration under Section 8.3 and all registrations on Form S-3), and (c) securing registration insurance, shall be borne by the Company, provided that the Company shall not be required to pay any such Registration Expenses relating to a demand registration under Section 8.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all 22 23 participating Holders shall bear such Registration Expenses pro rata based on the number of Registrable Securities to have been registered) unless the Holders of a majority of the Registerable Securities agree to forfeit their right to one demand registration under Section 8.3. 8.6.2. All Registration Expenses other than those described in Section 8.6.1 above and all Selling Expenses shall be borne pro rata by the Holders including shares in the registration statement in question; provided, however that if other shares of capital restock are included in such registration statement, such Registration Expenses shall be borne by the Holders pro rata with all other persons (including the Company) for whose account the securities covered by such registration statement are offered in accordance with the amount of securities being so offered for the account of each such party. 8.7. Indemnification; Underwriting Agreements. In the event that the Company registers under the Securities Act any shares held by a Holder pursuant to the provisions of this Agreement: 8.7.1. The Company agrees to indemnify and hold harmless such Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act, against any and all losses, claims, damages, liabilities or expenses, joint or several, arising out of or based upon any violation of the Securities Act, the Securities Exchange Act of 1934, as amended, any rules and regulations promulgated thereunder or any untrue statement or alleged untrue statement of a material fact in any related registration statement, prospectus, offering circular, notification or other document or any omission or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon a statement in writing furnished by or on behalf of the Holder or any other Holder for inclusion therein or an omission or failure by any such Holder to furnish any statement with respect to such Holder required to be included therein. Promptly after receipt by any Holder or any person controlling such Holder of notice of the commencement of any action in respect of which indemnity may be sought against the Company, such Holder or such controlling person, as the case may be, will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, receipt of such notice and the Holder's reasonable cooperation, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably Satisfactory to such Holder or controlling person, as the case may be, and the payment of expenses and such counsel's fees) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Such Holder or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has been specifically authorized by the Company or unless the Holder shall have in good faith reasonably concluded that there may be a conflict of interest between the Company and the Holder in the conduct of the defense of the action. 23 24 In connection with any offering under this Section 8 which is to be underwritten, the Company further agrees to enter into an underwriting agreement in usual and standard form respecting such offering; provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the -- provisions of this Agreement. 8.7.2. The obligations of the Company under Section 8.2 and Section 8.3 are subject to the following conditions, which each such Holder hereby agrees to fulfill: (a) that each Holder whose Shares are to be included in any registration or qualification referred to in this Section 8 agrees, in writing, prior to the filing of such registration or qualification,and hereby does agree to indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act and the officers and directors of the Company, against any and all losses, claims, damages, liabilities or expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact in any related registration statement, prospectus,offering circular, notification or other document or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to statements or omissions made in reliance upon a statement in writing furnished by or on behalf of such Holder for inclusion therein and with reference to statements or omissions made in reliance upon an omission or failure by such Holder to furnish any statement with respect to such Holder required to be included therein; provided that (i) the maximum amount of liability in respect of such indemnification shall be limited, in the case of each Holder whose Shares are so included, to an amount equal to the net proceeds (A) actually received by such Holder from the sale of the Shares effected-pursuant to such registration or (B) which would have been received had the sale of Shares pursuant to such registration occurred and (ii) if such registration or qualification relates to an offering which is to be underwritten, that such Holder enters into an underwriting agreement in usual and standard form respecting such offering; Provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the provisions of this Agreement. Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against such Holder the Company will notify such Holder in writing of the commencement thereof, and such Holder shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to the Company, and the payment of expenses and such counsel's fees) insofar as such action shall relate to the alleged liability in respect of which indemnity may besought against such Holder. The Company and each such director, officer, or controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of such Holder unless employment of such counsel has been specifically authorized by such Holder or unless an indemnified party shall have in good faith reasonably concluded that there may be a conflict of interest between the indemnified party and the Holder in the conduct of the defense of the action. 8.7.3. A party required to indemnify another party pursuant to this 8.7 (an 24 25 "Indemnifying Party") shall not be liable for any settlement of any action or claim relating to such liability or expense effected without its consent, but if any settlement is effected with its consent or if a final judgment for the plaintiff is entered in any such action, such Indemnifying Party agrees to indemnify and hold harmless the party so indemnified (the "Indemnified Party") from and against any loss or liability by reason of any such settlement or judgment. The Indemnifying Party shall indemnify the Indemnified Party for expenses, including but not limited to reasonable fees and disbursements of counsel, incurred by the indemnified party in connection with the indemnification proceeding as such expenses are incurred. 8.8. Registration Under the Securities Exchange Act. Within one hundred twenty (120) days following the end of the fiscal year of the Company in which it consummates its initial sale of shares pursuant to a registration statement under the Securities Act, whether or not such sale constitutes the Initial Public Offering (as defined in Section 7), the Company will cause an effective registration with respect to its Common Stock to be filed and maintained in accordance with the provisions of the Securities Exchange Act of 1934 if the same is then required. 8.9. Transfer of Registration Rights. The registration rights of the Holders under this Section 8 may be transferred to any transferee of Shares or Registrable Shares who acquires at least five percent (5%) in the aggregate of the Shares of such Holder or an equivalent amount of Registrable Shares issued upon conversion thereof. Each such transferee shall be deemed to be Holder of Registrable Shares for purposes of this Section 8. 8.10. Mergers, Etc. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Section 8, and for that purpose references hereunder to "Registrable Shares" shall be deemed to be references to the securities which such Holders would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation or reorganization and other securities to which they subsequently give rise; provided, that this Section 8.10 shall not apply if the Holders shall receive, pursuant to such merger, consolidation or reorganization, in exchange for the Registrable Shares, (a) registered securities listed on the New York Stock Exchange or the American Stock Exchange, or with respect to which prices are reported by the National Association of Securities Dealers Automated Quotation System, Inc. or (b) registration and related rights on terms no less favorable to the Holders than those contained in this Section 8 and no less favorable to the Holders than any other shareholder of the Company receives in connection with such merger, consolidation or reorganization. 8.11. Limitations on Registration Rights Granted With Respect to Other Securities. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Shares, voting as a single class, enter into any agreement with any holder or prospective holder of any securities of the Company giving 25 26 such holder or prospective holder the right to require the Company to initiate any registration of any securities of the Company or the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder, except for such rights (including required registration rights similar to those contained in Section 8.3 hereof) which are no more favorable to the holders thereof than the rights of the Holders contained in this Section 8. Any right given by the Company to any holder or prospective holder of the Company's securities in connection with the registration of securities shall be conditioned such that it shall be consistent with the provisions of this Agreement and with the rights of the Holders provided in this Agreement. 8.12. Market Stand-off. Each Holder agrees, if requested by the Company and/or the representative of the underwriters underwriting an offering of the Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Registrable Shares held by such Holder during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act, provided that the directors and officers of the Company, all Other Holders and all holders of Additional Registrable Securities participating in the underwriting enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such representative. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred twenty (120) day period. 8.13. Termination of Registration Rights. The registration rights granted to the Holders pursuant to this Section 8 shall terminate as to any Holder at such time as such Holder may sell all Registrable Securities held by or issuable to such Holder under Rule 144 (other than Rule 144(k), or any successor to Rule 144, in any two successive three-month periods. 8.14. Other Registration Rights. The registration rights granted to Warburg pursuant to paragraph five of the Stock Purchase Agreement dated July, 1988 between the Company and Warburg (the 1988 Agreement") shall remain in full force and effect--provided that the provisions of this Agreement shall govern all Registrable Shares (as defined herein) of Warburg and provided further that the Market Stand-off provisions of paragraph 5.9 of the 1988 Agreement shall be amended to restate the ninety day standstill period to one hundred eighty (180) days. 9. PREEMPTIVE RIGHTS. 9.1. Until the occurrence of the Initial Public Offering, or, if earlier, less than 2,000 shares of Class B Preferred Stock remain outstanding, the Company will not offer any equity securities, or securities convertible into, or options, warrants, or other rights to purchase such equity securities (collectively, the Future Shares) to any third party or Purchaser without first providing each Purchaser so long as such Purchaser continues to hold shares of Preferred Stock (hereinafter a "Buyer") the right to subscribe for its Preemptive Proportionate Percentage (as such term is defined in paragraph 9.6 below) of such Future Shares for cash at a price and on such other terms as shall have been specified by the Company in writing delivered to each Buyer 26 27 (the "Preemptive Offer"), which Preemptive Offer by its terms shall remain open and irrevocable for a period of fifteen (15) days from the date it is delivered by the Company to each Buyer (the "Preemptive Period"). The Preemptive Offer shall also certify that the Company has either (a) received a firm offer from a prospective purchaser, who shall be identified in such certification, so that the Company in good faith believes a binding agreement of sale is obtainable for consideration having a fair market, cash equivalent, or present value set forth in such certification; or (b) intends to make an offering of its securities at the price and on the terms set forth in such certification. 9.2. If any Buyer shall subscribe for less than its Preemptive Proportionate Percentage of the Future Shares set forth in the Preemptive Offer to it, then the Company at the end of the Preemptive Period shall give notice in the same manner to each Buyer who did subscribe during the Preemptive Period for its entire Preemptive Proportionate Percentage of the Future Shares of the number of Future Shares which the Buyers had not elected to purchase during the Preemptive Period (the "Remaining Future Shares") and stating that the Buyer may elect to purchase at the same price any or all of the Remaining Future Shares (the "Second Preemptive Offer"), which Second Preemptive Offer by its terms shall remain open and irrevocable for a period of at least fifteen (15) days from the date it is delivered by the Company to each Buyer. If the total number of Remaining Future Shares is sufficient to satisfy the elections of Buyers who received the Second Preemptive Offer, such Remaining Future Shares shall be allocated to them in accordance with their elections; if not, the available Remaining Future Shares shall be allocated among the Buyers according to their respective Preemptive Proportionate Percentages (provided that such allocation shall be adjusted if necessary so that no Buyer is allocated more Remaining Future Shares than it has elected to purchase). For the purpose of avoiding fractions as to Future Shares and Remaining Future Shares, the President of the Company (or in his or her absence any responsible corporate officer of the Company) may adjust upward or downward by not more than one full share the number of Future Shares or Remaining Future Shares which any Buyer would otherwise be entitled to purchase. 9.3. Notice of each Buyer's intention to accept, in whole or in part, a Preemptive Offer or Second Preemptive Offer made pursuant to Sections 9.1 or 9.2 herein shall be evidenced by a writing signed by the Buyer and delivered to the Company prior to the end of the Preemptive Period or the fifteen (15) day period of the Second Preemptive Offer, as applicable, setting forth that portion of the Future Shares or the Remaining Future Shares, as the case may be, which the Buyer elects to purchase (the "Notice of Acceptance"). 9.4. In the event that the Buyers elect not to purchase all of the Future Shares or the Remaining Future Shares, the Company shall have one hundred twenty (120) days from the expiration of the Preemptive Offer (or, if applicable, the Second Preemptive Offer) to sell all or any part of such Remaining Future Shares not purchased by the Buyers (the "Refused Future Shares") to the parties (or their affiliates) identified in the Preemptive Offer, but only upon terms and conditions in all material respects, including, without limitation, unit price and interest rates, which are no more favorable, in the aggregate, to such other party or parties or less favorable to the Company than those set forth in the Preemptive Offer and the Second Preemptive Offer. 27 28 Upon the closing of the sale of Refused Future Shares to such other parties, the Buyers shall purchase from the Company and the Company shall sell to each Buyer the Future Shares and the Remaining Future Shares in respect of which a Notice of Acceptance was delivered to the Company by such Buyer, upon the terms specified in the Preemptive Offer and the Second Preemptive Offer. The Company may withdraw the Preemptive Offer and the Second Preemptive Offer at any time prior to such closing. 9.5. Notwithstanding anything to the contrary stated above, the rights of-the Buyers under this Section 9 shall not apply to (a) any sale of shares of the Company's capital stock pursuant to the Initial Public Offering or (b) the issuance by the Company of Common Stock or options or warrants for the purchase thereof issued, sold or granted, in the past or future, by the Company to its employees or consultants pursuant to bona fide employee stock purchase, option or similar plans or as otherwise approved by the Board of Directors of the Company or (c) equity securities issued in connection with the acquisition of at least fifty percent (50%) of the voting securities of another corporation, controlling interest in another business entity, or all or substantially all of the assets of another corporation or business entity or (d) equity securities issued for no consideration as dividends or pursuant to stock splits or (e) any securities issued upon the conversion or exercise of presently issued securities or (f) any shares of Class B Preferred Stock issued and sold pursuant to Section l.l(b) of this Agreement or (g) any equity securities issued in connection with a joint venture in which the Company is a participant or a license, marketing or distribution agreement to which the Company is party, if such issuance does not exceed twenty percent (20%) of the aggregate amount of equity securities of the Company then outstanding (on an as converted basis). 9.6. The term "Preemptive Proportionate Percentage" shall mean, as to a Buyer, that percentage figure which expresses the ratio which (a) the number of shares of outstanding Common Stock then owned by such Buyer bears to (b) the aggregate number of shares of outstanding Common Stock then owned by all Buyers (for purposes solely of the computation required under clauses (a) and (b), Buyers holding shares of Preferred Stock shall be treated as having converted all such outstanding shares of Preferred Stock into shares of Common Stock at the rate at which such shares of Preferred Stock are convertible or exercisable for Common Stock pursuant to Article IV of the Certificate of Incorporation of the Company in effect at the time of delivery by the Company of the Preemptive Offer). 9.7. The preemptive rights provided under this Section 9 may be transferred or assigned in whole (but not in part) (a) to any person or entity that directly or indirectly controls, is controlled by or is under common control with, the transferor Buyer (b) to any other person or entity approved by the Company, provided, in each case, that no such transfer or assignment may be made if, in the reasonable judgment of the Company's Board of Directors, after consultation with the Company's counsel, such transfer or assignment would make an exemption from the registration requirements of the Securities Act and/or applicable state securities laws unavailable with respect to the offer and sale of the Future Shares. 28 29 10. MISCELLANEOUS. 10.1. Entire Agreement; Successors. This Agreement, together with the Schedules and Exhibits hereto sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto, including, but not limited to, the Stock Purchase Agreement dated July, 1988 between the Company and Warburg, which agreement is hereby terminated with respect to all but paragraph 5 of that agreement and the Exchange Agreement dated as of October 19, 1991 between the Company and Warburg, which agreement is hereby terminated. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to Hale & Dorr, Attn: John A. Burgess, Esq., special counsel to the Purchasers, shall be deemed to constitute for all purposes (with the exception of those required or contemplated by Section 9) the furnishing of such documents by the Company to the Purchasers under this Agreement or in connection with the offering hereunder. 10.2. Notices. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: (a) if to the Purchasers: To the Addressees shown on Schedule A with a copy to: Hale & Dorr 60 State Street Boston, MA 02109 Attention: John A. Burgess, Esq. (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer with a copy to: 29 30 Bingham, Dana & Gould 150 Federal Street Boston, MA 02110 Attention: Leslie H. Shapiro, Esq. or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt (ii) five (5) business days after deposit in the U.S. mails or delivery to a nationally recognized courier service in accordance with this Section . 10.3. Expenses. Except as provided in Section 8, each party will bear its own expenses in connection with this Agreement, provided that the Company will bear the reasonable fees and out-of-pocket disbursements of Hale & Dorr, special counsel to the Purchasers, in an amount not to exceed $20,000 in the aggregate. 10.4. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by the Company or any of the Purchasers in connection herewith shall survive the execution and delivery of this Agreement and the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 10.5. Amendments; Waivers. Changes in or additions to this Agreement may be made by written document executed by the Company and the holders of at least fifty-one percent (51%) in the aggregate number of shares of Common Stock issued or issuable upon conversion of the Shares and the Class A Shares (treated as a single group) provided that the consent of such holders shall not be required with respect to any supplement to this-Agreement relating to the sale and issuance of additional shares of Class B Preferred Stock in accordance with Section l.l(b) hereof. The holders of fifty-one percent (51%) in the aggregate of the Shares and the Class A Shares then held by Holders (treated as a single group) may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Holders in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Holders. 10.6. Governing Law. This Agreement shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties hereunder shall be governed by, the internal laws of the Commonwealth of Massachusetts. 30 31 SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ----------------------------------------------- Title: President and CEO WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., ----------------------------------------------- General Partner By: /s/ Peter Stalker ----------------------------------------------- Title: Managing Director H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr ----------------------------------------------- Title: President H&Q VENTURE INVESTORS L.P. By: /s/ Jackie Berterrechte ----------------------------------------------- Title: Attorney-in-Fact /s/ Leighton Reed -------------------------------------------------- Leighton Reed /s/ Alejandro Zaffaroni -------------------------------------------------- Alejandro Zaffaroni 31 32 INTERHEALTH LIMITED By: /s/ Alejandro Zaffaroni --------------------------------------- Title: General Partner HUMANA, INC. By: /s/ W. Roger Drumm --------------------------------------- Title: S.V.P. Finance S-E- BANKENS LAKEMEDELSFOND By: /s/ R. Haichter --------------------------------------- Title: /s/ R. Haichter ------------------------------------------ Aktiv Lakemedel /s/ David Smith ------------------------------------------ By: Preston Tsao, Attorney-in -Fact /s/ Fredrik Schreuder ------------------------------------------ Fredrik Schreuder /s/ Robert Mailloux ) ------------------------------------------) Robert Mailloux )Joint )Tenants /s/ Minh Mailloux ) ------------------------------------------) Minh Mailloux /s/ Jack W. Szostak ------------------------------------------ Jack W. Szostak 32 33 INDEPENDENT ORDER OF FORESTERS By: /s/ Walter Cafucell ----------------------------------------------- Title: Vice President-Investments MOUNTAIN ESTATES LTD. By: /s/ Roderick L. McLean ----------------------------------------------- Title: President ENERTECH ASSOCIATES, LTD. By: /s/ N. Conway ----------------------------------------------- Title: General Partner N.E. CORNING TRUST NO.8 By: /s/ Edward Herriot ----------------------------------------------- Title: Trustee /s/ Mark Arnold -------------------------------------------------- Mark Arnold A. CAREY ZESIGER REVOCABLE TRUST By: BEA Associates Title: Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Title: Managing Director /s/ Emilio Bassini -------------------------------------------------- Emilio Bassini Sheana Butler (120 Shares)* Nicola Zesiger (60 Shares)* 33 34 Albert L Zesiger custodian for Alexa L. Zesiger (60 Shares)* Albert L. Zesiger (800 Shares)* Barrie Ramsay Zesiger (250 Shares)* Lucy Butler Finley (60 Shares)* Dean Witter Foundation (250 Shares)* Domenic Mizio (250 Shares)* Leonard Kingsley (120 Shares)* Andrew Heiskell (250 Shares)* Elizabeth Heller Mandell trustee for Elizabeth Heller Mandell (175 Shares)* Lewis Butler Finley (60 Shares)* Serra Butler Finley (60 Shares)* *By: BEA ASSOCIATES, ATTORNEY IN FACT By: /s/ Albert L. Zesiger ------------------------------------------- Name: Albert L. Zesiger Title: Managing Director 34 35 AMENDMENT This Amendment dated as of April 20, 1993, is by and among Transkaryotic Therapies, Inc. (the "Company"), a Delaware corporation, and the stockholders who have executed counterparts of the signature pages hereto (the "Stockholders"). The Company and the Stockholders and certain others are parties to a Class B Preferred Stock Purchase Agreement dated as of February 14, l992 (the 1992 Purchase Agreement). The Stockholders are the holders of at least fifty-one percent (51%) of the aggregate number of shares of the Common Stock of the Company issued or issuable upon conversion of the shares of the Company's Class B Preferred Stock issued and sold pursuant to the 1992 Purchase Agreement and of the Company's Class A Preferred Stock, respectively (treated as a single group). Simultaneously with the execution and delivery of this Agreement, the Company and the Stockholders and certain others are entering into a Class B Preferred Stock Purchase Agreement dated the date hereof (the "1993 Purchase Agreement"), pursuant to which the Company will issue and sell certain shares of its Class B Preferred Stock, $1.00 par value, to the Stockholders and such other parties. In connection with the 1993 Purchase Agreement, the Company has requested the Stockholders to consent to the amendment of the 1992 Purchase Agreement, and the Stockholders have agreed to do so. NOW, THEREFORE, to induce the Company to enter into the 1993 Purchase agreement, and intending hereby to be legally bound, the Stockholders and the Company hereby agree as follows: 1. The 1992 Purchase Agreement is hereby amended to delete Section 7.3 (entitled "Budget") thereof. 2. The Stockholders hereby waive and relinquish any rights and remedies that they may have by reason of any prior breach by the Company of Section 7.3 of the 1992 Purchase Agreement. 3. Except as expressly amended hereby, the 1992 Purchase Agreement shall not be affected hereby and shall remain in full force and effect in accordance with its terms. 4. This Amendment shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties hereunder shall be governed by, the internal laws of the Commonwealth of Massachusetts. 5. This Amendment may be executed in two or more counterparts, each of which together shall constitute one and the same document. 35 36 SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. TRANSKARYOTIC THERAPIES, INC. By:/s/ K. Michael Forrest ------------------------------------------- Title:President and CEO ---------------------------------------- WARBURG PINCUS CAPITAL COMPANY, L.P. BY: WARBURG PINCUS & CO., GENERAL PARTNER By:/s/ Rodman W. Moorhead, III ----------------------------------- Title:Partner -------------------------------- H&Q HEALTHCARE INVESTORS** By: /s/ Alan Carr ------------------------------------------- Title:President ---------------------------------------- **Limitation of Liability. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. Barrie Ramsay Zesiger 36 37 By: * ----------------------------------- Andrew Heiskel By: * ----------------------------------- /s/ Emilio Bassini -------------------------------------- /s/ Mark Arnold -------------------------------------- H&Q Venture Investors L.P. By:/s/ Jackie Berterretche ----------------------------------- Title:Attorney-in-Fact -------------------------------- /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni INTERHEALTH LIMITED By: /s/ Alejandro Zaffaroni ----------------------------------- Title:General & Limited Partner -------------------------------- /s/ Robert Mailloux ) --------------------------------------) Robert Mailloux ) )Joint )Tenants Minh Mailloux ) -------------------------------------- Minh Mailloux *By: BEA ASSOCIATES, Attorney-in-Fact 37 38 By: Albert L. Zesiger ------------------------------------------- Albert L. Zesiger Managing Director 38 EX-10.4 11 CLASS B PREFERRED STOCK PURCHASE AGMT 4/20/93 1 EXHIBIT 10.4 TRANSKARYOTIC THERAPIES, INC. CLASS B PREFERRED STOCK PURCHASE AGREEMENT This Class B Preferred Stock Purchase Agreement (the "Agreement") is made as of April 20, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company") and the purchasers listed on Schedule A hereto (each individually, a "Purchaser" and together, the "Purchasers"). In consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF CLASS B CONVERTIBLE PREFERRED STOCK. 1.1. Purchase and Sale of Shares. (a) On the Closing Date (as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Purchasers, and each of the Purchasers agrees to purchase from the Company, the number of shares of the Company's Class B Convertible Preferred Stock, $1.00 par value per share ("Class B Preferred Stock"), set forth opposite the name of each such Purchaser on Schedule A hereto at a price of $400.00 per share. The aggregate or any portion of the shares of Class B Preferred Stock to be purchased from the Company by the Purchasers pursuant to this Agreement are herein referred to as the "Shares." (b) To the extent that 12,500 Shares are not sold at the Closing (as defined in Section 1.2 below), the Company may, up to 120 days after the Closing, sell and issue additional shares of Class B Preferred Stock on substantially the same terms and conditions as the sale of the Shares purchased pursuant to this Agreement, provided that each person or entity acquiring such shares becomes a party to this Agreement as a Purchaser prior to such acquisition by executing an Instrument of Accession hereto in the form of Exhibit V hereto and an Instrument of Accession to the Voting Rights Agreement referred to in Section 5.5 of the Class B Preferred Stock Purchase Agreement dated February 14, 1992, by and among the Company and the purchasers listed in Schedule A thereto (the "1992 Purchase Agreement"). The closing of each such sale of additional shares of Class B Preferred stock shall be held at such time and place as may be agreed upon by the parties thereto, upon the same terms and conditions as those applicable to the initial sale of Shares hereunder, provided that the Company's representations and warranties shall be subject to such changes and additions as are necessary to reflect the consummation of the initial sale of Shares hereunder and any and all intervening events occurring between the date hereof and the date of such closing. From and after any such sale of additional shares of Class B Preferred Stock, the purchaser of such shares shall be deemed a "Purchasers under this Agreement and the shares so purchased shall be 2 deemed "Shares" for all purposes of this Agreement. (c) The sale of Shares by the Company to each of the Purchasers is a separate sale to the same extent as if set forth in a separate agreement. 1.2. Closing. The closing of the initial purchase and sale of Shares hereunder (the "Closing") shall take place at the offices of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts at 2:00 p.m., Boston local time, on April 20, 1993 or at such other time and date as the Company and the Purchasers may agree upon in writing (the "Closing Date"). At the Closing, the Company will deliver to each Purchaser certificates evidencing the Shares to be purchased by such Purchaser, as set forth on Schedule A, against payment of the entire purchase price for the Shares in lawful money of the United States of America by cancellation of indebtedness, bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by such Purchaser and the Company. 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants, to each of the Purchasers that, as of the date of this Agreement, except as otherwise described on Schedule B hereto or in a letter dated March 30, 1993, from Bingham, Dana & Gould to Hale & Dorr, the following are true and correct: 2.1. Organization and Standing of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copies of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation"), and By-laws which are attached as Exhibits I and II hereto, respectively, are true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. Subsidiaries. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. Capitalization. The Company's entire authorized capital stock consists of: 250,000 shares of Common Stock, $.01 par value per share (the "Common Stock"); and 66,000 shares of Preferred Stock, $1.00 par value per share (the "Preferred Stock"), of which 6,000 shares have been designated as Class A Convertible Preferred Stock (the "Class A Preferred Stock"), and 60,000 shares have been designated as Class B Convertible Preferred Stock (the "Class B Preferred Stock"), of the authorized shares of Common Stock, 87,241 shares are issued to the persons named on Schedule D hereto under the heading "Common Stock." All of the authorized shares of Preferred Stock, designated as Class A Preferred Stock are issued to Warburg Pincus Capital Company, L.P. ("Warburg"). Of the authorized shares of Preferred Stock designated as Class B Preferred Stock, 39,459 shares (the "Previous Shares") are issued to the persons named on Schedule D hereto under the heading "Class B Preferred Stock" and were issued and sold to such persons pursuant to the 1992 Purchase Agreement. No shares of - 2 - 3 Common Stock or Preferred Stock are held in the Company's treasury. The Company has reserved 40,554 shares of Common Stock for issuance to management, employees and consultants. In addition, the Company has reserved 10,000 shares of Common Stock for issuance pursuant to an Exchange Agreement dated as of October 19, 1991, between the Company and Warburg Pincus Capital Company, L.P., relating to exchange of shares of Class A Preferred Stock for shares of Common Stock, and 51,959 shares of Common Stock for issuance upon conversion of the Class B Preferred Stock (such shares reserved for issuance upon conversion of the Class B Preferred Stock to be issued hereunder are hereinafter referred to as the Underlying Shares"). The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "Securities Act"), except as provided in this Agreement, the 1992 Purchase Agreement, or Article IV of the Company's Certificate of Incorporation, ("Article IV"). The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in Article IV. All outstanding shares of Common Stock and Preferred Stock have been validly issued and are fully paid and nonassessable, and were issued in accordance with applicable state and federal securities laws. The Shares, when issued in accordance with this Agreement, and the Underlying Shares, when issued in accordance with this Agreement and the Certificate of Incorporation, will be validly authorized, issued and outstanding, fully paid and nonassessable and, based in part upon representations of the Purchasers in Sections 3 and 4 hereof, will be issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at the Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by the 1992 Purchase Agreement, this Agreement, or the Certificate of Incorporation and By-laws of the Company and the Company will not voluntarily place any restrictions on the transfer of the Shares or the Underlying Shares except to the extent set forth herein or contemplated hereby. 2.4. Financial Information. The Company has delivered to the Purchasers a copy of (a) its audited balance sheet (the "Balance Sheet") as of December 31, 1991 and the related statements of income and retained earnings and changes in financial position for the year then ended (with the Balance Sheet, the "Audited Financials") and (b) its unaudited balance sheet as of December 31, 1992 (the "Financial Statement Date") and the related statements of income and retained earnings and changes in financial position for the period then ended (the "Unaudited Financials," and together with the Audited Financials, the "Financial Statements"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended; provided, however, that the Unaudited Financials are subject to year-end adjustments and may not contain all footnotes required under generally accepted accounting principles. - 3 - 4 2.5. Absence of Undisclosed Liabilities. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business or reflected in the Unaudited Financials. 2.6. Absence of Certain Changes. Since the Financial Statement Date, other than as described in the Unaudited Financials, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of.the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. Taxes. For all periods ended on or prior to the Financial Statement Date, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, - 4 - 5 Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. Title to Properties; Liens and Encumbrances. The Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $5,000. 2.9. Intellectual Property Rights. Attached hereto as Schedule C is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company, are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Company's operations violate or infringe rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in Schedule C, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of said patents, trademarks, service marks, trade names, trade secrets, copyrights or rights or licenses to use the same or similar proprietary information, or any and all applications therefor. 2.10. Government Approvals and Licenses. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. Contracts. Other than as set forth in Schedule B or described elsewhere in this Section 2, the Company has no presently existing contract, obligation or commitment (a) involving payment by or to the Company of more than $10,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements - 5 - 6 evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers, and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters or intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on Schedule B have been made available to the Purchasers. The Company has complied with all the material provisions of said contracts and commitments set forth in Schedule B hereto and of all other material contracts and commitments to which it is a party, and is not in default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said - 6 - 7 contracts or commitments. 2.12. Shareholders, Directors, and Officers. Schedule D hereto contains a true, correct and complete list showing the name of each shareholder of record of the Company and the number of the shares of the Company's capital stock owned by each shareholder. Schedule E hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. Litigation. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company, or the Company's properties nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. Authorization. The execution, delivery and performance by the Company of this Agreement and the Exchange Agreement, the issue and sale of the Shares and the issuance of the Underlying Shares upon the conversion of the Class B Preferred Stock have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the issuance of the Underlying Shares upon the conversion of the Class B Preferred Stock will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. Brokers. The Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. Governmental Consents. Based in part on the representations made by the Purchasers in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issue, sale or delivery of the Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. Securities Laws. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person,firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing - 7 - 8 the Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchasers' representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at the Closing and on the date of the issuance of the Underlying Shares, the offering and sale of the Shares and the issuance of the Underlying Shares upon conversion of the Shares are each exempt or will be exempt from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. Legal Compliance. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. Insurance. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. Nondisclosure Agreements. The Company has entered into nondisclosure and noncompete agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. Disclosures. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate or instrument furnished to any of the Purchasers or their special counsel in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in Schedule B. 2.22. U.S. Real Property Holding Corporation. The Company is not now and has never been a "United States Real Property Holding Corporation" as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue Service. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the Purchasers, severally and not jointly, represents and warrants to the Company that the following are true and correct in all material respects: 3.1. Authority. Such Purchaser has all requisite power and authority to enter into this - 8 - 9 Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of such Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. Brokers. Such Purchaser has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 3.3. Accredited Investor Status. Such Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares; provided that the disposition of its property shall at all times be and remain within its control. It further represents that it is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Such Purchaser further represents that it is acquiring the Shares for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.3, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.4. Formation. Such Purchaser was not organized for the purpose of making an investment in the Company. 3.5. Receipt of Information. Such Purchaser has been furnished such information and documents as such Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. Registration of Shares. Each Purchaser, severally and not jointly, represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. Each Purchaser, severally and not jointly, further represents and warrants to the Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. Financial Matters. Each Purchaser, severally and not jointly, represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, such Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. - 9 - 10 4.3. Transfer Legends and Restrictions. The Transfer (as defined in Section 8.1 of the 1992 Purchase Agreement) of the Shares will be restricted in accordance with the terms hereof. Each certificate evidencing the Shares, including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such Shares shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF - 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS B PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF APRIL ___, 1993 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined in Section 8.1 of the 1992 Purchase Agreement) of any Shares by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on the certificates evidencing the Shares, prior to any Transfer of any of the Shares (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Shares in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Shares shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Shares issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Shares, the Company shall remove the foregoing legend from the certificates evidencing such Shares and issue to such Holder new certificates therefor free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel selected by the Holder, such counsel and opinion to be reasonably satisfactory to counsel to the Company, to the effect that any Transfers by such Holder of such Shares may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. 4.4. Rule 144. The Purchasers recognize that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting - 10 - 11 requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c)(1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by the Purchasers, the Company will furnish any Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each of the Purchasers to purchase and pay for the Shares is subject to the following: 5.1. Representations and Warranties. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the Closing Date, with the same force and effect as if they had been made on and as of the Closing Date. 5.2. Performance. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with. 5.3. Compliance Certificate. The Company shall have delivered to the Purchasers a certificate (to be signed by its chief executive officer) dated the Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. Certificate as to Unaudited Financials. The Company shall have delivered to the Purchasers a certificate (to be signed by its controller) dated the Closing Date certifying the advice of its independent certified public accountants that upon closing of the transactions hereby contemplated, such accountants expect to deliver an unqualified report of their audit of the Unaudited Financials. 5.5. Opinion of Company's Counsel. The Purchasers shall have received an opinion of Bingham, Dana & Gould, counsel to the Company, substantially in the form of Exhibit IV hereto and which opinion shall be satisfactory in form and substance to the Purchasers' special counsel. 5.6. Restated Certificate of Incorporation. A Restated Certificate of Incorporation for the Company in the form attached as Exhibit I hereto shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.7. Blue Sky Matters. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares, and the Underlying Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.8. Corporate Proceedings and Consents. All corporate and other proceedings to be - 11 - 12 taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and their special counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 6.1. Representations and Warranties. The representations and warranties of the Purchasers made herein shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. Performance. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchasers on or prior to the Closing Date shall have been performed or complied with. 6.4. Authorizations. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares to the Purchasers as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with each of the Purchasers as follows, such covenants to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public at a price per share that is not less than $600.00 per share (as adjusted for any stock dividends, stock splits, combinations, or similar recapitalizations occurring after the date hereof), and which results in aggregate net proceeds to the Company of not less than $10,000,000 (the "Initial Public Offering"); provided, that the Company may refrain from compliance with any such covenant to the extent that such compliance would, in the good faith judgment of the Board of Directors of the Company, violate applicable securities laws: 7.1. Quarterly Financial Statements. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to each Qualifying Holder (as hereinafter defined) copies of the Company's unaudited, balance sheet as of the end of, and statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall - 12 - 13 be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries. In no event will any Purchaser make any use or disclosure of the financial statements referred to in this Section 7.1 or Section 7.2 or go other information acquired pursuant to Section 7.3 or 7.4, except in connection with evaluating its investment in the Company. For purposes of this Agreement, "Qualifying Holder" shall mean each Purchaser for so long as such Purchaser holds at least fifteen percent (15%) of the aggregate number of Shares purchased by it hereunder. 7.2. Annual Financial Statements. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each Qualifying Holder financial statements analogous to those required by Section 7.1 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.3. Other Information. Upon the reasonable request of a Qualifying Holder, the Company will deliver to such Qualifying Holder other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit each Qualifying Holder, at the expense of such Qualifying Holder, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as a Qualifying Holder may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; provided, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.4. SEC Reports. Promptly after each such filing, the Company will furnish each Purchaser with copies of all registration statements, and amendments thereto, and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 7.5. Use of Proceeds. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.6. Insurance. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and teased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or - 13 - 14 jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall within a reasonable period of time obtain "Key Man Insurance' on the lives of K. Michael Forrest and Richard F. Selden in an aggregate face amount of not less than $1,000,000 per person and shall maintain such insurance on each such person for so long as such person is employed by the Company. 7.7. Payment of Taxes. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; provided, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.8. Corporate existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, provided, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.9. Maintenance of Properties. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.10. Reservation of Common Stock. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of Underlying Shares into which the Shares are convertible and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.11. - 14 - 15 8. REGISTRATION OF SHARES; PREEMPTIVE RIGHTS. The Company and the Purchasers hereby agree that (i) both (A) the shares of Common Stock issued or issuable upon conversion of the Shares and (B) any other shares of Common Stock issued in respect of any Shares or the shares enumerated in clause (A) above by reason of stock dividends, stock splits, recapitalizations, reorganizations, or similar corporate action, shall be deemed to be "Registrable Securities" for all purposes of Section 8 of the 1992 Purchase Agreement and shall be entitled to all of the rights and benefits described therein with respect to Registrable Shares; and (ii) the Purchasers hereunder shall be deemed to be Purchasers for all purposes of Section 9 of the 1992 Purchase Agreement and shall be entitled to all of the preemptive rights described therein with respect to future issuances and sales of securities by the Company (other than issuances and sales pursuant to this Agreement). 9. MISCELLANEOUS. 9.1. Entire Agreement; Successors. This Agreement, together with the Schedules and Exhibits hereto sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto; provided, that nothing herein shall impair or otherwise affect the 1992 Purchase Agreement, which shall remain in full force and effect. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to Hale & Dorr, Attn: John A. Burgess, Esq., special counsel to the Purchasers, shall be deemed to constitute for all purposes the furnishing of such documents by the Company to the Purchasers under this Agreement or in connection with the offering hereunder. 9.2. Notices. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: (a) if to the Purchasers: To the addresses of the Purchasers reflected in the stock register of the Company with a copy to: Hale & Dorr 60 State Street Boston, MA 02109 Attention: John A. Burgess, Esq. - 15 - 16 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer with a copy to: Bingham, Dana & Gould 150 Federal Street Boston, MA 02110 Attention: Leslie H. Shapiro, Esq. or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt (ii) five (5) business days after deposit in the U.S. mails or delivery to a nationally-recognized courier service in accordance with this Section . 9.3. Expenses. Except as provided in Section 8, each party will bear its own expenses in connection with this Agreement, provided that the Company will bear the reasonable fees and out-of-pocket disbursements of Hale & Dorr, special counsel to the Purchasers, in an amount not to exceed $5,000 in the aggregate. 9.4. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by the Company or any of the Purchasers in connection herewith shall survive the execution and delivery of this Agreement and the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 9.5. Amendments; Waivers. Changes in or additions to this Agreement may be made by written document executed by the Company and the holders of at least fifty-one percent (51%) in the aggregate number of shares of Common Stock issued or issuable upon conversion of the Shares. The holders of fifty-one percent (51%) in the aggregate of the Shares then held by Holders may, by written document, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Holders in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Holders. 9.6. Governing Law. This Agreement shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties hereunder shall be governed by, the internal laws of the Commonwealth of Massachusetts. - 16 - 17 9.7. Miscellaneous. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. [The remainder of this page is intentionally left blank.] - 17 - 18 SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest --------------------------------- Title: President and CEO WARBURG PINCUS CAPITAL COMPANY, L.P. (5,875 shares) By: Warburg Pincus & Co., General Partner By: /s/ Rodman W. Moorhead --------------------------- Title: Partner H&Q HEALTHCARE INVESTORS* (708 shares) By: /s/ Alan Carr --------------------------------- Title: President *Limitation of Liability. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. - 18 - 19 AMERICAN MEDICAL INTERNATIONAL, INC. PENSION PLAN (600 shares) By: ** ------------------------------------- ALZA CORPORATION RETIREMENT PLAN (125 shares) By: ** Title: ---------------------------------- Barrie Ramsey Zesiger (76 shares) By: ** ------------------------------------- Andrew Heiskell (76 shares) By: ** ------------------------------------- /s/ Emilio Bassini ---------------------------------------- Emilio Bassini (51 shares) /s/ Mark Arnold ---------------------------------------- Mark Arnold (51 shares) H&Q VENTURE INVESTORS L.P. (119 shares) By: /s/ Jackie Berterreteche ---------------------------------------- Title: Attorney-in-Fact - 19 - 20 H&Q LIFE SCIENCES INVESTORS*** (1,500 shares) By: /s/ Alan Carr ------------------------------------- Title: President ***Limitation of Liability. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. - 20 - 21 /s/ Alejandro Zaffaroni --------------------------------------- Alejandro Zaffaroni (139 shares) INTERHEALTH LIMITED (188 shares) By: /s/ Alejandro Zaffaroni ----------------------------------- Title: General and Limited Partner /s/ Robert Mailloux ) -------------------------------------- Robert Mailloux ) JOINT ) TENANTS ) (125 ) shares) /s/ Minh Mailloux ) -------------------------------------- Minh Mailloux /s/ Michael Schmertzler -------------------------------------- Michael Schmertzler (188 shares) /s/ Michael Sorell -------------------------------------- Dr. Michael Sorell (62 shares) By: BEA ASSOCIATES, Attorney-in-Fact By: /s/ Albert L. Zesiger --------------------------- Albert L. Zesiger Managing Director - 21 - 22 SCHEDULES AND EXHIBITS SCHEDULE A List of Purchasers and number of Shares being purchased at Closing B Schedule of Exceptions C List of Patents, Trademarks, Copyrights and Licenses D List of current shareholders and number of shares owned E List of directors and officers EXHIBIT I Restated Certificate of Incorporation of the Company II By-laws of the Company III Form of Legal Opinion of Bingham, Dana & Gould IV Form of Instrument of Accession - 22 - EX-10.5 12 CLASS C PREFERRED STOCK & WARRANT AGREEMENT 1 EXHIBIT 10.5 ================================================================================ CLASS C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT by and among TRANSKARYOTIC THERAPIES, INC. and THE PURCHASERS LISTED ON SCHEDULE A Dated as of November 3, 1993 ================================================================================ 2 TRANSKARYOTIC THERAPIES, INC. CLASS C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT TABLE OF CONTENTS ----------------- 1. PURCHASE AND SALE OF THE UNITS. ................................ 5 1.1. The Units.............................................. 5 1.2. Closing................................................ 6 1.3. Allocation of Purchase Price........................... 6 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY................... 6 2.1. Organization and Standing of the Company............... 6 2.2. Subsidiaries........................................... 7 2.3. Capitalization......................................... 7 2.4. Financial Information.................................. 8 2.5. Absence of Undisclosed Liabilities..................... 8 2.6. Absence of Certain Changes............................. 8 2.7. Taxes.................................................. 9 2.8. Title to Properties; Liens and Encumbrances............ 9 2.9. Intellectual Property Rights........................... 9 2.10. Government Approvals and Licenses...................... 10 2.11. Contracts.............................................. 10 2.12. Shareholders, Directors, and Officers.................. 11 2.13. Litigation............................................. 11 2.14. Authorization.......................................... 11 2.15. Brokers................................................ 12 2.16. Governmental Consents.................................. 12 2.17. Securities Laws........................................ 12 2.18. Legal Compliance....................................... 12 2.19. Insurance.............................................. 12 2.20. Nondisclosure Agreements............................... 13 2.21. Disclosures............................................ 13 2.22. U.S. Real Property Holding Corporation................. 13 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS................ 13 3.1. Authority.............................................. 13 3.2. Brokers................................................ 13 3.3. Accredited Investor Status............................. 13 3.4. Formation.............................................. 14 3.5. Receipt of Information................................. 14 4. SECURITIES LAWS................................................. 14 4.1. Registration of Securities............................. 14 4.2. Financial Matters...................................... 14 3 4.3. Transfer Legends and Restrictions...................... 14 4.4. Rule 144............................................... 16 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING............ 16 5.1. Representations and Warranties......................... 16 5.2. Performance............................................ 16 5.3. Compliance Certificate................................. 16 5.4. Registration Rights Agreement.......................... 16 5.5. Opinion of Company's Counsel........................... 17 5.6. Restated Certificate of Incorporation.................. 17 5.7. Blue Sky Matters....................................... 17 5.8. Corporate Proceedings and Consents..................... 17 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.............. 17 6.1. Representations and Warranties......................... 17 6.2. Proceedings and Documents.............................. 17 6.3. Performance............................................ 17 6.4. Authorizations......................................... 17 7. AFFIRMATIVE COVENANTS........................................... 18 7.1. Quarterly Financial Statements......................... 18 7.2. Annual Financial Statements............................ 18 7.3. Other Information...................................... 18 7.4. SEC Reports............................................ 19 7.5. Use of Proceeds........................................ 19 7.6. Insurance.............................................. 19 7.8. Corporate Existence.................................... 19 7.7. Payment of Taxes....................................... 19 7.9. Maintenance of Properties.............................. 20 7.10. Reservation of Common Stock............................ 20 8. PREEMPTIVE RIGHTS............................................... 20 8.1. Right of First Offer................................... 20 8.2. Remaining Future Shares................................ 21 8.3. Buyer's Notice......................................... 21 8.4. Right of Company to Sell Refused Future Shares......... 21 8.5. Exceptions to Right of First Offer..................... 22 8.6. Preemptive Proportionate Percentage.................... 22 8.7. Transfer of Preemptive Rights.......................... 22 8.8. Termination of Preemptive Rights Provisions of Class B Stock Purchase Agreements...................... 23 8.9. Waiver of Certain Preemptive Rights.................... 23 8.10. Amendments; Waivers.................................... 23 9. MISCELLANEOUS................................................... 23 9.1. Entire Agreement; Successors........................... 23 4 9.2. Notices................................................ 23 9.3. Expenses............................................... 24 9.4. Survival of Representations and Warranties............. 24 9.5. Amendments; Waivers.................................... 24 9.6. Governing Law.......................................... 25 9.7. Amended and Restated Voting Rights Agreement........... 25 9.8. Miscellaneous.......................................... 25 5 TRANSKARYOTIC THERAPIES, INC. CLASS C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT This Class C Preferred Stock and Warrant Purchase Agreement (this "AGREEMENT") is made as of the 3rd day of November, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and the purchasers listed on SCHEDULE A hereto (each individually, a "PURCHASER" and together, the "PURCHASERS"). In consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE UNITS. 1.1. THE UNITS. (a) On the Closing Date (as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Purchasers, and each of the Purchasers agrees to purchase from the Company, the number of Units (as hereinafter defined) set forth opposite the name of each such Purchaser on SCHEDULE A hereto at a price of $16.00 per Unit. Each "Unit" shall consist of (i) two shares of the Class C Convertible Preferred Stock, par value $1.00 per share, of the Company (the "CLASS C PREFERRED STOCK"), and (ii) one Common Stock Purchase Warrant, substantially in the form of EXHIBIT I hereto (a "WARRANT") for the purchase, upon the terms and conditions set forth therein, of one share of the Common Stock, par value $.01 per share, of the Company (THE "COMMON STOCK"). (b) To the extent that fewer than 937,500 Units are sold at the Closing (as defined in Section 1.2 below), the Company may, on one or more occasions during the 120 days following the Closing, sell and issue additional Units on substantially the same terms and conditions as the sale of the Units purchased pursuant to this Agreement, PROVIDED that each person or entity acquiring such Units becomes a party to this Agreement as a Purchaser prior to such acquisition by executing an Instrument of Accession hereto in the form of EXHIBIT II hereto. The closing of each such sale of additional Units shall be held at such time and place as may be agreed upon by the parties thereto, upon the same terms and conditions as those applicable to the initial sale of Units hereunder, PROVIDED that the Company's representations and warranties shall be subject to such changes and additions as are necessary to reflect the consummation of the initial sale of Units hereunder and any and all intervening events occurring between the date hereof and the date of such closing. From and after any such sale of additional Units, the purchaser of such Units shall be deemed a "Purchaser" under this Agreement, and the Units so purchased shall be deemed "Units" for all purposes of this Agreement. 6 (c) The sale of Units by the Company to each of the Purchasers is a separate sale to the same extent as if set forth in a separate agreement. (d) The aggregate or any portion of the shares of Class C Preferred Stock to be purchased from the Company by the Purchasers pursuant to this Agreement are herein referred to as the "SHARES." The aggregate or any portion of the shares of Common Stock issuable upon conversion of the Shares or exercise of the Warrants are herein referred to as the "UNDERLYING SHARES." The Warrants, the Shares and the Underlying Shares, collectively, are herein referred to as the "SECURITIES." 1.2. CLOSING. The closing of the initial purchase and sale of the Units hereunder (the "CLOSING") shall take place at the offices of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts at 10:00 a.m., Boston local time, on November 3, 1993 or at such other time and date as the Company and the Purchasers may agree upon in writing (the "CLOSING DATE"). At the Closing, the Company will deliver to each Purchaser (i) certificates evidencing that number of Shares which is equal to twice the number of Units purchased by such Purchaser set forth on SCHEDULE A opposite the name of such Purchaser, and (ii) a Warrant for the purchase of that number of shares of Common Stock as is equal to one-half the number of Shares purchased by such Purchaser, against payment by such Purchaser of the entire purchase price for the Units in lawful money of the United States of America by cancellation of indebtedness, bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by such Purchaser and the Company. 1.3. ALLOCATION OF PURCHASE PRICE. The Company and the Purchasers, having adverse interests and as a result of arm's length bargaining, agree that (i) none of the Purchasers nor any of their affiliates or associates has rendered or has agreed to render any services to the Company in connection with this Agreement or the issuance of the Units; (ii) the Warrants are not being issued as a form of compensation; and (iii) the assumed price at which the Units would be issued if they were issued apart from the Warrants is $15.99 per unit. 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to each of the Purchasers that, as of the date of this Agreement, except as otherwise described on Schedule B hereto, the following are true and correct: 2.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the Commonwealth of Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copy of the Company's Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), which is attached as EXHIBIT III hereto, is true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the 2 7 Units, and to conduct its business as now conducted. 2.2. SUBSIDIARIES. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. CAPITALIZATION. The Company's entire authorized capital stock consists of: 15,000,000 shares of Common Stock, and 1,941,000 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which 6,000 shares have been designated as Class A Convertible Preferred Stock (the "CLASS A PREFERRED STOCK"), 66,000 shares have been designated as Class B Convertible Preferred Stock (the "CLASS B PREFERRED STOCK"), and 1,875,000 shares have been designated as Class C Preferred Stock. Of the authorized shares of Common Stock, 4,117,635 shares are issued of record to the persons named on SCHEDULE C hereto under the heading "Common Stock". Of the authorized shares of Class A Preferred Stock, 6,000 shares are issued of record to the party named on Schedule C hereto under the heading "Class A Preferred Stock". Of the authorized shares of Class B Preferred Stock, 49,339 shares are issued of record to the persons named on SCHEDULE C hereto under the heading Class B Preferred Stock." Immediately prior to the Closing, no shares of Class C Preferred Stock are issued or outstanding. No shares of Common Stock or Preferred Stock are held in the Company's treasury. The Company has reserved 1,250,000 shares of Common Stock for issuance to employees and consultants under the 1993 Long-Term Incentive Plan (the "INCENTIVE PLAN") and 180,000 shares of Common Stock for issuance to non-employee directors under the 1993 Non-Employee Directors' Stock Option Plan (the "DIRECTORS PLAN"). The Company has granted options under the Incentive Plan for the purchase of 35,040 shares of Common Stock. No options have been granted under the Directors' Plan. In addition, the Company has reserved 750,000 shares of Common Stock for issuance upon conversion of the Class A Preferred Stock, 2,220,255 shares of Common Stock for issuance upon conversion of the Class B Preferred Stock (which number will be adjusted subsequent to this offering) and 1,875,000 shares of Common Stock for issuance upon conversion of the Class C Preferred Stock. The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), except as provided in this Agreement or Article IV of the Company's Certificate of Incorporation ("ARTICLE IV"). The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in Article IV. All outstanding shares of Common Stock and Preferred Stock have been validly issued and are fully paid and nonassessable, and were issued in accordance with applicable state and federal securities laws. The Units, when issued in accordance with this Agreement, and the Underlying Shares, when issued in accordance with this Agreement and the Certificate of Incorporation, will be validly authorized, issued and outstanding, fully paid and nonassessable and, based in part upon representations of the Purchasers in Sections 3 and 4 hereof, will be issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than options granted pursuant to the Incentive Plan listed on SCHEDULE C hereto, options it is committed to grant annually under the Directors' Plan, or warrants listed on SCHEDULE C hereto, and the 3 8 Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at the Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, by the Certificate of Incorporation and By-laws of the Company or as indicated on SCHEDULE B hereto, and the Company will not voluntarily place any restrictions on the transfer of the Warrants, the Shares or the Underlying Shares except to the extent set forth herein or contemplated hereby. 2.4. FINANCIAL INFORMATION. The Company has delivered to the Purchasers a copy of (a) its audited balance sheet (the "BALANCE SHEET") as of December 31, 1992 (the "FINANCIAL STATEMENT DATE") and the related statements of income and retained earnings and changes in financial position for the year then ended (with the Balance Sheet, the "Audited Financials") and (b) its unaudited balance sheet as of June 30, 1993 and the related statements of income and retained earnings and changes in financial position for the period then ended (the "UNAUDITED FINANCIALS," and together with the Audited Financials, the ("FINANCIAL STATEMENTS"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended, provided, however, that the Unaudited Financials are subject to year-end adjustments and may not contain all footnotes required under generally accepted accounting principles. 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business or reflected in the Unaudited Financials. 2.6. ABSENCE OF CERTAIN CHANGES. Since the Financial Statement Date, other than as described in the Unaudited Financials or as indicated on SCHEDULE B hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; 4 9 (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. TAXES. For all periods ended on or prior to the Financial Statement Date, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as indicated on SCHEDULE B hereto, the Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $25,000. 2.9. INTELLECTUAL PROPERTY RIGHTS. Attached hereto as SCHEDULE D is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or 5 10 licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company, are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Company's operations violate or infringe rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in SCHEDULE D, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of said patents, trademarks, service marks, trade names, trade secrets, copyrights or rights or licenses to use the same or similar proprietary information, or any and all applications therefor. 2.10. GOVERNMENT APPROVALS AND LICENSES. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. CONTRACTS. Other than as set forth in SCHEDULE B or D or described elsewhere in this Section 2, the Company has no presently existing contract, obligation or commitment (a) involving payment by or to the Company of more than $25,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers, and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; 6 11 (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters or intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on SCHEDULE B have been made available to the Purchasers. The Company has complied with all the material provisions of said contracts and commitments set forth in SCHEDULE B hereto and of all other material contracts and commitments to which it is a party, and is not in default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. 2.12. SHAREHOLDERS, DIRECTORS, AND OFFICERS. SCHEDULE C hereto contains a true, correct and complete list showing the name of each shareholder of record of the Company and the number of the shares of the Company's capital stock owned by each shareholder. SCHEDULE E hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. LITIGATION. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company or the Company's properties, nor does the Company know or have reasonable grounds to know of any basis for any such action, including, 7 12 without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding jugments against the Company. 2.14. AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Units and, upon conversion of the Shares or exercise of the Warrants, the Underlying Shares, have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Units and, upon conversion of the Shares or exercise of the Warrants, the Underlying Shares, will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. BROKERS. Except as described on SCHEDULE B, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. GOVERNMENTAL CONSENTS. Based in part on the representations made by the Purchasers in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issuance, sale or delivery of the Units pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. SECURITIES LAWS. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Units or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Units, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchasers' representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at the Closing and on the date of the issuance of the Underlying Shares, the offering and sale of the Units, and the issuance of the Underlying Shares upon conversion of the Shares and exercise of the Warrants, are each exempt, or will each be exempt, as the case may be, from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 8 13 2.18. LEGAL COMPLIANCE. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. INSURANCE. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. NONDISCLOSURE AGREEMENTS. The Company has entered into nondisclosure and noncompete agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate or instrument furnished to any of the Purchasers or their special counsel in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in Schedule B. 2.22. U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not now and has never been a "United States Real Property Holding Corporation" as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue Service. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the Purchasers, severally and not jointly, represents and warrants to the Company that the following are true and correct in all material respects: 3.1. AUTHORITY. Such Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Units. This Agreement constitutes the valid and legally binding obligation of such Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. BROKERS. Such Purchaser has no contract, arrangement or understanding with any 9 14 broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 3.3. ACCREDITED INVESTOR STATUS. Such Purchaser is acquiring the Units for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Units or any portion thereof; provided that the disposition of its property shall at all times be and remain within its control. It further represents that, except as otherwise disclosed in writing to the Company, it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Units. Such Purchaser further represents that it is acquiring the Units for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.3, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.4. FORMATION. Except as otherwise disclosed in writing to the Company, such Purchaser was not organized for the purpose of making an investment in the Company. 3.5. RECEIPT OF INFORMATION. Such Purchaser has been furnished such information and documents as such Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Units. Each Purchaser who is not an accredited investor, by signing the signature pages hereto, acknowledges that he, she or it, as the case may be, has received a copy of the Company's prospectus dated July 26, 1993, together with the Prospectus Supplement dated November 3, 1993. 4. SECURITIES LAWS. 4.1. REGISTRATION OF SECURITIES. Each Purchaser, severally and not jointly, represents and warrants to the Company that it understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT") or the securities laws of any state or other jurisdiction and that the Securities must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. Each Purchaser, severally and not jointly, further represents and warrants to the Company that it will not transfer any of the Securities in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. FINANCIAL MATTERS. Each Purchaser, severally and not jointly, represents and warrants to the Company that (a) it understands that the purchase of the Securities involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Securities purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, such Securities; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, such Purchaser has 10 15 extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. TRANSFER LEGENDS AND RESTRICTIONS. The Transfer (as defined below) of the Securities will be restricted in accordance with the terms hereof. "Transfer" shall mean any pledge, sale, assignment, gift or other transfer of any Securities or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. Each certificate evidencing the Shares or the Underlying Shares, including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such Securities shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT TEAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF NOVEMBER 3, 1993 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." Each Warrant, including any warrant issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such Warrant shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THIS WARRANT OR THE SHARES ISSUABLE UPON THE EXERCISE HEREOF SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS WARRANT OR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED 11 16 BY THE TERMS OF THE CLASS C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF NOVEMBER 3, 1993 (THE "AGREEMENT"). TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined below) of any Securities by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on such Securities, prior to any Transfer of any of the Securities (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Securities in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) that the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Securities shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate or warrant evidencing the Securities issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Securities, the Company shall remove the foregoing legend from the certificates or warrants evidencing such Securities and issue to such Holder new certificates or warrants therefor free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel selected by the Holder, such counsel and opinion to be reasonably satisfactory to counsel to the Company, to the effect that any Transfers by such Holder of such Securities may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. "HOLDER" shall mean any Purchaser (in its capacity as holder of any Securities and for so long as it holds such Securities), and such of its respective successors and assigns who acquire Securities from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Securities subject to all the restrictions hereof, but in no event shall "Holder" include any transferee of any Securities pursuant to sales made under a registration statement filed under the Securities Act. 4.4. RULE 144. The Purchasers recognize that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c)(1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by the Purchasers, the Company will furnish any Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 12 17 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each of the Purchasers to purchase and pay for the Units is subject to the following: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the Closing Date, with the same force and effect as if they had been made on and as of the Closing Date. 5.2. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with. 5.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchasers a certificate (to be signed by its chief executive officer) dated the Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement substantially in the form of EXHIBIT IV hereto (the "REGISTRATION RIGHTS AGREEMENT") shall have been executed and delivered by the Company and the Purchasers. 5.5. OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received an opinion of Bingham, Dana & Gould, counsel to the Company, substantially in the form of EXHIBIT V hereto, which opinion shall be satisfactory in form and substance to the Purchasers' special counsel. 5.6. RESTATED CERTIFICATE OF INCORPORATION. An Amended and Restated Certificate of Incorporation for the Company in the form attached as EXHIBIT III hereto shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.7. BLUE SKY MATTERS. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Units and the Underlying Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.8. CORPORATE PROCEEDINGS AND CONSENTS. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and their special counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 13 18 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Units is subject to the following: 6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers made herein shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchasers on or prior to the Closing Date shall have been performed or complied with. 6.4. AUTHORIZATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Units or any portion thereof to the Purchasers as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with each of the Purchasers as follows, such covenants to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public at an aggregate offering price of not less than $12.00 per share (as adjusted for any stock dividends, stock splits, combinations or similar recapitalizations occurring after the date hereof) and which results in aggregate gross proceeds to the Company of not less than $10,000,000 (the "INITIAL PUBLIC OFFERING"); provided, that the Company may refrain from compliance with any such covenant to the extent that such compliance would, in the good faith judgment of the Board of Directors of the Company, violate applicable securities laws: 7.1. QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to each Qualifying Holder (as hereinafter defined) copies of the Company's unaudited balance sheet as of the end of, and unaudited statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are 14 19 consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries. In no event will any Purchaser make any use or disclosure of the financial statements referred to in this Section 7.1 or Section 7.2 or other information acquired pursuant to Section 7.3 or 7.4, except in connection with evaluating its investment in the Company. For purposes of this Agreement, "QUALIFYING HOLDER" shall mean each Purchaser for so long as such Purchaser holds at least fifteen percent (15%) of the number of Shares purchased by it hereunder. 7.2. ANNUAL FINANCIAL STATEMENTS. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each Qualifying Holder financial statements analogous to those required by Section 7.1 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.3. OTHER INFORMATION. Upon the reasonable request of a Qualifying Holder, the Company will deliver to such Qualifying Holder other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit each Qualifying Holder, at the expense of such Qualifying Holder, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as a Qualifying Holder may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; PROVIDED, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.4. SEC REPORTS. Promptly after each such filing, the Company will furnish each Purchaser with copies of all registration statements, and amendments thereto, and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities or the Company may be listed. 7.5. USE OF PROCEEDS. The Company will use amounts paid for the Units hereunder to fund research and development activities and for working capital and other corporate purposes. 7.6. INSURANCE. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such 15 20 worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually ma Stained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall within a reasonable period of time obtain "Key Man Insurance" on of the lives of K. Michael Forrest and Richard F. Selden in an aggregate face amount of not less than $1,000,000 per person and shall maintain such insurance on each such person for so long as such person is employed by the Company. 7.7. PAYMENT OF TAXES. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; PROVIDED, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.8. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, PROVIDED, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.9. MAINTENANCE OF PROPERTIES. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.10. RESERVATION OF COMMON STOCK. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of Underlying Shares issuable upon conversion of the Shares and exercise of the Warrants, and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, it 16 21 shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.10. 8. PREEMPTIVE RIGHTS. 8.1. RIGHT OF FIRST OFFER. (a) Until the occurrence of the Initial Public Offering, or, if earlier, a "Terminating Class Event" (as hereinafter defined), the Company will not offer any equity securities, or securities convertible into, or options, warrants, or other rights to purchase such equity securities (collectively, the "FUTURE SHARES") to any third party or Purchaser without first providing (i) each Purchaser, and (ii) each person defined as a "Purchaser" in the Class B Stock Purchase Agreements (as defined in Section 8.8 hereof) (each "Purchaser" under the foregoing (i) and (ii) hereinafter a "Buyer"), so long as such Buyer continues to hold shares of Preferred Stock, the right to subscribe for its Preemptive Proportionate Percentage (as such term is defined in paragraph 8.6 below) of such Future Shares for cash at a price and on such other terms as shall have been specified by the Company in writing delivered to each Buyer (the "PREEMPTIVE OFFER"), which Preemptive Offer by its terms shall remain open and irrevocable for a period of fifteen (15) days from the date it is delivered by the Company to each Buyer (the "PREEMPTIVE PERIOD"). The Preemptive Offer shall also certify that the Company has either (a) received a firm offer from a prospective purchaser, who shall be identified in such certification, so that the Company in good faith believes a binding agreement of sale is obtainable for consideration having a fair market, cash equivalent, or present value set forth in such certification; or (b) intends to make an offering of its securities at the price and on the terms set forth n such certification. (b) A "Terminating Class Event" shall mean, for the holders of the Class B Preferred Stock, par value $1.00 per share, of the Company (the "CLASS B PREFERRED STOCK") that fewer than 2,000 shares of Class B Preferred Stock remain outstanding, and for the holders of the Class C Preferred Stock, that fewer than 500,000 shares of the Class C Preferred Stock remain outstanding. Upon the occurrence of a Terminating Class Event, such class shall no longer have the preemptive rights set forth in this Section 8. Upon the occurrence of a Terminating Class Event as to both such classes of Preferred Stock, the Company shall have no remaining obligations under this Section 8. 8.2. REMAINING FUTURE SHARES. If any Buyer shall subscribe for less than its Preemptive Proportionate Percentage of the Future Shares set forth in the Preemptive Offer to it, then the Company at the end of the Preemptive Period shall give notice in the same manner to each Buyer who did subscribe during the Preemptive Period for its entire Preemptive Proportionate Percentage of the Future Shares of the number of Future Shares which the Buyers had not elected to purchase during the Preemptive Period (the "REMAINING FUTURE SHARES") and stating that the Buyer may elect to purchase at the same price any or all of the Remaining Future Shares (the "SECOND PREEMPTIVE OFFER"), which Second Preemptive Offer by its terms shall 17 22 remain open and irrevocable for a period of at least fifteen (15) days from the date it is delivered by the Company to each Buyer. If the total number of Remaining Future Shares is sufficient to satisfy the elections of Buyers who received the Second Preemptive Offer, such Remaining Future Shares shall be allocated to them in accordance with their elections; if not, the available Remaining Future Shares shall be allocated among the Buyers according to their respective Preemptive Proportionate Percentages (provided that such allocation shall be adjusted if necessary so that no Buyer is allocated more Remaining Future Shares than it has elected to purchase). For the purpose of avoiding fractions as to Future Shares and Remaining Future Shares, the President of the Company (or in his or her absence any responsible corporate officer of the Company) may adjust upward or downward by not more than one full share the number of Future Shares or Remaining Future Shares which any Buyer would otherwise be entitled to purchase. 8.3. BUYERS NOTICE. Notice of each Buyer's intention to accept, in whole or in part, a Preemptive Offer or Second Preemptive Offer made pursuant to Sections 8.1 or 8.2 herein shall be evidenced by a writing signed by the Buyer and delivered to the Company prior to the end of the Preemptive Period or the fifteen (15) day period of the Second Preemptive Offer, as applicable, setting forth that portion of the Future Shares or the Remaining Future Shares, as the case may be, which the Buyer elects to purchase (the "NOTICE OF ACCEPTANCE"). 8.4. RIGHT OF COMPANY TO SELL REFUSED FUTURE SHARES. In the event that the Buyers elect not to purchase all of the Future Shares or the Remaining Future Shares, the Company shall have one hundred twenty (120) days from the expiration of the Second Preemptive Offer to sell all or any part of such Remaining Future Shares not purchased by the Buyers (the "REFUSED FUTURE SHARES") to the parties (or their affiliates) identified in the Preemptive Offer, but only upon terms and conditions in all material respects, including, without limitation, unit price and interest rates, which are no more favorable, in the aggregate, to such other party or parties or less favorable to the Company than those set forth in the Preemptive Offer and the Second Preemptive Offer. Upon the closing of the sale of Refused Future Shares to such other parties, the Buyers shall purchase from the Company and the Company shall sell to each Buyer the Future Shares and the Remaining Future Shares in respect of which a Notice of Acceptance was delivered to the Company by such Buyer, upon the terms specified in the Preemptive Offer and the Second Preemptive Offer. The Company may withdraw the Preemptive Offer and the Second Preemptive Offer at any time prior to such closing. 8.5. EXCEPTIONS TO RIGHT OF FIRST OFFER. Notwithstanding anything to the contrary stated above, the rights of the Buyers under this Section 8 shall not apply to (a) any sale of shares of the Company's capital stock pursuant to the Initial Public Offering or (b) the issuance by the Company of Common Stock or options or warrants for the purchase thereof issued, sold or granted, in the past or future, by the Company to its employees or consultants pursuant to bona fide employee stock purchase, option or similar plans or as otherwise approved by the Board of Directors of the Company or (c) equity securities issued in connection with the acquisition of at least fifty percent (50%) of the voting securities of another corporation, controlling interest in another business entity, or all, or substantially all of the assets of another 18 23 corporation or business entity or (d) equity securities issued for no consideration as dividends or pursuant to stock splits or (e) any securities issued upon the conversion or exercise of presently issued securities or securities issued pursuant to Section l.l(a) or (b) hereof or (f) any Units issued and sold pursuant to Section l.l(b) of this Agreement or (g) any equity securities issued in connection with a joint venture in which the Company is a participant or a license, marketing or distribution agreement to which the Company is party, if such issuance does not exceed twenty percent (20%) of the aggregate amount of equity securities of the Company then outstanding (on an as converted basis). 8.6. PREEMPTIVE PROPORTIONATE PERCENTAGE. The term "Preemptive Proportionate Percentages" shall mean, as to a Buyer, that percentage figure which expresses the ratio which (a) the number of shares of outstanding Common Stock then owned by such Buyer bears to (b) the aggregate number of shares of outstanding Common Stock then owned by all Buyers (for purposes solely of the computation required under clauses (a) and (b), Buyers holding shares of Preferred Stock shall be treated as having converted all such outstanding shares of Preferred Stock into shares of Common Stock at the rate at which such shares of Preferred Stock are convertible or exercisable for Common Stock pursuant to Article IV of the Certificate of Incorporation of the Company in effect at the time of delivery by the Company of the Preemptive Offer). 8.7. TRANSFER OF PREEMPTIVE RIGHTS. The preemptive rights provided under this Section 8 may be transferred or assigned in whole (but not in part) (a) to any person or entity that directly or indirectly controls, is controlled by or is under common control with, the transferor Buyer (b) to any other person or entity approved by the Company, PROVIDED, in each case, that no such transfer or assignment may be made if, in the reasonable judgment of the Company's Board of Directors after consultation with the Company's counsel, such transfer or assignment would make an exemption from the registration requirements of the Securities Act and/or applicable state securities laws unavailable with respect to the offer and sale of the Future Shares. 19 24 8.8. TERMINATION OF PREEMPTIVE RIGHTS PROVISIONS OF CLASS B STOCK PURCHASE AGREEMENTS. The "CLASS B STOCK PURCHASE AGREEMENTS are defined herein as (i) the Class B Preferred Stock Purchase Agreement, dated as of February 14, 1992, among the Company and the persons listed on Schedule A thereto (individually, the "1992 CLASS B AGREEMENT"), and (il) the Class B Preferred Stock Purchase Agreement, dated as of April 20, 1993, among the Company and the persons listed on Schedule A thereto (individually, the "1993 CLASS B AGREEMENT"). The holders of the Class B Preferred Stock listed on the signature pages hereof, by executing this Agreement in their capacity as holders of Class B Preferred Stock, do hereby vote as a class to terminate Section 9 of the 1992 Class B Agreement and Section 8 of the 1993 Class B Agreement (insofar as such Section 8 relates to preemptive rights), which sections shall be of no further force and effect, and do hereby consent and agree that Section 8 hereof amends and restates the preemptive rights of the holders of the Class B Preferred Stock, and do hereby vote and consent to make all holders of Class B Preferred Stock, as a class, party to this Agreement for the sole purpose of being bound by and party to Section 8 hereof. 8.9. WAIVER OF CERTAIN PREEMPTIVE RIGHTS. The Buyers hereby waive any preemptive rights to the 'contemplated issuance by the Company to The First National Bank of Boston of the common stock purchase warrants listed on Schedule C hereto. 8.10. AMENDMENTS; WAIVERS. Changes in or additions to this Section 8, or waiver of the Company's compliance with any of the provisions of this Section 8, may be made by written amendment or waiver executed by the Company and the holders of at least fifty-one percent (51%) in the aggregate number of shares of Common Stock issued or issuable upon conversion of the shares of Class B Preferred Stock and Class C Preferred Stock (counted as one class) then held by the Buyers. 9. MISCELLANEOUS. 9.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement, together with the Schedules and Exhibits hereto sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto. All the tenons and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to John Burgess, Esq., special counsel to the Purchasers, shall be deemed to constitute for all purposes the furnishing of such documents by the Company to the Purchasers under this Agreement or in connection with the offering hereunder. 9.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: 20 25 (a) if to the Purchasers: To the Addressees shown on SCHEDULE A with a copy to: Hale and Dorr 60 State Street Boston, MA 02109 Attention: John Burgess, Esq. (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer with a copy to: Bingham, Dana & Gould 150 Federal Street Boston, MA 02110 Attention: Leslie H. Shapiro, Esq. or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (l) actual receipt and (ii) five (5) business days after deposit in the U.S. mails or delivery to a nationally-recognized courier service in accordance with this Section. 9.3. EXPENSES. Except as provided in the Registration Rights Agreement, each party will bear its own expenses in connection with this Agreement, PROVIDED that the Company will bear the reasonable fees and out-of-pocket disbursements of Hale and Dorr, special counsel to the Purchasers, in an amount not to exceed $5,000 in the aggregate. 9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by the Company or any of the Purchasers in connection herewith shall survive the execution and delivery of this Agreement and the issuance of the Units for a period (the "SURVIVAL PERIOD") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 21 26 9.5. AMENDMENTS; WAIVERS. Subject to Section 8.10 hereof, changes in or additions to this Agreement may be made by written document executed by the Company and the holders of at least fifty-one percent (51%) in the aggregate number of shares of Common Stock issued or issuable upon conversion of the Shares, PROVIDED that the consent of such holders shall not be required with respect to any supplement to this Agreement relating to the sale and issuance of additional Units in accordance with Section l.l(b). Subject to Section 8.10 hereof, the holders of fifty-one percent (51%) in the aggregate of the Shares then held by Holders may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Holders in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Holders. 9.6. GOVERNING LAW. This Agreement shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties hereunder shall be governed by, the internal laws of the Commonwealth of Massachusetts. 9.7. AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The Company agrees that, subsequent to the date of this Agreement, it will use its reasonable best efforts to obtain the agreement to the Amended and Restated Voting Rights Agreement, substantially in the form of Exhibit VI hereto, the holders of at least 66 and 2/3% of the Class B Preferred Stock PROVIDED, HOWEVER, that the Company will be under no obligation to request any such holder if, in the Company's reasonable judgment, such request might damage the Company's relationship with such shareholder. 9.8. MISCELLANEOUS. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. This Preferred Stock and Warrant Purchase Agreement has been SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. COMPANY: TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ------------------------------ Title:President and CEO --------------------------- 22 27 PURCHASERS: WARBURG PINCUS CAPITAL COMPANY, L.P. (312,500 units) By: Warburg Pincus & Co., General Partner By: /s/ Rodman W. Moorhead -------------------------------- Title:Managing Director ----------------------------- TKT PARTNERS LIMITED PARTNERSHIP (62,500 units) By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke -------------------------------- Title:Executive Vice President ----------------------------- /s/ Alejandro Zaffaroni ---------------------------------------- Alejandro Zaffaroni, Ph.D. (12,500 units) 23 28 H&Q HEALTHCARE INVESTORS** (12,500 units) By: /s/ Kimberly L. Carroll ---------------------------------- Title:Treasurer ------------------------------- **LIMITATION OF LIABILITY. The name H&O Healthcare Investors is the designation of the Trustees for the tamp being under an Amended and Restated Declaration of Trust dated April 21, 1987, as Amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&O Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&O LIFE SCIENCES INVESTOR** (6,250 shares) By: /s/ Kimberly L. Carroll ---------------------------------- Title:Treasurer ------------------------------- ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. HUGO de NEUFVILLE & JOHN P. de NEUFVILLE, TTEES, UAD 7/01/92, HUGO de NEUFVILLE REVOCABLE TRUST (6,500 units) By: /s/ John P. de Neufville ---------------------------------- Title:Trustee ------------------------------- MARGARET W. de NEUFVILLE & JOHN P. de 24 29 NEUFVILLE, TTES, UAD 7/1/92, MARGARET W. de NEUFVILLE REVOCABLE TRUST (6,500 units) By: /s/ John P. de Neufville --------------------------------- Title:Trustee ------------------------------ JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO CAROL de NEUFVILLE (3,500 units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ------------------------------ JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DTD 12/23/76, FBO DAVID T. de NEUFVILLE (6,500) units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ------------------------------ JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DTD 12/23/76, FBO JOHN HOWARD de NEUFVILLE (3,500) units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ------------------------------ JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DATED 12/23/76, FBO JOHN P. de NEUFVILLE (6,500 units) 25 30 By:/s/ John P. de Neufville --------------------------------- Title:Trustee ----------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO PETER BAYON de NEUFVILLE (3,500 units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ----------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO SUSAN de NEUFVILLE (3,500 units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ----------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 12/2/70, FBO THOMAS PIKE de NEUFVILLE (3,500 units) By:/s/ John P. de Neufville --------------------------------- Title:Trustee ----------------------------- /s/ John W. Jackson ----------------------------------- John W. Jackson (3,000) TAB PRODUCTS CO. PENSION PLAN (4,500 units) By: * -------------------------------- 26 31 TEMPLE INLAND MASTER TRUST (25,000 units) By: * -------------------------------------- *By: BEA ASSOCIATES, Attorney-in-Fact By: /s/ Albert L. Zesiger --------------------------------- Title:Managing Director ------------------------------ ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN (22,000 units) By: # -------------------------------------- #By: BEA ASSOCIATES, an Investment Advisor as Investment Advisor By:/s/ Albert L. Zesiger --------------------------------- Title:Managing Director ------------------------------ CLASS B PREFERRED STOCKHOLDERS: WARBURG PINCUS CAPITAL COMPANY, L.P. (21,359) By: Warburg Pincus & Co., General Partner By:/s/ Rodman W. Moorhead --------------------------------- Title:Managing Director ------------------------------ H&Q HEALTHCARE INVESTORS** (3,268 shares) 27 32 By: /s/ Kimberly L. Carroll --------------------------------- Title:Treasurer ------------------------------ **LIMITATION OF LIABILITY. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&Q LIFE SCIENCES INVESTORS*** (1,500 shares) By: /s/ Kimberly L. Carroll --------------------------------- Title:Treasurer ------------------------------ ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, Ph.D. (688 shares) 28 EX-10.6 13 CLASS D PREFERRED STOCK PURCHASE AGMT 5/18/94 1 EXHIBIT 10.6 =============================================================================== CLASS D PREFERRED STOCK PURCHASE AGREEMENT by and between TRANSKARYOTIC THERAPIES, INC. and MARION MERRELL DOW INC. Dated as of May 18, 1994 =============================================================================== 2 TRANSKARYOTIC THERAPIES, INC. CLASS D PREFERRED STOCK PURCHASE AGREEMENT TABLE OF CONTENTS ----------------- PAGE 1. PURCHASE AND SALE OF THE SHARES............................ - 1 - 1.1. Purchase of Stock.................................... - 1 - ----------------- 1.2. Closing.............................................. - 1 - ------- 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY.............. - 2 - 2.1. Organization and Standing of the Company............. - 2 - ---------------------------------------- 2.2. Subsidiaries......................................... - 2 - ------------ 2.3. Capitalization....................................... - 2 - -------------- 2.4. Financial Information................................ - 3 - --------------------- 2.5. Absence of Undisclosed Liabilities................... - 3 - ---------------------------------- 2.6. Absence of Certain Changes........................... - 4 - -------------------------- 2.7. Taxes................................................ - 4 - ----- 2.8. Title to Properties; Liens and Encumbrances.......... - 5 - ------------------------------------------- 2.9. Intellectual Property Rights......................... - 5 - ---------------------------- 2.10. Government Approvals and Licenses.................... - 5 - --------------------------------- 2.11. Contracts............................................ - 5 - --------- 2.12. Directors and Officers............................... - 7 - ---------------------- 2.13. Litigation........................................... - 7 - ---------- 2.14. Authorization........................................ - 7 - ------------- 2.15. Brokers.............................................. - 7 - ------- 2.16. Governmental Consents................................ - 7 - --------------------- 2.17. Securities Laws...................................... - 7 - --------------- 2.18. Legal Compliance..................................... - 8 - ---------------- 2.19. Insurance............................................ - 8 - --------- 2.20. Nondisclosure Agreement.............................. - 8 - ----------------------- 2.21. Disclosures.......................................... - 8 - ----------- 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASER............ - 8 - 3.1. Authority............................................ - 8 - --------- 3.2. Accredited Investor Status........................... - 9 - -------------------------- 3.3. Formation............................................ - 9 - --------- 3.4. Receipt of Information............................... - 9 - ---------------------- 4. SECURITIES LAWS............................................ - 9 - 4.1. Registration of Securities........................... - 9 - -------------------------- 4.2. Financial Matters.................................... - 9 - ----------------- 4.3. Transfer Legends and Restrictions.................... - 9 - --------------------------------- - i - 3 4.4. Rule 144............................................ - 11 - -------- 5. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING...... - 11 - 5.1. Representations and Warranties...................... - 11 - ------------------------------ 5.2. Performance......................................... - 11 - ----------- 5.3. Compliance Certificate.............................. - 11 - ---------------------- 5.4. Registration Rights Agreement....................... - 11 - ----------------------------- 5.5. Preemptive Rights................................... - 11 - ----------------- 5.6. License Agreement................................... - 12 - ----------------- 5.7. Supply Agreement.................................... - 12 - ---------------- 5.8. Opinion of Company's Counsel........................ - 12 - ---------------------------- 5.9. Amended Certificate................................. - 12 - ------------------- 5.10. Blue Sky Matters.................................... - 12 - ---------------- 5.11. Corporate Proceedings and Consents.................. - 12 - ---------------------------------- 5.12. Amended and Restated Voting Rights Agreement........ - 12 - -------------------------------------------- 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING........ - 12 - 6.1. Representations and Warranties...................... - 12 - ------------------------------ 6.2. Proceedings and Documents........................... - 12 - ------------------------- 6.3. Performance......................................... - 13 - ----------- 6.4. Authorizations...................................... - 13 - -------------- 7. AFFIRMATIVE COVENANTS..................................... - 13 - 7.1. Issuance of Additional Shares....................... - 13 - ----------------------------- 7.2. Purchases of Common Stock Upon Initial Public Offering- 14 - ------------------------------------------------------ 7.3. Standstill Agreement................................ - 14 - -------------------- 7.4. Quarterly Financial Statements...................... - 15 - ------------------------------ 7.5. Annual Financial Statements......................... - 15 - --------------------------- 7.6. Other Information................................... - 16 - ----------------- 7.7. Use of Proceeds..................................... - 16 - --------------- 7.8. Insurance........................................... - 16 - --------- 7.9. Payment of Taxes.................................... - 16 - ---------------- 7.10. Corporate Existence................................. - 17 - ------------------- 7.11. Maintenance of Properties........................... - 17 - ------------------------- 7.12. Reservation of Common Stock......................... - 17 - --------------------------- 7.13. SEC Reports......................................... - 17 - ----------- 8. MISCELLANEOUS............................................. - 17 - ------------- 8.1. Entire Agreement; Successors........................ - 17 - ---------------------------- 8.2. Notices............................................. - 18 - ------- 8.3. Expenses............................................ - 19 - -------- 8.4. Survival of Representations and Warranties.......... - 19 - ------------------------------------------ 8.5. Amendments; Waivers................................. - 19 - ------------------- 8.6. Governing Law....................................... - 19 - ------------- 8.7. Miscellaneous....................................... - 19 - ------------- - ii - 4 TRANSKARYOTIC THERAPIES, INC. CLASS D PREFERRED STOCK PURCHASE AGREEMENT This Class D Preferred Stock Purchase Agreement (this "AGREEMENT") is made as of the 18th day of May, 1994 by and between Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and Marion Merrell Dow Inc., a Delaware corporation (the "PURCHASER"). WHEREAS, the Purchaser and the Company have entered into a License Agreement dated as of the date hereof and a Supply Agreement dated as of the date hereof; and WHEREAS, the Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell, shares of the Company's Class D Preferred Stock, $1.00 par value per share (the "CLASS D PREFERRED STOCK"), subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE SHARES 1.1. PURCHASE OF STOCK. On the Closing Date (as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, 280,367 shares of Class D Preferred Stock at a price of $17.8338 per share (the "Shares"). In the event that the Company's Initial Public Offering (as such term is defined in Section 7) closes on or prior to March 31, 1995 at a pre-money valuation of less than $120 million, the Company shall be required to issue to the Purchaser additional shares of Common Stock of the Company (the "Common Stock"), as described under Section 7.1 (the "Additional Shares"). The powers, designations, preferences, rights and qualifications, limitations and restrictions of the Class D Preferred Stock are as set forth in the Amended and Restated Certificate of Incorporation (the "Amended Certificate") attached as EXHIBIT A hereto. 1.2. CLOSING. The closing of the purchase and sale of the Shares hereunder (the "Closing") shall take place at the offices of Shook, Hardy & Bacon P.C. at 10:00 am., local time, on May 18, 1994 or at such other time and date as the Company and the Purchaser may agree upon in writing (the "CLOSING DATE"). At the Closing, the Company will deliver to the Purchaser a certificate evidencing the number of Shares being purchased by the Purchaser pursuant to Section 1.1, against payment by the Purchaser of the entire purchase price for the Shares in lawful money of the United States of America by bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by the Purchaser and the Company. - 1 - 5 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to the Purchaser that, as of the date of this Agreement, except as otherwise described on SCHEDULE A hereto, the following are true and correct: 2.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the Commonwealth of Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copy of the Company's Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), which has been delivered to the Purchaser, is true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. SUBSIDIARIES. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. CAPITALIZATION. The Company's entire authorized capital stock will consist, immediately after the filing of the Amended Certificate with the Secretary of State of the State of Delaware, of 15,000,000 shares of Common Stock (of which 4,102,188 shares have been issued), and 2,221,367 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which: 6,000 shares have been designated as Class A Convertible Preferred Stock (the "CLASS A PREFERRED STOCK"), all of which have been issued; 60,000 shares have been designated as Class B Convertible Preferred Stock (the "CLASS B PREFERRED STOCK"), of which 49,339 shares have been issued; 1,875,000 shares have been designated as Class C Preferred Stock (the "CLASS C PREFERRED STOCK"), of which 1,015,974 shares have been issued; and 280,367 shares have been designated as Class D Preferred Stock, none of which were issued or outstanding immediately prior to the Closing. 97,887 shares of Common Stock are held of record in the Company's treasury. The number of shares and class of capital stock of the Company which have been issued are listed on SCHEDULE A opposite the names of the record holders thereof, excluding those record holders who are employees of the Company, which employees hold, in the aggregate, 1,503,618 shares of the outstanding capital stock of the Company. The Company has reserved 1,250,000 shares of Common Stock for issuance to employees and consultants under the 1993 Long-Term Incentive Plan (the "INCENTIVE PLAN") and 180,000 shares of Common Stock for issuance to non-employee directors under the 1993 Non-Employee Directors' Stock Option Plan (the "DIRECTORS' PLAN"). The Company has granted options under the Incentive Plan for the purchase of 48,485 shares of Common Stock. No options have been granted under the Directors' Plan. The Company has granted warrants for the purchase of 635,517 shares of Common Stock. In addition, the Company has reserved a sufficient number of shares of Common Stock for the conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock. The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), except as provided in this Agreement or Article IV - 2 - 6 of the Certificate of Incorporation. The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in the Certificate of Incorporation and the Amended Certificate. All outstanding shares of Common Stock and Preferred Stock have been, and the Class D Preferred Stock and the Additional Shares, when issued in accordance with this Agreement and the Certificate of Incorporation will be, validly issued and fully paid and nonassessable, and issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than the 48,485 options granted pursuant to the Incentive Plan referred to above, options it is committed to grant annually under the Directors' Plan to eligible Directors, or warrants described above and listed on SCHEDULE A hereto, and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at the Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, by the Certificate of Incorporation and By-laws of the Company or as indicated on SCHEDULE A hereto, and the Company will not voluntarily place any restrictions on the transfer of the Shares or the Additional Shares except to the extent set forth herein or contemplated hereby. 2.4. FINANCIAL INFORMATION. The Company has delivered to the Purchaser a copy of (a) its draft audited balance sheet (the "BALANCE SHEET") as of December 31, 1993 (the "FINANCIAL STATEMENT DATE") and the related draft statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (with the Balance Sheet, the "DRAFT AUDITED FINANCIALS"), (b) its unaudited balance sheet as of March 31, 1994 and the related statements of operations and cash flows for the period then ended (the "UNAUDITED FINANCIALS") and (c) its most recent audited balance sheet and related statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (the "Audited Financials") the "Audited Financials," and together with the Draft Audited Financials and the Unaudited Financials, the "Financial Statements"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended, PROVIDED, however, that the Unaudited Financials are subject to year-end adjustments and may not contain all footnotes required under generally accepted accounting principles. 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business or reflected in the Unaudited Financials. - 3 - 7 2.6. ABSENCE OF CERTAIN CHANGES. Since the Financial Statement Date, other than as described in the Unaudited Financials or as indicated on SCHEDULE A hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. TAXES. For all periods ended on or prior to the Financial Statement Date, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. - 4 - 8 2.8. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as indicated on SCHEDULE A hereto, the Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $25,000. 2.9. INTELLECTUAL PROPERTY RIGHTS. Attached hereto as SCHEDULE B is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company (the "Intellectual Property") are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Intellectual Property violates or infringes rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in SCHEDULE B, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of the Intellectual Property. 2.10. GOVERNMENT APPROVALS AND LICENSES. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. CONTRACTS. Other than as set forth in SCHEDULE A or B or described elsewhere in this Section 2, the Company has no presently existing contract, obligation or commitment (a) involving the future payment by or to the Company of more than $25,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; - 5 - 9 (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; or (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and substantially all of the assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters of intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on SCHEDULE A have been made available to the Purchaser. The Company has complied with all the material provisions of said contracts and commitments set forth in SCHEDULE A hereto and of all other material contracts and commitments to which it is a party, and is not in material default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. - 6 - 10 2.12 DIRECTORS AND OFFICERS. SCHEDULE A hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. LITIGATION. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company or the Company's properties, nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Shares and the Additional Shares and, upon conversion of the Shares, the Common Stock into which the Shares are convertible, have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the Additional Shares and, upon conversion of the Shares, the Common Stock into which the Shares are convertible, will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. BROKERS. Except as described on SCHEDULE A, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. GOVERNMENTAL CONSENTS. Based in part on the representations made by the Purchaser in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issuance, sale or delivery of the Shares or the Additional Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. SECURITIES LAWS. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or the Additional Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Shares or the Additional Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchaser's representations and warranties contained in Sections 3 and 4 of this - 7 - 11 Agreement are true and correct at the Closing and on the date of the issuance of the shares of Common Stock comprising the Additional Shares and the shares of Common Stock into which the Shares are convertible, the offering and sale of the Shares and the Additional Shares, and the issuance of the shares of Common Stock upon conversion of the Shares, are each exempt, or will each be exempt, as the case may be, from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. LEGAL COMPLIANCE. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. INSURANCE. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. NONDISCLOSURE AGREEMENT. The Company has entered into nondisclosure and invention ownership agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate, or instrument furnished to the Purchaser or its agents in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in SCHEDULE A. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASER. The Purchaser represents and warrants to the Company that the following are true and correct in all material respects: 3.1. AUTHORITY. The Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. - 8 - 12 3.2. ACCREDITED INVESTOR STATUS. The Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares or any portion thereof; PROVIDED that the disposition of its property shall at all times be and remain within its control. It further represents that, except as otherwise disclosed in writing to the Company, it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser further represents that it is acquiring the Shares for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.2, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.3. FORMATION. The Purchaser was not organized for the purpose of making an investment in the Company. 3.4. RECEIPT OF INFORMATION. The Purchaser has been furnished such information and documents as the Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. REGISTRATION OF SECURITIES. The Purchaser represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. The Purchaser further represents and warrants to the Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. FINANCIAL MATTERS. The Purchaser represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, its investment in such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, the Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. TRANSFER LEGENDS AND RESTRICTIONS. The Transfer (as defined below) the Shares will be restricted in accordance with the terms hereof. "TRANSFER" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. - 9 - 13 Each certificate evidencing the Shares, the Additional Shares or the Common Stock issuable upon conversion of the Shares (collectively, the "SECURITIES"), including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such securities shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS D PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF MAY 18, 1994 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined below) of any Securities by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on such Securities, prior to any Transfer of any of the Securities (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Securities in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) that the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Securities shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Securities issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Securities, the Company shall remove the foregoing legend from the certificates evidencing such Securities and issue to such Holder new certificates free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel satisfactory to the Company, to the effect that any Transfers by such Holder of such Securities may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. "Holder" shall mean the Purchaser (in its capacity as holder of any Securities and for so long as it holds such Securities), and such of its respective successors and assigns who acquire Securities from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Securities subject to all the - 10 - 14 restrictions hereof, but in no event shall "Holder" include any transferee of any Securities pursuant to sales made under a registration statement filed under the Securities Act. 4.4. RULE 144. The Purchaser recognizes that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c) (1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by the Purchaser, the Company will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING. The obligation of the Purchaser to purchase and pay for the Shares is subject to the following: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the Closing Date, with the same force and effect as if they had been made on and as of the Closing Date. 5.2. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with. 5.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchaser a certificate (to be signed by its chief executive officer) dated the Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement dated as of November 3, 1993 by and among the Company and the purchasers listed on SCHEDULE A thereto (the "Registration Rights Agreement") shall have been amended to include the Shares and the Additional Shares in the definition of Registrable Shares in the Registration Rights Agreement. 5.5. PREEMPTIVE RIGHTS. The Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993 by and among the Company and the purchasers listed on Schedule A thereto (the "CLASS C PURCHASE AGREEMENT") shall have been amended to include the Purchaser as a "Buyer" under Section 8 of the Class C Purchase Agreement. Such amendment shall further provide that (i) a "Terminating Class Event," as defined in Section 8.1(b) of the Class C Purchase Agreement, shall mean, for the holders of Class D Preferred Stock, that fewer than 50,000 shares of the Class D Preferred Stock remain outstanding, and (ii) Class D Preferred Stock shall be included in the classes of Preferred Stock of the Company from which an amendment or waiver is required pursuant to Section 8.10 of the Class C Purchase Agreement. - 11 - 15 5.6. LICENSE AGREEMENT. The Company and the Purchaser shall have entered into a License Agreement in the form set forth as EXHIBIT B. 5.7. SUPPLY AGREEMENT. The Company and the Purchaser shall have entered into a Supply Agreement in the form set forth as EXHIBIT C. 5.8. OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received an opinion of Palmer & Dodge, counsel to the Company, substantially in the form of EXHIBIT D Hereto, which opinion shall be satisfactory in form and substance to the Purchaser. 5.9. AMENDED CERTIFICATE. The Amended Certificate shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.10. BLUE SKY MATTERS. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.11. CORPORATE PROCEEDINGS AND CONSENTS. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser and its counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 5.12. AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The Amended and Restated Voting Rights Agreement dated November 3, 1993 among the Company, the holders of the Class B Preferred Stock and Class C Purchasers (the "Voting Agreement") shall be amended to include the Purchaser as a party thereto with the right to designate a member of the Board of Directors with the holders of the Class B Preferred Stock and the Class C Preferred Stock pursuant to Section 2(iii) thereof. The Voting Agreement shall be further amended to include the Class D Preferred Stock in the definition of "Additional Preferred Stock". 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser made herein shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all - 12 - 16 such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchaser on or prior to the Closing Date shall have been performed or complied with. 6.4. AUTHORIZATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares or any portion thereof to the Purchaser as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with the Purchaser as follows, such covenants, other than as set forth in Section 7.1, 7.2 and 7.13, to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public which results in aggregate gross proceeds to the Company of not less than $10,000,000 (the "INITIAL PUBLIC OFFERING"). 7.1. ISSUANCE OF ADDITIONAL SHARES. In the event that an Initial Public Offering closes on or before March 31, 1995 at a Pre-Money Valuation (as defined below) of less than $100,000,000, then immediately after the closing of such Initial Public Offering, the Company will issue 73,781 Additional Shares of Common Stock to the Purchaser. If the Pre-Money Valuation of such Initial Public Offering is greater than $100,000,000 but less than $120,000,000, then immediately after the closing of such Initial Public Offering, the Company will issue Additional Shares of Common Stock to the Purchaser in an amount computed in accordance with the following formula: Additional shares = Z x (( $150,000,000 )-1) to be issued (( -----------------------------------------) ) (( (Pre-Money Valuation - $5,000,000) x 1.25) ) where: Z = Number of Shares of Common Stock issued upon conversion of the Shares initially issued to the Purchaser hereunder (280,367 Shares) The Pre-Money Valuation of the Company at its Initial Public Offering shall be computed by multiplying (A) the sum of (i) the number of shares listed as owned by Existing Stockholders in the "Dilution" section of the final Prospectus for the Company's Initial Public Offering plus (ii) the number of shares of Common Stock issuable upon exercise of all options, warrants or other rights to acquire Common Stock or upon conversion or exchange of all securities convertible into or exchangeable for Common Stock issued and outstanding at the effective date of the registration statement for the Company's Initial Public Offering times (B) the "Price to Public" stated in the final Prospectus for the Company's Initial Public Offering. - 13 - 17 7.2. PURCHASES OF COMMON STOCK UPON INITIAL PUBLIC OFFERING. At the closing of its Initial Public Offering, the Company will sell to the Purchaser and the Purchaser will purchase from the Company, at the "Price to Public" established for such Initial Public Offering, a number of shares of Common Stock of the Company equal to $5,000,000 divided by such "Price to Public"; provided, however, that at the option of the Company, all or any portion of such purchase and sale shall take place between the Purchaser and the Company's underwriters as part of its Initial Public Offering. In addition to the shares of Common Stock described in the preceding sentence, at the option of the Company upon consultation with the representatives of the underwriters of the Company's Initial Public Offering, the Purchaser will purchase from the Company, at the "Price to Public" established for such Initial Public Offering, an additional number of shares of Common Stock of the Company equal to $5,000,000 divided by such "Price to Public"; provided, however, that at the option of the Company, all or any portion of such purchase and sale shall also take place between the Purchaser and the Company's underwriters as part of its Initial Public Offering. Any shares of Common Stock sold pursuant to this Section 7.2 will be covered by an effective registration statement permitting resale of such shares by the Purchaser in the public market. 7.3. STANDSTILL AGREEMENT. The Purchaser agrees that, unless it has obtained the prior written consent of the Company or the restrictions contained in this Section 7.3 have otherwise been released or suspended as provided below, it will not (a) acquire, directly or indirectly, by purchase or otherwise, of record or beneficially, any voting securities of the Company, or rights or options to acquire voting securities of the Company, if after such acquisition (and giving effect to the exercise of any such rights or options) the Purchaser would own of record or beneficially in the aggregate more than 19.9% of the voting securities of the Company (assuming the exercise of all outstanding rights or options to acquire voting securities) (the "Limit"); provided that notwithstanding the provisions of this clause (a), if the number of shares of outstanding voting securities is reduced or if the aggregate ownership of the Purchaser is increased as a result of a recapitalization of the Company or as a result of any other action taken by the Company, the Purchaser will not be required to dispose of any of its holdings of voting securities which the Purchaser would then be permitted to own. In the event that the Purchaser owns in the aggregate more than the Limit due to a repurchase by the Company of any of its Common Stock, the Company shall, at its option, have the right to repurchase that number of shares of its Common Stock from the Purchaser necessary to reduce the Purchaser's ownership of the Company's Common Stock below the Limit, at the current market price. Except as otherwise provided above, and except for any voting securities acquired by the Purchaser during any period that the restrictions contained in this Section 7.3 are suspended as provided below, if the Purchaser shall at any time own in the aggregate in excess of the maximum percentage of the voting securities at the time permitted by this clause (a), the Purchaser shall sell as promptly as practicable under the circumstances sufficient voting securities so that after such sale the Purchaser shall not own in the aggregate more than the applicable maximum permitted percentage of voting securities (provided, however, that the foregoing paragraph shall not be deemed to limit the Company's remedies in the event that the excess voting securities were acquired in violation of this Section); - 14 - 18 (b) "solicit" proxies with respect to voting securities under any circumstances or become a "participant" in any "election contest" relating to the election of directors of the Company, as such terms are defined in Regulation 14A under the Securities and Exchange Act of 1934, as amended; deposit any voting securities in a voting trust or subject them to a voting agreement or other agreement of similar effect; (c) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals at any time, or induce or attempt to induce any other person to initiate any stockholder proposal; or (d) take any action individually or jointly with any partnership, limited partnership, syndicate, or other group or assist any other person, corporation, entity or group in taking any action it could not take individually under the terms of this Agreement. Notwithstanding the foregoing, the restrictions contained in this S ection 7.3 (i) shall be released at such time as the Board of Directors of the Company determines to accept bids from any responsible bidder to obtain the best price for the sale of the Company; or (ii) shall be suspended at such time as any third party makes an unsolicited offer to acquire more than fifty percent (50%) of the outstanding securities of the Company, but only so long as such offer is outstanding; and (iii) shall be released in any event, on the tenth anniversary of the date hereof. 7.4. QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to the Purchaser, for so long as the Purchaser holds at least fifteen percent (15%) of the number of Shares purchased by it hereunder (in which case, the Purchaser shall be deemed to be "Qualified") copies of the Company's unaudited balance sheet as of the end of, and unaudited statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated financial statements of the Company and all such consolidated subsidiaries. In no event will the Purchaser make any use or disclosure of the financial statements referred to in this Section 7.4 or Section 7.5 or other information acquired pursuant to Section 7.6, except in connection with evaluating its investment in the Company. 7.5. ANNUAL FINANCIAL STATEMENTS. Within ninety (90) days after the end of each fiscal year, the Company will deliver to Purchaser, for so long as the Purchaser Qualifies, - 15 - 19 audited financial statements analogous to those required by Section 7.4 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.6. OTHER INFORMATION. Upon the reasonable request of the Purchaser, if the Purchaser then Qualifies, the Company will deliver to the Purchaser other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit the Purchaser, if the Purchaser then Qualifies, at the expense of the Purchaser, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as the Purchaser may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; provided, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.7. USE OF PROCEEDS. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.8. INSURANCE. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall maintain "Key Man Insurance" on the lives of K. Michael Forrest and Richard F. Selden in an aggregate face amount of not less than $1,000,000 per person for so long as such person is employed by the Company. 7.9. PAYMENT OF TAXES. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind - 16 - 20 (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; PROVIDED, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.10. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, provided, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.11. MAINTENANCE OF PROPERTIES. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.12. RESERVATION OF COMMON STOCK. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of shares of Common Stock issuable upon conversion of the Shares and the number of Additional Shares, and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, including without limitation pursuant to Section 4.5 of the Certificate of Incorporation, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.12. 7.13. SEC REPORTS. Promptly after each such filing, the Company will furnish the Purchaser with copies of all proxy statements and annual reports and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 8. MISCELLANEOUS. 8.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement, together with the Schedules and Exhibits hereto sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to the Purchaser shall be deemed to constitute for all purposes the furnishing of such documents by the Company to the Purchaser under this Agreement or in connection with the offering hereunder. - 17 - 21 8.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by telecopier, addressed as follows: (a) if to the Purchaser: Marion Merrell Dow Inc. 9300 Ward Parkway, P.O. Box 8480 Kansas City, Missouri 64114-0480 Attention: General Counsel Telephone: (816) 966-4000 Telecopy: (816) 966-3805 with copies to: Marion Merrell Dow Inc. 2110 E. Galbraith Road Cincinnati, OH 45215 Attention: Patent Counsel Telephone: (513) 948-7960 Telecopy: (513) 948-7961 and Shook, Hardy & Bacon, P.C. One Kansas City Place 1200 Main Street, Suite 3100 Kansas, City, Missouri 64105 Attention: Randall B. Sunberg, Esq. Telephone: (816) 474-6550 Telecopy: (816) 421-5547 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer Telephone: (617) 349-0200 Telecopy: (617) 491-7903 - 18 - 22 with a copy to: Palmer & Dodge One Beacon Street Boston, MA 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of facsimile and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 8.3. EXPENSES. Except as provided in the Registration Rights Agreement, each party will bear its own expenses in connection with this Agreement. 8.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by the Company or the Purchaser in connection herewith shall survive the execution and delivery of this Agreement and the issuance of the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 8.5. AMENDMENTS; WAIVERS. Changes in or additions to this Agreement may be made by written document executed by the Company and the Purchaser. The Purchaser may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Purchaser in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Purchaser. 8.6. GOVERNING LAW. This Agreement shall be construed and enforced under the laws of the State of Delaware, without giving effect to the choice of law provisions thereof. 8.7. MISCELLANEOUS. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. - 19 - 23 This Class D Preferred Stock Purchase Agreement has been SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. COMPANY: -------- TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ---------------------------------------- Title: President and CEO ------------------------------------- PURCHASER: ---------- MARION MERRELL DOW INC. By: /s/ Terry J. Shelton ------------------------------------------ Title: Vice President, Licensing and Business -------------------------------------- Development -------------------------------------- - 20 - EX-10.7 14 CLASS E PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.7 =============================================================================== CLASS E PREFERRED STOCK PURCHASE AGREEMENT by and between TRANSKARYOTIC THERAPIES, INC. and MARION MERRELL DOW INC. Dated as of March 1, 1995 =============================================================================== 2 TRANSKARYOTIC THERAPIES, INC. CLASS E PREFERRED STOCK PURCHASE AGREEMENT TABLE OF CONTENTS ----------------- PAGE 1. PURCHASE AND SALE OF THE SHARES................................ 1 1.1. Purchase of Stock........................................ 1 1.2. Closing.................................................. 1 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY.................. 2 2.1. Organization and Standing of the Company................. 2 2.2. Subsidiaries............................................. 2 2.3. Capitalization........................................... 2 2.4. Financial Information.................................... 3 2.5. Absence of Undisclosed Liabilities....................... 3 2.6. Absence of Certain Changes............................... 4 2.7. Taxes.................................................... 4 2.8. Title to Properties; Liens and Encumbrances.............. 5 2.9. Intellectual Property Rights............................. 5 2.10. Government Approvals and Licenses........................ 5 2.11. Contracts................................................ 5 2.12. Directors and Officers................................... 7 2.13. Litigation............................................... 7 2.14. Authorization............................................ 7 2.15. Brokers.................................................. 7 2.16. Governmental Consents.................................... 7 2.17. Securities Laws.......................................... 8 2.18. Legal Compliance......................................... 8 2.19. Insurance................................................ 8 2.20. Nondisclosure Agreement.................................. 8 2.21. Disclosures.............................................. 8 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASER................ 9 3.1. Authority................................................ 9 3.2. Accredited Investor Status............................... 9 3.3. Formation................................................ 9 3.4. Receipt of Information................................... 9 4. SECURITIES LAWS................................................ 9 4.1. Registration of Securities............................... 9 4.2. Financial Matters........................................ 10 (i) 3 4.3. Transfer Legends and Restrictions........................ 10 4.4. Rule 144................................................. 11 5. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING........... 11 5.1. Representations and Warranties........................... 11 5.2. Performance.............................................. 12 5.3. Compliance Certificate................................... 12 5.4. Registration Rights Agreement............................ 12 5.5. Preemptive Rights........................................ 12 5.6. Amended and Restated Voting Rights Agreement............. 12 5.7. Amended and Restated License Agreement................... 12 5.8. License Agreement........................................ 12 5.9. Opinion of Company's Counsel............................. 12 5.10. Termination of Supply Agreement.......................... 12 5.11. Amended Certificate...................................... 13 5.12. Blue Sky Matters......................................... 13 5.13. Corporate Proceedings and Consents....................... 13 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING............. 13 6.1. Representations and Warranties........................... 13 6.2. Proceedings and Documents................................ 13 6.3. Performance.............................................. 13 6.4. Authorizations........................................... 13 7. AFFIRMATIVE COVENANTS.......................................... 13 7.1. Standstill Agreement..................................... 14 7.2. Quarterly Financial Statements........................... 15 7.3. Annual Financial Statements.............................. 15 7.4. Other Information........................................ 15 7.5. Use of Proceeds.......................................... 16 7.6. Insurance................................................ 16 7.7. Payment of Taxes......................................... 16 7.8. Corporate Existence...................................... 17 7.9. Maintenance of Properties................................ 17 7.10. Reservation of Common Stock.............................. 17 7.11. SEC Reports.............................................. 17 8. MISCELLANEOUS.................................................. 17 8.1. Entire Agreement; Successors............................. 17 8.2. Notices.................................................. 18 8.3. Expenses................................................. 19 8.4. Survival of Representations and Warranties............... 19 8.5. Amendments; Waivers...................................... 19 8.6. Governing Law............................................ 19 (ii) 4 8.7. Miscellaneous............................................ 19 (iii) 5 TRANSKARYOTIC THERAPIES, INC. CLASS E PREFERRED STOCK PURCHASE AGREEMENT This Class E Preferred Stock Purchase Agreement (this "AGREEMENT") is made as of the 1st day of March, 1995 by and between Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and Marion Merrell Dow Inc., a Delaware corporation (the "PURCHASER"). WHEREAS, the Purchaser and the Company have entered into a License Agreement dated as of the date hereof; and WHEREAS, the Purchaser desires to subscribe for and purchase, and the Company desires to issue and sell, shares of the Company's Class E Preferred Stock, $1.00 par value per share (the "CLASS E PREFERRED STOCK"), subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE SHARES 1.1. PURCHASE OF STOCK. On the Closing Date (as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, 523,560 shares of Class E Preferred Stock at a price of $19.10 per share (the "Shares"). The powers, designations, preferences, rights and qualifications, limitations and restrictions of the Class E Preferred Stock are as set forth in the Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the "AMENDED CERTIFICATE") attached as EXHIBIT A hereto. 1.2. CLOSING. The closing of the purchase and sale of the Shares hereunder (the "CLOSING") shall take place at the offices of Palmer & Dodge at 10:00 am., local time, on March 1, 1995 or at such other time and date as the Company and the Purchaser may agree upon in writing (the "CLOSING DATE"). At the Closing, the Company will deliver to the Purchaser a certificate evidencing the number of Shares being purchased by the Purchaser pursuant to Section 1.1, against payment by the Purchaser of the entire purchase price for the Shares in lawful money of the United States of America by bank or certified check, wire- transfer or such other form of payment as shall be mutually agreed upon by the Purchaser and the Company. -1- 6 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to the Purchaser that, as of the date of this Agreement, except as otherwise described on SCHEDULE A hereto, the following are true and correct: 2.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the Commonwealth of Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copy of the Company's Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), which has been delivered to the Purchaser, is true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. SUBSIDIARIES. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. CAPITALIZATION. The Company's entire authorized capital stock will consist, immediately after the filing of the Amended Certificate with the Secretary of State of the State of Delaware, of 15,000,000 shares of Common Stock (of which 4,020,230 shares have been issued), and 2,744,927 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which: 6,000 shares have been designated as Class A Preferred Stock (the "CLASS A PREFERRED STOCK"), all of which have been issued; 60,000 shares have been designated as Class B Preferred Stock (the "CLASS B PREFERRED STOCK"), of which 49,339 shares have been issued; 1,875,000 shares have been designated as Class C Preferred Stock (the "CLASS C PREFERRED STOCK"), of which 1,015,974 shares have been issued; 280,367 shares have been designated as Class D Preferred Stock (the "CLASS D PREFERRED STOCK"), of which 280,367 shares have been issued; and 523,560 shares of Class E Preferred Stock, none of which are issued and outstanding immediately prior to the Closing. 179,845 shares of Common Stock are held of record in the Company's treasury. The number of shares and class of capital stock of the Company which have been issued are listed on SCHEDULE A opposite the names of the record holders thereof, excluding those record holders who are employees of the Company, which employees hold, in the aggregate, 1,421,660 shares of the outstanding capital stock of the Company. The Company has reserved 1,250,000 shares of Common Stock for issuance to employees and consultants under the 1993 Long-Term Incentive Plan (the "INCENTIVE PLAN") and 180,000 shares of Common Stock for issuance to non-employee directors under the 1993 Non-Employee Directors' Stock Option Plan (the "DIRECTORS' PLAN"). The Company has granted options under the Incentive Plan for the purchase of 126,145 shares of Common Stock. No options have been granted under the Directors' Plan. The Company has granted warrants for the purchase of 635,517 shares of Common Stock. In addition, the -2- 7 Company has reserved a sufficient number of shares of Common Stock for the conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock and Class E Preferred Stock. The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), except as provided in this Agreement or Article IV of the Certificate of Incorporation. The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in the Certificate of Incorporation and the Amended Certificate. All outstanding shares of Common Stock and Preferred Stock have been, and the Class E Preferred Stock when issued in accordance with this Agreement, the Certificate of Incorporation and the Amended Certificate will be, validly issued and fully paid and nonassessable, and issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than the 126,145 options granted pursuant to the Incentive Plan referred to above, options it is committed to grant annually under the Directors' Plan to eligible Directors, or warrants described above and listed on SCHEDULE A hereto, and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at the Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, by the Certificate of Incorporation and By-laws of the Company or as indicated on SCHEDULE A hereto, and the Company will not voluntarily place any restrictions on the transfer of the Shares except to the extent set forth herein or contemplated hereby. 2.4. FINANCIAL INFORMATION. The Company has delivered to the Purchaser a copy of (a) its draft audited balance sheet (the "BALANCE SHEET") as of December 31, 1994 (the "FINANCIAL STATEMENT DATE") and the related draft statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (with the Balance Sheet, the "DRAFT AUDITED FINANCIALS"), and (b) its most recent audited balance sheet and related statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (the "Audited Financials") the "Audited Financials," and together with the Draft Audited Financials, the "Financial Statements"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended. 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to -3- 8 the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business. 2.6. ABSENCE OF CERTAIN CHANGES. Since the Financial Statement Date, other than as indicated on SCHEDULE A hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. TAXES. For all periods ended on or prior to the Financial Statement Date, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to -4- 9 be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as indicated on SCHEDULE A hereto, the Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $25,000. 2.9. INTELLECTUAL PROPERTY RIGHTS. Attached hereto as SCHEDULE B is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company (the "Intellectual Property") are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Intellectual Property violates or infringes rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in SCHEDULE B, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of the Intellectual Property. 2.10. GOVERNMENT APPROVALS AND LICENSES. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. CONTRACTS. Other than as set forth in SCHEDULE A or B or described elsewhere in this Section 2, the Company has no presently existing contract, obligation or commitment (a) involving the future payment by or to the Company of more than $25,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: -5- 10 (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; or (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and substantially all of the assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters of intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. -6- 11 True and complete copies of all contracts and other items listed on SCHEDULE A have been made available to the Purchaser. The Company has complied with all the material provisions of said contracts and commitments set forth in SCHEDULE A hereto and of all other material contracts and commitments to which it is a party, and is not in material default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. 2.12. DIRECTORS AND OFFICERS. SCHEDULE A hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. LITIGATION. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company or the Company's properties, nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Shares, upon conversion of the Shares, the Common Stock into which the Shares are convertible, have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares, upon conversion of the Shares, the Common Stock into which the Shares are convertible, will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. BROKERS. Except as described on SCHEDULE A, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. GOVERNMENTAL CONSENTS. Based in part on the representations made by the Purchaser in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the -7- 12 execution and delivery of this Agreement or the offer, issuance, sale or delivery of the Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. SECURITIES LAWS. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchaser's representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at the Closing and on the date of the issuance of the shares of Common Stock into which the Shares are convertible, the offering and sale of the Shares, and the issuance of the shares of Common Stock upon conversion of the Shares, are each exempt, or will each be exempt, as the case may be, from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. LEGAL COMPLIANCE. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. INSURANCE. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. NONDISCLOSURE AGREEMENT. The Company has entered into nondisclosure and invention ownership agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate, or instrument furnished to the Purchaser or its agents in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no -8- 13 information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in SCHEDULE A. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASER. The Purchaser represents and warrants to the Company that the following are true and correct in all material respects: 3.1. AUTHORITY. The Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. ACCREDITED INVESTOR STATUS. The Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares or any portion thereof; PROVIDED that the disposition of its property shall at all times be and remain within its control. It further represents that, except as otherwise disclosed in writing to the Company, it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser further represents that it is acquiring the Shares for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.2, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.3. FORMATION. The Purchaser was not organized for the purpose of making an investment in the Company. 3.4. RECEIPT OF INFORMATION. The Purchaser has been furnished such information and documents as the Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. REGISTRATION OF SECURITIES. The Purchaser represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. The Purchaser further represents and warrants to the -9- 14 Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. FINANCIAL MATTERS. The Purchaser represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, its investment in such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, the Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. TRANSFER LEGENDS AND RESTRICTIONS. The Transfer (as defined below) of the Shares will be restricted in accordance with the terms hereof. "TRANSFER" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. Each certificate evidencing the Shares or the Common Stock issuable upon conversion of the Shares (collectively, the "SECURITIES"), including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such securities shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS E PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF MARCH 1, 1995 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined below) of any Securities by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on such Securities, prior to any Transfer of any of the Securities (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and -10- 15 agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Securities in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) that the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Securities shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Securities issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Securities, the Company shall remove the foregoing legend from the certificates evidencing such Securities and issue to such Holder new certificates free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel satisfactory to the Company, to the effect that any Transfers by such Holder of such Securities may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. "HOLDER" shall mean the Purchaser (in its capacity as holder of any Securities and for so long as it holds such Securities), and such of its respective successors and assigns who acquire Securities from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Securities subject to all the restrictions hereof, but in no event shall "Holder" include any transferee of any Securities pursuant to sales made under a registration statement filed under the Securities Act. 4.4. RULE 144. The Purchaser recognizes that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c) (1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by the Purchaser, the Company will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT CLOSING. The obligation of the Purchaser to purchase and pay for the Shares is subject to the following: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the Closing Date, with the same force and effect as if they had been made on and as of the Closing Date. -11- 16 5.2. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with. 5.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchaser a certificate (to be signed by its chief executive officer) dated the Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on SCHEDULE A thereto and the Purchaser (the "Registration Rights Agreement") shall have been amended further to include the Shares in the definition of Registrable Shares in the Registration Rights Agreement. 5.5. PREEMPTIVE RIGHTS. The Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on Schedule A thereto and the Purchaser (the "CLASS C PURCHASE AGREEMENT") shall have been amended further to provide that (i) a "Terminating Class Event," as defined in Section 8.1(b) of the Class C Purchase Agreement, shall mean, for the holders of Class E Preferred Stock, that fewer than 50,000 shares of the Class E Preferred Stock remain outstanding, and (ii) Class E Preferred Stock shall be included in the classes of Preferred Stock of the Company from which an amendment or waiver is required pursuant to Section 8.10 of the Class C Purchase Agreement. 5.6. AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The Amended and Restated Voting Rights Agreement dated November 3, 1993, as amended, among the Company, the holders of the Class B Preferred Stock and Class C Purchasers and the Purchaser (the "Voting Agreement") shall be amended further to include the Class E Preferred Stock in the definitions of "Additional Preferred Stock" and "Voting Securities". 5.7. AMENDED AND RESTATED LICENSE AGREEMENT. The Company and the Purchaser shall have entered into a Amended and Restated License Agreement in the form set forth as Exhibit B. 5.8. LICENSE AGREEMENT. The Company and the Purchaser shall have entered into a License Agreement in the form set forth as EXHIBIT C. 5.9. OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received an opinion of Palmer & Dodge, counsel to the Company, substantially in the form of EXHIBIT D hereto, which opinion shall be satisfactory in form and substance to the Purchaser. 5.10. TERMINATION OF SUPPLY AGREEMENT. The Supply Agreement dated May 18, 1994 between the Company and the Purchaser shall have been terminated. -12- 17 5.11. AMENDED CERTIFICATE. The Amended Certificate shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.12. BLUE SKY MATTERS. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.13. CORPORATE PROCEEDINGS AND CONSENTS. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser and its counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser made herein shall be true, correct and complete in all material respects on and as of the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchaser on or prior to the Closing Date shall have been performed or complied with. 6.4. AUTHORIZATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares or any portion thereof to the Purchaser as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with the Purchaser as follows, such covenants, other than as set forth in Section 7.11, to expire at such times as the Company shall have consummated a firm commitment underwritten public offering -13- 18 pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public which results in aggregate gross proceeds to the Company of not less than $10,000,000 (the "INITIAL PUBLIC OFFERING"). 7.1. STANDSTILL AGREEMENT. The Purchaser agrees that, unless it has obtained the prior written consent of the Company or the restrictions contained in this Section 7.1 have otherwise been released or suspended as provided below, it will not (a) acquire, directly or indirectly, by purchase or otherwise, of record or beneficially, any voting securities of the Company, or rights or options to acquire voting securities of the Company, if after such acquisition (and giving effect to the exercise of any such rights or options) the Purchaser would own of record or beneficially in the aggregate more than 19.9% of the voting securities of the Company (assuming the exercise of all outstanding rights or options to acquire voting securities) (the "Limit"); provided that notwithstanding the provisions of this clause (a), if the number of shares of outstanding voting securities is reduced or if the aggregate ownership of the Purchaser is increased as a result of a recapitalization of the Company or as a result of any other action taken by the Company, the Purchaser will not be required to dispose of any of its holdings of voting securities which the Purchaser would then be permitted to own. In the event that the Purchaser owns in the aggregate more than the Limit due to a repurchase by the Company of any of its Common Stock, the Company shall, at its option, have the right to repurchase that number of shares of its voting securities from the Purchaser necessary to reduce the Purchaser's ownership of the Company's voting securities below the Limit, at the greater of the purchase price paid by the Purchaser for the Shares or the current market price of the Shares. Except as otherwise provided above, and except for any voting securities acquired by the Purchaser during any period that the restrictions contained in this Section 7.1 are suspended as provided below, if the Purchaser shall at any time own in the aggregate in excess of the maximum percentage of the voting securities at the time permitted by this clause (a), the Purchaser shall sell as promptly as practicable under the circumstances sufficient voting securities so that after such sale the Purchaser shall not own in the aggregate more than the applicable maximum permitted percentage of voting securities (provided, however, that the foregoing paragraph shall not be deemed to limit the Company's remedies in the event that the excess voting securities were acquired in violation of this Section); (b) "solicit" proxies with respect to voting securities under any circumstances or become a "participant" in any "election contest" relating to the election of directors of the Company, as such terms are defined in Regulation 14A under the Securities and Exchange Act of 1934, as amended; deposit any voting securities in a voting trust or subject them to a voting agreement or other agreement of similar effect; (c) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals at any time, or induce or attempt to induce any other person to initiate any stockholder proposal; or -14- 19 (d) take any action individually or jointly with any partnership, limited partnership, syndicate, or other group or assist any other person, corporation, entity or group in taking any action it could not take individually under the terms of this Agreement. Notwithstanding the foregoing, the restrictions contained in this Section 7.1 (i) shall be released at such time as the Board of Directors of the Company determines to accept bids from any responsible bidder to obtain the best price for the sale of the Company; or (ii) shall be suspended at such time as any third party makes an unsolicited offer to acquire more than fifty percent (50%) of the outstanding securities of the Company, but only so long as such offer is outstanding; and (iii) shall be released in any event, on May 18, 2004. 7.2. QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to the Purchaser, for so long as the Purchaser holds at least fifteen percent (15%) of the number of Shares purchased by it hereunder (in which case, the Purchaser shall be deemed to be "Qualified") copies of the Company's unaudited balance sheet as of the end of, and unaudited statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated financial statements of the Company and all such consolidated subsidiaries. In no event will the Purchaser make any use or disclosure of the financial statements referred to in this Section 7.2 or Section 7.3 or other information acquired pursuant to Section 7.4, except in connection with evaluating its investment in the Company. 7.3. ANNUAL FINANCIAL STATEMENTS. Within ninety (90) days after the end of each fiscal year, the Company will deliver to Purchaser, for so long as the Purchaser Qualifies, audited financial statements analogous to those required by Section 7.2 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.4. OTHER INFORMATION. Upon the reasonable request of the Purchaser, if the Purchaser then Qualifies, the Company will deliver to the Purchaser other information and -15- 20 data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit the Purchaser, if the Purchaser then Qualifies, at the expense of the Purchaser, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as the Purchaser may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; PROVIDED, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.5. USE OF PROCEEDS. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.6. INSURANCE. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall maintain "Key Man Insurance" on the life of Richard F. Selden in an aggregate face amount of not less than $1,000,000 for so long as Dr. Selden is employed by the Company. 7.7. PAYMENT OF TAXES. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; PROVIDED, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. -16- 21 7.8. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, PROVIDED, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.9. MAINTENANCE OF PROPERTIES. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.10. RESERVATION OF COMMON STOCK. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of shares of Common Stock issuable upon conversion of the Shares, and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, including without limitation pursuant to Section 4.5 of the Certificate of Incorporation, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.10. 7.11. SEC REPORTS. Promptly after each such filing, the Company will furnish the Purchaser with copies of all proxy statements and annual reports and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 8. MISCELLANEOUS. 8.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement, together with the Schedules and Exhibits hereto sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to the Purchaser shall be deemed to constitute for all purposes the furnishing of such documents by the Company to the Purchaser under this Agreement or in connection with the offering hereunder. 8.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered by facsimile (and promptly confirmed by telephone, personal delivery or courier) or -17- 22 given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by telecopier, addressed as follows: (a) if to the Purchaser: Marion Merrell Dow Inc. 9300 Ward Parkway, P.O. Box 8480 Kansas City, Missouri 64114-0480 Attention: General Counsel Telephone: (816) 966-4000 Telecopy: (816) 966-3805 with copies to: Marion Merrell Dow Inc. 2110 E. Galbraith Road Cincinnati, OH 45215 Attention: Patent Counsel Telephone: (513) 948-7960 Telecopy: (513) 948-7961 and Shook, Hardy & Bacon, P.C. One Kansas City Place 1200 Main Street, Suite 3100 Kansas, City, Missouri 64105 Attention: Randall B. Sunberg, Esq. Telephone: (816) 474-6550 Telecopy: (816) 421-5547 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer Telephone: (617) 349-0200 Telecopy: (617) 491-7903 with a copy to: -18- 23 Palmer & Dodge One Beacon Street Boston, MA 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of facsimile and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 8.3. EXPENSES. Except as provided in the Registration Rights Agreement, each party will bear its own expenses in connection with this Agreement. 8.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by the Company or the Purchaser in connection herewith shall survive the execution and delivery of this Agreement and the issuance of the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 8.5. AMENDMENTS; WAIVERS. Changes in or additions to this Agreement may be made by written document executed by the Company and the Purchaser. The Purchaser may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Purchaser in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Purchaser. 8.6. GOVERNING LAW. This Agreement shall be construed and enforced under the laws of the State of Delaware, without giving effect to the choice of law provisions thereof. 8.7. Miscellaneous. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. -19- 24 This Class E Preferred Stock Purchase Agreement has been SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. COMPANY: -------- TRANSKARYOTIC THERAPIES, INC. By: /s/ Richard F. Selden ---------------------------------------- Title: President and CEO PURCHASER: ---------- MARION MERRELL DOW INC. By: /s/ Terry J. Shelton ----------------------------------------- Title: Vice President, Licensing and Business -------------------------------------- Devlopment -------------------------------------- -20- EX-10.8 15 CLASS F PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.8 =============================================================================== CLASS F PREFERRED STOCK PURCHASE AGREEMENT by and between TRANSKARYOTIC THERAPIES, INC. and THE PURCHASERS LISTED ON SCHEDULE A HERETO Dated as of October 26, 1995 =============================================================================== 2 TRANSKARYOTIC THERAPIES, INC. CLASS F PREFERRED STOCK PURCHASE AGREEMENT TABLE OF CONTENTS ----------------- PAGE 1. PURCHASE AND SALE OF THE SHARES................................-1- 1.1. Purchase of Stock........................................-1- ----------------- 1.2. Closing..................................................-1- ------- 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY..................-2- 2.1. Organization and Standing of the Company.................-2- ---------------------------------------- 2.2. Subsidiaries.............................................-2- ------------ 2.3. Capitalization...........................................-2- -------------- 2.4. Financial Information....................................-3- --------------------- 2.5. Absence of Undisclosed Liabilities.......................-4- ---------------------------------- 2.6. Absence of Certain Changes...............................-4- -------------------------- 2.7. Taxes....................................................-5- ----- 2.8. Title to Properties; Liens and Encumbrances..............-5- ------------------------------------------- 2.9. Intellectual Property Rights.............................-5- ---------------------------- 2.10. Government Approvals and Licenses........................-5- --------------------------------- 2.11. Contracts................................................-6- --------- 2.12. Directors and Officers...................................-7- ---------------------- 2.13. Litigation...............................................-7- ---------- 2.14. Authorization............................................-7- ------------- 2.15. Brokers..................................................-8- ------- 2.16. Governmental Consents....................................-8- --------------------- 2.17. Securities Laws..........................................-8- --------------- 2.18. Legal Compliance.........................................-8- ---------------- 2.19. Insurance................................................-8- --------- 2.20. Nondisclosure Agreement..................................-9- ----------------------- 2.21. Disclosures..............................................-9- ----------- 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS...............-9- 3.1. Authority................................................-9- --------- 3.2. Accredited Investor Status...............................-9- -------------------------- 3.3. Formation; Status.......................................-10- ----------------- 3.4. Receipt of Information..................................-10- ---------------------- 4. SECURITIES LAWS...............................................-10- 4.1. Registration of Securities..............................-10- -------------------------- (i) 3 4.2. Financial Matters.......................................-10- ----------------- 4.3. Transfer Legends and Restrictions.......................-10- --------------------------------- 4.4. Rule 144................................................-11- -------- 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING..........-12- 5.1. Representations and Warranties..........................-12- ------------------------------ 5.2. Performance.............................................-12- ----------- 5.3. Compliance Certificate..................................-12- ---------------------- 5.4. Registration Rights Agreement...........................-12- ----------------------------- 5.5. Preemptive Rights.......................................-12- ----------------- 5.6. Amended and Restated Voting Rights Agreement............-12- -------------------------------------------- 5.7. Opinion of Company's Counsel............................-13- ---------------------------- 5.8. Amended Certificate.....................................-13- ------------------- 5.9. Blue Sky Matters........................................-13- ---------------- 5.10. Corporate Proceedings and Consents......................-13- ---------------------------------- 5.11. No Material Adverse Change..............................-13- -------------------------- 5.12. Hart-Scott-Rodino Filing................................-13- ------------------------ 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING............-13- 6.1. Representations and Warranties..........................-13- ------------------------------ 6.2. Proceedings and Documents...............................-13- ------------------------- 6.3. Performance.............................................-14- ----------- 6.4. Authorizations..........................................-14- -------------- 7. AFFIRMATIVE COVENANTS.........................................-14- 7.1. Quarterly Financial Statements..........................-14- ------------------------------ 7.2. Annual Financial Statements.............................-14- --------------------------- 7.3. Other Information.......................................-15- ----------------- 7.4. Use of Proceeds.........................................-15- --------------- 7.5. Insurance...............................................-15- --------- 7.6. Payment of Taxes........................................-15- ---------------- 7.7. Corporate Existence.....................................-16- ------------------- 7.8. Maintenance of Properties...............................-16- ------------------------- 7.9. Reservation of Common Stock.............................-16- --------------------------- 7.10. SEC Reports.............................................-16- ----------- 8. MISCELLANEOUS.................................................-16- 8.1. Entire Agreement; Successors............................-16- ---------------------------- 8.2. Notices.................................................-17- ------- 8.3. Expenses................................................-18- -------- 8.4. Survival of Representations and Warranties..............-18- ------------------------------------------ 8.5. Amendments; Waivers.....................................-18- ------------------- 8.6. Governing Law...........................................-18- ------------- 8.7. Miscellaneous...........................................-18- ------------- (ii) 4 (iii) 5 TRANSKARYOTIC THERAPIES, INC. CLASS F PREFERRED STOCK PURCHASE AGREEMENT This Class F Preferred Stock Purchase Agreement (this "AGREEMENT") is made as of the 26th day of October, 1995 by and between Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and the Purchasers listed on SCHEDULE A hereto (the "Purchasers"). WHEREAS, the Purchasers desire to subscribe for and purchase, and the Company desires to issue and sell, shares of the Company's Class F Preferred Stock, $1.00 par value per share (the "CLASS F PREFERRED STOCK"), subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE SHARES 1.1. PURCHASE OF STOCK. On the First Closing Date and the Second Closing Date (each as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Purchasers, and each of the Purchasers agree to purchase from the Company, on Closing Date (as defined in Section 1.2 below) indicated on SCHEDULE A hereto for each Purchaser, the number of shares of Class F Preferred Stock set forth opposite the name of each such Purchaser on SCHEDULE A hereto at a price of $14.00 per share (the "Shares"). The powers, designations, preferences, rights and qualifications, limitations and restrictions of the Class F Preferred Stock are as set forth in the Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the "AMENDED CERTIFICATE") attached as Exhibit A hereto. 1.2. CLOSING. The initial closing of the purchase and sale of the Shares hereunder (the "FIRST CLOSING") shall take place at the offices of Palmer & Dodge at 10:00 am., local time, on October 26, 1995 or at such other time and date as the Company and the Purchasers may agree upon in writing (the "FIRST CLOSING DATE"). The second closing of the purchase and sale of the Shares hereunder (the "SECOND CLOSING" and, together with the First Closing, a "Closing") shall take place at the offices of Palmer & Dodge as soon as is practicable following the satisfaction of the condition described in Section 5.12 hereof (the "SECOND CLOSING DATE" and, together with the First Closing Date, a "CLOSING DATE"). At each Closing, the Company will deliver to each Purchaser participating in such Closing a certificate 1 6 evidencing the number of Shares being purchased by such Purchaser at such Closing pursuant to Section 1.1, against payment by such Purchaser of the entire purchase price for the Shares being purchased by such Purchaser in lawful money of the United States of America by bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by such Purchaser and the Company. 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to the Purchasers that, as of the date of this Agreement, except as otherwise described on SCHEDULE B hereto, the following are true and correct: 2.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the Commonwealth of Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copy of the Company's Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), which has been delivered to the Purchaser, is true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. SUBSIDIARIES. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. CAPITALIZATION. The Company's entire authorized capital stock will consist, immediately after the filing of the Amended Certificate with the Secretary of State of the State of Delaware, of 15,000,000 shares of Common Stock (of which 4,043,032 shares have been issued), and 3,816,356 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which: 6,000 shares have been designated as Class A Preferred Stock (the "CLASS A PREFERRED STOCK"), all of which have been issued; 60,000 shares have been designated as Class B Preferred Stock (the "Class B Preferred Stock"), of which 49,339 shares have been issued; 1,875,000 shares have been designated as Class C Preferred Stock (the "CLASS C PREFERRED STOCK"), of which 1,015,974 shares have been issued; 280,367 shares have been designated as Class D Preferred Stock (the "CLASS D PREFERRED STOCK"), of which 280,367 shares have been issued; 523,560 shares have been designated as Class E Preferred Stock (the "CLASS E PREFERRED STOCK"), of which 523,560 shares have been issued; and 1,071,429 shares have been designated as Class F Preferred Stock, none of which are issued and outstanding immediately prior to the Closing. 181,121 shares of Common Stock are held of record in the Company's treasury. The number of shares and class of capital stock of the Company which have been issued are listed on SCHEDULE B opposite the names of the record holders thereof, 2 7 excluding those record holders who are current or former employees of the Company, which current and former employees hold, in the aggregate, 1,426,462 shares of the outstanding capital stock of the Company. The Company has reserved 1,250,000 shares of Common Stock for issuance to employees and consultants under the 1993 Long-Term Incentive Plan (the "INCENTIVE PLAN") and 180,000 shares of Common Stock for issuance to non-employee directors under the 1993 Non-Employee Directors' Stock Option Plan (the "DIRECTORS' PLAN"). The Company has granted options under the Incentive Plan for the purchase of 137,795 shares of Common Stock, of which options to purchase 112,170 shares are currently outstanding. No options have been granted under the Directors' Plan. The Company has granted warrants for the purchase of 635,517 shares of Common Stock which are currently outstanding. In addition, the Company has reserved a sufficient number of shares of Common Stock for the conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock. The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), except as provided in this Agreement, the Registration Rights Agreement dated November 3, 1993, as amended, or Article IV of the Certificate of Incorporation. The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in the Certificate of Incorporation and the Amended Certificate. All outstanding shares of Common Stock and Preferred Stock have been, and the Class F Preferred Stock when issued in accordance with this Agreement, the Certificate of Incorporation and the Amended Certificate will be, validly issued and fully paid and nonassessable, and issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than the 112,170 currently outstanding options granted pursuant to the Incentive Plan referred to above, options it is committed to grant annually under the Directors' Plan to eligible Directors, or warrants described above and listed on SCHEDULE B hereto, and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at each Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, by the Certificate of Incorporation and By-laws of the Company or as indicated on SCHEDULE B hereto, and the Company will not voluntarily place any restrictions on the transfer of the Shares except to the extent set forth herein or contemplated hereby. 2.4. FINANCIAL INFORMATION. The Company has delivered to the Purchasers a copy of (a) its audited balance sheet (the "BALANCE SHEET") as of December 31, 1994 (the "FINANCIAL STATEMENT DATE") and the related statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (with the Balance Sheet, the "AUDITED FINANCIALS"), and (b) its unaudited balance sheet as of August 31, 1995 and the related statements of operations for 3 8 the period then ended (the "UNAUDITED FINANCIALS," and together with the Audited Financials, the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended, provided, however, that the Unaudited Financials are subject to year end adjustments and may not contain all footnotes required under generally accepted accounting principles. 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business. 2.6. ABSENCE OF CERTAIN CHANGES. Since the Financial Statement Date, other than as indicated on Schedule B hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 4 9 2.7. TAXES. For all periods ended on or prior to the date hereof, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as indicated on SCHEDULE B hereto, the Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $25,000. 2.9. INTELLECTUAL PROPERTY RIGHTS. Attached hereto as SCHEDULE C Is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company (the "Intellectual Property") are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Intellectual Property violates or infringes rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in SCHEDULE C, no royalties, honoraria, or fees are or will be payable by the Company to other persons by reason of the ownership or use by the Company of the Intellectual Property. 2.10. GOVERNMENT APPROVALS AND LICENSES. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental 5 10 approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. CONTRACTS. Other than as set forth in SCHEDULE B or C, the Company has no presently existing contract, obligation or commitment (a) involving the future payment by or to the Company of more than $100,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; or 6 11 (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and substantially all of the assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters of intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on SCHEDULE B have been made available to counsel for the Purchasers. The Company has complied with all the material provisions of said contracts and commitments set forth in SCHEDULE B hereto and of all other material contracts and commitments to which it is a party, and is not in material default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. 2.12. DIRECTORS AND OFFICERS. SCHEDULE B hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. LITIGATION. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company or the Company's properties, nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Shares, upon conversion of the Shares, the Common Stock into which the Shares are convertible, have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares, upon conversion of the Shares, the Common Stock into which the Shares are convertible, will not conflict with, or result in a breach of any of the terms of, or constitute a default under, 7 12 the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. BROKERS. Except as described on SCHEDULE B, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. GOVERNMENTAL CONSENTS. Based in part on the representations made by the Purchasers in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issuance, sale or delivery of the Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. SECURITIES LAWS. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchasers' representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at each Closing and on the date of the issuance of the shares of Common Stock into which the Shares are convertible, the offering and sale of the Shares, and the issuance of the shares of Common Stock upon conversion of the Shares, are each exempt, or will each be exempt, as the case may be, from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. LEGAL COMPLIANCE. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 2.19. INSURANCE. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 8 13 2.20. NONDISCLOSURE AGREEMENT. The Company has entered into nondisclosure and invention ownership agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate, or instrument furnished to the Purchasers or their agents in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in SCHEDULE B. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each Purchaser represents and warrants to the Company that the following are true and correct in all material respects: 3.1. AUTHORITY. The Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. ACCREDITED INVESTOR STATUS. The Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares or any portion thereof; PROVIDED that the disposition of its property shall at all times be and remain within its control. It further represents that, except as otherwise disclosed in writing to the Company, it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser further represents that it is acquiring the Shares for its own account and with its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.2, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 9 14 3.3. FORMATION; STATUS. The Purchaser was not organized for the purpose of making an investment in the Company, or if it was organized for such purpose, each equity owner of the Purchaser is an accredited investor. No authorization or other action is required to be taken in connection with an investment in the Company, as a result of Purchaser's regulatory, statutory or other legal status. 3.4. RECEIPT OF INFORMATION. The Purchaser has been furnished such information and documents as the Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. REGISTRATION OF SECURITIES. Each Purchaser represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. Each Purchaser further represents and warrants to the Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. FINANCIAL MATTERS. Each Purchaser represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, its investment in such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, the Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. TRANSFER LEGENDS AND RESTRICTIONS. The Transfer (as defined below) of the Shares will be restricted in accordance with the terms hereof. "TRANSFER" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. Each certificate evidencing the Shares or the Common Stock issuable upon conversion of the Shares (collectively, the "SECURITIES"), including any certificate issued to any transferee thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such securities shall have been effectively registered and sold under the Securities Act and applicable state securities laws): 10 15 "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS F PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF OCTOBER 26, 1995 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined below) of any Securities by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on such Securities, prior to any Transfer of any of the Securities (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Securities in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) that the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Securities shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Securities issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Securities, the Company shall remove the foregoing legend from the certificates evidencing such Securities and issue to such Holder new certificates free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel satisfactory to the Company, to the effect that any Transfers by such Holder of such Securities may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. "HOLDER" shall mean any Purchaser (in its capacity as holder of any Securities and for so long as it holds such Securities), and such of its respective successors and assigns who acquire Securities from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Securities subject to all the restrictions hereof, but in no event shall "Holder" include any transferee of any Securities pursuant to sales made under a registration statement filed under the Securities Act. 4.4. RULE 144. Each Purchaser recognizes that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company 11 16 covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c) (1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by a Purchaser, the Company will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each Purchaser to purchase and pay for the Shares is subject to the following: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the First Closing Date, with the same force and effect as if they had been made on and as of the First Closing Date. 5.2. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the First Closing Date shall have been performed or complied with. 5.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchasers a certificate (to be signed by its chief executive officer) dated the actual Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on SCHEDULE A thereto and the Purchasers (the "Registration Rights Agreement") shall have been amended further to include the Shares in the definition of Registrable Shares in the Registration Rights Agreement. 5.5. PREEMPTIVE RIGHTS. The Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on Schedule A thereto and the Purchasers (the "CLASS C PURCHASE AGREEMENT") shall have been amended further to provide that (i) a "Terminating Class Event," as defined in Section 8.1(b) of the Class C Purchase Agreement, shall mean, for the holders of Class F Preferred Stock, that fewer than 50,000 shares of the Class F Preferred Stock remain outstanding, and (ii) Class F Preferred Stock shall be included in the classes of Preferred Stock of the Company from which an amendment or waiver is required pursuant to Section 8.10 of the Class C Purchase Agreement. 5.6. AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The Amended and Restated Voting Rights Agreement dated November 3, 1993, as amended, among the Company, the holders of the Class B Preferred Stock and the Class C Preferred Stock and Marion Merrell 12 17 Dow Inc. (now called Hoechst Marion Roussel, Inc.) (the "Voting Agreement") shall be amended further to include the Class F Preferred Stock in the definitions of "Additional Preferred Stock" and "Voting Securities". 5.7. OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received an opinion of Palmer & Dodge, counsel to the Company, substantially in the form of EXHIBIT B hereto, which opinion shall be satisfactory in form and substance to the Purchaser. 5.8. AMENDED CERTIFICATE. The Amended Certificate shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.9. BLUE SKY MATTERS. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.10. CORPORATE PROCEEDINGS AND CONSENTS. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and their counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 5.11. NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the business, prospects, operations or assets of the Company on and as of the First Closing Date. 5.12. HART-SCOTT-RODINO FILING. The obligation of Hoechst Marion Roussel, Inc. to purchase and pay for the Shares is subject to the additional condition that any waiting period or extension thereof applicable to such purchase under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers made herein shall be true, correct and complete in all material respects on and as of relevant Closing Date with the same force and effect as if they had been made on and as of such Closing Date. 6.2. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and 13 18 substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 6.3. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchasers on or prior to relevant Closing Date shall have been performed or complied with. 6.4. AUTHORIZATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares or any portion thereof to the Purchasers as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with the Purchasers as follows, such covenants, other than as set forth in Section 7.11, to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public which results in aggregate gross proceeds to the Company of not less than $10,000,000 (the "INITIAL PUBLIC OFFERING"). 7.1. QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to each Purchaser, for so long as such Purchaser holds at least five percent (5%) of the Shares purchased by it hereunder (in which case, the Purchaser shall be deemed to be "Qualified") copies of the Company's unaudited balance sheet as of the end of, and unaudited statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated financial statements of the Company and all such consolidated subsidiaries. In no event will the Purchaser make any use or disclosure of the financial statements referred to in this Section 7.1 or Section 7.2 or other information acquired pursuant to Section 7.3, except in connection with evaluating its investment in the Company. 7.2. ANNUAL FINANCIAL STATEMENTS. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each Purchaser, for so long as such Purchaser Qualifies, audited financial statements analogous to those required by Section 7.1 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such 14 19 statements have been prepared in accordance with generally accepted accounting principles consistently applied. 7.3. OTHER INFORMATION. Upon the reasonable request of a Purchaser, if such Purchaser then Qualifies, the Company will deliver to the Purchaser other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit a Purchaser, if the Purchaser then Qualifies, at the expense of the Purchaser, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as the Purchaser may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; PROVIDED, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.4. USE OF PROCEEDS. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.5. INSURANCE. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall maintain "Key Man Insurance" on the life of Richard F. Selden in an aggregate face amount of not less than $1,000,000 for so long as Dr. Selden is employed by the Company. 7.6. PAYMENT OF TAXES. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind 15 20 (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; PROVIDED, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.7. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, PROVIDED, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.8. MAINTENANCE OF PROPERTIES. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.9. RESERVATION OF COMMON STOCK. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of shares of Common Stock issuable upon conversion of the Shares, and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.9. 7.10. SEC REPORTS. Promptly after each such filing, the Company will furnish the Purchaser with copies of all proxy statements and annual reports and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 8. MISCELLANEOUS. 8.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement, together with the Schedules and Exhibits hereto, sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to counsel for the Purchasers shall be deemed to 16 21 constitute for all purposes the furnishing of such documents by the Company to the Purchasers under this Agreement or in connection with the offering hereunder. 8.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by telecopier, addressed as follows: (a) if to the Purchasers: at the address set forth beneath each Purchaser's name on SCHEDULE A hereto with copies to: Shook, Hardy & Bacon, P.C. One Kansas City Place 1200 Main Street, Suite 3100 Kansas City, Missouri 64105 Attention: Randall B. Sunberg, Esq. Telephone: (816) 474-6550 Telecopy: (816) 421-5547 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Richard F. Selden, M.D., Ph.D. Telephone: (617) 349-0200 Telecopy: (617) 491-7903 with a copy to: Palmer & Dodge One Beacon Street Boston, MA 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 17 22 or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of facsimile and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 8.3. EXPENSES. Except as provided in the Registration Rights Agreement, each party will bear its own expenses in connection with this Agreement, except that the Company shall pay the reasonable fees and expenses of Shook, Hardy & Bacon P.C., special counsel to the Purchasers. 8.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by the Company or the Purchasers in connection herewith shall survive the execution and delivery of this Agreement and the issuance of the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the relevant Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 8.5. AMENDMENTS; WAIVERS. Changes in or additions to this Agreement may be made by written document executed by the Company and the holders of greater than 50% of the Shares. Purchasers holding greater than 50% of the Shares may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Purchasers in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Purchasers. 8.6. GOVERNING LAW. This Agreement shall be construed and enforced under the laws of the State of Delaware, without giving effect to the choice of law provisions thereof. 8.7. MISCELLANEOUS. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. 18 23 This Class F Preferred Stock Purchase Agreement has been SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. COMPANY: -------- TRANSKARYOTIC THERAPIES, INC. By: /s/ Richard F. Selden ------------------------------------------ Title: President and CEO PURCHASERS: ----------- HOECHST MARION ROUSSEL, INC. By: /s/ Terry J. Shelton --------------------------------------------- Title: Vice President, Licensing and Business -------------------------------------- Development -------------------------------------- /s/ Klaus Neugebauer --------------------------------------------- Dr. Klaus Neugebauer KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke --------------------------------------------- Title: President AUDA SECURITIES GmbH By: /s/ Marcel Giacommetti --------------------------------------------- Title: 19 24 /s/ Franz Burda /s/ M. Bacher --------------------------------------------- Franz Burda Frieder Burda HANSEATIC CORPORATION By: /s/ Paul Biddelman --------------------------------------------- Title: Treasurer WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas --------------------------------------------- Title: Partner /s/ J. Frances /s/ D. Rush --------------------------------------------- Oppenheim Vermogenstreuhand GmbH 20 25 Schedule A ----------
Number Name and Address of Shares Purchase Price - ---------------- --------- -------------- Hoechst Marion Rousell, Inc. 9300 Ward Parkway Kansas City, Missouri 64114-0480 564,286 $ 7,900,004 Dr. Klaus Neugebauer Widenmayerstrasse 38 D-80538 Munich Germany 107,143 $ 1,500,002 KTK Partners Limited Partnership c/o Medical Portfolio Management, Inc. One Cambridge Center Cambridge, Massachusetts 02142 78,571 $ 1,099,994 Auda Securities GmbH Am Pilgerrain 17 61352 Bad Homburg Germany 71,429 $ 1,000,006 Franz and Frieder Burda Lichtenthaler Allee 74 76530 Baden Baden Germany 71,429 $ 1,000,006 Hanseatic Corporation 450 Park Avenue New York, New York 10022 71,429 $ 1,000,006 Warburg Pincus Capital Company, L.P. 466 Lexington Avenue, 10th Floor New York, New York 10017-3147 71,429 $ 1,000,006 Oppenheim Vermogenstreuhand GmbH Postfach 10 27 43 50467 Koln Germany 35,713 $ 499,982 ========= =========== TOTAL 1,071,429 $15,000,006
21 EX-10.9 16 CLASS G PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.9 =============================================================================== CLASS G PREFERRED STOCK PURCHASE AGREEMENT by and between TRANSKARYOTIC THERAPIES, INC. and THE PURCHASERS LISTED ON SCHEDULE A HERETO Dated as of July 10, 1996 =============================================================================== 2 TRANSKARYOTIC THERAPIES, INC. CLASS G PREFERRED STOCK PURCHASE AGREEMENT TABLE OF CONTENTS ----------------- PAGE 1. PURCHASE AND SALE OF THE SHARES................................-1- 1.1. Purchase of Stock........................................-1- 1.2. Closing..................................................-1- 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY..................-2- 2.1. Organization and Standing of the Company.................-2- 2.2. Subsidiaries.............................................-2- 2.3. Capitalization...........................................-2- 2.4. Financial Information....................................-3- 2.5. Absence of Undisclosed Liabilities.......................-4- 2.6. Absence of Certain Changes...............................-4- 2.7. Taxes....................................................-5- 2.8. Title to Properties; Liens and Encumbrances..............-5- 2.9. Intellectual Property Rights.............................-5- 2.10. Government Approvals and Licenses........................-6- 2.11. Contracts................................................-6- 2.12. Directors and Officers...................................-7- 2.13. Litigation...............................................-7- 2.14. Authorization............................................-7- 2.15. Brokers..................................................-8- 2.16. Governmental Consents....................................-8- 2.17. Securities Laws..........................................-8- 2.18. Legal Compliance.........................................-8- 2.19. Insurance................................................-8- 2.20. Nondisclosure Agreement..................................-9- 2.21. Disclosures..............................................-9- 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS...............-9- 3.1. Authority................................................-9- 3.2. Accredited Investor Status...............................-9- 3.3. Formation; Status.......................................-10- 3.4. Receipt of Information..................................-10- 4. SECURITIES LAWS...............................................-10- 4.1. Registration of Securities..............................-10- 4.2. Financial Matters.......................................-10- 4.3. Transfer Legends and Restrictions.......................-10- (i) 3 4.4. Rule 144................................................-11- 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING..........-12- 5.1. Representations and Warranties..........................-12- 5.2. Performance.............................................-12- 5.3. Compliance Certificate..................................-12- 5.4. Registration Rights Agreement...........................-12- 5.5. Preemptive Rights.......................................-12- 5.6. Amended and Restated Voting Rights Agreement............-12- 5.7. Opinion of Company's Counsel............................-13- 5.8. Amended Certificate.....................................-13- 5.9. Blue Sky Matters........................................-13- 5.10. Corporate Proceedings and Consents......................-13- 5.11. No Material Adverse Change..............................-13- 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING............-13- 6.1. Representations and Warranties..........................-13- 6.2. Proceedings and Documents...............................-13- 6.3. Performance.............................................-14- 6.4. Authorizations..........................................-14- 7. AFFIRMATIVE COVENANTS.........................................-14- 7.1. Quarterly Financial Statements..........................-14- 7.2. Annual Financial Statements.............................-14- 7.3. Other Information.......................................-15- 7.4. Use of Proceeds.........................................-15- 7.5. Insurance...............................................-15- 7.6. Payment of Taxes........................................-15- 7.7. Corporate Existence.....................................-16- 7.8. Maintenance of Properties...............................-16- 7.9. Reservation of Common Stock.............................-16- 7.10. SEC Reports.............................................-16- 8. MISCELLANEOUS.................................................-16- 8.1. Entire Agreement; Successors............................-16- 8.2. Notices.................................................-17- 8.3. Expenses................................................-18- 8.4. Survival of Representations and Warranties..............-18- 8.5. Amendments; Waivers.....................................-18- 8.6. Governing Law...........................................-18- 8.7. Miscellaneous...........................................-18- (ii) 4 TRANSKARYOTIC THERAPIES, INC. CLASS G PREFERRED STOCK PURCHASE AGREEMENT This Class G Preferred Stock Purchase Agreement (this "AGREEMENT") is made as of the 10th day of July, 1996 by and between Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and the Purchasers listed on SCHEDULE A hereto (the "PURCHASERS"). WHEREAS, the Purchasers desire to subscribe for and purchase, and the Company desires to issue and sell, shares of the Company's Class G Preferred Stock, $1.00 par value per share (the "CLASS G PREFERRED STOCK"), subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein the parties hereby agree as follows: 1. PURCHASE AND SALE OF THE SHARES 1.1. PURCHASE OF STOCK. On the First Closing Date and the Second Closing Date (each as defined in Section 1.2 below), subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Purchasers, and each of the Purchasers agree to purchase from the Company, on Closing Date (as defined in Section 1.2 below) indicated on SCHEDULE A hereto for each Purchaser, the number of shares of Class G Preferred Stock set forth opposite the name of each such Purchaser on SCHEDULE A hereto at a price of $22.00 per share (the "SHARES"). The powers, designations, preferences, rights and qualifications, limitations and restrictions of the Class G Preferred Stock are as set forth in the Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the "AMENDED CERTIFICATE") attached as Exhibit A hereto. 1.2. CLOSING. The initial closing of the purchase and sale of the Shares hereunder (the "FIRST CLOSING") shall take place at the offices of Palmer & Dodge LLP at _______ am., local time, on _____________ or at such other time and date as the Company and the Purchasers may agree upon in writing (the "FIRST CLOSING DATE"). The second closing of the purchase and sale of the Shares hereunder (the "SECOND CLOSING" and, together with the First Closing, a "closing") shall take place at the offices of Palmer & Dodge as soon as is practicable following the First Closing Date (the "SECOND CLOSING DATE" and, together with the First Closing Date, a "CLOSING DATE"). At each Closing, the Company will deliver to each Purchaser participating in such Closing a certificate evidencing the number of Shares being purchased by such Purchaser at such Closing pursuant to Section 1.1, against payment by such 1 5 Purchaser of the entire purchase price for the Shares being purchased by such Purchaser in lawful money of the United States of America by bank or certified check, wire-transfer or such other form of payment as shall be mutually agreed upon by such Purchaser and the Company. 2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to the Purchasers that, as of the date of this Agreement, except as otherwise described on SCHEDULE B hereto, the following are true and correct: 2.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the Commonwealth of Massachusetts and is in good standing in each jurisdiction in which failure to so qualify would have a materially adverse effect on the business, assets or prospects of the Company. The copy of the Company's Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION"), which has been delivered to the Purchaser, is true, complete and correct as of the date of this Agreement. The Company has the corporate power and authority to own and lease its property, to enter into, deliver, and perform its obligations and undertakings under, this Agreement and all other agreements referred to herein or contemplated hereby, to issue the Shares, and to conduct its business as now conducted. 2.2. SUBSIDIARIES. The Company has no subsidiaries and does not control, directly or indirectly, any other corporation, association or business organization. 2.3. CAPITALIZATION. The Company's entire authorized capital stock will consist, immediately after the filing of the Amended Certificate with the Secretary of State of the State of Delaware, of 15,000,000 shares of Common Stock (of which 4,042,627 shares have been issued), and 4,952,720 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which: 6,000 shares have been designated as Class A Preferred Stock (the "CLASS A PREFERRED STOCK"), all of which have been issued; 60,000 shares have been designated as Class B Preferred Stock (the "CLASS B PREFERRED STOCK"), of which 49,339 shares have been issued; 1,875,000 shares have been designated as Class C Preferred Stock (the "CLASS C PREFERRED STOCK"), of which 1,015,974 shares have been issued; 280,367 shares have been designated as Class D Preferred Stock (the "CLASS D PREFERRED STOCK"), of which 280,367 shares have been issued; 523,560 shares have been designated as Class E Preferred Stock (the "CLASS E PREFERRED STOCK"), of which 523,560 shares have been issued; and 1,071,429 shares have been designated as Class F Preferred Stock, (the "CLASS F PREFERRED STOCK") of which 1,071,429 shares have been issued; and 1,136,364 shares have been designated as Class G Preferred Stock, and none of which are issued outstanding immediately prior to the Closing. 181,751 shares of Common Stock are held of record in the Company's treasury. The number of shares and class of capital stock of the Company which have been issued are listed on 2 6 SCHEDULE B opposite the names of the record holders thereof, excluding those record holders who are current or former employees of the Company, which current and former employees hold, in the aggregate, 1,426,057 shares of the outstanding capital stock of the Company. The Company has reserved 1,250,000 shares of Common Stock for issuance to employees and consultants under the 1993 Long-Term Incentive Plan (the "INCENTIVE PLAN") and [180,000] shares of Common Stock for issuance to non-employee directors under the 1993 Non- Employee Directors' Stock Option Plan (the "DIRECTORS' PLAN"). The Company has granted options under the Incentive Plan for the purchase of 629,145 shares of Common Stock, of which options to purchase 590,145 shares are currently outstanding. No options have been granted under the Directors' Plan. The Company has granted warrants for the purchase of 635,517 shares of Common Stock which are currently outstanding. In addition, the Company has reserved a sufficient number of shares of Common Stock for the conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock. The Common Stock and the Preferred Stock are not entitled to cumulative voting rights, preemptive rights, antidilutive rights or so-called registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), except as provided in this Agreement, the Registration Rights Agreement dated November 3, 1993, as amended, the Class C Preferred Stock and Warrant Purchase Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on Schedule A thereto and the Purchasers (the "Class C Purchase Agreement") or Article IV of the Amended Certificate. The Common Stock and the Preferred Stock have the preferences, voting powers, qualifications, and special or relative rights or privileges set forth in the Certificate of Incorporation and the Amended Certificate. All outstanding shares of Common Stock and Preferred Stock have been, and the Class G Preferred Stock when issued in accordance with this Agreement, the Certificate of Incorporation and the Amended Certificate will be, validly issued and fully paid and nonassessable, and issued in accordance with applicable state and federal securities laws. The Company does not have outstanding any option, warrant or other commitment to issue or to acquire any shares of its capital stock, or any securities or obligations convertible into or exchangeable for its capital stock, other than the 590,145 currently outstanding options granted pursuant to the Incentive Plan referred to above, options it is committed to grant annually under the Directors' Plan to eligible Directors, or warrants described above and listed on Schedule B hereto and the Company has not given any person any right to acquire from the Company or sell to the Company any shares of its capital stock. There is, and immediately upon consummation at each Closing of the transactions contemplated hereby there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of the Company (whether outstanding or issuable upon conversion or exercise of outstanding securities) except as contemplated by this Agreement, by the Certificate of Incorporation and By-laws of the Company or as indicated on SCHEDULE B hereto, and the Company will not voluntarily place any restrictions on the transfer of the Shares except to the extent set forth herein or contemplated hereby. 3 7 2.4. FINANCIAL INFORMATION. The Company has delivered to the Purchasers a copy of (a) its audited balance sheet (the "Balance Sheet") as of December 31, 1995 (the "Financial Statement Date") and the related statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (with the Balance Sheet, the "Audited Financials"), and (b) its unaudited balance sheet as of May 31, 1996 and the related statements of operations for the period then ended (the "Unaudited Financials," and together with the Audited Financials, the "Financial Statements"). The Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and fairly present the financial condition of the Company at the date thereof and the results of the operations of the Company for the period then ended, provided, however, that the Unaudited Financials are subject to year end adjustments and may not contain all footnotes required under generally accepted accounting principles. 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. As of the Financial Statement Date, the Company had (and on the date hereof the Company has) no material liabilities (matured or unmatured, fixed or contingent) arising out of any transaction or state of facts existing prior to the date hereof which are not fully reflected or provided for on the Balance Sheet, except for obligations arising after the Financial Statement Date in the ordinary course of business. 2.6. ABSENCE OF CERTAIN CHANGES. Since the Financial Statement Date, other than as indicated on Schedule B hereto, there has not been: (a) any material adverse change in the condition (financial or otherwise), assets, liabilities or business of the Company from that shown by the Balance Sheet; (b) any damage, destruction or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business of the Company; (c) any dividend, declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (d) any labor trouble, or any other event, development, or condition, of any character, or threat of the same, materially adversely affecting the business of the Company; (e) any waiver of any material right of the Company, or the cancellation of any material debt or claim held by the Company; (f) any issuance of any stock, bonds or other securities of the Company; 4 8 (g) any sale, assignment or transfer of any material tangible or intangible assets of the Company except with respect to tangible assets in the ordinary course of business; or (h) any loan by the Company to any officer, director, employee or stockholder of the Company, or any agreement or commitment therefor. 2.7. TAXES. For all periods ended on or prior to the date hereof, the Company has filed or will file within the time prescribed by law (including extensions of time approved by the appropriate taxing authority) all tax returns and reports required to be filed with the United States Internal Revenue Service, the State of Delaware, the Commonwealth of Massachusetts, any other states, and all foreign countries and has paid or made adequate provision in the Balance Sheet for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due (or, to the knowledge of the Company, claimed by such authority or jurisdiction to be due) on or in respect of such tax returns and reports. The Company does not know of any (a) other federal, Delaware, Massachusetts, state or foreign taxes which are due and payable by the Company which have not been so paid; (b) other federal, Delaware, Massachusetts, state or foreign tax returns or reports which are required to be filed which have not been so filed; or (c) unpaid assessment for additional taxes for any fiscal period or any basis thereof. The Company's federal or state income tax returns have never been audited. 2.8. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company has good and marketable title to all of its properties and assets, real and personal, including those reflected in the Balance Sheet (except as sold or otherwise disposed of in the ordinary course of business since the Financial Statement Date), subject to no mortgage, pledge, lien, security interest, conditional sale agreement, encumbrance or charge except (a) as shown on the Balance Sheet or in the notes thereto, (b) tax, materialmen's or like liens for obligations not yet due or payable or being contested in good faith by appropriate proceedings, and (c) vendors' interests in installment purchase obligations of the Company which in the aggregate do not exceed $25,000. 2.9. INTELLECTUAL PROPERTY RIGHTS. Attached hereto as SCHEDULE C is a true and complete list of all patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, presently owned or held by the Company. Such patents, trademarks, service marks, trade names, copyrights and rights or licenses to use the same, and any and all applications therefor, as well as all trade secrets and similar proprietary information owned or held by the Company (the "Intellectual Property") are all such items required to enable the Company to conduct its business as now conducted. The Company has not received any formal or informal notice of infringement or other complaint that the Intellectual Property violates or infringes rights under patents, trademarks, service marks, trade names, trade secrets, copyrights or licenses or any other proprietary rights of others, nor does the Company have any reason to believe that there has been any such violation or infringement. Except as set forth in SCHEDULE C, no royalties, honoraria, or fees 5 9 are or will be payable by the Company to other persons by reason of the ownership or use by the Company of the Intellectual Property. 2.10. GOVERNMENT APPROVALS AND LICENSES. The Company has all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as presently conducted and will use its best efforts to obtain all governmental approvals, authorizations, consents, licenses and permits necessary or required to conduct its business as proposed to be conducted. 2.11. CONTRACTS. Other than as set forth in SCHEDULE B or C, the Company has no presently existing contract, obligation or commitment (a) involving the future payment by or to the Company of more than $100,000 (other than employment or consulting agreements terminable at the option of the Company without penalty on no more than thirty (30) days prior written notice with employees of, or consultants to, the Company who are not officers or directors thereof), or (b) which is material to the Company or its currently contemplated business, including without limitation the following: (i) any employment, bonus, commission or consulting agreements or arrangements; pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company; or agreements with shareholders; (ii) any loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgaging, pledging, or granting or creating a lien or security interest or other encumbrance on any of the Company's property; or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (iii) any agreements with dealers, sales representatives, brokers and other distributors, jobbers, advertisers, sales agencies; (iv) any agreements with any labor union or collective bargaining organization; (v) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including, without limitation, agreements with processors and subcontractors and agreements requiring development of products; (vi) any lease of machinery, equipment, other personal property, including motor vehicles, and real estate; 6 10 (vii) any indenture, agreement, or other document relating to the sale or repurchase of securities of the Company; (viii) any joint venture contract or arrangement or other agreements involving a sharing of profits or expenses; or (ix) any agreements limiting the freedom of the Company or any of its employees to compete in any line of business or in any geographic area or with any person; (x) any agreements providing for disposition of the business and substantially all of the assets, or securities, of the Company; agreements of merger or consolidation to which the Company is a party; or letters of intent with respect to the foregoing; or (xi) any agreements involving, or letters of intent with respect to, the acquisition of assets or securities of any other business or entity. True and complete copies of all contracts and other items listed on SCHEDULE B have been made available to counsel for the Purchasers. The Company has complied with all the material provisions of said contracts and commitments set forth in SCHEDULE B hereto and of all other material contracts and commitments to which it is a party, and is not in material default under any thereof, except to the extent to which any such noncompliance and defaults would not materially and adversely affect the business or financial condition of the Company. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both would constitute, a material default by the Company or, to the Company's knowledge, by any third party, under any of said contracts or commitments. 2.12. DIRECTORS AND OFFICERS. SCHEDULE B hereto contains a true, correct and complete list showing the name of each director and officer of the Company. 2.13. LITIGATION. There is no litigation or proceeding pending or, to the Company's knowledge, threatened, against the Company or the Company's properties, nor does the Company know or have reasonable grounds to know of any basis for any such action, including, without limitation, any governmental investigation relating to employee safety or discrimination matters. To the Company's knowledge, there is no litigation or proceeding pending or threatened against or relating to any present or former employee of the Company by reason of the past employment or consulting relationships of any of such employees with the Company. There are no outstanding judgments against the Company. 2.14. AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement and the issuance and sale of the Shares, and upon conversion of the Shares, the Common Stock into which the Shares are convertible, have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and 7 11 delivered on behalf of the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors. The execution, delivery and performance of this Agreement, the issuance and sale of the Shares, and upon conversion of the Shares, the Common Stock into which the Shares are convertible, will not conflict with, or result in a breach of any of the terms of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company or result in a material breach of any of the terms of, or constitute a material default under, any agreement, instrument or other restriction to which the Company is a party or by which it or any of its properties or assets is bound. 2.15. BROKERS. Except as described on SCHEDULE B, the Company has no contract, arrangement or understanding with any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 2.16. GOVERNMENTAL CONSENTS. Based in part on the representations made by the Purchasers in Sections 3 and 4 of this Agreement, no consent, approval or authorization of any governmental authority is required under existing law or regulation in connection with the execution and delivery of this Agreement or the offer, issuance, sale or delivery of the Shares pursuant to this Agreement or the consummation of any other transactions contemplated hereby. 2.17. SECURITIES LAWS. Neither the Company nor any other person, firm or corporation acting on its behalf has sold any of the Shares or other securities of the Company to, or offered any thereof for sale to, or solicited any offers to purchase any thereof from, or otherwise approached or negotiated (nor will the Company or any other person, firm or corporation acting on its behalf sell, offer, solicit or otherwise approach or negotiate) in respect thereof with, such character or number of persons in the aggregate, or in such manner, as would result in bringing the Shares, or any part thereof, within the provisions of Section 5 of the Securities Act. Assuming that the Purchasers' representations and warranties contained in Sections 3 and 4 of this Agreement are true and correct at each Closing and on the date of the issuance of the shares of Common Stock into which the Shares are convertible, the offering and sale of the Shares, and the issuance of the shares of Common Stock upon conversion of the Shares, are each exempt, or will each be exempt, as the case may be, from registration and prospectus delivery requirements of the Securities Act as in effect on the date hereof and are also exempt or will be exempt from registration or qualification under applicable state securities laws as in effect on the date hereof. 2.18. LEGAL COMPLIANCE. The Company is not in violation of any provisions of its Certificate of Incorporation or By-laws, or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation materially and adversely affects the business or financial condition of the Company. 8 12 2.19. INSURANCE. The Company maintains insurance of the types and in the amounts generally deemed adequate for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, without limitation, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 2.20. NONDISCLOSURE AGREEMENT. The Company has entered into nondisclosure and invention ownership agreements in favor of the Company in such forms as have been approved from time to time by the Board of Directors of the Company, with each person employed by it or serving as a consultant to it with employment or consulting responsibility requiring access to proprietary technical information of the Company. 2.21. DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto, nor any report, certificate, or instrument furnished to the Purchasers or their agents in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the business, prospects, assets or condition, financial or otherwise, of the Company which has not been disclosed in Schedule B. 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each Purchaser represents and warrants to the Company that the following are true and correct in all material respects: 3.1. AUTHORITY. The Purchaser has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. All necessary corporate and other action has been taken by it or on its behalf to execute, deliver and perform its obligations under this Agreement and to purchase the Shares. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. 3.2. ACCREDITED INVESTOR STATUS. The Purchaser is acquiring the Shares for the purpose of investment and not with a view to the resale or distribution thereof, and it has no present intention of selling, negotiating or otherwise disposing of the Shares or any portion thereof; PROVIDED that the disposition of its property shall at all times be and remain within its control. It further represents that, except as otherwise disclosed in writing to the Company, it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser further represents that it is acquiring the Shares for its own account and with 9 13 its general assets and not with the assets of any separate account in which any employee benefit plan has any interest. As used in this Section 3.2, the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in the Employee Retirement Income Security Act of 1974. 3.3. FORMATION; STATUS. The Purchaser was not organized for the purpose of making an investment in the Company, or if it was organized for such purpose, each equity owner of the Purchaser is an accredited investor. No authorization or other action is required to be taken in connection with an investment in the Company, as a result of Purchaser's regulatory, statutory or other legal status. 3.4. RECEIPT OF INFORMATION. The Purchaser has been furnished such information and documents as the Purchaser has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, terms and conditions of this Agreement and the purchase of the Shares. 4. SECURITIES LAWS. 4.1. REGISTRATION OF SECURITIES. Each Purchaser represents and warrants to the Company that it understands that the Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and that the Shares must be held indefinitely unless they are subsequently registered thereunder or an exemption from registration thereunder is available. Each Purchaser further represents and warrants to the Company that it will not transfer any of the Shares in violation of the provisions of this Agreement or any applicable federal or state securities laws or regulations. 4.2. FINANCIAL MATTERS. Each Purchaser represents and warrants to the Company that (a) it understands that the purchase of the Shares involves substantial risk and that its financial condition and investments are such that it is in a financial position to hold the Shares purchased by it for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, its investment in such Shares; and (b) by virtue of its expertise, the advice available to it and its previous investment experience, the Purchaser has extensive knowledge and experience in financial and business matters, investments, securities and private placements and the capability to evaluate the merits and risks of the transactions contemplated by this Agreement. 4.3. TRANSFER LEGENDS AND RESTRICTIONS. The Transfer (as defined below) of the Shares will be restricted in accordance with the terms hereof. "TRANSFER" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or any interest therein, whether or not such transfer would constitute a "sale" as that term is defined in Section 2(3) of the Securities Act. Each certificate evidencing the Shares or the Common Stock issuable upon conversion of the Shares (collectively, the "SECURITIES"), including any certificate issued to any transferee 10 14 thereof, shall be imprinted with a legend in substantially the following form (unless otherwise permitted under this Section 4 or unless such securities shall have been effectively registered and sold under the Securities Act and applicable state securities laws): "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES SHALL BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES UNDER THE SECURITIES ACT OF 1933 HAS BECOME EFFECTIVE OR THE ISSUER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, UNLESS SUCH OPINION OF COUNSEL IS NOT REQUIRED BY THE TERMS OF THE CLASS G PREFERRED STOCK PURCHASE AGREEMENT AMONG THE ISSUER AND CERTAIN OF ITS SHAREHOLDERS DATED AS OF JULY ___, 1996 (THE "AGREEMENT"). TRANSFER OF THESE SHARES IS FURTHER RESTRICTED AS PROVIDED IN THE AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICES." The Holder (as defined below) of any Securities by acceptance thereof agrees, so long as any legend described in this Section 4.3 shall remain on such Securities, prior to any Transfer of any of the Securities (except for a Transfer effected pursuant to an effective registration statement under the Securities Act or in compliance with Rule 144 thereunder), to give written notice to the Company of such Holder's intention to effect such Transfer and agrees to comply in all respects with the provisions of this Section 4.3. Such notice, if required, shall describe the proposed method of Transfer of the Securities in question. Upon (but only upon) receipt by the Company of such notice, and a written opinion of counsel to such Holder (which counsel and opinion shall be reasonably satisfactory to counsel for the Company) that the proposed Transfer may be effected without registration under the Securities Act or in compliance with Rule 144 thereunder and under applicable state securities laws, the proposed Transfer may be effected, and the Holder of such Securities shall thereupon be entitled to Transfer the same in accordance with the terms of the notice delivered by such Holder to the Company. Each certificate evidencing the Securities issued upon any such Transfer shall bear the same legend as set forth in this Section 4.3. Upon the written request of a Holder of the Securities, the Company shall remove the foregoing legend from the certificates evidencing such Securities and issue to such Holder new certificates free of any transfer legend if, with such request, and at the request of the Company, the Company shall have received an opinion of counsel satisfactory to the Company, to the effect that any Transfers by such Holder of such Securities may be made to the public without compliance with either Section 5 of the Securities Act or Rule 144 thereunder and applicable state securities laws. "HOLDER" shall mean any Purchaser (in its capacity as holder of any Securities and for so long as it holds such Securities), and such of its respective successors and assigns who acquire Securities from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Securities subject to all the 11 15 restrictions hereof, but in no event shall "Holder" include any transferee of any Securities pursuant to sales made under a registration statement filed under the Securities Act. 4.4. RULE 144. Each Purchaser recognizes that the provisions of Rule 144 under the Securities Act are not presently applicable to securities of the Company. The Company covenants that (a) at all times after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will comply with the current public information requirements of Rule 144(c) (1) under the Securities Act; and (b) at all such times as Rule 144 is available for use by a Purchaser, the Company will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each Purchaser to purchase and pay for the Shares is subject to the following: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made herein shall be true, correct and complete in all material respects on and as of the First Closing Date, with the same force and effect as if they had been made on and as of the First Closing Date. 5.2. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the First Closing Date shall have been performed or complied with. 5.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchasers a certificate (to be signed by its chief executive officer) dated the actual Closing Date certifying as to the fulfillment of the conditions specified in Sections 5.1 and 5.2 in all material respects. 5.4. REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement dated as of November 3, 1993, as amended, by and among the Company, the purchasers listed on Schedule A thereto and the Purchasers (the "Registration Rights Agreement") shall have been amended further to include the Shares in the definition of Registrable Shares in the Registration Rights Agreement. 5.5. PREEMPTIVE RIGHTS. The Class C Purchase Agreement shall have been amended further to provide that (i) the "Buyer", as defined in Section 8.1 of the Class C Purchase Agreement shall include the Purchaser, (ii) a "Terminating Class Event," as defined in Section 8.1(b) of the Class C Purchase Agreement, shall mean, for the holders of Class G Preferred Stock, that fewer than 50,000 shares of the Class G Preferred Stock remain outstanding, and (iii) Class G Preferred Stock shall be included in the classes of Preferred Stock of the Company from which an amendment or waiver is required pursuant to Section 8.10 of the Class C Purchase Agreement. 12 16 5.6. AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The Amended and Restated Voting Rights Agreement dated November 3, 1993, as amended, among the Company, the holders of the Class B, the Class C, the Class D, the Class E and the Class F Preferred Stock (the "Voting Agreement") shall be amended further to include the Class G Preferred Stock in the definitions of "Additional Preferred Stock" and "Voting Securities". 5.7. OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received an opinion of Palmer & Dodge, counsel to the Company, substantially in the form of EXHIBIT B hereto, which opinion shall be satisfactory in form and substance to the Purchaser. 5.8. AMENDED CERTIFICATE. The Amended Certificate shall have been duly filed with the Secretary of State of the State of Delaware and shall have become effective. 5.9. BLUE SKY MATTERS. All consents, approvals, filings, qualifications and/or registrations required to be obtained or effected under any applicable state securities laws in connection with the issuance, sale and delivery of the Shares shall have been obtained or effected (except for the filing of any notice subsequent to the Closing which may be required under applicable state securities laws which, if required, shall be filed on a timely basis as may be so required). 5.10. CORPORATE PROCEEDINGS AND CONSENTS. All corporate and other proceedings to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement shall have been taken or obtained and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers and their counsel, each of whom shall have received all such originals or certified or other copies of such documents as each may reasonably request. 5.11. No Material Adverse Change. There shall have been no material adverse change in the business, prospects, operations or assets of the Company on and as of the First Closing Date. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation of the Company to sell the Shares is subject to the following: 6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers made herein shall be true, correct and complete in all material respects on and as of relevant Closing Date with the same force and effect as if they had been made on and as of such Closing Date. 6.2. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing shall be satisfactory in form and substance to the Company and the Company's counsel, and they each shall have received all such counterpart original or certified or other copies of such documents as they may reasonably request. 13 17 6.3. PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchasers on or prior to relevant Closing Date shall have been performed or complied with. 6.4. AUTHORIZATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States of America or of any state required in connection with the lawful issuance and sale of the Shares or any portion thereof to the Purchasers as contemplated under this Agreement shall have been duly obtained and in effect. 7. AFFIRMATIVE COVENANTS. The Company covenants with the Purchasers as follows, such covenants, other than as set forth in Section 7.11, to expire at such times as the Company shall have consummated a firm commitment underwritten public offering pursuant to an effective registration statement on Form S-1 or a successor form under the Securities Act, covering the offer and sale by the Company of Common Stock to the public which results in aggregate gross proceeds to the Company of not less than $10,000,000 (the "INITIAL PUBLIC OFFERING"). 7.1. QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days after the end of each of the first three quarters in each fiscal year, the Company will deliver to each Purchaser, for so long as such Purchaser holds at least five percent (5%) of the Shares purchased by it hereunder (in which case, the Purchaser shall be deemed to be "Qualified") copies of the Company's unaudited balance sheet as of the end of, and unaudited statements of income and statements of cash flows for, such quarter, which shall be prepared in accordance with generally accepted accounting principles consistently applied. All such financial statements shall be certified as accurate and complete in all material respects (subject to normal year-end adjustments) by the chief financial officer of the Company and shall be presented in form comparative to the similar period of the preceding year. Further, if for any period the Company shall have any subsidiary or subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period all such financial statements shall be the consolidated financial statements of the Company and all such consolidated subsidiaries. In no event will the Purchaser make any use or disclosure of the financial statements referred to in this Section 7.1 or Section 7.2 or other information acquired pursuant to Section 7.3, except in connection with evaluating its investment in the Company. 7.2. ANNUAL FINANCIAL STATEMENTS. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each Purchaser, for so long as such Purchaser Qualifies, audited financial statements analogous to those required by Section 7.1 as at the end of and for such year, accompanied by a certification by independent public accountants selected by the Company's Board of Directors, that (except as otherwise stated therein) such statements have been prepared in accordance with generally accepted accounting principles consistently applied. 14 18 7.3. OTHER INFORMATION. Upon the reasonable request of a Purchaser, if such Purchaser then Qualifies, the Company will deliver to the Purchaser other information and data, not proprietary in nature (in the good faith judgment of the Company), pertaining to its business, financial and corporate affairs to the extent that such delivery will not violate any then applicable law or any agreements of the Company with third parties. The Company will permit a Purchaser, if the Purchaser then Qualifies, at the expense of the Purchaser, to visit and inspect any of the properties of the Company, including its books of account, and to discuss its affairs, finances and accounts with the Company's officers or directors, all at such reasonable times and as often as the Purchaser may reasonably request, in each case, in a manner consistent with the reasonable security and confidentiality needs of the Company; PROVIDED, that the Company shall be under no such obligation with respect to information deemed in good faith by the Company to be proprietary or subject to third party restrictions on disclosure. 7.4. USE OF PROCEEDS. The Company will use amounts paid for the Shares hereunder to fund research and development activities and for working capital and other corporate purposes. 7.5. INSURANCE. The Company will keep all its insurable properties properly insured against loss or damage by fire and other risks; maintain public liability insurance against claims for personal injury, death or property damage suffered by others upon or in or about any premises occupied by it or arising from equipment owned by the Company and leased to and located upon or in or about any premises occupied by any other person; maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business; and maintain such other insurance as is usually maintained by persons engaged in the same or similar business as is the Company. All such insurance shall be maintained against such risks and in at least such amounts as such insurance is usually carried by persons engaged in the same or similar businesses, and all insurance herein provided for shall be effected and maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Company may effect worker's compensation or similar insurance in respect of operations in any state or other jurisdiction either through an insurance fund operated by such state or other jurisdiction or by causing to be maintained a system or systems of self-insurance which is in accord with applicable laws. In addition, the Company shall maintain "Key Man Insurance" on the life of Richard F. Selden in an aggregate face amount of not less than $1,000,000 for so long as Dr. Selden is employed by the Company. 7.6. PAYMENT OF TAXES. The Company will pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal and mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies), which, if unpaid, might by law become a lien or charge upon its property; PROVIDED, however, that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof 15 19 shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves deemed by it adequate with respect thereto. 7.7. CORPORATE EXISTENCE. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and material rights and franchisees, provided, however, that nothing in this section shall (a) prevent the abandonment or termination of the Company's authorization to do business in any foreign state or jurisdiction if, in the opinion of the Company's Board of Directors, such abandonment or termination is in the interest of the Company or (b) require compliance with any law so long as the validity or applicability thereof shall be disputed or contested in good faith. 7.8. MAINTENANCE OF PROPERTIES. The Company will maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make, or cause to be made, all repairs, renewals and replacements which in the opinion of the Company are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 7.9. RESERVATION OF COMMON STOCK. The Company agrees to continue to reserve a number of shares of the Company's Common Stock equal to the number of shares of Common Stock issuable upon conversion of the Shares, and the Company further agrees that in the event that the conversion price applicable to the Shares set forth in the Certificate of Incorporation is reduced below the initial price set forth therein, it shall immediately cause to be set aside additional shares of the Company's Common Stock so as to comply with the provisions of this Section 7.9. 7.10. SEC REPORTS. Promptly after each such filing, the Company will furnish the Purchaser with copies of all proxy statements and annual reports and all reports on Forms 8-K, 10-Q or 10-K (or any similar form hereafter in use) which the Company shall file with the Securities and Exchange Commission or any stock exchange on which securities of the Company may be listed. 8. MISCELLANEOUS. 8.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement, together with the Schedules and Exhibits hereto, sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. Delivery of documents by the Company or its counsel to counsel for the Purchasers shall be deemed to constitute for all purposes the furnishing of such documents by the Company to the Purchasers under this Agreement or in connection with the offering hereunder. 16 20 8.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by telecopier, addressed as follows: (a) if to the Purchasers: Biotech Target, S.A. Swiss Bank Tower Pananma 1 Republic of Pananma with copies to: BB Biotech AG c/o Bellevue Asset Management AG Grundstrasse 12 CH-6343 Rotkreuz Switzerland Attn: Dr. Andreas Bremer Telephone: 011 41 41 790 3080 Telecopy: 011 41 41 790 3081 AND Baker & McKenzie 815 Connecticut Avenue, N.W. Washington, D.C. 20006 Attn: Daniel L. Goelzer, Esq. Diane Mage Roberts, Esq. Telephone: 202-452-7072 Telecopy: 202-452-7000 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Richard F. Selden, M.D., Ph.D. Telephone: (617) 349-0200 Telecopy: (617) 491-7903 17 21 with a copy to: Palmer & Dodge LLP One Beacon Street Boston, MA 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of facsimile and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 8.3. EXPENSES. Except as provided in the Registration Rights Agreement, each party will bear its own expenses in connection with this Agreement. 8.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by the Company or the Purchasers in connection herewith shall survive the execution and delivery of this Agreement and the issuance of the Shares for a period (the "Survival Period") expiring on the first to occur of (a) the Initial Public Offering, or (b) the date which is five years after the relevant Closing Date. No claim may be made for breach of any representation or warranty contained herein unless notice of such claim is given to the breaching party within the Survival Period. 8.5. AMENDMENTS; WAIVERS. Changes in or additions to this Agreement may be made by written document executed by the Company and the holders of greater than 50% of the Shares. Purchasers holding greater than 50% of the Shares may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Purchasers in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Purchasers. 8.6. GOVERNING LAW. This Agreement shall be construed and enforced under the laws of the State of Delaware, without giving effect to the choice of law provisions thereof. 8.7. MISCELLANEOUS. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. 18 22 [The remainder of this page has been intentionally left blank.] 19 23 This Class G Preferred Stock Purchase Agreement has been SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. COMPANY: -------- TRANSKARYOTIC THERAPIES, INC. By: /s/ Richard F. Selden -------------------------------------- Title: President and CEO PURCHASERS: ----------- BIOTECH TARGET, S.A. By: /s/ Hans Jorge Graf -------------------------------------- Title: By: /s/ Andreas Bremer -------------------------------------- Title: 20 24 Schedule A ----------
Number Name and Address of Shares Purchase Price - ---------------- --------- -------------- Biotech Target, S.A. 909,091 $22.00/share Additional Purchasers TOTAL [ ] [ ]
21 EX-10.10 17 SUPPLEMENTAL CLASS G PREFERRED PURCHASE AGREEMENT 1 SUPPLEMENTAL CLASS G PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------------------- THIS SUPPLEMENTAL CLASS G PREFERRED STOCK PURCHASE AGREEMENT dated as of August 7, 1996 is entered into by and among Transkaryotic Therapies, Inc., a Delaware Corporation, (the "Company"), the holder of the Company's Class G Preferred Stock (the "Initial Purchaser") and the purchasers listed on SCHEDULE A hereto (collectively the "Subsequent Purchasers"). WHEREAS the Company and the Initial Purchaser entered into a Class G Preferred Stock Purchase Agreement dated as of July 10, 1996 (the "Agreement"), attached hereto as EXHIBIT A, for the issuance and sale of 909,091 shares of the Company's Class G Preferred Stock, $1.00 par value per share (the "Preferred Stock"); WHEREAS the Company seeks to sell and the Subsequent Purchasers seek to buy an aggregate of 224,498 shares of Preferred Stock (the "Additional Shares") at a price per share of $22.00 upon the same terms and conditions set forth in the Agreement; WHEREAS the Company and the Subsequent Purchasers seek to include the Subsequent Purchasers as parties to the Fourth Amendment to the Class C Preferred Stock and Warrant Purchase Agreement, attached hereto as EXHIBIT B, the Fourth Amendment to the Registration Rights Agreement, attached hereto as EXHIBIT C, and the Fourth Amendment to the Amended and Restated Voting Rights Agreement, attached hereto as EXHIBIT D, (collectively, the "Ancillary Agreements"); NOW THEREFORE, each of the parties hereto agree as follows: 1. Definitions ----------- 1.1 Capitalized terms used herein but not otherwise defined herein shall have the respective meanings set forth in the Agreement. 1.2 The Agreement shall be deemed amended to include the defined terms "Additional Shares" and "Subsequent Purchasers" as defined above. 1.3 The terms "Purchaser" and "Purchasers" in the Agreement and this Supplemental Agreement shall include the Subsequent Purchasers for all purposes under the Agreement and this Supplemental Agreement. 1.4 The term "Shares" in the Agreement and this Supplemental Agreement shall include all Additional Shares for all purposes under the Agreement or this Supplemental Agreement. 2 2. Purchase and Sale of the Shares ------------------------------- On August 7, 1996, or at such other date as the Company and the Subsequent Purchasers may agree upon, subject to the terms and conditions hereof and in reliance upon the warranties, representations and agreements contained herein, the Company agrees to sell to each of the Subsequent Purchasers, and each of the Subsequent Purchasers agrees to purchase from the Company the number of shares of Class G Preferred Stock set forth opposite the name of each such Subsequent Purchaser on SCHEDULE A hereto, at a price of $22.00 per share. The powers, designations, preferences, rights and qualifications, limitations and restrictions of the Class G Preferred Stock are as set forth in the Certificate of Amendment of the Amended and Restated Certificate of Incorporation attached as EXHIBIT A to the Agreement. 3. Amendments to the Agreement --------------------------- 3.1 SCHEDULE A is amended to conform to SCHEDULE A attached hereto. 3.2 The first sentence of Section 2.3 shall be, and hereby is, deleted in its entirety, and the following substituted therefor: "The Company's entire authorized capital stock (immediately prior to the Closing) consists of 15,000,000 shares of Common Stock, of which 4,042,627 shares have been issued, and 4,952,720 shares of Preferred Stock, $1.00 par value per share (the "PREFERRED STOCK"), of which 6,000 shares have been designated as Class A Convertible Preferred Stock (the "CLASS A PREFERRED STOCK"), all of which have been issued; 60,000 shares have been designated as Class B Preferred Stock (the "CLASS B PREFERRED STOCK"), of which 49,339 shares have been issued; 1,875,000 shares have been designated as Class C Preferred Stock (the "CLASS C PREFERRED STOCK") of which 1,015,974 shares have been issued; 280,367 shares have been designated as Class D Preferred Stock (the "CLASS D PREFERRED STOCK"), of which 280,367 shares have been issued; 523,560 shares have been designated as Class E Preferred Stock (the "CLASS E PREFERRED STOCK"), of which 523,560 shares have been issued; 1,071,429 shares have been designated as Class F Preferred Stock (the "CLASS F PREFERRED STOCK") of which 1,071,429 shares have been issued; and 1,136,364 shares have been designated as Class G Preferred Stock, 909,091 shares of which are issued and outstanding immediately prior to the Closing." 3.3 Section 8.2 of the Agreement shall be deleted in its entirety and the following shall be substituted therefor: "NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands and other communications hereunder shall be in writing and shall be personally delivered by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by pre-paid nationally recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by telecopier, addressed as follows: - 2 - 3 (a) if to the Purchasers, at the address set forth below each Purchaser's name on SCHEDULE A hereto. (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Richard F. Selden, M.D., Ph.D. Telephone:(617) 349-0200 Telecopy: (617) 491-7903 with a copy to: Palmer & Dodge LLP One Beacon Street Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of facsimile and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section." 4. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and warrants to the Subsequent Purchasers as follows: 4.1 This Supplemental Agreement and the Agreement are valid and legally binding and are enforceable in accordance with their respective terms. 4.2 Each of the representations and warranties contained in Section 2 of the Agreement (such Section 2 being incorporated herein by reference) is true and correct on the date hereof with the same force and effect as if made on the date hereof. 5. REPRESENTATIONS OF THE SUBSEQUENT PURCHASERS. Each Subsequent Purchaser represents and warrants to the Company that each of the representations and warranties contained in Section 3 of the Agreement (such Section 3 being incorporated herein by reference) is true and correct with respect to such Subsequent Purchaser as of the date hereof. 6. CONDITIONS TO THE OBLIGATIONS OF THE SUBSEQUENT PURCHASERS. The obligation of each Subsequent Purchaser to purchase Additional Shares at the Subsequent Closing is subject to the fulfillment, or the waiver by each such Subsequent Purchaser, of the conditions to Closing set forth in Section 5 of the Agreement (such Section 5 being herein incorporated by reference), provided that: - 3 - 4 6.1 REFERENCES TO CLOSING. The conditions set forth in Section 5 of the Agreement shall be modified to apply to the Subsequent Closing, and all references to the "Closing" contained in that Section shall mean the Subsequent Closing for the purpose of this Section 5. 6.2 OPINION OF COUNSEL. The Subsequent Purchasers shall have received from Palmer & Dodge LLP, counsel to the Company, an opinion addressed to the Subsequent Purchasers, dated the Subsequent Closing Date in substantially the form referred to in Section 5.7 of the Agreement. 7. CONDITION TO OBLIGATIONS OF THE COMPANY. The Company's obligation to sell the Additional Shares is subject to the fulfillment of the following condition: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of each of the Subsequent Purchasers pursuant to Section 4 of this Supplemental Agreement shall be true and correct when made, and true and correct on the Subsequent Closing Date. 8. THE ANCILLARY AGREEMENTS. Upon execution of this Supplemental Agreement, the Company and the Subsequent Purchasers agree that the Subsequent Purchasers shall become parties to the Ancillary Agreements and shall be considered "Purchasers" as that term is defined in each of the Ancillary Agreements. 9. WAIVER OF RIGHTS TO PURCHASE ADDITIONAL SHARES. Solely with respect to the offer and sale by the Company of shares of Class G Preferred Stock, each Purchaser hereby waives any and all rights that may permit each such Purchaser to purchase more than the number of shares of the Class G Preferred Stock set forth opposite such Purchaser's name on Schedule A hereto. 10. MISCELLANEOUS. 10.1 Except as specifically amended hereby, the remaining terms and provisions of the Agreement shall not be affected by this Supplemental Agreement and shall remain in full force and effect. 10.2 This Supplemental Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same Agreement. [The remainder of this page has been intentionally left blank.] - 4 - 5 IN WITNESS WHEREOF, the parties hereto have executed this Supplemental Agreement as of the day first written above. TRANSKARYOTIC THERAPIES, INC. By: /s/ Richard F. Selden --------------------------------------------------- Name: Richard F. Selden, M.D., Ph.D. Title: President and Chief Executive Officer BIOTECH TARGET, S.A. By: /s/ Andreas Bremer /s/ Hans Jorge Graf ---------------------------------------------------- Name: Andreas Bremer and Hans Jorge Graf Title: HANSEATIC CORPORATION By: /s/ Benjamin Schliemann ---------------------------------------------------- Name: Benjamin Schliemann Title: Vice President /s/ F. Burda /s/ F. Burda ------------------------------------------------------- Franz & Frieder Burda OPPENHEIM VERMOGENSTREUHAND By: /s/ R. Lagemann /s/ L. Schubert ---------------------------------------------------- Name: R. Lagemann and L. Schubert Title: Holder of Procuration; Managing Director - 5 - 6 AUDA SECURITIES GMBH By: /s/ Dr. Axel May /s/ Dr. B Wunderlin ---------------------------------------------------- Name: Dr. Axel May and Dr. B Wunderlin Title: Geschaftstfuhrer /s/ Klaus Neugebauer ---------------------------------------------------- Dr. Klaus Neugebauer PUBLIC EMPLOYEE RETIREMENT SYSTEM OF IDAHO By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: STATE OF OREGON PERS/ZCG By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: - 6 - 7 WELLS FAMILY LLC By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: CITY OF MILFORD PENSION & RETIREMENT PLAN By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zeisger ---------------------------------- Name: Title: VAN LOBEN SELS FOUNDATION By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: ROANOKE COLLEGE By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: - 7 - 8 NFIB EMPLOYEE PENSION TRUST By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: CITY OF STAMFORD FIREMEN'S PENSION FUND By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: CHAPIN SCHOOL LTD. ENDOWMENT FUND By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: MORGAN TRUST CO. OF THE BAHAMAS LTD. By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: - 8 - 9 DEMVEST EQUITIES, L.P. By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: HELEN B. LAZAR By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: HAROLD & GRACE WILLENS JTWROS By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: DAVID W. WORTHINGTON By: ZESIGER CAPITAL GROUP LLC Agent and Attorney-in-Fact By: /s/ Albert L. Zesiger ---------------------------------- Name: Title: /s/ David Baltimore -------------------------------------------------------- David Baltimore - 9 - 10 Schedule A ----------
Number Name and Address of Shares Purchase Price - ---------------- --------- -------------- Initial Purchaser - ----------------- Biotech Target, S.A 909,091 $20,000,002 c/o BB Biotech AG c/o Bellevue Asset Management AG Grundstrasse 12 CH-6364 Rotkreuz, Switzerland Subsequent Purchasers - --------------------- Public Employee Retirement 26,200 $ 576,400 System of Idaho c/o Zeisger Capital Group LLC 320 Park Avenue New York, NY 10022 State of Oregon PERS/ZCG 90,900 $ 1,999,800 c/o Zesiger Capital Group LLC Arthur D. Little Employee 15,900 $ 349,800 Investment Plan c/o Zesiger Capital Group LLC Wells Family LLC 6,800 $ 149,600 c/o Zesiger Capital Group LLC City of Milford Pension and 5,700 $ 125,400 Retirement Plan c/o Zesiger Capital Group LLC Van Loben Sels Foundation 4,500 $ 99,000 c/o Zesiger Capital Group LLC Roanoke College 4,500 $ 99,000 c/o Zeisger Capital Group NFIB Employee Pension Trust 4,500 $ 99,000 c/o Zesiger Capital Group LLC
- 10 - 11 City of Stamford Firemen's 4,500 $ 99,000 Pension Fund c/o Zesiger Capital Group LLC Chapin School Ltd. Endowment Fund 3,400 $ 74,800 c/o Zesiger Capital Group LLC Morgan Trust Co. of the Bahamas Ltd. 2,300 $ 50,600 c/o Zesiger Capital Group LLC Demvest Equities, L.P. 2,300 $ 50,600 c/o Zesiger Capital Group LLC Helen B. Lazar 2,300 $ 50,600 c/o Zesiger Capital Group LLC Harold and Grace Willens JTWROS 1,800 $ 39,600 c/o Zeisger Capital Group LLC David W. Worthington 1,600 $ 35,200 c/o Zesiger Capital Group LLC Dr. Klaus Neugebauer 12,857 $282,854 Widenmayerstrasse 38 D-80538 Munich Germany Hanseatic Corporation 8,503 $187,066 450 Park Avenue New York, NY 10022 Franz & Frieder Burda 8,571 $188,562 Lichtenthaler Allee 74 76530 Baden Baden Germany Auda Securities GmbH 8,571 $188,562 Am Pilgerrain 17 61352 Bad Homberg Germany
- 11 - 12 Oppenheim Vermogenstreuhand 4,251 $ 93,522 Postfach 10 27 43 50467 Koln Germany David Baltimore 4,545 $ 99,990 508 Union Wharf Boston, MA 02109 TOTAL 1,133,589 $24,938,958
- 12 - EX-10.11 18 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.11 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and the purchasers listed on Schedule A hereto (each individually, a "Purchaser" and together, the "Purchasers"). WHEREAS, it is a condition precedent to the effectiveness of the Class C Preferred Stock and Warrant Purchase Agreement, dated as of the date hereof (the "Class C Purchase Agreement"), that the Company enter into this Registration Rights Agreement with the holders of the Class C Preferred Stock, par value $1.00 per share, of the Company (the "Class C Preferred Stock"); and WHEREAS, the holders of at least a majority of the Class B Preferred Stock, par value $1.00 per share, of the Company (the "Class B Preferred Stock"), purchased by the holders thereof pursuant to (i) the Class B Preferred Stock Purchase Agreement, dated as of February 14, 1992 (the "1992 Class B Agreement") and (ii) the Class B Preferred Stock Purchase Agreement, dated as of April 20, 1993 (the "1993 Class B Agreement," and together, the "Class B Purchase Agreements") have agreed to amend each of the Class B Purchase Agreements to the extent necessary to terminate all provisions therein relating to registration rights and to deem this Agreement to be an amendment and restatement of all such provisions. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. All capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning given therefor in the Class C Purchase Agreement. (a) "SHARES" shall mean the shares of the Class B Preferred Stock purchased pursuant to the Class B Purchase Agreement and the shares of the Class C Preferred Stock purchased pursuant to the Class C Purchase Agreement, collectively. (b) "REGISTRABLE SHARES" shall mean (i) the shares of Common Stock issued or issuable upon any conversion of the Class B Preferred Stock or Class C Preferred Stock, (ii) any shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock") issued or issuable upon any exercise of the Warrants issued pursuant to the Class C Purchase Agreement (the "Warrants"), (iii) any shares of Common Stock issuable to the holders of Class B Preferred Stock or Class C Preferred Stock pursuant to any preemptive rights of the holders of such Preferred Stock (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to Holders (as defined below) than those contained herein), and (iv) any other shares of Common Stock issued with respect to the shares enumerated in clauses (i), (ii) and (iii) above by reason of stock dividends, stock splits, recapitalizations, reorganizations, or similar corporate action. 2 Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, or to a number or percentage of Registrable Shares held by a Holder, such reference shall include shares of Common Stock issuable upon conversion of the Shares even though such conversion has not yet been effected and shares of Common Stock issued upon exercise of the Warrants, but shall not include shares of Common Stock issuable upon exercise of the Warrants but not yet issued. (c) "HOLDERS" shall mean any Purchaser (in its capacity as holder of any Shares or Registrable Shares and for so long as it holds such Shares or Registrable Shares), and such of its respective successors and assigns who acquire Shares or Registrable Shares from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Shares or Registrable Shares subject to all the restrictions hereof but in no event shall "Holders" include any transferee of Registrable Shares pursuant to sales made under a registration statement filed under the Securities Act. (d) "COMMISSION" shall mean the Securities and Exchange Commission or other successor federal agency. (e) "REGISTRATION EXPENSES" and "SELLING EXPENSES" shall mean the expenses so described in Section 6. (f) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (g) "TRANSFER" or "TRANSFERS" shall mean any pledge, sale, assignment, gift or other transfer of any Shares or Registrable Shares or any interest therein, whether or not such transfer would constitute a "SALE" as that term is defined in Section 2(3) of the Securities Act. (h) "OTHER HOLDERS" shall mean all holders of the Company's securities except the Holders and except the holders of Additional Registrable Securities. (i) "ADDITIONAL REGISTRABLE SECURITIES" shall mean (1) any shares of the capital stock of the Company that are held by persons or entities who are parties to, or assignees of a party to, an agreement (other than this Agreement) with the Company granting registration rights to such holder and that were sold pursuant to such agreement, and (2) any securities issued with respect to the capital stock referred to in clause (1) above, by reason of stock dividends, stock splits or combinations, recapitalizations, reorganizations or other similar corporate action. 2. COMPANY ("PIGGYBACK") REGISTRATION. If (but without any obligation to do so) the Company for itself or any of its security holders shall at any time or times determine to register under the Securities Act any shares of its capital stock or other securities (other than 3 (a) the registration of an offer, sale or other disposition of securities to employees of, or other persons providing services to, the Company or any subsidiary pursuant to an employee or similar benefit plan, registered on Form S-8, a comparable or successor form or another form which is used solely for the purpose of registering such plan, or exempt from registration pursuant to Regulation A or a comparable or successor rule; or (b) relating to a merger, acquisition or other transaction of the type described in Rule 145 or comparable or successor rule, registered on Form S-4 or similar or successor forms) the Company will notify each Holder of such determination at least thirty (30) days prior to the filing of such registration statement, and upon the request of any Holder given in writing within twenty (20) days after the effective date of such notice, the Company will use its best efforts as soon as practicable thereafter to cause any of the Registrable Shares specified by such Holder to be included in such registration statement to the extent and under the conditions such registration is permissible under the Securities Act. Notwithstanding the foregoing, in the event the proposed registration is in whole or in part an underwritten public offering and if the managing underwriter(s) determines and advises in writing that the inclusion of some or all of the Registrable Shares of such Holders, the Additional Registrable Securities and all shares of the Company's capital stock to be offered by the Company and by Other Holders, whether originally covered by requests for registration or otherwise included, would interfere with the successful marketing of such securities, then the number of shares of capital stock otherwise to be included in the registration statement by Holders, holders of Additional Registrable Securities and Other Holders shall be reduced as follows: (i) there shall first be excluded shares proposed to be included by Other Holders; (ii) any further reduction shall be pro rata among Holders and holders of Additional Registrable Securities in the proportion of the number of shares of the Company's capital stock then owned by each, except, however, in the event of a registration initiated by Warburg Pincus Capital Company, L.P. ("Warburg") pursuant to the terms of the Stock Purchase Agreement, dated as of July 1988 between the Company and Warburg, in which case the shares of Common Stock issued or issuable upon conversion of the Class A Preferred Stock held by Warburg shall be the last to be excluded. For purposes of apportionment in the immediately preceding sentence, for any Holder which is a partnership, the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of Shares and Registrable Shares carrying registration rights owned by all entities and individuals included with such "Holder", as defined in this sentence. Any Holder whose Registrable Shares are registered shall, as a condition to participation, comply with Section 4 hereof and such other reasonable requirements as may be imposed by the managing underwriters to effect an orderly distribution of the Registrable Shares. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriters. Any Registrable Shares withdrawn from such underwriting shall be withdrawn from such registration. The Company shall be under no obligation to complete any offering of its securities described in this Section 2 and shall incur no liability to any Holder for its failure to do so. The Company shall not be obligated to offer the Holders the right to participate in more than three registrations pursuant to this Section 2. 4 3. DEMAND REGISTRATION. At any time after February 14, 1995, the Holder(s) of at least thirty percent (30%) of the then outstanding Registrable Shares may notify the Company in writing that such Holders intend to offer or cause to be offered for sale a number of Registrable Shares which represents not less than fifteen percent (15%) of the Registrable Shares held by such Holder(s), and may request the Company to cause such Registrable Shares to be registered under the Securities Act. Such rights to request the Company to register the applicable Holders' Registrable Shares shall be available to such Holders no more than once during any consecutive twelve month period. To the extent and under the condition that such registration is permissible under the Securities Act, the Company will use its best efforts as soon as practicable after such notification and request by such Holder(s) to prepare and file a registration statement covering such Registrable Shares (together with any other Registrable Shares requested by the Holders, or the holders of Additional Registrable Securities or the Other Holders to be included in such registration pursuant to Section 2 within twenty (20) days after receipt of a notice from the Company pursuant to said Section 2). Such right to require registration shall be in addition to the rights of the Holders under Section 2, provided that no such request shall be made, or if made shall not be effective, during the period commencing with the date of notice, if any, by the Company under Section 2 of an intention to register its securities and ending three months after the earlier of the effective date of such registration or the abandonment by the Company of its intent to register such securities, and shall be available to applicable Holders on not more than two occasions (exclusive of registration statements on Form S-3 or comparable or successor form, as provided below). Except as otherwise provided in Section 6.1 hereof, any such right to require registration shall be deemed to have been used only (i) if the Holders requesting registration have at least seventy-five percent (75%) of the Registrable Shares which they have requested in good faith to be registered included in such registration statement; and (ii) upon such registration statement becoming and remaining effective in accordance with the provisions hereof. Notwithstanding the foregoing, in no event shall the Holders' right to require registration under this Section 3 be available to the applicable class of Holders on more than two occasions (exclusive of registration statements on Form S-3 or comparable or successor form, as provided below). Anything contained herein to the contrary notwithstanding, with respect to each registration requested pursuant to this Section 3, the Company may, in its discretion, include in any registration pursuant to this Section 3 any authorized but unissued shares of Common Stock for sale by the Company or any securities for sale by Other Holders or holders of Additional Registrable Securities. However, neither the Company, the holders of Additional Registrable Securities, nor any Other Holder(s) may include any securities in any registration statement requested pursuant to this Section 3 unless in the case of an underwritten offering, the managing underwriters shall determine and advise that such inclusion will not interfere with the successful marketing of the securities to be offered by the requesting Holder(s). In the event that the managing underwriter(s) fails to approve the inclusion of any Additional Registrable Securities in any registration under this Section 3 or limits the number of shares which may be included in any registration pursuant to this Section 3, then the number of shares of capital stock otherwise to be included in the registration statement by Holders, holders of Additional Registrable Securities, other Holders and the Company shall be reduced as follows: (i) there shall first be excluded shares proposed to be included by the Company and Other Holders; (ii) any further reduction shall be pro rata among Holders and holders of Additional Registrable Securities in the proportion of the 5 number of shares of the Company's Capital stock then owned by each, except, however, that the Registrable Securities of the Holders requesting such demand registration shall be the last to be excluded. For purposes of apportionment in the immediately preceding sentence, for any Holder which is a partnership, the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of Shares and Registrable Shares carrying registration rights owned by all entities and individuals included with such "Holder", as defined in this sentence. The Company shall have the privilege of postponing action under this Section 3 for a reasonable period of time (not exceeding ninety (90) days) if the filing of such registration statement would, in the opinion of the Board of Directors of the Company, adversely affect a material financing project or a material proposed or pending acquisition, merger or other similar corporate event to which the Company is or expects to be a party. Further, at any time after the Company's consummation of an underwritten public offering pursuant to an effective registration statement on Form S-1 (or successor form) covering the offer and sale of its Common Stock, Holders of at least fifteen percent (15%) of the then outstanding Registrable Shares shall have the right to require the Company to file an unlimited number of registration statements on Form S-3, if available, or comparable or successor form under the Securities Act (in which case the minimum number of Registrable Shares to be covered by any such registration statement shall be such number of Registrable Shares having probable gross proceeds to the Holders of at least $l,000,000, as such probable gross proceeds are determined in good faith by the managing underwriters of the offering (or, if there is none, by the Board of Directors of the Company)); and provided, further, that such rights to request the Company to file registration statements on Form S-3 shall be available to the Holders no more than ones during any consecutive twelve (12) month period. Any registration pursuant to this Section 3 (other than registration statements on Form S-3 and other registrations in connection with distributions by Holders to their respective affiliates) shall be by means of a firm commitment underwriting managed by one or more underwriters chosen by the Company and reasonably satisfactory to the Holder exercising rights contained in this Section 3 or if more than one such Holder is exercising such rights, reasonably satisfactory to the Holder of the greatest number of Registrable Shares requested to be included. Any Holder(s) intending to request a registration pursuant to this Section 3 shall notify all other Holders in writing of such request at least ten (10) days prior to making the request and permit each other Holder to join such request; provided, that such other Holder(s), within five (5) days of receipt of such notification, so indicates such other Holder's intention in writing to the Holder (or Holders) from which such notification was received. 4. CONDITIONS TO OBLIGATION TO REGISTER REGISTRABLE SHARES. As conditions to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Shares to be included in a registration statement, each selling Holder shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) have agreed to convert that number of Shares or exercise that number of Warrants as is necessary so that it will have available the Registrable Shares to be included (such conversion or exercise, as the case may be, to be effective prior to or simultaneously 6 with the closing of the sale of the Registrable Shares pursuant to such registration statement), (c) agree to sell its Registrable Shares on the basis provided in any underwriting arrangements, and (d) on a timely basis, complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. 5. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Section 5 to use its best efforts to include any of the Registrable Shares in a registration statement filed under the Securities Act, the Company shall, as expeditiously as possible: 5.1. Prepare and file with the Commission a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become and remain effective. 5.2. Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for not more than three months from the date of its effectiveness (plus such additional time during which any Holder must cease making offers and sales, as provided in Section 5.5) or (unless otherwise required by the Securities Act) until the Registrable Shares covered thereunder have been sold, whichever is earlier. 5.3. Furnish to each selling Holder such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such Holder. 5.4. Use its best efforts to register or qualify the Registrable Shares covered by such registration statement under the securities or blue sky laws of such jurisdictions as the managing underwriter(s) shall reasonably request, and use its best efforts to do any and all other acts and things which may be necessary or advisable so to register or qualify the Registrable Shares to enable such Holder to consummate the disposition of the Registrable Shares owned by such Holder in such jurisdictions during the period covered in Section 5.2; provided that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the registration statement in any jurisdiction where it is not then so subject. 5.5. Notify each selling Holder of any Registrable Shares covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result or which the prospectus contained in such registration statement, as then in effect, includes an 7 untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Each Holder agrees, upon receipt of such notice, forthwith to cease making offers and sales of the Registrable Shares pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose and to return to the Company, for modification and exchange, the copies of such prospectus not theretofore delivered by such Holder; provided, that the Company shall forthwith prepare and furnish to such Holder, after securing such approvals as may be necessary, a reasonable number of copies of any supplement to or amendment of such prospectus that may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 5.6. Provide an institutional transfer agent for the Registrable Shares no later than the effective date of the first registration of any of such Registrable Shares under the Securities Act. 5.7. Immediately notify all selling Holders of any stop order or similar proceeding initiated by state or federal regulatory bodies and use its best efforts to take all steps necessary to expeditiously remove such stop order or similar proceeding. 5.8. Furnish, at the request of any Holder requesting registration of Registrable Shares pursuant to Section 3, on the date that such Registrable Shares are delivered to the underwriters for sale in connection with a registration pursuant to Section 3, if such securities are being sold through underwriters, or, if such securities are not sold through underwriters, on the date that the registration statement with respect to such securities becomes effective: (a) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holder making such request; and (b) two letters, one dated the effective date and one dated the closing date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and, if none, then to the Holder making such request. 6. DESCRIPTION OF EXPENSES. All expenses incurred by the Company in complying with any of the foregoing provisions of this Agreement, including without limitation all federal (including Securities and Exchange Commission and National Association of Securities Dealers, Inc.) and state registration, qualification and filing fees, printing expenses, any premium involved in securing a policy or policies of registration insurance (but only if the Company in its sole discretion shall choose to secure such a policy or policies, such policy or policies to be herein referred to as "registration insurance"), fees and disbursements of counsel for the Company, and accountants fees and expenses (but excluding the compensation of 8 regular employees of the Company which shall be paid in any event by the Company), incident to or required by any such registration are herein called "Registration Expenses". Registration Expenses shall also include (a) in the case of a registration pursuant to Section 2, the reasonable fees and disbursements of one firm selected by the Holder or Holders of a majority of the Registrable Shares to be included, and serving as counsel to the selling Holder or Holders and other selling shareholders, if any, with respect to such registration and (b) in the case of a registration pursuant to Section 3 other than on Form S-3, the reasonable fees and disbursements of one firm selected by the Holder or Holders of a majority of the Registrable Shares to be included requesting such registration and serving as counsel to the selling Holder or Holders and other selling shareholders, if any, with respect to such registration. All underwriting discounts, selling commissions and transfer taxes applicable to the sale of the Registrable Shares hereunder are herein called "Selling Expenses". If the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Registration Expenses and Selling Expenses in connection with such registration shall be borne as follows: 6.1. All Registration Expenses incurred in connection with (a) all registrations under Section 2, (b) all registrations under Section 3 (excluding the second demand registration under Section 3 and all registrations on Form S-3), and (c) securing registration insurance, shall be borne by the Company, provided that the Company shall not be required to pay any such Registration Expenses relating to a demand registration under Section 3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such Registration Expenses pro rata based on the number of Registrable Securities to have been registered) unless the Holders of a majority of the Registrable Securities agree to forfeit their right to as one demand registration under Section 3. 6.2. All Registration Expenses other than those described in Section 6.1 above and all Selling Expenses shall be borne pro rata by the Holders including shares in the registration statement in question; provided, however that if other shares of capital stock are included in such registration statement, such Registration Expenses shall be borne by the Holders pro rata with all other persons (including the Company) for whose account the securities covered by such registration statement are offered in accordance with the amount of securities being so offered for the account of each such party. 7. INDEMNIFICATION; UNDERWRITING AGREEMENTS. In the event that the Company registers under the Securities Act any shares held by a Holder pursuant to the provisions of this Agreement: 7.1. The Company agrees to indemnify and hold harmless such Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act, against any and all losses, claims, damages, liabilities or expenses, joint or several, arising out of or based upon any violation of the Securities Act, the Securities Exchange Act of 1934, as amended, any rules and regulations promulgated thereunder 9 or any untrue statement or alleged untrue statement of a material fact in any related registration statements prospectus, offering circular notification or other document or any omission or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon a statement in writing furnished by or on behalf of the Holder or any other Holder for inclusion therein or an omission or failure by any such Holder to furnish any statement with respect to such Holder required to be included therein. Promptly after receipt by any Holder or any person controlling such Holder of notice of the commencement of any action in respect of which indemnity may be sought against the Company, such Holder or such controlling person, as the case may be, will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, receipt of such notice and the Holder's reasonable cooperation, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to such Holder or controlling person, as the case may be, and the payment of expenses and such counsel's fees) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Such Holder or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has been specifically authorized by the Company or unless the Holder shall have in good faith reasonably concluded that there may be a conflict of interest between the Company and the Holder in the conduct of the defense of the action. In connection with any offering under this Agreement which is to be underwritten, the Company further agrees to enter into an underwriting agreement in usual and standard form respecting such offering; provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the provisions of this Agreement. 7.2. The obligations of the Company under Section 2 and Section 3 are subject to the following conditions, which each such Holder hereby agrees to fulfill: (a) that each Holder whose Registrable Shares are to be included in any registration or qualification ,referred to in this Agreement agrees, in writing, prior to the filing of such registration or qualification, and hereby does agree to indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the securities Act and the officers and directors of the Company, against any and all losses, claims, damages, liabilities or expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact in any related registration statement, prospectus, offering circular, notification or other document or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to statements or omissions made in reliance upon a statement in writing furnished by or on behalf of such Holder for inclusion therein and with reference to statements or omissions made in reliance upon an omission or failure by such Holder to furnish any statement with respect- to such Holder required to be included therein; provided that (i) the maximum amount of liability in respect of such indemnification shall be limited, in the case of each Holder whose Registrable Shares are so included, to an amount equal to the net 10 proceeds (A) actually received by such Holder from the sale of the Registrable Shares effected pursuant to such registration or (B) which would have been received had the sale of Registrable Shares pursuant to such registration occurred and (ii) if such registration or qualification relates to an offering which is to be underwritten, that such Holder enters into an underwriting agreement in usual and standard form respecting such offering; provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the provisions of this Agreement. Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against such Holder the Company will notify such Holder in writing of the commencement thereof, and such Holder shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to the Company, and the payment of expenses and such counsel's fees) insofar as such action shall relate to the alleged liability in respect of which indemnity may be sought against such Holder. The Company and each such director, officer, or controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of such Holder unless employment of such counsel has been specifically authorized by such Holder or unless an indemnified party shall have in good faith reasonably concluded that there may be a conflict of interest between the indemnified party and the Holder in the conduct of the defense of the action. 7.3. A party required to indemnify another party pursuant to this Section 7 (an "Indemnifying Party") shall not be liable for any settlement of any action or claim relating to such liability or expense effected without its consent, but if any settlement is effected with its consent or if a final judgment for the plaintiff is entered in any such action, such Indemnifying Party agrees to indemnify and hold harmless the party so indemnified (the "Indemnified Party") from and against any loss or liability by reason of any such settlement or judgment. The Indemnifying Party shall indemnify the Indemnified Party for expenses, including but not limited to reasonable fees and disbursements of counsel, incurred by the indemnified party in connection with the indemnification proceeding as such expenses are incurred. 8. REGISTRATION UNDER THE SECURITIES EXCHANGE ACT. Within one hundred twenty (120) days following the end of the fiscal year of the Company in which it consummates its initial sale of shares pursuant to a registration statement under the Securities Act, whether or not such sale constitutes the Initial Public Offering (as defined in the Class C Purchase Agreement), the Company will cause an effective registration with respect to its Common Stock to be filed and maintained in accordance with the provisions of the Securities Exchange Act of 1934 if the same is then required. 9. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the Holders under this Agreement may be transferred to any transferee of Shares or Registrable Shares who acquires at least five percent (5%) in the aggregate of the Shares of such Holder or an equivalent amount of Registrable Shares issued upon conversion thereof. Each such transferee shall be deemed to be Holder of Registrable Shares for purposes of this Agreement. 11 10. MERGERS, ETC. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to "Registrable Shares" shall be deemed to be references to the securities which such Holders would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation or reorganization and other securities to which they subsequently give rise; provided, that this Section 10 shall not apply if the Holders shall receive, pursuant to such merger, consolidation or reorganization, in exchange for the Registrable Shares, (a) registered securities listed on the New York Stock Exchange or the American Stock Exchange, or with respect to which prices are reported by the National Association of Securities Dealers Automated Quotation System, Inc. or (b) registration and related rights on terms no less favorable to the Holders than those contained in this Agreement and no less favorable to the Holders than any other shareholder of the Company receives in connection with such merger, consolidation or reorganization. 11. LIMITATIONS ON REGISTRATION RIGHTS GRANTED WITH RESPECT TO OTHER SECURITIES. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Registrable Shares, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder the right to require the Company to initiate any registration of any securities of the Company or the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder, except for such rights (including required registration rights similar to those contained in Section 3 hereof) which are no more favorable to the holders thereof than the rights of the Holders contained in this Agreement. Any right given by the Company to any holder or prospective holder of the Company's securities in connection with the registration of securities shall be conditioned such that it shall be consistent with the provisions of this Agreement and with the rights of the Holders provided in this Agreement. 12. MARKET STAND-OFF. Each Holder agrees, if requested by the Company and/or the representative of the underwriters underwriting an offering of the Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Registrable Shares held by such Holder during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act, provided, that (i) the directors and officers of the Company, and (ii) all Other Holders and holders of Additional Registrable Securities that are participating as selling holders in the underwriting, enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such representative. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 13. TERMINATION OF REGISTRATION RIGHTS. The registration rights granted to the Holders pursuant to this Agreement shall terminate as to any Holder at such time as such Holder may sell all Registrable Securities held by or as issuable to such Holder under Rule 12 144 (other than Rule 144(k), or any successor to Rule 144, in any two successive three-month periods. 14. TERMINATION OF REGISTRATION RIGHTS PROVISIONS OF CLASS STOCK PURCHASE AGREEMENTS. The holders of the Class B Preferred Stock listed on the signature pages hereof, by executing this Agreement in their capacity as holders of Class B Preferred Stock, do hereby vote as a class to terminate Section 8 of the 1992 Class B Agreement and Section 9 of the 1993 Class B Agreement (insofar as such latter Section 8 relates to registration rights), both of which sections shall be of no further force and effect, and do hereby consent and agree that this Agreement amends and restates the registration rights of the holders of the Class B Preferred Stock previously set forth in the Class B Purchase Agreements, and do hereby vote and consent to make all holders of Class B Preferred Stock, as a class, party to this Agreement and bound hereby. 15. EFFECTIVENESS OF WARBURG REGISTRATION RIGHTS. The registration rights granted to Warburg pursuant to paragraph five of the Stock Purchase Agreement dated July, 1988 between the Company and Warburg (the "1988 Agreements") shall remain in full force and effect, provided that the provisions of this Agreement shall govern all Registrable Shares (as defined herein) of Warburg, and provided further that the "Market Stand-off" provisions of paragraph 5.9 of the 1988 Agreement shall be amended to restate the ninety day standstill period to one hundred eighty (180) days. 16. MISCELLANEOUS. 16.1. ENTIRE AGREEMENT; SUCCESSORS. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements and commitments of the parties relating thereto except as otherwise set forth in Section 15 hereof. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto subject to any restrictions on assignment stated herein. 16.2. NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be in writing and shall be personally delivered or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: (a) if to the Holders: To the Purchasers shown on Schedule A and to the address of the holders of the Class B Preferred Stock on record with the Company with a copy to: 13 Hale and Dorr 60 State Street Boston, MA 02109 Attention: John Burgess, Esq. (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 Attention: Chief Executive Officer with a copy to: Bingham, Dana & Gould 150 Federal Street Boston, MA 02110 Attention: Leslie H. Shapiro, Esq. or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt (ii) five (5) business days after deposit in the U.S. mails or delivery to a nationally-recognized courier service in accordance with this Section. 16.3. AMENDMENTS; WAIVERS. Changes in or additions to this Agreement may be made by written document executed by the Company and the holders of at least fifty-one percent in the aggregate number of shares of Common Stock issued or issuable upon conversion of the Shares. The holders of fifty-one percent (51%) in the aggregate of the Shares then held by Holders may, by written instrument, waive compliance by the Company with any of the provisions of this Agreement. Notwithstanding the foregoing, no course of dealing or delay on the part of the Holders in exercising any right shall operate as a waiver thereof or otherwise prejudice the rights of the Holders. 16.4. GOVERNING LAW. This Agreement shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties hereunder shall be governed by, the internal laws of the Commonwealth of Massachusetts. 16.5. MISCELLANEOUS. This Agreement may be executed in two or more counterparts, each of which together shall constitute one and the same document. The headings herein are for convenience of reference only and shall not affect the construction of this Agreement. The invalidity or unenforceability of any provision hereof shall not affect the validity or unenforceability of any other provision. SIGNED, SEALED AND DELIVERED, as of the date first written above by the parties hereto. 14 COMPANY: ------- TRANSTARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest -------------------------------- Title: President and CEO ------------------------- PURCHASERS: ---------- WARBURG PINCUS CAPITAL COMPANY, L.P. (312,500 units) By: Warburg Pincus & Co., General Partner By: /s/ R. W. Moorhead --------------------------------- Title: Managing Director ------------------------- TKT PARTNERS LIMITED PARTNERSHIP (62,500 units) By: Medical Portfolio Management, Inc., as General Partner By: /s/ P.T. Henney --------------------------------- Title: Executive Vice President ------------------------- /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, Ph.D. (12,500 units) H&Q HEALTHCARE INVESTORS** (12,500 units) By: /s/ Kimberley L. Carroll --------------------------------- Title: Treasurer ------------------------- 15 **LIMITATION OF LIABILITY. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&Q LIFE SCIENCES INVESTORS*** (6,250 units) By: /s/ Kimberley L. Carroll --------------------------------- Title: Treasurer ------------------------- ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. HUGO de NEUFVILLE & JOHN P. de NEUFVILLE, TTEES, UAD 7/01/92, HUGO de NEUFVILLE REVOCABLE TRUST (6,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- MARGARET W. de NEUFVILLE & JOHN P. de NEUFVILLE, TTEES, UAD 7/1/92, MARGARET W. de NEUFVILLE REVOCABLE TRUST (6,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- 16 JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO CAROL de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, UA DTD 12/23/76, FBO DAVID T. de NEUFVILLE (6,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, UAD 12/23/76, FBO JOHN HOWARD de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TRUSTEES, U/A DATED 12/23/76, FBO JOHN P. de NEUFVILLE (6,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- 17 JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO PETER BAYON de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 4/13/70, FBO SUSAN de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- JOHN P. de NEUFVILLE & MELY RAHN, TTEES, UAD 12/2/70, FBO THOMAS PIKE de NEUFVILLE (3,500 units) By: /s/ John P. de Neufville --------------------------------- Title: Trustee ------------------------- -------------------------------------- John W. Jackson (3,000 units) TAB PRODUCTS CO. PENSION PLAN (4,500 units) By: * --------------------------------- 18 TEMPLE INLAND MASTER TRUST (25,000 units) By: * --------------------------------- *By: BEA ASSOCIATES, Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------- Title: Managing Director ------------------------- ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN (22,000 units) By: # --------------------------------- #By: BEA ASSOCIATES, as Investment Advisor By: /s/ Albert L. Zesiger ----------------------------- Title: Managing Director ------------------------- 19 CLASS B PREFERRED STOCKHOLDERS: ------------------------------ WARBURG PINCUS CAPITAL COMPANY, L.P. (21,359 shares) By: Warburg Pincus & Co., General Partner By: /s/ R. W. Moorhead --------------------------------- Title: Managing Director ------------------------- H&Q HEALTHCARE INVESTORS** (3,268 units) By: /s/ Kimberley L. Carroll --------------------------------- Title: Treasurer ------------------------- **LIMITATION OF LIABILITY. The name H&Q Healthcare Investors is the designation of the Trustees for the time being under an Amended and Restated Declaration of Trust dated April 21, 1987, as amended. All persons dealing with H&Q Healthcare Investors must look solely to the trust property for the enforcement of any claim against H&Q Healthcare Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Healthcare Investors. H&Q LIFE SCIENCES INVESTORS*** (1,500 units) By: /s/ Kimberley L. Carroll --------------------------------- Title: Treasurer ------------------------- ***LIMITATION OF LIABILITY. The name H&Q Life Sciences Investors is the designation of the Trustees for the time being under a Declaration of Trust dated February 20, 1992, as amended. All persons dealing with H&Q Life Sciences Investors must look solely to the trust property for the enforcement of any claim against H&Q Life Sciences Investors, as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of H&Q Life Sciences Investors. /s/ Alejandro Zaffaroni -------------------------------------- Alejandro Zaffaroni, Ph.D. (688 shares) 20 Amendment to Registration Rights Agreement This Amendment to the Registration Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and the Purchasers listed on Schedule A thereto, as amended by the Consent and Amendment dated as of November 18, 1993 (the "Registration Rights Agreement") is dated as of May 18, 1994 (the "Amendment") by and among the Company, Marion Merrell Dow Inc., a Delaware corporation ("MMD"), and the holders (the "Holders") of at least 51% of the Registrable Shares, as such term is defined in the Registration Rights Agreement. WHEREAS, pursuant to the Registration Rights Agreement, the Company has granted certain registration rights to the Holders (the "Registration Rights"); and WHEREAS, in connection with the purchase of shares of the Company's Class D Preferred Stock, $1.00 par value per share (the "Class D Preferred Stock") by MMD, the Company and the Holders desire to amend the Registration Rights Agreement to include the Class D Preferred Stock purchased by MMD as Registrable Shares under the Registration Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement is hereby amended as follows: 1.1 The term "Registrable Shares", as defined in Section 1(b) of the Registration Rights Agreement, is hereby amended to include (i) any shares of Common Stock, $.01 par value per share, of the Company issued or issuable upon any Conversion of the Class D Preferred Stock, (ii) any shares of Common Stock issuable to the holder of Class D Preferred Stock pursuant to any preemptive rights of the holder of such Class D Preferred Stock (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to Holders (as defined in the Registration Rights Agreement) than those contained in the Registration Rights Agreement and (iii) any other shares of Common Stock issued with respect to the shares enumerated in clauses (i) and (ii) above by reason of stock dividends, stock splits, recapitalizations, reorganization, or similar corporate action. 1.2 Section 1(c) of the Registration Rights Agreement, is hereby deleted in its entirety and the following is substituted therefor: (c) "HOLDERS" shall mean Marion Merrell Dow Inc. and any Purchaser (each, in its capacity as holder of any Shares or Registrable Shares and for so long as it holds such Shares or Registrable Shares), and such of its respective successors and assigns who acquire Shares or Registrable Shares from Holders in accordance with the terms of this Agreement and who agree in writing with the Company to acquire and hold the Shares or Registrable Shares subject to all the restrictions hereof but in no 21 event shall "HOLDERS" include any transferee of Regitrable Shares pursuant to sales made under a registration statement filed under the Securities Act. 1.3 Except as expressly amended hereby, the Registration Rights Agreement shall remain in full force and effect. 2 MISCELLANEOUS. 2.1 NOTICES. Except as otherwise specifically provided herein, all notices, requests, demands, and other communications hereunder shall be delivered personally or by facsimile (and promptly confirmed by telephone, personal delivery or courier) or given by prepaid nationally-recognized overnight courier service or by prepaid certified or registered mail, return receipt requested, or by prepaid telegram, addressed as follows: (a) if to MMD: Marion Merrell Dow Inc. 9300 Ward Parkway, P.O. Box 8480 Kansas City, Missouri 64114-0480 Attention: General Counsel Telephone: (816) 966-4000 Telecopy: (816) 966-3805 with copies to: Shook, Hardy & Bacon P.C. One Kansas City Place 1200 Main Street Kansas City, Missouri 64105 Attention: Randall B. Sunberg, Esq. Telephone: (816) 474-6550 Telecopy: (816) 421-5547 (b) if to the Company: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, Massachusetts 02139 Attention: Chief Executive Officer Telephone: (617) 349-0200 Telecopy: (617) - 2 - 22 with a copy to: Palmer & Dodge One Beacon Street Boston, Massachusetts 02108 Attention: Peter Wirth, Esq. Telephone: (617) 573-0100 Telecopy: (617) 227-4420 (c) if to the Holders: at the addresses indicated in the Registration Rights Agreement or to such other address as shall have been designated in writing by any party pursuant hereto. All notices, requests, demands and other communications hereunder shall be effective on the earlier of (i) actual receipt, with telephonic confirmation in the case of a facsimile, and (ii) three (3) business days after deposit in the U.S. mails or delivery to a nationally-recognized overnight courier service in accordance with this Section. 2.2 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.3 HEADINGS. The headings contained in this Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Amendment. 2.4 COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 3 - 23 IN WITNESS WHEREOF, the Company, the Holders and MMD have each caused this Amendment to Registration Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ K. Michael Forrest ---------------------------------- By: Its: President and CEO MARION MERRELL DOW INC. /s/ Terry J. Shelton ---------------------------------- By: Its: V.P., Licensing and Business Development HOLDERS WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Kimberley L. Carroll ------------------------------- Title: Treasurer - 4 - 24 H&Q LIFE SCIENCES INVESTORS By: /s/ Kimberley L. Carroll ------------------------------- Title: Treasurer TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ------------------------------- Title: Managing Director TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger ------------------------------- Title: Managing Director ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: BEA Associates, as Investment Advisor By: /s/ Albert L. Zesiger ------------------------------- Title: Managing Director - 5 - 25 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ Ansbert Gadicke ------------------------------- Title: Managing Director - 6 - 26 Second Amendment to Registration Rights Agreement This Second Amendment to the Registration Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and the Purchasers listed on Schedule A thereto, as amended by the Consent and Amendment dated as of November 18, 1993 and as further amended by the Amendment to Registration Rights Agreement dated as of May 18, 1994 (the "Registration Rights Agreement"), is dated as of March 1, 1995 (the "Second Amendment") by and among the Company and the holders (the "Holders") of at least 51% of the Registrable Shares, as such term is defined in the Registration Rights Agreement. WHEREAS, pursuant to the Registration Rights Agreement, the Company has granted certain registration rights to the Holders (the "Registration Rights"); and WHEREAS, in connection with the purchase of shares of the Company's Class E Preferred Stock, $1.00 par value per share (the "Class E Preferred Stock") by Marion Merrell Dow Inc. ("MMD") the Company and the Holders desire to amend the Registration Rights Agreement to include the Class E Preferred Stock purchased by MMD as Registrable Shares under the Registration Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement is hereby amended as follows: 1.1 Section 1(a) of the Registration Rights Agreement shall be deleted in its entirety, and the following shall be substituted therefor: "SHARES" shall mean the shares of Class B Preferred Stock purchased pursuant to the Class B Purchase Agreement, the shares of Class C Preferred Stock purchased pursuant to the Class C Purchase Agreement, the shares of Class D Preferred Stock purchased pursuant to the Class D Purchase Agreement and the shares of Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement, collectively. 1.2 The term "Registrable Shares", as defined in Section 1(b) of the Registration Rights Agreement, is hereby amended to include (i) any shares of Common Stock, $.01 par value per share, of the Company issued or issuable upon any Conversion of the Class E Preferred Stock, (ii) any shares of Common Stock issuable to the holder of Class E Preferred Stock pursuant to any preemptive rights of the holder of such Class E Preferred Stock (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to the Holders (as defined in the Registration Rights Agreement) than those contained in the Registration Rights Agreement) and (iii) any other shares of Common Stock issued with respect to the shares enumerated in clauses (i) and (ii) above by reason of stock dividends, stock splits, recapitalizations, reorganization, or similar corporate action. - 1 - 27 1.3 Except as expressly amended hereby, the Registration Rights Agreement shall remain in full force and effect. 2 MISCELLANEOUS. 2.1 GOVERNING LAW. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Second Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Second Amendment. 2.3 COUNTERPARTS. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 2 - 28 IN WITNESS WHEREOF, the Company and the Holders have each caused this Second Amendment to Registration Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ------------------------------------ By: Its: President and CEO HOLDERS MARION MERRELL DOW INC. /s/ Terry J. Shelton ------------------------------------ By: Its: V.P. WARBURG PINCUS CAPITAL COMPANY, LP By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas --------------------------------- Title: Managing Director H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr --------------------------------- Title: President - 3 - 29 H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr --------------------------------- Title: President TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger --------------------------------- Title: Managing Director TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Albert L. Zesiger --------------------------------- Title: Managing Director ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: BEA Associates, as Investment Advisor By: /s/ Albert L. Zesiger --------------------------------- Title: Managing Director - 4 - 30 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ A.S. Gadicke --------------------------------- Title: President - 5 - 31 Third Amendment to Registration Rights Agreement This Third Amendment to the Registration Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and the Purchasers listed on Schedule A thereto, as amended by the Consent and Amendment dated as of November 18, 1993 and as further amended by the Amendment to Registration Rights Agreement dated as of May 18, 1994 and the Second Amendment to the Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), is dated as of October 26, 1995 (the "THIRD AMENDMENT") by and among the Company and the holders (the "HOLDERS") of at least 51% of the Registrable Shares, as such term is defined in the Registration Rights Agreement. WHEREAS, pursuant to the Registration Rights Agreement, the Company has granted certain registration rights to the Holders (the "REGISTRATION RIGHTS"); and WHEREAS, in connection with the purchase of shares of the Company's Class F Preferred Stock, $1.00 par value per share (the "CLASS F PREFERRED STOCK") by the Purchasers (the "PURCHASERS") listed on SCHEDULE A thereto, the Company and the Holders desire to amend the Registration Rights Agreement to include the Class F Preferred Stock purchased by the Purchasers as Registrable Shares under the Registration Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement is hereby amended as follows: 1.1 Section 1(a) of the Registration Rights Agreement shall be deleted in its entirety, and the following shall be substituted therefor: "SHARES" shall mean the shares of Class B Preferred Stock purchased pursuant to the Class B Purchase Agreement, the shares of Class C Preferred Stock purchased pursuant to the Class C Purchase Agreement, the shares of Class D Preferred Stock purchased pursuant to the Class D Purchase Agreement, the shares of Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement and the shares of Class F Preferred Stock purchased pursuant to the Class F Preferred Stock Purchase Agreement, collectively. 1.2 The term "REGISTRABLE SHARES", as defined in Section 1(b) of the Registration Rights Agreement, is hereby amended to include (i) any shares of Common Stock, $.01 par value per share, of the Company issued or issuable upon any Conversion of the Class F Preferred Stock, (ii) any shares of Common Stock issuable to the holder of Class F Preferred Stock pursuant to any preemptive rights of the holder of such Class F Preferred Stock (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to the Holders (as defined in the Registration Rights Agreement) than those contained in the Registration Rights Agreement) and (iii) any other shares of Common Stock issued with respect to the shares enumerated in clauses (i) and (ii) above by reason of stock dividends, stock splits, recapitalizations, reorganization, or similar corporate action. 32 1.3 Except as expressly amended hereby, the Registration Rights Agreement shall remain in full force and effect. 2 MISCELLANEOUS. 2.1 GOVERNING LAW. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Third Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Third Amendment. 2.3 COUNTERPARTS. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 2 - 33 IN WITNESS WHEREOF, the Company, the Holders and the Purchasers have each caused this Third Amendment to Registration Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ---------------------------------- By: Its: President and CEO HOLDERS HOECHST MARION ROUSSEL, INC. /s/ Terry J. Shelton ---------------------------------- By: Its: V.P. WARBURG PINCUS CAPITAL COMPANY, LP By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas ------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr ------------------------------- Title: President - 3 - 34 H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr ------------------------------- Title: President TAB PRODUCTS CO. PENSION PLAN By: BEA Associates, Attorney-in-Fact By: /s/ Michael E. Guarasici ------------------------------- Title: V.P. Finance TEMPLE INLAND MASTER TRUST By: BEA Associates, Attorney-in-Fact By: /s/ Michael E. Guarasici ------------------------------- Title: V.P. Finance ARTHUR D. LITTLE EMPLOYEE INVESTMENT PLAN By: Zesiger Capital Group, Attorney-in-Fact By: /s/ Mary Estabil ------------------------------- Title: Private Placement Administrator - 4 - 35 KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc., as General Partner By: /s/ A.S. Gadicke ------------------------------- Title: President AUDA SECURITIES GmbH By: /s/ Marcel Giacommetti ------------------------------- Title: ---------------------------- /s/ F. Burda /s/ M. Bacher ---------------------------------- Franz Burda Frieder Burda HANSEATIC CORPORATION By: /s/ Paul Biddleman ------------------------------- Title: Treasurer /s/ J. Frances /s/ D. Rush ---------------------------------- Oppenheim Vermogenstreuhand GmbH /s/ Klaus Neugebauer ---------------------------------- Dr. Klaus Neugebauer - 5 - 36 Fourth Amendment to Registration Rights Agreement This Fourth Amendment to the Registration Rights Agreement dated as of November 3, 1993 by and among Transkaryotic Therapies, Inc., a Delaware corporation (the "COMPANY"), and the Purchasers listed on Schedule A thereto, as amended by the Consent and Amendment dated as of November 18, 1993, as amended by the Amendment to Registration Rights Agreement dated as of May 18, 1994, as amended by the Second Amendment to the Registration Rights Agreement dated March 1, 1995 as further amended by the Third Amendment to the Registration Rights Agreement dated as of October 26, 1995 (the "REGISTRATION RIGHTS AGREEMENT"), is dated as of July ___, 1996 (the "FOURTH AMENDMENT") by and among the Company and the holders (the "HOLDERS") of at least 51% of the Registrable Shares, as such term is defined in the Registration Rights Agreement. WHEREAS, pursuant to the Registration Rights Agreement, the Company has granted certain registration rights to the Holders (the "REGISTRATION RIGHTS"); and WHEREAS, in connection with the purchase of shares of the Company's Class G Preferred Stock, $1.00 par value per share (the "CLASS G PREFERRED STOCK") by the Purchasers (the "PURCHASERS") listed on SCHEDULE A thereto, the Company and the Holders desire to amend the Registration Rights Agreement to include the Class G Preferred Stock purchased by the Purchasers as Registrable Shares under the Registration Rights Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1 AMENDMENT OF REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement is hereby amended as follows: 1.1 Section 1(a) of the Registration Rights Agreement shall be deleted in its entirety, and the following shall be substituted therefor: "SHARES" shall mean the shares of Class B Preferred Stock purchased pursuant to the Class B Purchase Agreement, the shares of Class C Preferred Stock purchased pursuant to the Class C Purchase Agreement, the shares of Class D Preferred Stock purchased pursuant to the Class D Purchase Agreement, the shares of Class E Preferred Stock purchased pursuant to the Class E Preferred Stock Purchase Agreement, the shares of Class F Preferred Stock purchased pursuant to the Class F Preferred Stock Purchase Agreement and the shares of Class G Preferred Stock purchased pursuant to the Class G Preferred Stock Purchase Agreement, collectively. 1.2 The term "REGISTRABLE SHARES", as defined in Section 1(b) of the Registration Rights Agreement, is hereby amended to include (i) any shares of Common Stock, $.01 par value per share, of the Company issued or issuable upon any Conversion of the Class G Preferred Stock, (ii) any shares of Common Stock issuable to the holder of Class G Preferred Stock pursuant to any preemptive rights of the holder of such Class G Preferred Stock (unless such shares are subject to an agreement with the Company granting registration rights to the holder thereof on terms no less favorable to the Holders (as defined in the Registration Rights Agreement) than those contained in the Registration Rights Agreement) and (iii) any other shares of Common Stock issued with respect to the shares enumerated in clauses (i) and (ii) - 1 - 37 above by reason of stock dividends, stock splits, recapitalizations, reorganization, or similar corporate action. 1.3 Except as expressly amended hereby, the Registration Rights Agreement shall remain in full force and effect. 2 MISCELLANEOUS. 2.1 GOVERNING LAW. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 2.2 HEADINGS. The headings contained in this Fourth Amendment are for reference purposes only and shall not affect the meaning, interpretation, enforceability or validity of this Fourth Amendment. 2.3 COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same document. [Remainder of page intentionally left blank] - 2 - 38 IN WITNESS WHEREOF, the Company, the Holders and the Purchasers have each caused this Fourth Amendment to Registration Rights Agreement to be executed by their duly authorized officers as of the date first written above. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden ------------------------------------ By: Title: President and CEO HOLDERS HOECHST MARION ROUSSEL, INC. /s/ Charles W. Dalton ------------------------------------ By: Title: V.P. WARBURG PINCUS CAPITAL COMPANY, L.P. By: Warburg Pincus & Co., General Partner By: /s/ James E. Thomas -------------------------------- Title: Partner H&Q HEALTHCARE INVESTORS By: /s/ Alan Carr -------------------------------- Title: President H&Q LIFE SCIENCES INVESTORS By: /s/ Alan Carr -------------------------------- Title: President - 3 - 39 H&Q VENTURE INVESTORS By: --------------------------------- Title: ------------------------------ KTK PARTNERS LIMITED PARTNERSHIP By: Medical Portfolio Management, Inc. as General Partner By: /s/ Elline Hildebrandt -------------------------------- Title: Vice President PURCHASERS: BIOTECH TARGET, S.A. By: /s/ Hans Jorge Graf -------------------------------- Title: ------------------------------ By: /s/ Andreas Bremer -------------------------------- Title: ------------------------------ - 4 - EX-10.12 19 LEASE AGREEMENT 1 EXHIBIT 10.12 LEASE BETWEEN BENJAMIN L. WILSON JR., T/U/W/ EDWARD S. STIMPSON, T/U/W HARRY F. STIMPSON AND HARRY F. STIMPSON, JR. AS LANDLORD AND TRANSKARYOTIC THERAPIES, INC. AS TENANT TABLE OF CONTENTS ARTICLE I Reference Data 1.1 Subjects Referred To ...................................................... 4 1.2 Exhibits .................................................................. 6 ARTICLE II Premises and Term 2.2 Premises .................................................................. 6 2.2.1 Parking ............................................................. 7 2.2.2 Common Areas ........................................................ 7 2.2.3 Landlord's Reservations ............................................. 8 2.3 Term ...................................................................... 8 2.4 Option to Extend .......................................................... 8 2.5 Right to Negotiate Purchase of Premises and Adjacent Building ............. 8 2.6 Right to Negotiate Lease .................................................. 10 ARTICLE III Rent 3.1 Annual Fixed Rent ......................................................... 10 3.2 Adjustments to Annual Fixed Rent .......................................... 11 3.2.1 Adjustment to Annual Fixed Rent For Extension Term .................. 11 3.2.2 Adjustment to Annual Fixed Rent Based Upon Consumer Price Index ..... 12 3.3 Additional Rent ........................................................... 13 3.4 Real Estate Taxes ......................................................... 13 3.4.1 Building ............................................................ 13 3.4.2 Parking Lot ......................................................... 14 3.5 Betterment Assessments .................................................... 14 3.5.1 Premises ............................................................ 14 3.5.2 Parking Lot ......................................................... 14 3.6 Tax Fund Payments ......................................................... 15 3.7 Insurance ................................................................. 15 3.8 Utilities and Services .................................................... 15 3.9 Additional Expenses ....................................................... 15 3.10 Late Charge ............................................................... 16 3.11 Net Lease ................................................................. 16 3.12 No Offsets ................................................................ 16
2 ARTICLE IV MAINTENANCE AND REPAIR, ALTERATIONS; SURRENDER; HOLDING OVER 4.1 Tenant's Maintenance and Repair ........................................... 16 4.2 Landlord's Maintenance and Repair ......................................... 17 4.3 Alterations ............................................................... 17 4.4 Alterations Requirements .................................................. 18 4.5 Entry by Landlord ......................................................... 18 4.6 Surrender ................................................................. 19 4.7 Holding Over .............................................................. 19 ARTICLE V ADDITIONAL TENANT COVENANTS 5.1 Payment and Performance ................................................... 19 5.2 Use ....................................................................... 20 5.3 Compliance with Law ....................................................... 20 5.4 Personal Property Taxes ................................................... 20 5.5 Assignment and Subletting ................................................. 20 ARTICLE VI INDEMNITY AND INSURANCE 6.1 Indemnity ................................................................. 22 6.2 Tenant's Insurance ........................................................ 23 6.3 Tenant's Risk ............................................................. 25 6.4 Subrogation ............................................................... 25 ARTICLE VII CASUALTY AND EMINENT DOMAIN 7.1 Casualty During Term ...................................................... 25 7.2 Condemnation .............................................................. 26 7.3 Abatement of Rent ......................................................... 26 7.4 Condemnation Award ........................................................ 27 ARTICLE VIII DEFAULT 8.1 Tenant's Default .......................................................... 28 8.2 Damages ................................................................... 28 8.3 Remedies Cumulative ....................................................... 28 8.4 Landlord's Election ....................................................... 28 8.5 Effect of Waivers of Default .............................................. 28 8.6 No Waiver ................................................................. 28
3 8.7 No Accord and Satisfaction ................................................ 28 8.8 Delivery of Keys .......................................................... 28 8.9 Attorneys' Fees ........................................................... 28 ARTICLE IX MORTGAGEES' AND GROUND LESSORS' RIGHTS 9.1 Superiority of Lease ...................................................... 28 9.2 Subordination ............................................................. 29 9.3 Limitation on Tenant's Rights ............................................. 29 9.4 Exercise of Mortgagee's Remedies .......................................... 29 9.5 Further Assurances ........................................................ 29 9.6 No Prepaid Rent ........................................................... 29 ARTICLE X MISCELLANEOUS 10.1 Estoppel Certificates ..................................................... 29 10.2 No Recordation ............................................................ 29 10.3 Notices ................................................................... 29 10.4 Successors and Assigns .................................................... 29 10.5 Limitation of Liability ................................................... 29 10.6 Covenants and Conditions .................................................. 29 10.7 Severability .............................................................. 29 10.8 Quiet Enjoyment ........................................................... 29 10.9 Entire Agreement .......................................................... 29 10.10 Brokers ................................................................... 29 10.11 Applicable Law and Construction ........................................... 29 10.12 Time of Essence ........................................................... 29 10.13 Authorization ............................................................. 29 10.14 Security Deposit .......................................................... 29
4 THIS LEASE is made and entered into as of the 28th day of November, 1993 by and between Benjamin L. Wilson, Jr.; Margaret W. Stimpson, Edward S. Stimpson, III, Harry F. Stimpson, III, and Nicholas U. Sommerfeld, trustees under the will of Edward S. Stimpson; Harry F. Stimpson, III, trustee under the will of Harry F. Stimpson; and Harry F. Stimpson, Jr.; as tenants in common (collectively, the "Landlord"), and TRANSKARYOTIC THERAPIES, INC., a Delaware corporation ("Tenant"). In consideration of the mutual covenants herein set forth, Landlord and Tenant do hereby agree to the terms and conditions set forth in this Lease. ARTICLE I Reference Data 1.1 Subjects Referred To. Each reference in this Lease to any of the following shall be construed to incorporate the following data: Annual Fixed Rent: $1,028,000.00, as that amount may be increased pursuant to the terms of this Lease, which amount reflects the sum of (i) $8.25 per square foot of Premises located on the second floor of the Building and (ii) $28.00 per square foot of Premises located on the first floor and lower level of the Building. Building: The building known as and numbered 195 Albany Street, Cambridge, Massachusetts Common Area: See Section 2.1.2 Extension Term: Two (2) periods of five (5) years each as provided in Section 2.3. External Causes: See Section 7.1 Initial Public Liability Insurance Limits: Bodily Injury: $1,000,000 Property Damage: $1,000,000 Umbrella Coverage: $5,000,000 5 Land: A parcel of land located at 195 Albany Street, Cambridge, Massachusetts, as more particularly described on Exhibit A attached hereto Landlord's Address: c/o Meredith & Grew, Incorporated 160 Federal Street Boston, MA 02110-1701 Lease Commencement Date: January 1, 1994 Lease Year: Any period of one year during the Term commencing on the Lease Commencement Date or on any anniversary thereof. Original Term: Five (5) years starting on the Lease Commencement Date and expiring on December 31, 1998, unless extended pursuant to Section 2.3. Permitted Uses: See Section 5.2 Premises: 1.1.1 16,000 square feet on the second floor of the Building (the "Second Floor"); 1.1.2 16,000 square feet on each of the first floor (the "First Floor") and lower level ("Lower Level") of the Building (total of 32,000 square feet on the First Floor and Lower Level); 1.1.3 64 parking spaces in the parking, lot located at the corner of Albany and Pacific Streets, Cambridge, Massachusetts; and 1.1.4 Access to and the periodic use of the Common Areas, as defined in Section 2.1.2 5 6 Rent Commencement Date: January 1, 1994 Tenant's Address: 195 Albany Street Cambridge, MA 02139 Attn: Director of Operations Term: The Original Term and any Extension Term as to which Tenant properly exercises its option to extend as set forth in Section 2.3. 1.2 Exhibits. The exhibits listed below are attached hereto and incorporated in this Lease by reference and are to be construed as a part of this Lease: Exhibit A - Legal Description of Land Exhibit B - Encumbrances Exhibit C - Equipment Remaining Exhibit D - Insurance ARTICLE II Premises and Term 2.2 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, to have and to hold for the Term provided for by Section 2.2 below, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, the Premises. Tenant is currently in possession of the portion of the Premises located on the Second Floor of the Building under a sublease arrangement which terminates on the Lease Commencement Date and Tenant is fully aware of the existing conditions of the Premises and the Building and agrees to take the same on a strictly "as is" basis without warranty or representation express or implied and without any further obligation whatsoever on the part of Landlord with respect thereto except as follows: Landlord hereby represents and warrants to Tenant: (i) that it has good and clear record title to the Building free from all encumbrances other than those listed on Exhibit B attached hereto and that the execution of this Lease by the undersigned on behalf of the Landlord has been duly authorized and consented to by all required parties; and 6 7 (ii) that the Landlord shall deliver the Premises to Tenant on January 1, 1994, free of all prior tenants and occupants thereof, including without limitation, all equipment and other personal property of such parties other than those items listed on Exhibit C attached hereto. 2.2.1 Parking. Landlord shall provide sixty-four (64) parking spaces for use by Tenant and Tenant's employees in the parking lot located on the corner of Albany Street and Pacific Street, Cambridge, Massachusetts currently consisting of one hundred sixteen (116) parking spaces (the "Parking Lot") at no additional cost to Tenant other than Annual Fixed Rent and additional rent. Landlord shall also grant Tenant a monthly license to use up to thirty-two (32) additional parking spaces (the "Additional Parking Spaces") for a fee equal to the then current fair market value for such parking spaces, which on the Commencement Date shall equal fifty dollars ($50) per space, payable monthly in advance. In the event Landlord requires use of any of the Additional Parking Spaces, Landlord shall provide Tenant with thirty (30) days advance written notice and Landlord shall thereafter be under no obligation to continue to license the Additional Parking Spaces to the Tenant. Tenant agrees that it and all persons claiming by, through and under it shall at times cooperate with the manager of the Parking Lot which Landlord may designate from time to time, as to use of said Parking Lot and shall abide by the reasonable rules and regulations imposed on the use of the Parking Lot, from time to time. Landlord shall have the right to designate, from time to time, and to change, from time to time, the designation of managers, parking spaces and total number of parking spaces within the Parking Lot. Tenant shall use the designated parking spaces only for parking of vehicles, which parking shall be available to Tenant at all hours. 2.2.2 Common Areas. The term "Common Areas" is defined as all areas and facilities outside the Premises which Common Areas may be used in common by lessees of the Building and the building located at 185 Albany Street (the "Adjacent Building") and each of their employees and invitees, including, but not limited to, the entranceway, courtyard, lobby, emergency exits, driveway and corridors. Tenant, its employees and invitees agree to abide by and conform to the reasonable rules and regulations governing the Common Areas. Landlord or such other person(s) as Landlord may appoint shall have the exclusive control and management of the Common Areas and shall have the right to modify, amend and enforce said rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance of said rules and regulations by other tenants or their invitees, but shall uniformly enforce all such rules and regulations against all such parties. Landlord shall have the right: (a) to make changes, at its sole cost and expense (unless otherwise properly allocable to the Tenant under the terms of this Lease), to the Building exterior and the Common Areas, including, without limitation, changes in the location, size, shape, 7 8 number and appearance thereof, including, but not limited to, the lobbies, windows, stairways, air-shafts, elevators, driveways, entranceways, parking spaces, parking areas (but not off of the Parking Lot), loading and unloading areas, loading bays, trash areas, ingress, egress, decorative walls, signs, landscaped areas and walkways with reasonable notice to Tenant (except in the case of an emergency) provided, however, that any such relocation of Parking Spaces shall not be off of the Parking Lot or the Premises; and provided further that the implementation of such changes will not (i) materially interfere with the Tenant's conduct of its business at the Premises; or (ii) alter the number of parking spaces leased to Tenant pursuant to the terms of this Lease; or (iii) materially alter the percentage of Tenant's share of operating and tax expenses applicable to the Parking Lot; provided that if such changes are made to the Parking Lot Tenant shall only be responsible for its share of operating and tax expenses prior to such change. (b) for maintenance, repair or construction purposes, to use or to close temporarily any of the Common Areas so long as reasonable access to the Premises remains available. 2.2.3 Landlord's Reservations. Landlord reserves the right, from time to time, with reasonable notice to Tenant (except in the case of an emergency) and without unreasonable interference with Tenant's use to gain access to the Premises for any purpose permitted under this Lease as provided in Section 4.5 below. 2.3 Term. The Term of this Lease shall begin on the Lease Commencement Date and continue for the Term, unless sooner terminated or extended as provided in this Lease. 2.4 Option to Extend. Provided that (i) this Lease remains in full force and effect; (ii) Tenant is not in default hereunder beyond any applicable period of notice and grace, if any; and (iii) Tenant is in actual occupancy of at least thirty-three percent (33%) of the Premises, Tenant shall have the option, to be exercised as hereinafter provided, to extend the Original Term of this Lease for two (2) periods of five (5) years each following the expiration of the Original Term (each, an "Extension Term"). Each Extension Term shall be upon the same terms and conditions as provided in this Lease, except for the Annual Fixed Rent, which shall be determined in accordance with Section 3.2.1 below and except that Tenant shall have no further option to extend the Term. Tenant shall exercise this option to extend for an Extension Term by notifying Landlord in writing at least one year prior to the expiration of the Original Term or the first Extension Term, as the case may be. In the event Tenant does not exercise the first option to extend the Term there shall be no second option to extend. 2.5 Right to Negotiate Purchase of Premises and Adjacent Building. Provided that (i) this Lease remains in full force and effect; (ii) Tenant is not in default hereunder beyond any applicable period of notice and grace, if any, and (iii) Tenant is in actual occupancy of at least sixty-seven percent (67%) of the Premises, Tenant shall have the right to negotiate for 8 9 the acquisition of the Premises, Land and Building and the Adjacent Building (the "Right to Negotiate") during the Original Term and the Extension Terms on the following terms and conditions. If Landlord determines to sell the Premises, Land and Building or any part thereof or the Adjacent Building, or any part thereof, at any time during the Original Term or the Extension Term, Landlord shall notify Tenant of the terms on which Landlord will be willing to sell after the expiration of time for performance by Massachusetts Institute of Technology (together with its successors and assigns, "MIT") under its right of first refusal with respect to the Adjacent Building and after first offering the Premises, Land and Building to MIT and MIT declining to so purchase the Premises, Land and Building. If Tenant, within fifteen (15) days after receipt of Landlord's notice, indicates in writing its desire to acquire the Premises, Land, Building or the Adjacent Building, or any part thereof, as the case may be, Landlord and Tenant shall, for a period of thirty (30) days after receipt of said notice, negotiate the necessary documentation regarding Tenant's agreement to so purchase the Premises, Land and Building or the Adjacent Building or such part thereof, as the case may be, subject to and in accordance with the principal terms stated in Landlord's notice. If written agreement is reached between Landlord and Tenant, Landlord shall sell and convey the Premises, Land and Building or the Adjacent Building or the part thereof, as the case may be, to Tenant on the terms in the signed written agreement. If Landlord and Tenant so enter into a written agreement regarding the Tenant's purchase of the Premises, Land and Building or the Adjacent Building or part thereof, as they case may be, and thereafter Tenant defaults in its obligation, the Right to Negotiate shall expire and terminate for all purposes. If Tenant does not indicate its interest within the initial fifteen (15) day period, or if Landlord and Tenant fail to enter into a signed written agreement regarding Tenant's acquisition of the Premises, Land and Building or the Adjacent Building, or a part thereof, as they case may be, within the additional thirty (30) day period which begins upon receipt of Tenant's notice of intent, Landlord thereafter shall have the right to sell and convey the Premises, Land and Building, or the Adjacent Building or such part thereof, as the case may be, to any third party, and upon the closing of such sale, the Right to Negotiate shall expire and terminate for all purposes. If Landlord does not so sell and convey the Premises, Land and Building or the Adjacent Building or such part thereof as the case may be, within one year, any further transaction shall be deemed a new determination by Landlord to sell and convey the Premises, Land and Building or the Adjacent Building or such part thereof, as the case may be, and the provisions of this Section 2.4 shall be applicable. If Tenant purchases all of the Premises, Land and Building this Lease shall terminate on the date title vests in Tenant, and Landlord shall remit to Tenant all prepaid and unearned rent. If Tenant purchases a part thereof, this Lease as to the part purchased shall terminate on the date title vests in Tenant, and the Annual Fixed Rent and additional rent shall be reduced so that Tenant continues to pay $8.25 per square foot, triple net, for the Second Floor of the Building, and $28.00 per square foot, triple net, for the First Floor and Lower Level of the Building as the same may be adjusted pursuant to Section 3.2 below during the Original Term, or the corresponding rent per square foot during the Extension Terms based on the adjustment(s) contained in Section 3.2 below. The Right to Negotiate shall not apply to a transfer (either outright or in trust) between any of those persons who constitute the beneficial owners or principals of Landlord, the relatives by blood or marriage of any of 9 10 those persons, or to a legal entity (i.e., partnership, corporation, trust, or like entity) when the majority interest is owned by all or some of such persons, or any transfer by gift or for nominal consideration, so long as the Premises continue to be subject to this Lease, including this Section 2.4. An affidavit of an officer, trustee or principal of Landlord recorded with the Middlesex South District Registry of Deeds stating that the provisions of this Section 2.4 have been complied with or met as to any conveyance of all or any portion of the Premises shall conclusively establish compliance therewith as to any third party or parties. 2.6 Right to Negotiate Lease. Provided that (i) this Lease remains in full force and effect; (ii) Tenant is not in default hereunder beyond any applicable period of notice and grace, if any; and (iii) Tenant is in actual occupancy of at least sixty-seven percent (67%) of the Premises, Tenant shall have the right to negotiate for any space which becomes available and is under Landlord's exclusive control in the Adjacent Building. Tenant acknowledges and recognizes that the Adjacent Building is currently leased to MIT and Landlord does not have control over MIT's sublet rights. If Landlord determines to lease all or any portion of the Adjacent Building at anytime during the Original Term or the Extension Terms, Landlord shall so notify Tenant. If Tenant, within fifteen (15) days after the receipt of Landlord's notice indicates in writing its agreement to enter into lease negotiations for such space in the Adjacent Building, Landlord and Tenant shall each thereafter negotiate in good faith and attempt to reach mutually acceptable lease terms within fifteen (15) days from the date of such notice from Tenant to Landlord regarding the Tenant's desire to so lease the Adjacent Building and if such terms are reached within said fifteen (15) days, thereafter enter into a lease within thirty (30) days from the date of such agreement for such Adjacent Building substantially in the form of this Lease but on the terms reached by mutual agreement. If Landlord and Tenant enter into a written lease agreement pursuant to which Tenant agrees to lease the Adjacent Building and Tenant thereafter defaults in its obligation to so lease space, the negotiation right contained in this Section 2.5 shall expire and terminate for all purposes. If Tenant does not indicate its agreement within said fifteen (15) days or if Landlord and Tenant do not enter into a written lease agreement within the time frame provided in this Section 2.5, Landlord thereafter shall have the right to lease the Adjacent Building to any third party and Tenant's rights under this Section 2.5 shall expire and terminate for all purposes. ARTICLE III Rent 3.1 Annual Fixed Rent. Tenant covenants and agrees to pay rent to Landlord, at the Original Address of Landlord or such other place as Landlord may by notice in writing to Tenant from time to time direct during the Term, in the amount of the Annual Fixed Rent as set forth in Section 1.1 above and as adjusted pursuant to this Article III, in equal monthly installments in advance on the first day of each calendar month during the Term, commencing on the Rent Commencement Date. Annual Fixed Rent for any portion of a 10 11 calendar month at the beginning or the end of such period shall be prorated accordingly. Notwithstanding any provision of this Section 3.1 to the contrary, Annual Fixed Rent for the period from the Lease Commencement Date throughout December 31, 1994 shall be ~$580,000 (the "First Year Fixed Rent"). First Year Fixed Rent is a base rent for calendar year 1994 and Tenant remains liable and responsible for all additional rent or parking license fees otherwise due under the terms and conditions of this Lease. 3.2 Adjustments to Annual Fixed Rent. The Annual Fixed Rent provided for in Section 1.1 shall be subject to adjustment as provided in Section 3.2.1 and Section 3.2.2 below. On adjustment of the Annual Fixed Rent as provided in Section 3.2.1 and Section 3.2.2, the parties hereto shall immediately execute an amendment to this Lease stating the new Annual Fixed Rent. 3.2.1 Adjustment to Annual Fixed Rent For Extension Term. Not less than eighteen (18) months nor more than twenty (20) months prior to the commencement of the Extension Terms, Tenant may notify Landlord that it desires to establish Annual Fixed Rent for the applicable Extension Term; whereupon Landlord shall immediately enter into negotiations with Tenant to set such Annual Fixed Rent. If within thirty (30) days after said notification Landlord and Tenant have not reached agreement on the Annual Fixed Rent for the applicable Extension Term, then within ten (10) days after said thirty (30) day period, Landlord and Tenant shall each name an appraiser and the Annual Fixed Rent for the Extension Term shall be determined by appraisal in the following manner: The two appraisers thus named shall promptly name a third appraiser. If the two appraisers shall not have agreement upon a third appraiser within ten (10) days after the end of the previous ten (10) day period, either Landlord or Tenant may request the then President of the Greater Boston Real Estate Board or the successor of such Board to appoint the third appraiser. The third appraiser shall be a member of the Appraiser's Institute or otherwise qualify as an expert in the appraisal of commercial real estate. The three appraisers thus selected shall promptly proceed to determine: A. with respect to the first Extension Term: (i) with respect to the Second Floor of the Building the fair and equitable Annual Fixed Rent for the Extension Term, such determination to be based on the fair rental value of the leasehold interest demised hereby on January 1, 1997. In determining such rental value the appraisers shall consider commercial real estate in Cambridge, Massachusetts in general and specifically those properties which have been renovated to office, research and development, laboratory and manufacturing use, provided, however that the appraisers shall not consider the value of any improvements which have been installed in or added to the Second Floor which have been paid for by Tenant, whether during or prior to the term of this Lease; and (ii) with respect to the First Floor and Lower Level of the Building the fair and equitable Annual Fixed Rent for the extension term, such determination to be based on 95% of the then current fair market rent for first-class laboratory, research and development space in Cambridge, Massachusetts leased for similar periods and upon substantially similar 11 12 terms and conditions as provided in this Lease, excluding the value of any additional improvements to the First Floor and Lower Level of the Building paid for by Tenant but specifically including replacements of all improvements existing on the Lease Commencement Date (including, but not limited to the equipment listed on Exhibit C). The appraisers shall make such a determination in writing to Landlord and Tenant no later than sixty (60) days prior to January 1, 1998. B. with respect to the Second Extension Term (i) with respect to the Second Floor of the Building the fair and equitable Annual Fixed Rent for the Extension Term, such determination to be based on the fair rental value of the leasehold interest demised hereby on January 1, 2002. In determining such rental value the appraisers shall consider commercial real estate in Cambridge, Massachusetts in general and specifically those properties which have been renovated to first class research and development, laboratory and manufacturing use, in comparable condition and equipped comparably to the Second Floor of the Building on January 1, 2002 leased for similar periods and upon substantially similar terms and conditions as provided in this Lease; and (ii) with respect to the First Floor and Lower Level of the Building the fair and equitable Annual Fixed Rent for the extension term, such determination to be based on 95% of the then current fair market rent for first-class laboratory, research and development space in Cambridge, Massachusetts leased for similar periods and upon substantially similar terms and conditions as provided in this Lease, excluding the value of any additional improvements to the First Floor and Lower Level of the Building paid for by Tenant but specifically including replacements of all improvements existing on the Lease Commencement Date (including, but not limited to the equipment listed on Exhibit C). The appraisers shall make such a determination in writing to Landlord and Tenant no later than sixty (60) days prior to January 1, 2003. The parties agree to provide appropriate relevant information and otherwise to assist the appraisers in arriving in a prompt determination. The expenses of appraisal shall be shared equally between Landlord and Tenant but each party shall pay its own counsel fees. The appraisers shall determine a fair and equitable annual base rent which may be greater but not less than Annual Fixed Rent for the Original Term, as adjusted by Section 3.2.2. below with respect to the First Extension Term and not less than Annual Fixed Rent for the first Extension Term, as adjusted by Section 3.2.2 below with respect to the second Extension Term. If, following the determination of Annual Fixed Rent for the extended term whether by agreement of the parties or by appraisal hereunder, Tenant exercises its option to extend the Term granted under Section 2.3 above, the fair and equitable Annual Fixed Rent so determined shall be and become the Annual Fixed Rent hereunder in effect beginning with the first day of the Extension Term. 3.2.2 Adjustment to Annual Fixed Rent Based Upon Consumer Price Index. Beginning on January 1, 1996 and at the commencement of every second calendar year thereafter during the Term and the first Extension Term (specifically excluding the second 12 13 Extension Term) the Annual Fixed Rent provided for in Section 1.1 applicable to the Second Floor of the Building shall be adjusted as follows: The base for computing the adjustment is the Consumer Price Index for All Urban Consumers - All Items for the Boston metropolitan area, published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is in effect on November 1, 1993 ("Beginning Index"). The Index published most immediately preceding the Adjustment Date ("Extension Index") is to be used in determining the amount of the adjustment. If the Extension Index has increased over the Beginning Index, the Annual Fixed Rent for the Extension Term shall be set as follows: (a) the Annual Fixed Rent set forth in Section 1.1 applicable to the Second Floor of the Building shall be multiplied by the figure obtained by dividing the Extension Index by the Beginning Index (the total of which shall be the "CPI Rent"); and (b) the difference between the CPI Rent and the Annual Fixed Rent set forth in Section 1.1 applicable to the Second Floor of the Building shall be multiplied by seventy percent (70%), the product of which shall be added to Annual Fixed Rent set forth in Section 1.1 applicable to the Second Floor of the Building to determine Annual Fixed Rent and the total Annual Fixed Rent shall be adjusted accordingly. In no event whatsoever shall the Annual Fixed Rent by way of a CPI adjustment be less than the Annual Fixed Rent set forth in Section 1.1, as adjusted pursuant to this Section 3.2.2. If the Index is discontinued or revised during the Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 3.3 Additional Rent. In order that the Annual Fixed Rent shall be absolutely net to Landlord, Tenant covenants and Agrees to pay either directly or to Landlord, as additional rent, all real estate taxes, betterment assessments, insurance costs, and charges for utilities and other services with respect to the Building as hereinafter provided in this Lease. All amounts payable by Tenant to Landlord under this Lease shall be deemed to be additional rent and shall be paid within twenty (20) days after Tenant's receipt of Landlord's statement itemizing such charges together with invoices therefor. In the event Tenant pays such real estate taxes betterment assessments insurance costs and charges for utilities and other services with respect to the building directly to the authority charged with the collection thereof, Tenant shall provide Landlord written evidence of the payment thereof within ten (10) business days after receipt of Landlord's request for such evidence with respect to all items other than real estate taxes and municipal betterments, which Tenant shall provide to Landlord within ten (10) days of the payment thereof. 3.4 Real Estate Taxes. 13 14 3.4.1 Building. Tenant shall pay, subject to Tenant's right to contest any such tax in good faith, all taxes levied or assessed by or becoming payable to any municipality or any other governmental authority having jurisdiction of the Land and Building, for or in respect of the ownership, leasing or operation of the Land and Building or which may become a lien on the Land and Building, for each tax period wholly included in the Term, all such payments to be made at least ten (10) days before the last date on which the same may be paid without interest or penalty; provided that for any fraction of a tax period included in the Term at the beginning (beginning on the Lease Commencement Date) or end thereof, Tenant shall pay to Landlord, within twenty (20) days after receipt of Landlord's invoice therefor, the fraction of taxes so levied or assessed or becoming payable which is allocable to such included period. Nothing contained in this Lease shall, however, require Tenant to pay any franchise, corporate, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any net income, profits or revenue tax or charge upon the rent payable by Tenant under this Lease. 3.4.2 Parking Lot. Tenant shall pay to Landlord as additional rent, Tenant's proportionate share of real estate taxes applicable to the Parking Lot. For purposes of this section, Tenant's proportionate share of taxes for the Parking Lot shall equal the total number of parking spaces which Tenant is leasing under the terms of this Lease and any Additional Parking Spaces licensed by Tenant for the applicable period over the total number of parking spaces in the Parking Lot. If the number of Additional Parking Spaces licensed by Tenant during a tax year fluctuates, the proportionate share shall be Calculated on a pro rata basis. 3.5 Betterment Assessments. 3.5.1 Premises. Tenant shall pay, 100% of each installment of any public, special or municipal betterment assessment levied or assessed by or becoming payable to any municipality or other governmental authority having jurisdiction of the Land and Building, for or in respect of the ownership, leasing or operation of the Land and Building or which may become a lien on the Land and Building, for each installment period wholly included in the Term, all such payments to be made at least ten (10) days before the last date on which the same may be made without interest or penalty; provided that for any fraction of an installment period included in the Term at the beginning (beginning on the Rent Commencement Date) or end thereof, Tenant shall pay to Landlord, within twenty (20) days after receipt of Landlord's invoice therefor, the fraction of such installment which is allocable to such included period. Landlord shall elect to pay any such assessment in installments over the longest period permitted by law. 3.5.2 Parking Lot. Tenant shall pay to Landlord as additional rent, Tenant's proportionate share of such installments of municipal betterment assessments applicable to the Parking Lot for each installment period wholly within the Term or with respect to periods at the beginning or end of the Term, apportioned accordingly for the applicable installment period. For purposes of this Section, Tenant's proportionate share of betterment assessments 14 15 applicable to the Parking Lot shall equal the total number of parking spaces which Tenant is leasing under the terms of this Lease and any Additional Parking Spaces licensed by Tenant for the applicable period over the total number of parking spaces in the Parking Lot. If the number of Additional Parking Spaces licensed by Tenant during an applicable assessment period fluctuates, the proportionate share shall be calculated on a pro rata basis. Landlord shall elect to pay any such installment over the longest period permitted by law. 3.6 Tax Fund Payments. If any holder of a first mortgage on the Land, Building or Parking Lot requires Landlord to make tax fund payments to it, Tenant shall, as additional rent, on the first day of each month of the Term, make Tax Fund Payments to Landlord in lieu of making such payment directly as provided under Section 3.4 above. "Tax Fund Payments" refer to such payments as the holder of such first Mortgage shall reasonably determine to be sufficient to provide in the aggregate a fund adequate to pay all taxes and assessments referred to in Sections 3.4 and 3.5 when they become due and payable. If the aggregate of said Tax Fund Payments is not adequate to pay all Said taxes and assessments, Tenant shall pay to Landlord the amount by which such aggregate is less than the amount equal to all said taxes and assessments, such payment to be made on or before the later of (a) twenty (20) days after receipt by Tenant of written notice from Landlord of such amount, or (b) the 30th day prior to the last day on which such taxes and assessments may be paid without interest or penalty. If Tenant shall have made the foresaid payments, Landlord shall on or before the last day on which the same may be paid without interest or penalty, pay or cause to be paid to the proper authority charged with the collection thereof all taxes and assessments referred to in said Sections 3.4 and 3.5 and furnish Tenant, upon request, with reasonable evidence of such payment. Any balance remaining after such payment by Landlord shall be accounted for to Tenant annually. All payments made by Tenant pursuant to this Section 3.6 shall to the extent thereof relieve Tenant of its obligations under said sections 3.4 and 3.5. 3.7 Insurance. Tenant shall obtain insurance for the Premises and the Parking Lot as provided for by Section 6.2. 3.8 Utilities and Services. Tenant shall pay directly to the proper authorities charged with the collection thereof all charges for water, sewer, gas, electricity, telephone and other utilities or services used or consumed on the Premises during the Term. 3.9 Additional Expenses. Tenant shall pay to Landlord as additional rent: (a) One half of all operating and maintenance expenses attributable to the Common Areas including, without limitation, landscape, snowplowing and any and all other costs and expenses attributable to the maintenance of said Common Areas. (b) Tenant's proportionate share of operating and maintenance expenses attributable to the Parking Lot. For purposes of this Section, Tenant's proportionate share of maintenance expenses applicable to the Parking Lot shall equal the total number of parking 15 16 spaces which Tenant is leasing under the terms of this Lease and any Additional Parking Spaces licensed by Tenant for the applicable period over the total number of parking spaces in the Parking Lot. If the number of Additional Parking Spaces licensed by Tenant during an applicable operating year fluctuates, the proportionate share shall be calculated on a pro rata basis. 3.10 Late Charge. In the event that any payment of Annual Fixed Rent or additional rent shall remain unpaid for a period of five (5) business days after due, there shall become due to landlord from Tenant, as additional rent and as compensation for Landlord's extra administrative costs in investigating the circumstances of late rent, a late charge of three percent (3%) of the amount overdue. Payment of any late charge shall not constitute a cure of any default with respect to the amount as to which such late charge is paid. 3.11 Net Lease. It is understood and agreed that this Lease is a net lease and that the Annual Fixed Rent is absolutely net to Landlord, excepting only those matters which Landlord is required to pay under this Lease. 3.12 No Offsets. All payments to be made by Tenant to Landlord in accordance with the terms of this Lease, including, but not limited to, Annual Fixed Rent and additional rent, shall be paid by Tenant without offset, abatement or deduction other than as expressly provided for in Section 3.1 above and in Article VII below. ARTICLE IV MAINTENANCE AND REPAIR, ALTERATIONS; SURRENDER; HOLDING OVER 4.1 Tenant's Maintenance and Repair. Except as otherwise provided in Section 4.2 or Article VII below, Tenant, at Tenant's expense, shall keep neat and clean and maintain and repair in good order, condition and repair the Premises and every part thereof (including, without limitation, maintenance of the electrical, plumbing and HVAC systems and equipment serving the Premises and the other fixtures and equipment therein and the cleaning of and trash removal from the Premises), reasonable wear and tear excepted. Without limiting the generality of the foregoing, Tenant, at Tenant's expense, shall provide or cause to be provided landscape care to and maintenance of the portion of the Land not included in the Common Areas and used exclusively by Tenant, and maintenance (including snow plowing and removal of ice) of the walkways on the Premises not included in the Common Areas and used exclusively by Tenant. Tenant hereby covenants and agrees to remove all trash from the Premises in compliance with all federal, state, and local laws, rules, ordinances and regulations. If maintenance or repairs are required to be done or made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant do or make the same forthwith, and, if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be 16 17 required to do so) make or cause such repairs to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's property or business by reason thereof, so long as Landlord makes or causes Such repairs to be made in a reasonable manner. If Landlord makes or causes such repairs to be made, Tenant agrees that Tenant will forthwith on demand pay to Landlord the cost thereof as additional rent pursuant to Section 8.4. Tenant shall receive the benefit of all warranties and guaranties with respect to those portions of the Premises that Tenant is obligated to maintain, as well as, at Tenant's election and Tenant's expense, any options to extend or similar rights with respect to the warranties and guaranties. 4.2 Landlord's Maintenance and Repair. Except as otherwise provided in Article VII below, Landlord, at Landlord's expense, shall keep, maintain and repair in good order, condition and repair the structural parts of the Building, which structural parts include only the foundations, bearing and exterior walls (excluding glass and doors), subflooring, support columns, support beams and roof (excluding skylights), except for (i) any damage caused to any of the foregoing by the negligence or neglect of Tenant, its agents, contractors, employees or invitees or (ii) any maintenance or repair required as a result of damage caused to any of the foregoing by any alterations or other work performed by or on behalf of the Tenant. Except as set forth in this Section 4.2 and in Article VII below, Tenant shall be responsible for the cost of all replacements and repairs to the Premises, including any maintenance or repair required as a result of damage caused to any structural element or system of the Building by any alterations or other work performed by or on behalf of the Tenant. 4.3 Alterations. Tenant shall not make alterations and additions to the Premises except in accordance with plans and specifications therefor first approved by Landlord, which approval shall be requested in writing and shall not be unreasonably withheld or delayed, provided, however, no such approval shall be required for alterations or additions costing less than fifteen thousand dollars ($15,000) individually or seventy-five thousand dollars ($75,000) in the aggregate in any calendar year. Landlord shall not be deemed unreasonable for withholding approval of any alterations or additions that (a) might adversely affect any structural or exterior element of the Building, or any area or element outside of the Premises, or (b) will require unusual expense to readapt the Premises to normal office or laboratory use on expiration or earlier termination of the Term, unless Tenant first provides assurances acceptable to Landlord that such readaptation will be made prior to such expiration or termination without expense to Landlord. All alterations and additions other than Tenant's moveable equipment shall become part of the Building and shall become the property of Landlord upon expiration or earlier termination of the Term unless (i) Tenant shall remove the same prior to such expiration or earlier termination and replace, repair and restore any such alterations or additions, or (ii) Landlord shall notify Tenant in writing that the same must be removed. Such notice by Landlord shall be given no later than in response to Tenant's written request for Landlord's approval of the alterations or additions prior to their installation, and in such event Tenant shall remove such alterations or additions and any 17 18 damage caused by removal shall be repaired by Tenant at Tenant's expense upon expiration or earlier termination of this Lease. 4.4 Alterations Requirements. Landlord may (but shall not be obligated to) inspect any construction work of Tenant under this Lease at reasonable times after notice to Tenant (other than in the case of an emergency). Tenant, before its work is started, shall secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors; and shall cause each contractor to carry such workmen's compensation insurance and comprehensive general public liability insurance as Landlord may reasonably require insuring Landlord and Tenant as well as the contractors, and to deliver to Landlord certificates of all such insurance. Tenant agrees to pay promptly when due the entire cost of any work done on or about the Premises by or on behalf of Tenant, its agents, employees or independent contractors, not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises and promptly to discharge or bond off in form and substance satisfactory to Landlord in Landlord's sole and absolute discretion any such liens which may so attach. Tenant shall hold Landlord harmless and indemnify Landlord from and against all injury, loss, claims or damage to any person or property ("Claims") occasioned by or growing out of any such work other than with respect to Claims arising from the gross negligence or willful misconduct of Landlord, its agents, contractors or employees. 4.5 Entry by Landlord. Tenant shall permit Landlord and its agents, after reasonable notice (except in the case of emergencies in which case no notice is required), to enter the Premises (other than the Manufacturing Facility Clean Room, as hereinafter defined, as provided in the immediately succeeding sentence) at all reasonable hours for the purpose of inspecting, testing, or of making repairs to the same, or otherwise carrying out Landlord's rights or obligations under this Lease, and to show the Premises to prospective tenants during the year preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. In case of emergency, or if Landlord reasonably suspects that there is any violation of law, rule, ordinance or regulation in connection with the Manufacturing Facility Clean Room, as hereinafter defined, or the use and/or operation thereof, Tenant shall permit Landlord and its agents to enter the Manufacturing Facility Clean Room without prior notice after flaking reasonable precautions (if appropriate under the circumstances) requested by Tenant. In the event Landlord requires access to the Manufacturing Facility Clean Room, as hereinafter defined, for the purpose of making repairs which Landlord is required or permitted to make under the terms and conditions of this Lease, Tenant shall permit Landlord and its agents, after 72 hours advance written notice, to enter the Manufacturing Facility Clean Room after taking all reasonable precautions which Tenant may require. The phrase Manufacturing Facility Clean Room shall mean the 25' x 40' class 100 clean room facility to be located on the second floor of the Premises. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from Landlord or its agents entering the Premises (including the Manufacturing Facility Clean Room) for any purposes authorized in this Lease. Notwithstanding Landlord's right to enter the Premises or 18 19 other rights reserved by Landlord pursuant to any other provision of this Lease, Landlord hereby covenants and agrees in the exercise of any such rights not to disclose, photograph or otherwise reveal to any party information related to Tenant's business operation at the Premises, including in particular Tenant's manufacturing processes, provided, however, that Landlord may disclose any such information to its counsel and as directed by a court of competent jurisdiction or by subpoena. 4.6 Surrender. Tenant shall surrender the Premises, and all alterations and additions thereto as hereinabove provided, at the expiration or earlier termination of the Term, in the condition described in Section 4.1, first removing all personal property and trade fixtures of Tenant and, to the extent specified by Landlord by notice to Tenant as hereinabove provided or as otherwise agreed by Landlord and Tenant, alterations and additions made by Tenant, and repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord's retention or disposition of any of Tenant's personal property or trade fixtures remaining on the Premises on expiration or earlier termination of the Term. Tenant shall be liable to Landlord for Landlord's costs for storing, removing, and disposing of any alterations or additions that Tenant is obligated to remove but fails to remove or Tenant's personal property or trade fixtures. If Tenant fails to surrender the Premises to Landlord on expiration or earlier termination of the Term in the condition and otherwise as required by this Section, Tenant shall hold Landlord harmless from all damages resulting from Tenant's failure to surrender the Premises, including, without limitation, claims made by succeeding tenants resulting from Tenant's failure to surrender the Premises. 4.7 Holding Over. If Tenant, without Landlord's consent remains in possession of the Premises after expiration or earlier termination of Term, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on thirty days' notice given at any time by either party. During any such month-to-month tenancy, Tenant shall pay all rent and other sums required by this Lease, and all provisions of this Lease, except those pertaining to Term, option to extend and rights of refusal shall apply to the month-to-month tenancy, and the monthly base rent (excluding additional rent) shall be $40,000.00 for the Second Floor of the Building and shall be one hundred fifty percent (150%) of the Annual Fixed Rent applicable to the First Floor and Lower Level of the Building then in effect at the expiration or earlier termination of the Term. This provision shall not be construed as a consent by Landlord to any such holding over. ARTICLE V ADDITIONAL TENANT COVENANTS 5.1 Payment and Performance. Tenant agrees to pay when due all Annual Fixed Rent and additional rent, all charges for utility and other services rendered to the Premises, and all other monies required to be paid by Tenant pursuant to this Lease and to promptly perform all obligations of Tenant pursuant to this Lease. Annual Fixed Rent and additional 19 20 rent payments required under this Lease shall be deemed sufficiently paid if made by check collected on first presentation. 5.2 Use. Tenant agrees, from the Commencement Date to the end of the Term, to use and occupy the Premises for general office, research and development, laboratory and manufacturing or other purposes permitted by federal, state and local laws and ordinances. Tenant agrees not to injure, overload or deface the Premises, nor to permit on the Premises any auction sale. Tenant shall comply with all requirements of public authorities and of the Board of Fire Underwriters in connection with methods of storage, use and disposal. Tenant shall not permit in the Premises any nuisance, or the emission from the Premises of any objectionable noise, odor or vibration, nor use or devote the Premises or any part thereof for any purpose which is contrary to law or ordinance or liable to invalidate or increase premiums for any insurance on the Building or its contents or liable to render necessary any unpermitted alteration or addition to the Building, nor commit or permit any waste in or with respect to the Premises, nor generate, store or dispose of any oil, toxic substances, hazardous wastes, or hazardous materials (each a, "Hazardous Material"), or permit the same in or on the Premises provided for under this Lease, except in compliance with applicable law. Tenant shall not dump, flush or in any way introduce any Hazardous Material into septic, sewage or other waste disposal systems serving the Premises provided for under this Lease. Tenant shall permit Landlord to enter the Premises for the purpose of testing and to determine Tenant's compliance with the covenants herein contained, each such entry shall be made in accordance with Section 4.5 above. Tenant will indemnify the Landlord and its successors and assigns against all claims, loss, cost, and expenses, including, without limitation, attorneys' fees, incurred as a result of any contamination of the Building or any portion of the Land with Hazardous Materials by the Tenant or Tenant's contractors, licensees, invitees, agents, servants or employees, and this indemnity shall survive the expiration of the Term or any other termination of this Lease. 5.3 Compliance with Law. Tenant agrees to comply with all federal, state and local laws, regulations, ordinances, executive orders and similar requirements applicable to the Premises or the Parking Lot or Tenant's use thereof in effect from time to time during the Term, including, without limitation, City of Cambridge ordinances with respect to zoning, smoking, animal experiments and hazardous waste and any such requirements pertaining to employment opportunity, anti-discrimination and affirmative action. Tenant agrees, at its sole cost, to comply with the aforesaid laws regulations and ordinances, and to keep the Premises equipped with all safety appliances required by law or ordinance or any other regulations of any public authority, and to procure all licenses and permits required for the Premises or Tenant's use thereof, it being understood that the foregoing provisions shall not be construed to broaden in any way the Permitted Uses. 5.4 Personal Property Taxes. Tenant agrees to pay promptly when due all taxes which may be imposed upon personal property (including, without limitation, fixtures and equipment) on the Premises. 20 21 5.5 Assignment and Subletting. Any assignment, mortgage, pledge, hypothecation or transfer of all or any portion of Tenant's interest under this Lease or any subletting of all or any portion of the Premises shall be subject to the provisions of this Section. (a) Except in the cases of Permitted Transfers (as defined below) Tenant agrees not to assign, mortgage, pledge, hypothecate or otherwise transfer this Lease, or sublet (which term, without limitation, shall include granting of concessions, licenses and the like) the whole or any part of the Premises without, in each instance, having first received the consent of Landlord, which shall not be unreasonably withheld or delayed. Any assignment or sublease made without such consent shall be void, and in any case where Landlord consents to such assignment or subletting or such assignment is permitted by this Lease, Tenant shall remain fully and primarily liable for the obligations of the tenant hereunder, including, without limitation, the obligation to pay Annual Fixed Rent and additional rent as provided under this Lease. Except as otherwise permitted by Permitted Transfers, any transfer of control of Tenant by means of one or more transfers of stock or partnership interests shall be deemed an assignment for purposes of this Section. (b) In the event that any sublease or assignment of the Second Floor is permitted under this Lease (other than with respect to Permitted Transfers and the sublease described in subsection (e) below), Tenant shall pay to Landlord as additional rent one half of the amount Tenant receives from any subtenant or assignee as rent, additional rent or other form of compensation or reimbursement in excess of (i) the Annual Fixed Rent applicable to the space so sublet or assigned, additional rent and other monies otherwise due to Landlord pursuant to this Lease (allocable in the case of a sublease to that portion of the Premises being subleased), and (ii) any reasonable expenses incurred and paid by Tenant in connection with such sublease or assignment such as brokerage commissions, fees for legal services and expenses of preparing the Premises for occupancy by such subtenant or assignee and specifically including Tenant's recovery of the unamortized value of the improvements to the second floor made by Tenant based on a ten-year useful life utilizing the so-called "straight line" method of cost recovery. (c) If this Lease is assigned, or if the Premises or any part thereof is sublet or occupied by anyone other than Tenant (other than as a result of a Permitted Transfer), Landlord may, at any time and from time to time, collect rent and other charges from the assignee, sublessee or occupant and apply the net amount collected to the rent and other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the prohibitions contained in this Section 5.5, or the acceptance of the assignee, sublessee or occupant as a tenant, or a release of Tenant from the further performance by Tenant of the covenants herein contained to be performed by Tenant. The consent by Landlord to one assignment or subletting shall not be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting. (d) Notwithstanding any provision of this Section 5.5 to the contrary, in the event that (i) all of the Premises is to be sublet, or (ii) all of the Second Floor of the 21 22 Building is to be sublet, Landlord may elect to terminate this Lease with respect to either the entire Premises or the entire Second Floor of the Building being sublet, as the case may be, by giving Tenant 30 days' prior written notice. (e) As used in this Lease, the term "Permitted Transfers" shall mean any of the following transactions: (i) any transaction pursuant to which Tenant is merged or consolidated with any other entity or pursuant to which all or substantially all of Tenant's assets, including without limitation, Tenant's interest under the Lease (the "Tenant Interest") are sold or transferred, provided in each case that the resulting entity assumes all of Tenant's obligations and agrees to be bound by all of the terms and conditions of this Lease and provided further that the Landlord is reasonably satisfied with the financial status of each such entity; or (ii) the sublease or assignment of the Tenant Interest to any entity which controls, is controlled by or is under common control with Tenant, provided in each case that the resulting entity assumes all of Tenant's obligations and agrees to be bound by all of the terms and conditions of this lease and provided further that the Landlord is reasonably satisfied with the financial status of each such entity; or (iii) a collateral assignment of this Lease by Tenant to an institutional lender; provided, that in such collateral assignment said Lender agrees that upon exercise of its rights thereunder it shall assume and be bound by all the terms and conditions of this Lease. ARTICLE VI INDEMNITY AND INSURANCE 6.1 Indemnity. To the maximum extent this agreement may be made effective according to law, Tenant agrees to defend with counsel, save harmless, and indemnify Landlord and any manager of the Premises, from time to time, from any liability or injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation reasonable attorneys' fees and costs), (i) caused by Tenant, its contractors, agents, employees or invitees, or arising or claimed to arise from any use made or thing done or occurring on the Premises during the Term, or the Extension Term, or during Tenant's possession of any part of the Premises not due to the willful act, active negligence or other misconduct of Landlord or any manager or (ii) caused by Tenant, its contractors, agents, employees or invitees, and arising or claimed to arise from any use made or thing done or occurring on the Parking Lot during the Term or the Extension Term, or during Tenant's possession of any part of the Premises or Parking Lot not due to the willful act, active negligence or other misconduct of Landlord or any manager or the negligence of any co-tenant of the Parking 22 23 Lot and their respective contractors, agents and employees or (iii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease, including, without limitation, the violation of any environmental law or other governmental requirement by Tenant. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in connection with any such claim or proceeding brought thereon for which Tenant is responsible, and the defense thereof, and shall survive expiration or termination of the Term for a period of five (5) years. Landlord acknowledges that as between Landlord and Tenant, Landlord shall be responsible for the two underground oil storage tanks (the "Tanks") located in the Courtyard of the Building. Landlord agrees to defend with counsel, save harmless and indemnify Tenant from any liability or injury, loss, accident or damage to any person or property from any claims, actions, proceedings and expenses and costs in connection therewith (including, without limitation attorneys' fees and costs) caused by any leaks in the Tanks or removal of the Tanks. 6.2 Tenant's Insurance. Tenant shall, as additional rent, take out and maintain in full force from the date upon which Tenant or its contractors or agents first enter the Premises for any reason and continuing throughout the Term and the Extension Term, if so exercised, unless earlier terminated, and thereafter so long as Tenant is in occupancy of any part of the Premises, the following insurance protecting Landlord: (a) "All Risk" insurance on the Building, expressly including rental interruption coverage in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer of any loss, but in any event, in amounts not less than the actual replacement value determined from time to time of the improvements on the Premises exclusive of foundations, site preparation and other non-recurring construction costs all as more particularly described in Exhibit D attached hereto. (b) A policy of comprehensive public liability and property damage insurance with broad form comprehensive general liability endorsement attached under which Landlord and Tenant (and, at Landlord's request, any mortgagee of the Premises and any manager of the Parking Lot) are named as insureds, and under which the insurer provides a contractual liability endorsement insuring against all cost, expense and liability arising out of or based upon any and all claims, accidents, injuries and damages described in Section 6.1, in the broadest form of such coverage from time to time available. Each such policy shall be non-cancelable and non-amendable (to the extent that any proposed amendment reduces the limits or the scope of the insurance required in this Lease) with respect to Landlord without thirty (30) days' prior written notice to Landlord, and a duplicate certificate thereof shall be delivered to Landlord. As of the Commencement Date hereof, the minimum limits of liability of such insurance for each year shall be as set forth in Section l.l, and from time to time during the Term for such higher limits as may be designated by Landlord, if any, as are carried customarily in the Boston area with respect to similar properties. Tenant shall deliver a certificate evidencing such coverage to Landlord, and at Landlord's request any mortgagee of the premises or any manager of the Parking Lot, which certificate shall state that the 23 24 coverage may not be amended or cancelled without at least a thirty (30) days' prior written notice to Landlord, any mortgagee, or any manager of the Parking Lot, as the case may be. (c) At any time when Tenant is performing construction work in or on the Premises, Tenant shall carry builder's risk insurance reasonably satisfactory to Landlord. Tenant shall provide Landlord and at Landlord's request any mortgagee, with a certificate evidencing such coverage, which shall state that the coverage cannot be canceled or amended without thirty (30) days' prior written notice to Landlord and any mortgagee. (d) Tenant shall maintain on all its personal property, tenant improvements, and alterations, in, on, or about the Premises, a policy of physical hazard insurance on an "all risks" basis covering the perils of fire and extended coverage, with vandalism and malicious mischief endorsements, to the extent of their full replacement cost. In the event of casualty causing damage to the Premises, the proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of tenant improvements or alterations, unless this Lease is terminated as a result of the casualty as hereinafter provided. Tenant shall deliver a certificate evidencing such coverage to Landlord and at Landlord's request any mortgagee, which shall state that the coverage may not be amended or canceled without at least thirty (30) days' prior written notice to Landlord and any mortgagee. (e) All insurance required to be maintained by Tenant shall be effected by valid and enforceable policies insured by insurers of recognized responsibility qualified to do business in The Commonwealth of Massachusetts, and reasonably satisfactory to Landlord and any mortgagee. Upon the Lease Commencement Date and thereafter, not less than thirty (30) days prior to the expiration dates of the existing policies theretofore furnished pursuant to this paragraph, certificates of insurance shall be delivered by Tenant to Landlord and at Landlord's request any mortgagee. All such policies shall provide at least thirty (30) days written notice to Landlord and any mortgagee prior to any termination thereof. (f) All policies of insurance required to be maintained by Tenant shall name Tenant and Landlord as the insured as their respective interests may appear. If Landlord so requires, the proceeds of insurance covering damage to the Building (excluding Tenant's trade fixtures and equipment) shall be payable to the holder of any mortgage as the interests of such holder may appear pursuant to the standard mortgagee clause. All such policies shall provide that any loss shall be payable to Landlord or to the holder of any mortgage notwithstanding any act or negligence of Tenant which might otherwise result in forfeiture of such insurance. All such policies shall contain an agreement by the insurers that such policies shall not be cancelled without at least thirty (30) days prior written notice to the Landlord and to the holder of any mortgage to whom loss hereunder may be payable. (g) Landlord may from time to time request Tenant to obtain additional or alternative insurance. So long as said coverage is reasonable and customary Tenant shall obtain such insurance. 24 25 (h) In the event Tenant breaches any covenant or condition set forth in this Section 6.2, then without limiting any other right or remedy and not withstanding any other provision herein concerning notice or cure of defaults, Landlord may, after ten (10) days written notice to Tenant, obtain such insurance as Tenant is required to obtain and maintain, and Tenant shall pay the cost thereof and Landlord's reasonable expenses thereto to Landlord as additional rent. 6.3 Tenant's Risk. Tenant agrees that all of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or the Parking Lot, shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of pipes or by theft or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord, except that Landlord shall in no event be exonerated from any liability to Tenant or to any person, for any injury, loss, damage or liability to the extent such exoneration is prohibited by law. 6.4 Subrogation. Any insurance carried by either party with respect to the Premises, or any property therein or occurrences thereon, shall, without further request by either party, if it can be so written without additional premium, or with an additional premium which the other party elects to pay, include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss, including, without limitation, injury or loss caused by negligence of such other party, due to hazards covered by insurance containing such clause or endorsement to the extent of the indemnification received thereunder. ARTICLE VII CASUALTY AND EMINENT DOMAIN 7.1 Casualty During Term. If, during the Term, the Building shall be damaged as a result of casualty, the following provisions shall apply. (a) The term "Substantially Damaged," as used in this Article VII, shall refer to damage of such a character that the same cannot, in ordinary course, reasonably be expected to be repaired within 180 days from the time that repair work would commence or which would cost in excess of seventy-five thousand dollars ($75,000) to repair. (b) If the Building shall be damaged, Tenant shall, subject to the matters described in subparagraph (c) below and except as otherwise provided in this Article VII, proceed promptly to restore the Building (consistent, however, with governmental laws and 25 26 codes then in existence) to substantially the condition thereof at the time of such damage, but Tenant shall not be responsible for delay in such restoration which may result from External Causes, as hereinafter defined. For purposes of this Lease, External Causes shall mean (i) Acts of God, war, civil commotion, fire, flood or other casualty, strikes or other extraordinary and unforeseeable labor difficulties, extraordinary and unforeseeable shortages of labor or materials or equipment, government order or regulations or other cause not reasonably within Tenant's control and not due to the fault or neglect of Tenant, and (ii) any act, failure to act or neglect of Landlord or Landlord's servants, agents, employees, licensees or any person claiming by, through or under Landlord, which actually delays Tenant in the performance of any act required to be performed by Tenant under this Lease. (c) Tenant's restoration obligations described in subparagraph (b) above are conditioned upon Tenant receiving sufficient proceeds from insurance covering the Building to repair the same (less any applicable deductible for which Tenant shall be solely responsible) unless (i) insurance proceeds are unavailable as a result of Tenant's failure to insure the Building as required by the terms and conditions of this Lease or (ii) insurance proceeds are unavailable as a result of Tenant's acts or omissions, in which cases Tenant shall be obligated to either (x) restore the Building in accordance with the terms and conditions hereof or (y) pay to or for the account of the Landlord the full amount of insurance which would have been payable under the last policies of insurance approved by Landlord. If the Building is not restored or is unable to be restored, any insurance proceeds which are not on account of Tenant's removable personal property shall be paid to or for the account of Landlord. (d) If the Building shall be Substantially Damaged within the last twelve (12) months of the Term (as the same may have been extended hereunder), either party shall have the right, by giving notice to the other not later than 90 days after such damage, to terminate this Lease, whereupon this Lease shall terminate as of the date of such notice. 7.2 Condemnation. Except as hereinafter provided, if the Premises, or such portion thereof as to render the balance (if reconstructed to the maximum extent practicable in the circumstances) unsuitable for Tenant's purposes, shall be taken by eminent domain, Landlord and Tenant each shall have the right to terminate this Lease by notice to the other of its desire to do so, provided that such notice is given not later than thirty (30) days after the effective date of such taking. Should any part of the Premises be so taken, and should this Lease be not terminated in accordance with the foregoing provisions, Landlord agrees to use due diligence to put what may remain of the Premises (consistent, however, with governmental laws and codes then in existence) into proper condition for use and occupation as nearly like the condition of the Premises prior to such taking as shall be practicable, but Landlord shall not be required to expend funds in excess of the damages recovered by Landlord as a result of such taking. 7.3 Abatement of Rent. If the Premises shall be damaged by casualty, the Annual Fixed Rent and additional rent shall be justly and equitably abated and reduced according to 26 27 the nature and extent of the loss of use thereof suffered by Tenant; and in case of a taking which permanently reduces the area of the premises, a just proportion of the Annual Fixed Rent and additional rent shall be so abated and reduced for the remainder of the Term. 7.4 Condemnation Award. Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Premises, and the leasehold interest hereby created, and all rights to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, as aforesaid, and by way of confirming the foregoing, Tenant hereby grants and assigns to Landlord all rights to such damages or compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority pursuant to the preceding sentence. ARTICLE VIII DEFAULT 8.1 Tenant's Default. In the event that: (a) Tenant shall fail to pay the Annual Fixed Rent, additional rent or any other charges for which provision is made herein on or before the date on which the same become due and payable, and such condition continues for five (5) days after notice from Landlord to Tenant that the same are due, unless the failure to pay the foregoing items when due occurs in any year during which Landlord has previously given Tenant notice of default twice, in which event the failure to pay when due shall constitute an event of default without notice; or (b) Tenant shall fail to perform or observe any other term or condition contained in this Lease and Tenant shall not cure such failure within thirty (30) days after notice from Landlord to Tenant thereof or, if such failure cannot be cured within such thirty (30) days, if Tenant shall fail to commence to cure such failure within such thirty (30) days and promptly and diligently complete the curing of the same, and shall in any event complete the cure within ninety (90) days; or (c) The estate hereby created shall be taken on execution or by other process of law, or if Tenant shall be judicially declared bankrupt or insolvent according to law, or if any assignment or trust mortgage arrangement, so-called, shall be made of the property of Tenant for the benefit of creditors, or if a receiver, guardian, conservator, trustee in bankruptcy or other similar officer shall be appointed to take charge of all or any substantial part of Tenant's property by a court of competent jurisdiction, or if a petition shall be filed by Tenant under any provisions of the federal Bankruptcy Code or any similar federal or state law now or hereafter enacted or if a petition shall be filed against Tenant thereunder and the same is not dismissed within ninety (90) days, or if Tenant shall 27 28 file such a petition, then, in any such case, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter and without demand or notice and with or without due process of law, (forcibly if necessary) enter into and upon the Premises or any part thereof by any lawful means or mail a notice of termination addressed to Tenant at the Premises, and repossess the same as of Landlord's former estate, and expel Tenant and those claiming by, through or under Tenant and remove its and their effects by any lawful means (forcibly if necessary) without being deemed guilty of any manner of trespass and without prejudice to any remedies that might otherwise be used for arrears of rent (or prior breach of covenant), and upon such entry or mailing as aforesaid this Lease shall terminate, as fully and completely as if such date were the date herein originally fixed for the expiration of the Term (Tenant hereby waiving any rights of redemption), and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. 8.2 Damages. In the event that this Lease is terminated under any of the provisions contained in Section 8.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay to Landlord forthwith on Landlord's demand, as compensation, in addition to any other amounts to which Landlord may be entitled, an amount equal to the excess, if any, of the discounted present value of the total rent reserved for the residue of the Term or the Extension Term if so exercised, over the then discounted present fair rental value of the Premises for the residue of the Term. In calculating the rent reserved, there shall be included, in addition to the Annual Fixed Rent and all additional rent, the value of all other considerations agreed to be paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such termination to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be credited with (a) any amount received from Tenant under the first sentence of this Section 8.2; and (b) the net proceeds of any rent obtained by reletting the Premises, after deducting all Landlord's expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed that Landlord may (i) relet the Premises, or any part or parts thereof, for a term or terms which may, at Landlord's option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term, and may grant such concessions and free rent as Landlord in its reasonable commercial judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its reasonable commercial judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. Landlord agrees to use reasonable efforts to attempt to relet the Premises, but shall be entitled to seek to rent other properties of Landlord prior to reletting the Premises. 28 29 8.3 Remedies Cumulative. The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of each other or of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions in the event a legal remedy will be insufficient. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy, insolvency or like proceedings, 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, equal to, or less than the amount of the loss or damages referred to above. 8.4 Landlord's Election. If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but not the obligation, upon fifteen (15) days' notice to Tenant (except in case of emergency in which case no notice need be given), to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance is made in this Lease with respect to such default. In performing such obligation, Landlord may (but shall not be required to) make any payment of money or perform any other act, and all sums so paid by Landlord and all necessary incidental costs and expenses thereof, including, without limitation, reasonable legal fees in connection with enforcement of its rights under this Section incurred by Landlord, together with interest on all such amounts at two percent (2%) above the First National Bank of Boston's large business prime rate from time to time in effect, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise its rights under this Section without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 8.5 Effect of Waivers of Default. Any consent or permission by Landlord to any act or omission which otherwise would be a breach of any covenant or condition herein, or any waiver by Landlord of the breach of any covenant or condition herein, shall not in any way be held or construed (unless expressly so declared) to operate so as to impair the continuing obligation of any covenant or condition herein, or otherwise, except as to the specific instance, or to operate to permit similar acts of omission. 8.6 No Waiver. No waiver by Landlord shall be valid unless in writing and signed by Landlord, and the failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been waiver of such breach by Landlord unless such waiver be in 29 30 writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 8.7 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than the Annual Rent, additional rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. 8.8 Delivery of Keys. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises. 8.9 Attorneys' Fees. Tenant agrees, as additional rent, to pay all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease. ARTICLE IX MORTGAGEES' AND GROUND LESSORS' RIGHTS 9.1 Superiority of Lease. Except as provided in Section 9.2 below, this Lease shall be superior to and shall not be subordinated to any future mortgage, lien or other encumbrance on the Premises. Upon entry and taking possession of the Premises for the purpose of foreclosure the holder thereof shall have all the rights of Landlord. No such holder shall be liable, either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall enter and take possession of the Premises for the purpose of foreclosure. Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord accruing from and after such entry, but not before, provided that a discontinuance of any foreclosure proceeding shall operate as a transfer of all such liability to the owner of the equity of the Premises. 9.2 Subordination. Tenant shall, at the request of Landlord, subordinate this Lease and all rights and options granted hereunder to any mortgage, lien or other encumbrance now or hereafter on the Premises, so that the lien thereof shall be superior to all rights hereby or hereafter vested in Tenant, provided that the holder thereof enters into an agreement with Tenant by the terms of which the holder will agree to recognize the rights of Tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize such holder as Landlord in such 30 31 event, which agreement shall be made to expressly bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing said Premises at any foreclosure sale and upon the further condition that any such mortgagee agrees in its recognition agreement to make insurance proceeds available to Tenant provided that Tenant shall be obligated to use such proceeds solely to repair and restore the Building and provided further that Tenant agrees to commence repair and restoration as soon as practical after the event of casualty and to diligently pursue said repair and restoration until completion. 9.3 Limitation on Tenant's Rights. Notwithstanding Sections 9.1 or 9.2 above, unless the holder of such a mortgage, lien or other encumbrance of the Premises otherwise agrees in writing, no such holder shall be obligated to recognize or accept any of Tenant's rights under Section 2.4 of this Lease. Further, any such holder whose mortgage, or other encumbrance is superior to this Lease pursuant to the terms of Section 9.1 may elect to subordinate only those rights of Tenant under this Lease to purchase all or any portion of the Premises, including, without limitation, the rights of Tenant under Sections 2.4 of this Lease, to such mortgage, or other encumbrance. 9.4 Exercise of Mortgagee's Remedies. Notwithstanding any other provision of this Lease, in no event shall Tenant's rights under Section 2.4 apply to any exercise of remedies by any mortgagee, or holder of a similar interest in the Premises, including, without limitation, any foreclosure sale or any conveyance by deed in lieu of foreclosure. 9.5 Further Assurances. Tenant agrees, upon Landlord's request, promptly (but in any event within fifteen (15) days after Landlord's request) to execute and deliver such documents and instruments as Landlord may reasonably request to carry out the agreements contained in this Article IX. 9.6 No Prepaid Rent. No Annual Fixed Rent, additional rent, or any other charge payable to Landlord shall be paid more than thirty (30) days prior to the due date thereof under the terms of this Lease, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee) be a nullity as against such mortgagee, and Tenant shall be liable for the amount of such payments to such mortgagee. ARTICLE X MISCELLANEOUS 10.1 Estoppel Certificates. Tenant shall, from time to time, within fifteen (15) days after a written request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying to Landlord or an independent third party designated by 31 32 Landlord: that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that the same is in full force and effect as modified and stating the modifications); that Tenant has no knowledge of any defenses, offsets or counterclaims against its obligations to pay the Annual Fixed Rent and additional rent and to perform its other covenants under this Lease (or if there are any defenses, offsets, or counterclaims, setting them forth in reasonable detail); that there are no known uncured defaults of Landlord or Tenant under this Lease (or if there are known uncured defaults, setting them forth in reasonable detail); the dates to which the Annual Fixed Rent, additional rent and other charges payable hereunder have been paid; and such other matters as Landlord may reasonably request. On the Commencement Date, Tenant shall, at the request of Landlord, promptly execute, acknowledge and deliver to Landlord a statement in writing that the Commencement Date has occurred, stating the date that the Annual Fixed Rent will begin to accrue, and that Tenant has taken occupancy of the Premises. Any such statement delivered pursuant to this Section may be relied upon by any mortgagee or purchaser of the Premises and shall be binding on Tenant. 10.2 No Recordation. Tenant agrees not to record this Lease, but both parties shall execute and deliver a memorandum of this Lease in form appropriate for recording, an instrument in such form acknowledging the Commencement Date of the Term, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. 10.3 Notices. Whenever any notice, approval, consent, request, election, offer or acceptance is given or made pursuant to this Lease, it shall be in writing. Communications and payments shall be addressed, if to Landlord, at Landlord's Original Address or at such other address as may have been specified by prior notice to Tenant; and if to Tenant, at Tenant's Original Address or at such other address as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly served on the earlier of (i) the date received, or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt, if deposited in a United States Postal Service Depository, postage prepaid, sent by registered or certified mail, return receipt requested or if sent by a recognized overnight delivery service providing for a receipt. If Landlord by notice to Tenant at any time designates some other person to receive payments or notices, all payments or notices thereafter by Tenant shall be paid or given to the agent designated until notice to the contrary is received by Tenant from Landlord. 10.4 Successors and Assigns. Subject to Section 6.5 regarding Tenant's right to assign and sublet, this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the original Landlord named herein and each successive landlord shall be liable only for obligations accruing during the period of its ownership. 10.5 Limitation of Liability. The obligations of Landlord shall be binding upon the assets of Landlord consisting of an equity ownership interest in the Land and Building, 32 33 but not upon any other assets of Landlord, and neither Tenant, nor anyone claiming by, under or through Tenant, shall be entitled to obtain any judgment creating personal liability on the part of Landlord or enforcing any obligations of Landlord against any assets of Landlord other than an equity ownership in the Premises. 10.6 Covenants and Conditions. All provisions, whether covenants or conditions, on the part of Tenant to be performed under this Lease shall be deemed to be both covenants and conditions. 10.7 Severability. If any term of this Lease, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. 10.8 Quiet Enjoyment. So long as Tenant pays the Annual Fixed Rent and additional rent and other charges provided for under this Lease, performs all other covenants of this Lease to be-performed by Tenant and observes all conditions of this Lease to be observed by Tenant, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the Term in accordance with the terms of this Lease against all those claiming by, under or through Landlord. 10.9 Entire Agreement. This Lease contains all of the agreements of the parties with respect to the subject matter hereof and supersedes all prior dealings between them with respect to such subject matter, including, without limitation, any letters of intent. 10.10 Brokers. Tenant represents and warrants that it has had no dealings with any broker or agent other than Joseph Flaherty of Meredith & Grew and Robert Richards of Fallon, Hines & O'Connor (collectively, the "Brokers") in connection with this Lease and shall indemnify and hold harmless Landlord from any claims for any brokerage commission as a result of the failure of this warranty. Landlord represents and warrants that it has had no dealings with any broker or agent other than the Brokers in connection with this Lease and shall indemnify and hold harmless Tenant from any claims for any brokerage commission as a result of the failure of this warranty. Tenant acknowledges that the fees of Robert Richards of Fallon, Hines & O'Connor are its exclusive obligation and agrees to indemnify and hold Landlord harmless from any claims for brokerage commission from said broker. Landlord acknowledges that the fees of Joseph Flaherty of Meredith & Grew are its exclusive obligation and agrees to indemnify and hold Tenant harmless from any claims for a brokerage commission from said broker. 10.11 Applicable Law and Construction. This Lease shall be . . governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles 33 34 and Sections contained herein are for convenience only and shall not be considered in construing this Lease. 10.12 Time of Essence. Time is of the essence of each provision of this Lease. 10.13 Authorization. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its Board of Directors authorizing the execution of this Lease and naming the officers that are authorized to execute this Lease on behalf of the corporation. 10.14 Security Deposit. Landlord acknowledges receipt of a security deposit in the amount of $147,000 as additional security for the full and faithful performance of Tenant's obligations under this Lease, which security deposit was tendered by Tenant in connection with its original Sublease of the second floor on March 1, 1989. Landlord shall pay to Tenant, within ten (10) days after the execution and delivery of this Lease by all of the parties hereto, interest accrued on such security deposit in accordance with the terms of the sublease described above. Such security deposit may be retained by Landlord during the Term of the Lease and any extensions thereof and may (among Landlord's other remedies allowed under this Lease and applicable law or equity) be applied by Landlord toward payment of any damages which result in the event Tenant fails to perform any of its obligations under this Lease. Provided Tenant is not in default under the Lease, upon expiration of the Term or in the event the Term is extended pursuant to Section 2.3 at the expiration of the Extended Term, Landlord shall pay to Tenant an amount of interest on the security deposit equivalent to the rate on the United States Treasury Note (as such rate is reported in the Wall Street Journal) and invest in such Treasury Note in an amount equal to the security deposit commencing five (5) business days after the Commencement Date and maturing upon the expiration of the Term for the initial term of this Lease (or, if no such rate is reported for such period or amount, for the period an amount nearest thereto). Such rate shall be readjusted in the event Tenant exercises its option to extend pursuant to Section 2.3. 34 35 TENANT: Transkaryotic Therapies, Inc. By: /s/ K. Michael Forrest ---------------------------------- Name: K. Michael Forrest Title: President and CEO EXECUTED as a sealed instrument on the day and year first above written. LANDLORD: /s/ Benjamin L. Wilson ------------------------------------------ Benjamin L. WIlson, Jr. Trust Under the Will of Edward S. Stimpson /s/ Harry F. Stimpson ------------------------------------------ Trustee as aforesaid and not individually /s/ Margaret W. Stimpson ------------------------------------------ Trustee as aforesaid and not individually /s/ Edward Stimpson ------------------------------------------ Trustee as aforesaid and not individually /s/ Edward Stimpson ------------------------------------------ Trustee as aforesaid and not individually 35 36 Trust Under the Will of Harry F. Stimpson /s/ Harry F. Stimpson ------------------------------------------ Harry F. Stimpson, III, Trustee as aforesaid and not individually /s/ Harry F. Stimpson ------------------------------------------ Harry F. Stimpson, Jr., individually 36 37 EXHIBIT A The land and the building at 195 Albany Street, Cambridge, Massachusetts assessed by the City of Cambridge as Block 68 Lot 59 with a land area of 24,477 square feet, being the same L property shown as parcel "B" on a plan entitled "Plan of Land in Cambridge, Mass.", scale 1"=40', prepared by Robert E. Anderson Inc., dated November 5, 1981 and the land at the corner of Albany and Pacific Street, Cambridge, Massachusetts assessed by the City of Cambridge as Block 68 - Lot 60 with a land area of 30,007 square feet, being the same property shown as parcel "A" on the above mentioned plan, being further described in a Notice of Lease recorded with Middlesex South District Registry of Deeds in Book 14841, Page 555, as follows: A parcel of land in Cambridge, Massachusetts, with the building thereon known as 195 Albany Street, containing about 24,519 square feet of land and shown as Lot B on "Plan of Land in Cambridge, Mass. surveyed for Stimpson Investment Corp." dated October 22, 1947, by W.A. Mason & Son Co., Surveyors, recorded with Middlesex South District Deeds as Plan No. 1566 of 1947 at the end of Book 7206, bounded and described as follows: SOUTHERLY on said Albany Street, One Hundred Nine and 4/100 (109.04) feet; SOUTHWESTERLY on land formerly of said Stimpson Investment Corp. shown as Lot A on said plan, by a line running through the middle of the common way forth-five (45) feet wide shown on said plan, Two Hundred Thirty and 69/100 (230.69) feet; NORTHWESTERLY on Purrington Street by the Southeasterly side-line thereof, One Hundred Nineteen and 73/100 (119.73) feet; NORTHEASTERLY on land formerly of said Stimpson Investment Corp. shown as Lot C on said plan, by a line running through the middle of a twelve inch brick wall, which shall be and remain a common party wall, One Hundred Fifteen and 70/100 (115.70) feet; SOUTHEASTERLY on the same, Seven and 2/100 (7.02) feet; and NORTHEASTERLY on the same, by a line running through the middle of the common area shown on said plan, One Hundred Five and 64/100 (105.64) feet The fee in Purrington Street is specifically excluded. 37 38 Together with rights and easements as reserved in deed from Harry S. Stimpson, III Trustee under the Will of Harry S. Stimpson to Massachusetts Institute of Technology dated July 31, 1992 and recorded at Book 22453, Page 425. Together with rights and easements as set forth in a deed from Edward S. Stimpson et al, dated October 4, 1948 and recorded at Book 7370, Page 304. 38 39 EXHIBIT B ENCUMBRANCES 1. Mortgage and Security Agreement from Benjamin L. Wilson Jr.; Harry F. Stimpson Jr.; Edward S. Stimpson III, Margaret W. Stimpson, Harry F. Stimpson Jr., and Nicholas U. Sommerfeld trustees of the Edward S. Stimpson Trust under declaration of trust dated January 24, 1985 and recorded with the Middlesex County Registry of Deeds in Book 18515, Page 407; and Harry F. Stimpson III trustee under the will of Harry F. Stimpson to BayBank Boston, N.A. dated December _, 1993 and recorded with said registry in Book ______, Page ______. 2. Collateral Assignment of Leases and Rents from Benjamin L. Wilson Jr.; Harry F. Stimpson Jr.; Edward S. Stimpson III, Margaret W. Stimpson, Harry F. Stimpson Jr., and Nicholas U. Sommerfeld trustees of the Edward S. Stimpson Trust under declaration of trust dated January 24, 1985 and recorded with the Middlesex County Registry of Deeds in Book 18515, Page 407; and Harry F. Stimpson III trustee under the will of Harry F. Stimpson to BayBank Boston, N.A. dated December , 1993 and recorded with said registry in Book _____, Page _____. 3. Deed of Rights in Purrington Street subject to reservation of rights from Landlord to Massachusetts Institute of Technology recorded at Book 22453, Page 423 and as shown on plan entitled "Plan of Land, owned by Massachusetts Institute of Technology dated March 18, 1992 prepared by Cullinan Engineering co., Inc." and recorded at Book 22453, Page 418. 4. Rights of others in common way as shown on plan entitled "Plan of Land in Cambridge, Mass., surveyed for Stimpson Investment Corp., dated October 22, 1947 and recorded at Book 7206 END 5. Rights and Easements set forth in a Deed recorded at Book 7370, Page 304 as disclosed on plan entitled "Plan of Land in Cambridge, Mass., surveyed for Stimpson Investment Corp., dated October 22, 1947 and recorded at Book 7206 END 6. Taxes subsequent to the Commencement Date are a lien but are not yet due and payable. 7. Rights of others in and to Purrington Street. 8. Terms and provisions of an agreement between Stimpson Terminal Company and Stimpson Investment Corporation dated October 1, 1948, recorded with said Deeds in Book 7344, Page 581. 9. Common law party wall rights. 39 40 EXHIBIT C Equipment and Other Items to Remain in Former BASF Space All fixtures and equipment existing physically attached to the First Floor or Lower Level of the Premises (collectively, the "BASF Space") on October 14, 1993 when the BASF space was viewed by the Tenant and representatives of the Landlord, all as more particularly described on Schedule 1 hereto, which items where situated, as of October 14, 1993, in the BASF Space in the various locations identified on the floor plans included in Schedule 1. To the extent that the BASF Space is not substantially equipped as described above on the Commencement Date, the Tenant and the Landlord agree that if the Landlord does not replace missing equipment with substantially similar equipment, there will be an equitable adjustment in the Annual Fixed Rent allocable to the BASF Space based on the fair market value of replacing any missing fixtures or equipment. 40 EX-10.13 20 SUBLEASE AGREEMENT 1 EXHIBIT 10.13 SUBLEASE SUBLEASE made as of April 7, 1992 between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, c/o Treasurer's Office, 238 Main Street, Cambridge, MA 02142 ("Sublandlord") and Transkaryotic Therapies, Inc., 195 Albany Street, Cambridge, MA 02139 ("Subtenant"). RECITAL (i) Sublandlord is the tenant under a lease agreement with the Trustee under the will of Harry S. Stimpson as landlord ("Prime Landlord") for the land and building at 185 Albany Street, Cambridge, MA (the "Prime Lease"). Subtenant acknowledges receipt from Sublandlord of a copy of the Prime Lease. (ii) Sublandlord and Subtenant have agreed that Sublandlord will sublet to Subtenant a portion of said premises. NOW THEREFORE, for consideration paid, the parties agree as follows: 1. GRANTING CLAUSE: Sublandlord, which expression shall include its successors, and assigns where the context so admits, does hereby lease to Subtenant, which expression shall include its successors and assigns where the context so admits, and the Subtenant hereby leases the following described premises: 7123 square feet of space on the second floor of the building at 185 Albany Street, Cambridge, MA as shown on a drawing dated 16 January, 1992 by Rojas Vogt (the "Plan"), a copy of which is annexed to this agreement. together with the right to use in common, with others entitled thereto, the hallways and stairways necessary for access to said subleased premises, and lavatories nearest thereto. 2. TERM: The term of this sublease shall commence on the last to occur of substantial completion of the leasehold improvements described in paragraph 7 or May 1, 1992 and shall end on December 31, 1993. 3. BASE RENT: Subtenant shall pay to Sublandlord as base rent for the term the sum of: (a) $182,580; and (b) an amount equal to the product of 1.0966 and the amount expended by Sublandlord to construct leasehold improvements under paragraph 7, but not more than $25,000. 2 Base rent shall be payable in advance in equal monthly installments on the first day of each month, prorated for any partial month at the beginning or end of the term. 4. RENT ADJUSTMENT: The Subtenant shall pay to the Sublandlord as additional rent 15% per cent of any increase in real estate taxes levied against the land and building, of which the subleased premises are a part, over those incurred or levied during the municipal fiscal year ending June 30, 1992. Additional rent under this paragraph shall be pro-rated for any partial fiscal year during the term. Subtenant shall pay to Sublandlord on each day that payments of base rent are due hereunder, an amount equal to one-twelfth of the amount which Sublandlord reasonably estimates to be the total amount of Subtenant's obligation under this paragraph for that year, such estimate to be predicated on the previous year's taxes. If the total amount paid hereunder with respect to any year exceeds the amount due under this paragraph for such year, such excess shall be credited by Sublandlord against the monthly installments on account of taxes next falling due, if any, or if no further payments on account of taxes will become due during the remainder of the term of this sublease, Sublandlord shall promptly refund the amount of such excess to Subtenant upon the expiration or termination of this sublease (unless such termination is the result of a default by Subtenant, in which case such amount shall be set off against amounts due Sublandlord from Subtenant). If the aggregate amount of installments paid by Subtenant on account of taxes with respect to any year is less than Subtenant's pro-rata share thereof for such year, Sublandlord shall give written notice thereof to Subtenant, and Subtenant shall pay to Sublandlord the amount of such deficiency, as additional rent, within ten (10) days of receipt of such notice. Upon request by Subtenant, Sublandlord shall promptly furnish to Subtenant a copy of the real estate tax bill for the entire premises, but Subtenant's obligation to make payments on account of taxes shall not be conditioned upon receipt by Subtenant of this bill. 5. UTILITIES: Sublandlord shall provide pay for all Subtenant's utilities, water and sewer use charges, except that Subtenant shall provide and pay for its own cleaning services and rubbish disposal. Sublandlord agrees to furnish reasonable heat and air conditioning to the subleased premises, the hallways, stairways and lavatories during normal business hours on regular business days, all subject to interruption due to any accident, to the making of repairs, alterations or improvements, to labor difficulties, to trouble in obtaining fuel, electricity, service or supplies from the sources from which they are usually obtained for said building, to failure of Prime Landlord to fulfill its obligations under the Prime Lease, or to any cause beyond the Sublandlord's control. 6. USE OF SUBLEASED PREMISES: The Subtenant shall use the subleased premises only for office, research laboratory and related purposes permitted by federal, state and local laws and ordinances. COMPLIANCE WITH LAWS, HAZARDOUS MATERIALS: The Subtenant acknowledges that no trade or occupation shall be conducted in the subleased premises or use made thereof which will be unlawful, improper, noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the city or town in which the subleased premises 2 3 are situated. Without limiting the foregoing, Subtenant agrees not to use, generate, treat, store, or dispose of "oil" or "hazardous materials", as defined in M.G.L. c. 21E, on the Subleased Premises or anywhere in the building or on the land on which the building is located without prior written notification to Sublandlord (which notification shall identify the materials which Subtenant proposes to use), and in all events in full and complete accordance with all Legal Requirements applicable thereto. Subtenant shall indemnify, defend (with counsel reasonably satisfactory to Sublandlord) and hold Sublandlord harmless from and against all claims, liabilities, losses, damages, costs and expenses arising from such use, generation, treatment, storage, or disposal by Subtenant or by anyone claiming under Subtenant, which indemnity shall survive the termination or expiration of this Sublease. 7. SUBLANDLORD'S LEASEHOLD IMPROVEMENTS: Sublandlord will renovate the subleased premises as shown on the Plan, including constructing an opening between Subtenant's existing space and the subleased premises, constructing a new men's room and a new women's room and all demolition and new partition work to subdivide the subleased premises from the remainder of the second floor of the building. Sublandlord agrees to commence the work promptly and use reasonable efforts to complete the leasehold improvements by May 1, 1992. Sublandlord and Subtenant each appoint the following named person as its representative, with full authority to act on its behalf in connection with the construction of said leasehold improvements: Sublandlord's Representative: Philip A. Trussell Tenant's Representative: Karen A. Hamlin 8. PARKING: Sublandlord shall provide twenty (20) parking spaces for automobiles in the parking lot on the adjacent premises known as 195 Albany Street. Subtenant shall pay to Sublandlord as additional rent the payments due from Sublandlord to Prime Landlord for real estate taxes, betterments and maintenance expenses attributable to the parking lot under sections 3.4.2, 3.5.2 and 3.9(b) of the Prime Lease. 9. FIRE INSURANCE: The Subtenant shall not permit any use of the subleased premises which will make voidable any insurance on the property of which the subleased premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from time to time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers. The Subtenant shall on demand reimburse the Sublandlord, and all other tenants, all extra insurance premiums caused by the Subtenant's use of the premises. 10. MAINTENANCE: The Subtenant agrees to maintain the subleased premises in the same condition as they are at the commencement of the term or as they may be put in during the term of this sublease, reasonable wear and tear, damage by fire and other casualty 3 4 only excepted, and whenever necessary, to replace plate glass and other glass therein. The Subtenant shall not permit the subleased premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. Subtenant shall obtain written consent of Sublandlord before erecting any sign on the premises. Occupancy by Subtenant shall be deemed acknowledgement that the subleased premises are in good and satisfactory condition. 11. ALTERATIONS-ADDITIONS: The Subtenant shall not make Structural alterations or additions to the subleased premises, but may make non-structural alterations provided the Sublandlord consents thereto in writing. All such allowed alterations shall be at Subtenant's expense and shall be in quality at least equal to the present construction. Subtenant shall not permit any mechanics liens, or similar liens to remain upon the subleased premises for labor and material furnished to Subtenant or claimed to have been furnished to Subtenant in connection with work of any character performed or claimed to have been performed at the direction of Subtenant and shall cause any such lien to be released of record forthwith without cost to Sublandlord. Any alterations or improvements made by the Subtenant shall become the property of the Sublandlord at the termination of occupancy as provided herein. 12. ASSIGNMENT-SUBLEASING: The Subtenant shall not assign or sublet the whole or any part of the subleased premises. 13. SUBLANDLORD'S ACCESS: The Sublandlord or agents of the Sublandlord may, at reasonable times, enter to view the subleased premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as Sublandlord should elect to do and may show the subleased premises to others, and at any time within three (3) months before the expiration of the term, may affix to any suitable part of the subleased premises a notice for letting or selling the subleased premises or property of which the subleased premises are a part and keep the same so affixed without hindrance or molestation. 14. INDEMNIFICATION AND LIABILITY: To the maximum extent that this agreement may be made effective according to law, Subtenant agrees that it will protect and indemnify Sublandlord and save Sublandlord harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by or asserted against Sublandlord by reason of (a) any accident, injury to or death of persons or damage to or loss of property, by theft or otherwise, occurring on or about the subleased premises or any part thereof, arising out of the negligence or willful misconduct of Subtenant or Subtenant's agents, employees or invitees, or (b) any failure on the part of Subtenant to perform, fulfill or observe any of Subtenant's representations, warranties or agreements set forth in this sublease. In case any action, suit or proceeding is brought against Sublandlord by reason of any such occurrence, Subtenant, upon Sublandlord's request, shall at Subtenant's expense, cause such action, suit or proceeding to be resisted and defended by counsel designated by Sublandlord. 4 5 15. INCORPORATION OF PRIME LEASE: Except as otherwise expressly provided herein, all of the terms, covenants and conditions of the Prime Lease are incorporated herein by reference and made a part hereof with the same force and effect as if set forth in their entirety, provided that the terms and conditions hereof shall be controlling whenever the terms and conditions of the Prime Lease is contradictory to or inconsistent with terms and conditions hereof, and provided further that references in the Prime Lease to "Landlord" and "Tenant" shall be deemed to refer to "Sublandlord" and "Subtenant", respectively, that references therein to "this lease" shall be deemed to refer to "this sublease" and that references therein to the "leased premises" or "Premises" shall be deemed to refer to the subleased premises. Notwithstanding the foregoing incorporation by reference of the terms, covenants and conditions of the Prime Lease, (a) Section 7.4 of the Prime Lease shall not operate to give Subtenant any interest in a taking award (but Subtenant shall have the right to petition the taking authority for a separate award on account of its trade fixtures and moving expenses, provided that such award does not diminish the amount of Sublandlord's award); (b) except as set forth herein, Subtenant shall not have the Option to Extend granted by Section 2.3 of the Prime Lease; (c) Subtenant shall have no interest in the Right of First Refusal granted by Section 2.4 of the Prime Lease; and (d) Subtenant shall not be required to perform any restoration or repair pursuant to Article VII of the Prime Lease in the event of a casualty or taking. Subtenant represents that it has read and is familiar with the terms of the Prime Lease. Subtenant and Sublandlord each covenants and agrees faithfully to observe and perform all of the terms, covenants and conditions of the Prime Lease on the part of Tenant and Prime Landlord, respectively, to be performed with respect to the portion of the "Premises" thereunder comprising the subleased premises, and neither to do nor cause to be done, nor suffer, nor permit any act or thing to be done which would or might cause the Prime Lease or the rights of Sublandlord thereunder to be canceled, terminated, forfeited or surrendered, or which would or might make Sublandlord liable for any damages, claims or penalties. Sublandlord shall not be required to give any consent required or permitted under the terms of this sublease with respect to any matter on which the Prime Lease requires the consent of Prime Landlord until it has first obtained the written consent of the Prime Landlord with respect to such matter. Sublandlord agrees to use reasonable efforts (not involving the payment of money) to obtain such consent of the Prime Landlord in a timely manner. Except as otherwise specifically provided herein or in the Prime Lease, Sublandlord shall not have any obligation to construct, maintain, alter, restore or repair the subleased premises, the building, or any parking area or other facility or improvement appurtenant thereto or to provide Subtenant with any service of any kind or description whatsoever, nor shall Sublandlord be responsible for the performance of Prime Landlord's obligations under the Prime Lease or be liable in damages or otherwise for any negligence of Prime Landlord or for any damage or injury suffered by Subtenant as a result of any act or failure to act by 5 6 Prime Landlord or any default by Prime Landlord in fulfilling its obligations under the Prime Lease. Sublandlord agrees to act promptly and use reasonable efforts (not involving the payment of money) to cause Prime Landlord to perform its obligations under the Prime Lease in a timely manner. If the Prime Lease is terminated pursuant to any provision of the Prime Lease or otherwise, (i) this sublease shall terminate simultaneously therewith and (ii) any unearned rent paid in advance shall be refunded to Subtenant unless such termination was the result of a breach by Subtenant of any term, covenant or condition of this sublease; provided, however, that if the Prime Lease terminates during the sublease term by reason of the purchase by Sublandlord of the Premises as described in the Prime Lease, this sublease shall remain in full force and effect. Sublandlord agrees not to voluntarily default on or terminate the Prime Lease; provided, however, that failure to extend the Prime Lease at the end of its initial term shall not be deemed a voluntary termination under this sentence. 16. SUBTENANT'S LIABILITY INSURANCE: The Subtenant shall maintain with respect to the subleased premises and the property, of which the subleased premises are a part, comprehensive public liability insurance in the amount of $1,000,000 with property damage insurance in limits of $1,000,000 in responsible companies qualified to do business in Massachusetts and in good standing therein insuring the Sublandlord as well as Subtenant against injury to persons or damage to property as provided. The Subtenant shall deposit with the Sublandlord certificates for such insurance at or prior to the commencement of the term, and thereafter within thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be canceled without at least ten (10) days' prior written notice to each assured named therein. 17. DEFAULT AND BANKRUPTCY: In the event that: (a) the Subtenant shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for five (5) days after written notice thereof; or (b) the Subtenant shall default in the observance or performance of any other of the Subtenant's covenants, agreements, or obligations hereunder and such default shall not be corrected within thirty (30) days after written notice thereof or, if such failure cannot be cured within such thirty (30) days, if Subtenant shall fail to commence to cure such failure within such thirty (30) days and promptly and diligently complete the curing of the same, and shall in any event complete the cure within 180 days or, if such default is also a default under the Prime Lease, shall fail to complete the curing of the same prior to the expiration of the grace period allowed thereunder; or (c) the Subtenant shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of Subtenant's property for the benefit of creditors; 6 7 then the Sublandlord shall have the right thereafter, while such default continues, to re-enter and take complete possession of the subleased premises, to declare the term of this sublease ended, and remove the Subtenant's effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The Subtenant shall indemnify the Sublandlord against all loss of rent and other payments which the Sublandlord may incur by reason of such termination during the residue of the term. If the Subtenant shall default, after reasonable notice thereof, in the observance or performance of any conditions or covenants on Subtenant's part to be observed or performed under or by virtue of any of the provisions in any article of this sublease, the Sublandlord, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the Subtenant. If the Sublandlord makes any expenditures or incurs any obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred shall be paid to the Sublandlord by the Subtenant as additional rent. If a default occurs, Sublandlord may at its option immediately or at any time thereafter exercise any one or more of the remedies provided in the Prime Lease with respect to a default thereunder by Tenant. All sums not paid by Subtenant when due hereunder (regardless of whether or not the applicable grace period has expired shall bear interest at a rate equal to the lesser of (i) 1-1/2% per month or (ii) the highest rate permitted by law, which interest shall be payable to Sublandlord as additional rent hereunder immediately upon demand. 18. NOTICE: Any notice from the Sublandlord to the Subtenant relating to the subleased premises or to the occupancy thereof, shall be deemed duly served, if left at the subleased premises addressed to the Subtenant, or if mailed to the address set forth in the preamble of this sublease, registered or certified mail, return receipt requested, postage prepaid, addressed to the Subtenant. Any notice from the Subtenant to the Sublandlord relating to the subleased premises or to the occupancy thereof, shall be deemed duly served, if mailed to the Sublandlord by registered or certified mail, return receipt requested, postage prepaid, addressed to the Sublandlord at such address as the Sublandlord may from time to time advise in writing. All rent and notices shall be paid and sent to the Sublandlord at the address set forth in the preamble to this sublease. 19. SURRENDER: The Subtenant shall at the expiration or other termination of this sublease remove all Subtenant's goods and effects from the subleased premises, (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the Subtenant, either inside or outside the subleased premises). Subtenant shall deliver to the Sublandlord the subleased premises and all keys, locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the subleased premises, in the same condition as they were at the commencement of the term, or as they were put in during the term thereof, reasonable wear and tear and damage by fire or 7 8 other casualty only excepted. In the event of the Subtenant's failure to remove any of Subtenant's property from the premises, Sublandlord is hereby authorized, without liability to Subtenant for loss or damage thereto, and at the sole risk of Subtenant, to remove and store any of the property at Subtenant's expense, or to retain same under Sublandlord's control or to sell at public or private sale, without notice any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property. 20. OPTIONS TO EXTEND: Subtenant shall have the following options to extend this sublease by delivering a notice thereof to Sublandlord not later than four months prior to the expiration of the term or extension thereof: (a) from January 1, 1994 to February 28, 1997 on the same terms and conditions as set forth above, except that base rent due under paragraph 3 shall be $9725 per month, and Subtenant shall pay as additional rent (as well as the additional rent required to be paid above) 15% of any amount expended by Sublandlord for heat, electricity, water and sewer services to the building in excess of $132,000 for each calendar year during the term. Additional rent under this subparagraph shall be pro-rated for any partial year during the term. Subtenant shall pay to Sublandlord on each day that payments of base rent are due hereunder, an amount equal to one-twelfth of the amount which Sublandlord reasonably estimates to be the total amount of Subtenant's obligation under this subparagraph for that year (on the basis of the most current information concerning operating expenses). If the total amount paid hereunder with respect to any year exceeds the amount due under this subparagraph for such year, such excess shall be credited by Sublandlord against the monthly installments on account of operating next falling due, if any, or if no further payments on account of operating will become due during the remainder of the term of this sublease, Sublandlord shall promptly refund the amount of such excess to Subtenant upon the expiration or termination of this sublease (unless such termination is the result of a default by Subtenant, in which case such amount shall be set off against amounts due Sublandlord from Subtenant). If the aggregate amount of installments paid by Subtenant on account of operating expenses with respect to any year is less than Subtenant's pro-rata share thereof for such year, Sublandlord shall give written notice thereof to Subtenant, and Subtenant shall pay to Sublandlord the amount of such deficiency, as additional rent, within ten (10) days of receipt of such notice. Upon request by Subtenant, Sublandlord shall promptly furnish to Subtenant reasonably available information supporting the charge for operating expenses hereunder, but Subtenant's obligation to make payments on account of operating expenses shall not be conditioned upon receipt by Subtenant of this information; and (b) provided that Sublandlord shall have exercised its right to extend the Prime Lease under Section 2.3 thereof, from March 1, 1997 to February 28, 2002 on the same terms as set forth in subparagraph (a) above, except that $5935.83 of the base rent due each month under paragraph 3 (as modified by subparagraph (a)) shall be increased (but not deceased) by taking into account one half of the increase in the CPI-U most recently determined in November, 1996 ("CPI-96") over the CPI-U most recently determined in 8 9 November, 1993 ("CPI-93") so that monthly base rent shall be determined by the following formula: $3789.17 + $5935.83 x [1 + 1/2 (CPI-96 - CPI-93)] CPI-93 As used herein CPI-U means the Consumer Price Index for All Urban Consumers (CPI-U), All Items, for the Boston metropolitan area, published by the United States Department of Labor, Bureau of Labor Statistics or any revision thereof or substitute therefor published by that Bureau, or, if there ceases to be any such publication, any other comparable index selected by Landlord. If the CPI-U is changed so that the base year differs from that in effect on the date hereof, the CPI-U shall be converted in accordance with the conversion factor published by the United States Department of labor, Bureau of Labor Statistics. 21. BROKERS: Subtenant represents and warrants that it has had no dealings with any broker or agent in connection with this sublease and shall indemnify and hold harmless sublandlord for any brokerage commission as a result of the failure of this warranty; Sublandlord represents and warrants that it has had no dealings with any broker or agent and shall indemnify and hold harmless subtenant from any claims for any brokerage commission as a result of the failure of this warranty. 22. NOTICE OF LEASE: Sublandlord agrees to execute and deliver to Subtenant a notice of this sublease containing the information required by Massachusetts General Laws chapter 183, section 4. Executed as a sealed instrument as of the date first above written. SUBLANDLORD: Massachusetts Institute of Technology By: /s/ Philip A. Trussell --------------------------------------- Philip A. Trussell, Director of Real Estate SUBTENANT: Transkaryotic Therapies, Inc. By: /s/ K. Michael Forrest ---------------------------------------- K. Michael Forrest, President and CEO 9 10 NOTICE OF SUBLEASE In accordance with the provisions of Massachusetts General Laws, Chapter 183, Section 4, as amended, NOTICE is hereby given of the following described sublease: PARTIES TO THE SUBLEASE: Sublessor: Massachusetts Institute of Technology Suite 200 238 Main Street Cambridge, MA 02142 Sublessee: Transkaryotic Therapies, Inc. 195 Albany Street Cambridge, MA 02139 DATE OF EXECUTION OF THE LEASE: 4/8, 1992 - ------------------------------ DESCRIPTION, IN THE FORM CONTAINED IN SUCH SUBLEASE OF THE PREMISES DEMISED: 7123 square feet of space on the second floor of the building at 185 Albany Street, Cambridge, MA as shown on a drawing dated 16 January, 1992 by Rojas Vogt, being part of the premises described on Exhibit A. COMMENCEMENT DATE AND TERM OF LEASE: The Term commences May 1, - ------------- 1992 and expires February 28, 1997. RIGHTS OF EXTENSION OR RENEWAL: One five year extension term. WITNESS the execution hereof, under seal by the parties to the sublease. SUBLESSOR: Massachusetts Institute of Technology (Seal) By: /s/ Philip A. Trussell -------------------------------------------- Philip A. Trussell, its Director of Real Estate 11 SUBLESSEE: Transkaryotic Therapies, Inc. (Seal) By: /s/ K. Michael Forrest --------------------------------------------- COMMONWEALTH OF MASSACHUSETTS , ss 4/8, 1992 Then personally appeared the above named K. Michael Forrest and acknowledged the foregoing to be the free act and deed of Transkaryotic Therapies, Inc., before me, /s/ Joan M. Ventola --------------------------------------------- Notary Public My commission expires: COMMONWEALTH OF MASSACHUSETTS , ss. 4/8, 1992 Then personally appeared the above named Philip A. Trussell, and acknowledged the foregoing to be the free act and deed of Massachusetts Institute of Technology, before me, /s/ Joan M. Ventola --------------------------------------------- Notary Public My commission expires: 12 Exhibit A A parcel of land with the buildings thereon in Cambridge, Middlesex County, Massachusetts: That certain parcel of land known as and numbered 185-187 Albany Street, being Lot C on "Plan of Land in Cambridge, Mass. surveyed for Stimpson Investment Corp." dated October 22, 1947 by W.A. Mason & Son, Co., Surveyors, recorded with Middlesex South District Registry of Deeds as plan No. 1566 of 1947 at the end of Book 7206 and bounded: SOUTHEASTERLY by said Albany Street by two courses one hundred and five and 29/100 (105.29) feet; and five and 11/100 (5.11) feet, respectively; SOUTHWESTERLY by Lot B as shown on said plan by a line running through the middle of the common area shown on said plan, one hundred and five and 64/100 (105.64) feet; NORTHWESTERLY by the same, seven and 02/100 (7.02) feet; SOUTHWESTERLY by the same, by a line running through the middle of a 12" brick wall, which shall be and remain a common party wall, one hundred fifteen and 70/100 (115.70) feet; NORTHWESTERLY by Purrington Street, by the southeasterly sideline thereof, one hundred ten and 24/100 (110.24) feet; and NORTHEASTERLY by land now or formerly of Edward S. Stimpson, et al Trustees two hundred twenty one and 28/100 (221.28) feet. Containing according to said Plan 22,903 square feet. The above-described premises are subject to and have the benefit of the following rights and easements (in common with the Landlord and others): 1. 25 foot wide right of way and platform rights on the northeasterly side of Lot C, as set forth in deed from Harry F. Stimpson to Stimpson Investment Corporation dated January 12, 1925 recorded with said Deeds in Book 4806, Page 506. 2. Lot A is subject to and with the benefit of the right to use, in common with the owners and occupants of Lot B, the common way forty-five (45) feet wide for all purposes for which private ways may be used in said Cambridge, as set forth in a deed from Stimpson Investment Corporation to Edward S. Stimpson, 13 et al dated October 4, 1948 recorded with said Deeds in Book 7370, Page 304. 3. The right of Lot B to use the common area shown on said plan and the platform therein for the purpose of loading and unloading vehicles and for ingress and egress to and from Lot B and the right of Lot B to use for all purposes of ingress and egress the stairway situated in the building upon Lot C and adjacent to said common area leading from the second floor to the basement; all as set forth in said deed recorded in Book 7370, Page 304. The subject premises are subject to the following: 1. Deed of spur track rights on Purrington Street as set forth in a Deed from Harry F. Stimpson to Stimpson Terminal Company dated May 12, 1919 recorded with said Deeds in Book 4262, Page 482. 2. Deed of spur track rights as set forth in a Deed from Stimpson Terminal Company to Stimpson Investment Corporation dated October 1, 1948 and recorded with said Deeds in Book 7344, Page 581. 14 LEASE BETWEEN TRUST UNDER THE WILL OF HARRY F. STIMPSON AS LANDLORD AND MASSACHUSETTS INSTITUTE OF TECHNOLOGY AS TENANT TABLE OF CONTENTS
Page ARTICLE I Reference Data........................................................... 1 1.1 Subjects Referred To..................................................... 1 1.2 Exhibits................................................................. 2 ARTICLE II Premises and Term........................................................ 3 2.1 Premises................................................................. 3 2.1.1 Parking............................................................ 3 2.1.2 Landlord's Reservations............................................ 3 2.2 Term..................................................................... 3 2.3 Option to Extend......................................................... 3 2.4 Right of First Refusal................................................... 4 ARTICLE III Rent..................................................................... 4 3.1 Annual Fixed Rent........................................................ 4 3.2 Adjustment and Annual Fixed Rent......................................... 5 3.3 Additional Rent.......................................................... 5 3.4 Real Estate Taxes........................................................ 6 3.4.1 Premises........................................................... 6 3.4.2 Parking Lot........................................................ 6 3.5 Betterment Assessments................................................... 6 3.5.1 Premises........................................................... 7 3.5.2 Parking Lot........................................................ 7 3.6 Tax Fund Payments........................................................ 7 3.7 Insurance................................................................ 8 3.8 Utilities and Services................................................... 8 3.9 Additional Expenses...................................................... 8 3.10 Late Charge.............................................................. 8 3.11 Net Lease................................................................ 8 3.12 No Offsets............................................................... 8 ARTICLE IV Maintenance and Repair, Alterations; Surrender; Holding Over............. 9 4.1 Tenant's Maintenance and Repair.......................................... 9 4.2 Landlord's Maintenance and Repair........................................ 9 4.3 Alterations.............................................................. 9
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4.4 Alterations Requirements................................................. 10 4.5 Entry by Landlord........................................................ 10 4.6 Surrender................................................................ 10 4.7 Holding Over............................................................. 11 4.8 Tenant's Initial Repairs................................................. 11 ARTICLE V Additional Tenant Covenants.............................................. 11 5.1 Payment and Performance.................................................. 11 5.2 Use...................................................................... 12 5.3 Compliance with Law...................................................... 12 5.4 Personal Property Taxes.................................................. 12 5.5 Assignment and Subletting................................................ 12 ARTICLE VI Indemnity and Insurance.................................................. 14 6.1 Indemnity................................................................ 14 6.2 Tenant's Insurance....................................................... 14 6.3 Tenant's Risk............................................................ 16 6.4 Subrogation.............................................................. 16 ARTICLE VII Casualty and Eminent Domain.................................................... 16 7.1 Casualty During Term..................................................... 16 7.2 Condemnation............................................................. 18 7.3 Abatement of Rent........................................................ 18 7.4 Condemnation Award....................................................... 19 ARTICLE VIII Default....................................................................... 19 8.1 Tenant's Default......................................................... 19 8.2 Damages.................................................................. 20 8.3 Remedies Cumulative...................................................... 20 8.4 Landlord's Election...................................................... 21 8.5 Effect of Waivers of Default............................................. 21 8.6 No Waiver................................................................ 21 8.7 No Accord and Satisfaction............................................... 22 8.8 Delivery of Keys......................................................... 22 8.9 Attorneys' Fees.......................................................... 22 ARTICLE IX Mortgagees' and Ground Lessors' Rights.......................................... 22 9.1 Superiority of Lease..................................................... 22 9.2 Subordination............................................................ 22 9.3 Limitation on Tenant's Rights............................................ 23 9.4 Exercise of Mortgagee's Remedies......................................... 23 9.5 Further Assurances....................................................... 23 9.6 No Prepaid Rent.......................................................... 23
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ARTICLE X Miscellaneous............................................................ 23 10.1 Estoppel Certificates.................................................... 23 10.2 No Recordation........................................................... 24 10.3 Notices.................................................................. 24 10.4 Successors and Assigns................................................... 24 10.5 Limitation of Liability.................................................. 24 10.6 Covenants and Conditions................................................. 24 10.7 Severability............................................................. 24 10.8 Quiet Enjoyment.......................................................... 25 10.9 Entire Agreement......................................................... 25 10.10 Brokers.................................................................. 25 10.11 Applicable Law and Construction.......................................... 25 10.12 Time of Essence.......................................................... 25 10.13 Authorization............................................................ 25
iii 17 THIS LEASE is made and entered into as of the 17th day of January, 1992 by and between HARRY F. STIMPSON, III, as Trustee under the will of Harry F. Stimpson, late of Brookline, Norfolk Probate No. 99898 ("Landlord"), and MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a Massachusetts corporation ("Tenant"). In consideration of the mutual covenants herein set forth, Landlord and Tenant do hereby agree to the terms and conditions set forth in this Lease. ARTICLE I Reference Data 1.1 Subjects Referred To. Each reference in this Lease to any of the following shall be construed to incorporate the following data: Annual Fixed Rent: $_________ as that amount may be increased pursuant to the terms of this Lease. Building: The building known as and numbered 185 Albany Street, Cambridge, Massachusetts Lease Commencement Date: January 17, 1992 Extension Term: One (1) period of five (5) years which shall become effective only if Tenant exercises its option to extend the Term as provided in Section 2.3. External Causes: See Section 7.1 Initial Public Liability Insurance Limits: Bodily Injury: $1,000,000 Property Damage: $1,000,000 Umbrella Coverage: $5,000,000 Land: A parcel of land located at 185 Albany Street, Cambridge, Massachusetts, as more particularly described on Exhibit A attached hereto Landlord's Address: c/o Stimpson Properties Co., Inc. P.O. Box 81386 Wellesley Hills, MA 02181 Landlord's Representative: Edward S. Stimpson, III 18 Lease Year: Any period of one year during the Term commencing on the Lease Commencement Date or on any anniversary thereof. Original Term: A five (5) year, one month and 12 day period starting on the Lease. Commencement Date and expiring on February 28, 1997, unless extended pursuant to Section 2.3. Permitted Uses: See Section 5.2 Premises: The Land and the Building. Rent Commencement Date: February 15, 1992 Tenant's Address: 238 Main Street Suite 200 Cambridge, MA 02142 Attn: Philip A. Trussell, Director of Real Estate, Associate Treasurer Tenant's Representative: Philip A. Trussell Term: The Original Term and any Extension Term as to which Tenant properly exercises its option to extend as set forth in Section 2.3. 1.2 Exhibits. The exhibits listed below are attached hereto and incorporated in this Lease by reference and are to be construed as a part of this Lease: Exhibit A - Legal Description of Land 2 19 ARTICLE II Premises and Term 2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, to have and to hold for the Term provided for by Section 2.2 below, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, the Premises. Tenant is fully aware of the existing conditions of the Premises and the Building and agrees to take the same on a strictly "as is" basis without warranty or representation express or implied and without any further obligation whatsoever on the part of Landlord with respect thereto provided, however, Landlord acknowledges that Tenant has not had an opportunity to test the air conditioning system. 2.1.1 Parking. Landlord shall provide twenty (20) parking spaces for use by Tenant and Tenant's employees in the parking lot located on the corner of Albany Street and Pacific Street, Cambridge, Massachusetts (the "Parking Lot") at no additional cost to Tenant other than Annual Fixed Rent and additional rent. Tenant acknowledges that the Parking Lot is presently managed by Landlord's tenant at 195 Albany Street (the "Adjacent Building"), BASF Corporation. Tenant agrees that it and all persons claiming by, through and under it shall at times cooperate with said BASF Corporation and its successors, from time to time, as manager of the Parking Lot, as to use of said Parking Lot and shall abide by the rules and regulations imposed on the use of the Parking Lot, from time to time. Landlord shall have the right to designate, from time to time, and to change, from time to time, the designation of parking spaces within the Parking Lot. Tenant shall use the designated parking spaces only for parking of employee's private vehicles during business hours. Landlord shall be responsible for assuring that the Parking Lot is properly maintained. 2.1.2 Landlord's Reservations. Landlord reserves the right, from time to time, without unreasonable interference with Tenant's use to gain access to the Premises for any purpose permitted under this Lease as provided in Section 4.5 below. 2.2 Term. The Term of this Lease shall begin on the Lease Commencement Date and continue for the Original Term, unless sooner terminated as provided in this Lease. 2.3 Option to Extend. Tenant shall have the option, to be exercised as hereinafter provided, to extend the Original Term of this Lease for a period of five (5) years following the expiration of the Original Term (the "Extension Term"), upon the condition that there is at the time of exercise no then existing default in the performance of any covenant or condition of this Lease on the part of Tenant to be performed or observed as to which a notice Of default has been given to Tenant and that this Lease otherwise remains in full force and effect. The Extension Term shall be upon the same terms and conditions as provided in this Lease, except for the Annual Fixed Rent, which shall be determined in accordance with Section 3.2 below and except that Tenant shall have no further option to extend the Term. Tenant shall exercise this option to extend for an Extension Term by notifying Landlord in writing at least one year prior to the expiration of the Original Term. Upon such exercise, this Lease shall be deemed to be 3 20 so extended for the Extension Term without the execution of any further lease or other instrument. 2.4 Right of First Refusal. Provided that this Lease remains in full force and effect and provided that Tenant is not in default hereunder, Tenant shall have a right of first refusal with respect to the Property (the "Right of First Refusal") during the Original Term and the Extension Term on the following terms and conditions. If Landlord determines to sell all or any part of the Premises at any time during the Original Term or the Extension Term, Landlord shall notify Tenant of the terms on which Landlord will be willing to sell. If Tenant, within fifteen (15) days after receipt of Landlord's notice, indicates in writing its agreement to purchase the Premises or such part of the Premises on the terms stated in Landlord's notice, Landlord shall sell and convey the Premises or the part of the Premises to Tenant on the terms stated in the notice. If Tenant so agrees to purchase the Premises or part of the Premises and thereafter defaults in its obligation to purchase the Premises, the Right of First Refusal shall expire and terminate for all purposes. If Tenant does not indicate its agreement within said fifteen (15) days, Landlord thereafter shall have the right to sell and convey the Premises or such part of the Premises to a third party on the same terms or other terms no more favorable to the buyer than those stated e fin the notice, and upon the closing of such sale, the Right of First Refusal shall expire and terminate for all purposes. If Landlord does not so sell and convey the Premises or such part of the Premises within one hundred eighty (180) days, any further transaction shall be deemed a new determination by Landlord to sell and convey the Premises or such part of the Premises and the provisions of this Section 2.4 shall be applicable. If Tenant purchases all of the Premises, this Lease shall terminate on the date title vests in Tenant, and Landlord shall remit to Tenant all prepaid and unearned rent. If Tenant purchases a part of the Premises, this Lease as to the part purchased shall terminate on the date title vests in Tenant, and the Annual Fixed Rent and additional rent shall be reduced so that Tenant continues to pay $_________ per square foot, triple net, during the Original Term, or the corresponding rent per square foot during the Extension Term based on the adjustment contained in Section 3.2 below. The Right of First Refusal shall not apply to a transfer (either outright or in trust) between any of those persons who constitute the beneficial owners or principals of Landlord, the relatives by blood or marriage of any of those persons, or to a legal entity (i.e., partnership, corporation, trust, or like entity) when the majority interest is owned by all or some of such persons, or any transfer by gift or for nominal consideration, so long as the Premises continue to be subject to this Lease, including this Section 2.4. An affidavit of an officer, trustee or principal of Landlord recorded with the Middlesex South District Registry of Deeds stating that the provisions of this Section 2.4 have been complied with or met as to any conveyance of all or any portion of the Premises shall conclusively establish compliance therewith as to any third party or parties. ARTICLE III Rent 3.1 Annual Fixed Rent. Tenant covenants and agrees to pay rent to Landlord, at the 4 21 Original Address of Landlord or such other place as Landlord may by notice in writing to Tenant from time to time direct during the Term, in the amount of the Annual Fixed Rent at the applicable rate, in equal monthly installments in advance on the first day of each calendar month during the Term, commencing on the Rent Commencement Date. Annual Fixed Rent for any portion of a calendar month at the beginning or the end of such period shall be prorated accordingly. 3.2 Adjustment and Annual Fixed Rent. The Annual Fixed Rent provided for in Section 1.1 shall be subject to adjustment at the commencement of the first year of the Extension Term ("the Adjustment Date"), if Tenant exercises its option to extend as set forth in Section 2.3, as follows: The base for computing the adjustment is the Consumer Price Index for All Urban Consumers - All Items for the Boston metropolitan area, published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is in effect on the date of this Lease ("Beginning Index"). The Index published most immediately preceding the Adjustment Date ("Extension Index") is to be used in determining the amount of the adjustment. If the Extension Index has increased over the Beginning Index, the Annual Fixed Rent for the Extension Term shall be set as follows: (a) the Annual Fixed Rent set forth in Section 1.1 shall be multiplied by the figure obtained by dividing the Extension Index by the Beginning Index (the total of which shall be the "CPI Rent"); and (b) the difference between the CPI Rent and the Annual Fixed Rent set forth in Section 1.1 shall be multiplied by fifty percent (50%), the product of which shall be added to Annual Fixed Rent set forth in Section 1.1 to determine Annual Fixed Rent for the Extension Term. In no event whatsoever shall the Annual Fixed Rent for the Extension Term be less than the Annual Fixed Rent set forth in Section 1.1. On adjustment of the Annual Fixed Rent as provided in this Section 3.2, the Landlord shall notify the Tenant of the Annual Fixed Rent for the Extension Term and the parties hereto shall immediately execute an amendment to this Lease stating the new Annual Fixed Rent. If the Index is changed so that the base year differs from that in effect when the Term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 3.3 Additional Rent. In order that the Annual Fixed Rent shall be absolutely net to Landlord, Tenant covenants and agrees to pay, as additional rent, all real estate taxes, betterment assessments, insurance costs, and charges for utilities and other services with respect to the Premises as hereinafter provided in this Lease. All amounts payable by Tenant to Landlord 5 22 under this Lease shall be deemed to be additional rent and shall be paid within ten (10) days of the date of invoices therefor. 3.4 Real Estate Taxes. 3.4.1 Premises. Tenant shall pay, directly to the authority charged with collection thereof, all taxes levied or assessed by or becoming payable to any municipality or any other governmental authority having jurisdiction of the Premises, for or in respect of the ownership, leasing or operation of the Premises or which may become a lien on the Premises, for each tax period wholly included in the Term, all such payments to be made on or before the last date on which the same may be paid without interest or penalty; provided that for any fraction of a tax period included in the Term at the beginning (beginning on the Rent Commencement Date) or end thereof, Tenant shall pay to Landlord, within ten (10) days after receipt of Landlord's invoice therefor, the fraction of taxes so levied or assessed or becoming payable which is allocable to such included period. Tenant shall promptly after payment thereof furnish to Landlord reasonable evidence of each such payment. If Tenant shall deem itself aggrieved by any such tax or charge and shall elect to contest the payment thereof, Tenant may make such payment under protest or, if postponement of such payment does not jeopardize Landlord's title to the premises, Tenant may postpone the same, provided that Tenant shall secure such payment and the interest and penalties thereon by causing to be delivered to Landlord cash or other adequate security in form and amount reasonably satisfactory to Landlord, which amount shall not be greater than one hundred and twenty-five per cent (125%) of the contested tax or charge, costs and penalties. Tenant agrees to save Landlord harmless from all costs and expenses incurred on account of Tenant's participation in any such contest. Any contest brought by Tenant shall be conducted jointly with any other parties, including Landlord, subject to such taxes. Landlord shall cooperate with Tenant with respect to such conduct so far as reasonably necessary at no cost to Landlord. Either party paying any tax shall be entitled to recover, receive and retain for its own benefit all abatements and refunds of such tax, unless it has previously been reimbursed by the other party. Neither party shall discontinue any abatement proceedings begun by it without first giving the other party written notice of its intent so to do and reasonable opportunity to be substituted in such proceedings. Nothing contained in this Lease shall, however, require Tenant to pay any franchise, corporate, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any net income, profits or revenue tax or charge upon the rent payable by Tenant under this Lease. Without limiting the generality of the foregoing, Landlord agrees, upon execution hereof, and at no out-of-pocket cost to Landlord, to assist Tenant in pursuing a tax abatement from the City of Cambridge. 3.4.2 Parking Lot. Tenant shall pay to Landlord as additional rent, Tenant's proportionate share of real estate taxes applicable to the Parking Lot. For purposes of this section, Tenant's proportionate share of taxes for the Parking Lot shall equal the number of parking spaces to which Tenant is entitled over the total number of parking spaces in the Parking Lot attributable to the Building. 3.5 Betterment Assessments. 6 23 3.5.1 Premises. Tenant shall pay, directly to the authority charged with the collection thereof, each installment of any public, special or betterment assessment levied or assessed by or becoming payable to any municipality or other governmental authority having jurisdiction of the Premises, for or in respect of the ownership, leasing or operation of the Premises or which may become a lien on the Premises, for each installment period wholly included in the Term, all such payments to be made on or before the last date on which the same may be made without interest or penalty; provided that for any fraction of an installment period included in the Term at the beginning (beginning on the Rent Commencement Date) or end thereof, Tenant shall pay to Landlord, within ten (10) days after receipt of Landlord's invoice therefor, the fraction of such installment which is allocable to such included period. Landlord shall elect to pay any such assessment in installments over the longest period permitted by law. Tenant shall promptly after payment thereof furnish to Landlord reasonable evidence of each such payment. If Tenant shall deem itself aggrieved by any such assessment and shall elect to contest the payment thereof, Tenant may make such payment under protest. Tenant agrees to save Landlord harmless from all costs and expenses incurred on account of Tenant's participation in any such contest. Any contest brought by Tenant shall be conducted jointly with any other parties, including Landlord, subject to such assessments. Landlord shall cooperate with Tenant with respect to such conduct so far as reasonably necessary at no cost to Landlord. Either party paying any assessment shall be entitled to recover, receive and retain for its own benefit all abatements and refunds of such assessment, unless it has previously been reimbursed by the other party. Neither party shall discontinue any contest proceedings begun by it without first giving the other party written notice of its intent so to do and reasonable opportunity to be substituted in such proceedings. Landlord shall promptly furnish to Tenant a copy of any notice of any public, special or betterment assessment received by Landlord concerning the Premises. 3.5.2 Parking Lot. Tenant shall pay to Landlord as additional rent, Tenant's proportionate share of betterment assessments applicable to the Parking Lot. For purposes of this Section, Tenant's proportionate share of betterment assessments applicable to the Parking Lot shall equal the number of parking spaces to which Tenant is entitled over the total number of parking spaces in the Parking Lot attributable to the Building. 3.6 Tax Fund Payments. If any holder of a first mortgage on the Premises requires Landlord to make tax fund payments to it, Tenant shall, as additional rent, on the first day of each month of the Term, make Tax Fund Payments to Landlord. "Tax Fund Payments" refer to such payments as the holder of such first Mortgage shall reasonably determine to be sufficient to provide in the aggregate a fund adequate to pay all taxes and assessments referred to in Sections 3.4 and 3.5 when they become due and payable. If the aggregate of said Tax Fund Payments is not adequate to pay all said taxes and assessments, Tenant shall pay to Landlord the amount by which such aggregate is less than the amount equal to all said taxes and assessments, such payment to be made on or before the later of (a) ten (10) days after receipt by Tenant of written notice from Landlord of such amount, or (b) the 30th day prior to the last day on which such taxes and assessments may be paid without interest or penalty If Tenant shall have made the aforesaid payments, Landlord shall on or before the last day on which the same may be paid without interest or penalty, pay or cause to be paid to the proper authority charged with the 7 24 collection thereof all taxes and assessments referred to in said Sections 3.4 and 3.5 and furnish Tenant, upon request, with reasonable evidence of such payment. Any balance remaining after such payment by Landlord shall be accounted for to Tenant annually. All payments made by Tenant pursuant to this Section 3.6 shall to the extent thereof relieve Tenant of its obligations under said Sections 3.4 and 3.5. 3.7 Insurance. Tenant shall obtain insurance for the Premises as provided for by Section 6.2. 3.8 Utilities and Services. Tenant shall pay directly to the proper authorities charged with the collection thereof all charges for water, sewer, gas, electricity, telephone and other utilities or services used or consumed on the Premises during the Term. 3.9 Additional Expenses. Tenant shall pay to Landlord as additional rent: (a) One half of all maintenance expenses attributable to the courtyard which the Premises shares with the Adjacent Building including, without limitation, landscape, snowplowing and any and all other costs and expenses attributable to the maintenance of said courtyard provided, however, that if Tenant so elects, Tenant may so notify Landlord in writing and undertake said maintenance at its sole cost and expense. (b) Tenant's proportionate share of maintenance expenses attributable to the Parking Lot. For purposes of this Section, Tenant's proportionate share of maintenance expenses applicable to the Parking Lot shall equal the number of parking spaces to which Tenant is entitled over the total number of parking spaces in the Parking Lot. 3.10 Late Charge. In the event that any payment of Annual Fixed Rent or additional rent shall remain unpaid for a period of five (5) business days after due, there shall become due to Landlord from Tenant, as additional rent and as compensation for Landlord's extra administrative costs in investigating the circumstances of late rent, a late charge of three percent (3%) of the amount overdue. Payment of any late charge shall not constitute a cure of any default with respect to the amount as to which such late charge is paid. 3.11 Net Lease. It is understood and agreed that this Lease is a net lease and that the Annual Fixed Rent is absolutely net to Landlord, excepting only capital improvements and repairs for which Tenant is not required to pay under this Lease. 3.12 No Offsets. All payments to be made by Tenant to Landlord in accordance with the terms of this Lease, including, but not limited to, Annual Fixed Rent and additional rent, shall be paid by Tenant without offset, abatement or deduction. 8 25 ARTICLE IV Maintenance and Repair, Alterations; Surrender; Holding Over 4.1 Tenant's Maintenance and Repair. Except as otherwise provided in Section 4.2 or Article VII below, Tenant, at Tenant's expense, shall keep neat and clean and maintain and repair in good order, condition and repair the Premises and every part thereof (including, without limitation, ordinary maintenance of the electrical, plumbing and HVAC systems and equipment serving the Premises and the other fixtures and equipment therein and the cleaning of and trash removal from the Premises), reasonable wear and tear excepted. Without limiting the generality of the foregoing, Tenant, at Tenant's expense, shall provide or cause to be provided landscape care to and maintenance of the Land, and maintenance (including snow plowing) of the walkways, driveways and parking areas on the Premises. Tenant hereby covenants and agrees to remove all trash from the Premises in compliance with all federal, state, and local laws, rules, ordinances and regulations. If maintenance or repairs are required to be done or made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant do or make the same forthwith, and, if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be required to do so) make or cause such repairs to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's property or business by reason thereof, so long as Landlord makes or causes such repairs to be made in a reasonable manner. If Landlord makes or causes such repairs to be made, Tenant agrees that Tenant will forthwith on demand pay to Landlord the cost thereof as additional rent pursuant to Section 8.4. Tenant shall receive the benefit of all warranties and guaranties with respect to those portions of the Premises that Tenant is obligated to maintain, as well as, at Tenant's election and Tenant's expense, any options to extend or similar rights with respect to the warranties and guaranties. 4.2 Landlord's Maintenance and Repair. Except as otherwise provided in Article VII below, Landlord, at Landlord's expense, shall keep, maintain and repair in good order, condition and repair the structural parts of the Building, which structural parts include only the foundations, bearing and exterior walls (excluding glass and doors), subflooring, support columns, support beams and roof (excluding skylights), except for any damage caused to any of the foregoing by the negligence or neglect of Tenant, its agents, contractors, employees or invitees. Landlord shall be responsible for the cost of replacing major mechanical systems in the event that they are no longer serviceable or damaged beyond repair, except for any damage caused by the negligence or neglect of Tenant, its agents, contractors, employees or invitees. Landlord shall be responsible for compliance with laws and regulations regarding the transformer located in the basement of the Building in the event said transformer contains PCB's. Except as set forth in this Section 4.2 and in Article VII below, Tenant shall be responsible for the cost of all replacements and repairs to the Premises. 4.3 Alterations. Tenant shall not make alterations and additions to the Premises except in accordance with plans and specifications therefor first approved by Landlord, which approval shall be requested in writing and shall not be unreasonably withheld or delayed. 9 26 Landlord shall not be deemed unreasonable for withholding approval of any alterations or additions that (a) involve or might affect any structural or exterior element of the Building, or any area or element outside of the Premises, or (b) will require unusual expense to readapt the Premises to normal office or laboratory use on expiration or earlier termination of the Term, unless Tenant first provides assurances acceptable to Landlord that such readaptation will be made prior to such expiration or termination without expense to Landlord. All alterations and additions shall become part of the Building and shall become the property of Landlord upon expiration or earlier termination of the Term unless Landlord shall notify Tenant in writing that the same must be removed. Such notice by Landlord shall be given no later than in response to Tenant's written request for Landlord's approval of the alterations or additions prior to their installation, and in such event Tenant shall remove such alterations or additions and any damage caused by removal shall be repaired by Tenant at Tenant's expense upon expiration or earlier termination of this Lease. 4.4 Alterations Requirements. Landlord may (but shall not be obligated to) inspect any construction work of Tenant under this Lease at reasonable times. Tenant, before its work is started, shall secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors; and shall cause each contractor to carry such workmen's compensation insurance and comprehensive general public liability insurance as Landlord may reasonably require insuring Landlord and Tenant as well as the contractors, and to deliver to Landlord certificates of all such insurance. Tenant agrees to pay promptly when due the entire cost of any work done on or about the Premises by or on behalf of Tenant, its agents, employees or independent contractors, not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises and promptly to discharge any such liens which may so attach. Tenant shall hold Landlord harmless and indemnify Landlord from and against all injury, loss, claims or damage to any person or property occasioned by or growing out of any such work. 4.5 Entry by Landlord. Tenant shall permit Landlord and its agents, after reasonable notice (except in the case of emergencies), to enter the Premises at all reasonable hours for the purpose of inspecting, testing, or of making repairs to the same, or otherwise carrying out Landlord's rights or obligations under this Lease, and to show the Premises to prospective tenants during the year preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from Landlord or its agents entering the Premises for any purposes authorized in this Lease. 4.6 Surrender. Tenant shall surrender the Premises, and all alterations and additions thereto as hereinabove provided, at the expiration or earlier termination of the Term, in the condition described in Section 4.1, first removing all personal property and trade fixtures of Tenant and, to the extent specified by Landlord by notice to Tenant as hereinabove provided or as otherwise agreed by Landlord and Tenant, alterations and additions made by Tenant, and repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat. Tenant waives all claims against Landlord for any damage to Tenant resulting from 10 27 Landlord's retention or disposition of any of Tenant's personal property or trade fixtures remaining on the Premises on expiration or earlier termination of the Term. Tenant shall be liable to Landlord for Landlord's costs for storing, removing, and disposing of any alterations or additions that Tenant is obligated to remove but fails to remove or Tenant's personal property or trade fixtures. If Tenant fails to surrender the Premises to Landlord on expiration or earlier termination of the Term in the condition and otherwise as required by this Section, Tenant shall hold Landlord harmless from all damages resulting from Tenant's failure to surrender the Premises, including, without limitation, claims made by succeeding tenants resulting from Tenant's failure to surrender the Premises. 4.7 Holding Over. If Tenant with Landlord's consent remains in possession of the Premises after expiration or earlier termination of Term, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on thirty days' notice given at any time by either party. During any such month-to-month tenancy, Tenant shall pay all rent and other sums required by this Lease, and all provisions of this Lease, except those pertaining to Term, option(s) to extend and right(s) of first refusal, shall apply to the month-to-month tenancy, and the monthly base rent (excluding additional rent) shall be one-twelfth of two times the Annual Fixed Rent upon expiration or termination of the Term. This provision shall not be construed as a consent by Landlord to any such holding over. 4.8 Tenant's Initial Repairs. To induce Tenant to accept the Premises in "as is" condition, Landlord hereby agrees to pay Tenant $___________ on or before April 1, 1992 on account of punch-list repairs which Tenant requested by letter from Tenant's Representative to Landlord's Representative dated January 2, 1992 (the "Letter"). Tenant shall make such repairs in accordance with Section 4.4 above and in accordance with applicable federal, state and local laws, rules and ordinances and notwithstanding any provision of this Lease to the contrary, Landlord shall not be responsible for the repairs listed in the Letter. In addition, Tenant hereby agrees to upgrade electrical switch gear located on the Premises, and Landlord hereby agrees to reimburse Tenant for the actual cost of said upgrade up to $_________, which cost will be paid by Landlord within ten (10) days after Tenant provides Landlord with copies of waivers of liens executed by applicable contractor(s) and/or utility companies and paid invoices for the cost of said work. In no event shall Landlord be obligated to pay more than $__________ for the upgrade of the electrical switch gear. ARTICLE V Additional Tenant Covenants 5.1 Payment and Performance. Tenant agrees to pay when due all Annual Fixed Rent and additional rent, all charges for utility and other services rendered to the Premises, and all other monies required to be paid by Tenant pursuant to this Lease and to promptly perform all obligations of Tenant pursuant to this Lease. Annual Fixed Rent and additional rent payments required under this Lease shall be deemed sufficiently paid if made by check collected on first presentation. 11 28 5.2 Use. Tenant agrees, from the Commencement Date to the end of the Term, to use and occupy the Premises for general office, research, manufacturing or other purposes permitted by federal, state and local laws and ordinances. Tenant agrees not to injure, overload or deface the Premises, nor to permit on the Premises any auction sale. Tenant shall comply with all requirements of public authorities and of the Board of Fire Underwriters in connection with methods of storage, use and disposal. Tenant shall not permit in the Premises any nuisance, or the emission from the Premises of any objectionable noise, odor or vibration, nor use or devote the Premises or any part thereof for any purpose which is contrary to law or ordinance or liable to invalidate or increase premiums for any insurance on the Building or its contents or liable to render necessary any unpermitted alteration or addition to the Building, nor commit or permit any waste in or with respect to the Premises, nor generate, store or dispose of any oil, toxic substances, hazardous wastes, or hazardous materials (each a, "Hazardous Material"), or permit the same in or on the Premises provided for under this Lease, except incompliance with applicable law. Tenant shall not dump, flush or in any way introduce any Hazardous Material into septic, sewage or other waste disposal systems serving the Premises provided for under this Lease. Tenant shall permit Landlord to enter the Premises for the purpose of testing and to determine Tenant's compliance with the covenants herein contained, each such entry shall be made in accordance with Section 4.5 above. Tenant will indemnify the Landlord and its successors and assigns against all claims, loss, cost, and expenses, including, without limitation, attorneys' fees, incurred as a result of any contamination of the Building or any portion of the Land with Hazardous Materials by the Tenant or Tenant's contractors, licensees, invitees, agents, servants or employees, and this indemnity shall survive the expiration of the Term or any other termination of this Lease. 5.3 Compliance with Law. Tenant agrees to comply with all federal, state and local laws, regulations, ordinances, executive orders and similar requirements applicable to the Premises or the Parking Lot or Tenant's use thereof in effect from time to time during the Term, including, without limitation, City of Cambridge ordinances with respect to smoking, animal experiments and hazardous waste and any such requirements pertaining to employment opportunity, anti-discrimination and affirmative action. Tenant agrees, at its sole cost, to comply with the aforesaid laws regulations and ordinances, and to keep the Premises equipped with all safety appliances required by law or ordinance or any other regulations of any public authority, and to procure all licenses and permits required for the Premises or Tenant's use thereof, it being understood that the foregoing provisions shall not be construed to broaden in any way the Permitted Uses. 5.4 Personal Property Taxes. Tenant agrees to pay promptly when due all taxes which may be imposed upon personal property (including, without limitation, fixtures and equipment) on the Premises. 5.5 Assignment and Subletting. Any assignment, mortgage, pledge, hypothecation or transfer of all or any portion of Tenant's interest under this Lease or any subletting of all or any portion of the Premises shall be subject to the provisions of this Section. 12 29 (a) Tenant agrees not to assign, mortgage, pledge, hypothecate or otherwise transfer this Lease, or sublet (which term, without limitation, shall include granting of concessions, licenses and the like) the whole or any part of the Premises without, in each instance, having first received the consent of Landlord, which shall not be unreasonably withheld. Any assignment or sublease made without such consent shall be void, and in any case where Landlord consents to such assignment or subletting or such assignment is permitted by this Lease, Tenant shall remain fully and primarily liable for the obligations of the tenant hereunder, including, without limitation, the obligation to pay Annual Fixed Rent and additional rent as provided under this Lease. Any transfer of control of Tenant by means of one or more transfers of stock or partnership interests shall be deemed an assignment for purposes of this Section. (b) In the event that any sublease or assignment is permitted under this Lease (other than the sublease described in subsection (d) below), Tenant shall pay to Landlord as additional rent one half of the amount Tenant receives from any subtenant or assignee as rent, additional rent or other form of compensation or reimbursement in excess of (i) the Annual Fixed Rent, additional rent and other monies otherwise due to Landlord pursuant to this Lease (allocable in the case of a sublease to that portion of the Premises being subleased), and (ii) any reasonable expenses incurred and paid by Tenant in connection with such sublease or assignment such as brokerage commissions, fees for legal services and expenses of preparing the Premises for occupancy by such subtenant or assignee. (c) If this Lease is assigned, or if the Premises or any part thereof is sublet or occupied by anyone other than Tenant, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, sublessee or occupant and apply the net amount collected to the rent and other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the prohibitions contained in this Section 5.5, or the acceptance of the assignee, sublessee or occupant as a tenant, or a release of Tenant from the further performance by Tenant of the covenants herein contained to be performed by Tenant. The consent by Landlord to one assignment or subletting shall not be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting. (d) Landlord hereby consents to Tenant entering into, a sublease with Transkaryotic Therapies, Inc. ("TKT"), a Delaware corporation, for up to 8,000 square feet of space within the Premises for a term not to exceed the expiration of the Original Term, which such term may be extended for the Extension Term if Tenant exercises its option to extend under Section 2.3 above. Tenant and/or TKT shall be responsible for the cost of subdividing space according to applicable code requirements. The sublease shall be in form and substance satisfactory to Tenant. Landlord hereby grants Tenant a limited right of entry, after reasonable written notice, to the Adjacent Building to create an entry way to the Subleased Premises. 13 30 ARTICLE VI Indemnity and Insurance 6.1 Indemnity. To the maximum extent this agreement may be made effective according to law, Tenant agrees to defend with counsel, save harmless, and indemnify Landlord and any manager or cotenant of the Parking Lot, from time to time, from any liability or injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation attorneys' fees and costs), (i) caused by Tenant, its contractors, agents, employees or invitees, or arising or claimed to arise from any use made or thing done or occurring on the Premises or the Parking Lot during the Term, or the Extension Term, or during Tenant's possession of any part of the Premises not due to the willful act, active negligence or other misconduct of Landlord or any manager or cotenant of the Parking Lot and their respective contractors, agents and employees or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease, including, without limitation, the violation of any environmental law or other governmental requirement by Tenant. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in connection with any such claim or proceeding brought thereon, and the defense thereof, and shall survive expiration or termination of the Term. 6.2 Tenant's Insurance. Tenant shall, as additional rent, take out and maintain in full force from the date upon which Tenant or its contractors or agents first enter the Premises for any reason and continuing throughout the Term and the Extension Term, if so exercised, unless earlier terminated, and thereafter so long as Tenant is in occupancy of any part of the Premises, the following insurance protecting Landlord: (a) Fire and extended coverage insurance in an amount at least equal to the full insurable value of the Building on the Premises, expressly including rental interrupting coverage in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer of any loss, but in any event, in amounts not less than the actual replacement value determined from time to time of the improvements on the Premises exclusive of foundations, site preparation and other non-recurring construction costs. (b) A policy of comprehensive public liability and property damage insurance with broad form comprehensive general liability endorsement attached under which Landlord and Tenant (and, at Landlord's request, any mortgagee of the Premises or any manager or co-tenant of the Parking Lot) are named as insureds, and under which the insurer provides a contractual liability endorsement insuring against all cost, expense and liability arising out of or based upon any and all claims, accidents, injuries and damages described in Section 6.1, in the broadest form of such coverage from time to time available. Each such policy shall be noncancellable and non-amendable (to the extent that any proposed amendment reduces the limits or the scope of the insurance required in this Lease) with respect to Landlord without thirty (30) days' prior notice to Landlord, and a duplicate certificate thereof shall be delivered to Landlord. As of the Commencement Date hereof, the minimum limits of liability of such insurance for each year 14 31 shall be as set forth in Section 1.1, and from time to time during the Term for such higher limits as may be designated by Landlord, if any, as are carried customarily in the Boston area with respect to similar properties. Tenant shall deliver a certificate evidencing such coverage to Landlord, and at Landlord's request any mortgagee of the premises or any manager or co-tenant of the Parking Lot, which certificate shall state that the coverage may not be amended or cancelled without at least a thirty (30) days' prior written notice to Landlord, any mortgagee, or any manager or co-tenant of the Parking Lot, as the case may be. (c) At any time when Tenant is performing construction work in or on the Premises, Tenant shall carry builder's risk insurance reasonably satisfactory to Landlord. Tenant shall provide Landlord with a certificate evidencing such coverage, which shall state that the coverage cannot be canceled or amended without thirty (30) days' prior notice to Landlord. (d) Tenant shall maintain on all its personal property, tenant improvements, and alterations, in, on, or about the Premises, a policy of physical hazard insurance on an "all risks" basis covering the perils of fire and extended coverage, with vandalism and malicious mischief endorsements, to the extent of their full replacement cost. In the event of casualty causing damage to the Premises, the proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of tenant improvements or alterations, unless this Lease is terminated as a result of the casualty as hereinafter provided. Tenant shall deliver a certificate evidencing such coverage to Landlord, which shall state that the coverage may not be amended or canceled without at least thirty (30) days' prior written notice to Landlord. (e) All insurance required to be maintained by Tenant shall be effected by valid and enforceable policies insured by insurers of recognized responsibility qualified to do business in The Commonwealth of Massachusetts, and satisfactory to Landlord, except that Tenant may provide satisfactory evidence of coverage through its wholly owned, captive insurance company, Barton Insurance Co. Upon the Lease Commencement Date and thereafter, not less than fifteen (15) days prior to the expiration dates of the existing policies theretofore furnished pursuant to this paragraph, certificates of insurance shall be delivered by Tenant to Landlord. All such policies shall provide at least thirty (30) days written notice to Landlord prior to any termination thereof. (f) All policies of insurance required to be maintained by Tenant shall name Tenant and Landlord as the insured as their respective interests may appear. If Landlord so requires, the proceeds of insurance shall be payable to the holder of any mortgage as the interests of such holder may appear pursuant to the standard mortgagee clause. All such policies shall provide that any loss shall be payable to landlord or to the holder of any mortgage notwithstanding any act or negligence of Tenant which might otherwise result in forfeiture of such insurance. All such policies shall contain an agreement by the insurers that such policies shall not be cancelled without at least ten (10) days' prior written notice to the Landlord and to the holder of any mortgage to whom loss hereunder may be payable. 15 32 (g) In the event Tenant breaches any covenant or condition set forth in this Section 6.2, then without limiting any other right or remedy and not withstanding any other provision herein concerning notice or cure of defaults, Landlord may, after ten (10) days' written notice to Tenant, obtain such insurance as Tenant is required to obtain and maintain, and Tenant shall pay the cost thereof and Landlord's reasonable expenses thereto to Landlord as additional rent. 6.3 Tenant's Risk. Tenant agrees that all of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or the Parking Lot, shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of pipes or by theft or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord, except that Landlord shall in no event be exonerated from any liability to Tenant or to any person, for any injury, loss, damage or liability to the extent such exoneration is prohibited by law. 6.4 Subrogation. Any insurance carried by either party with respect to the Premises, or any property therein or occurrences thereon, shall, without further request by either party, if it can be so written without additional premium, or with an additional premium which the other party elects to pay, include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss, including, without limitation, injury or loss caused by negligence of such other party, due to hazards covered by insurance containing such clause or endorsement to the extent of the indemnification received thereunder. ARTICLE VII Casualty and Eminent Domain 7.1 Casualty During Term. If, during the Term, the Building shall be damaged as a result of casualty, the following provisions shall apply. (a) The term "Substantially Damaged", as used in this Article VII, shall refer to damage of such a character that the same cannot, in ordinary course, reasonably be expected to be repaired within ninety (90) days from the time that repair work would commence. (b) If the Building shall be partially damaged (as distinguished from "Substantially Damaged"), Landlord shall proceed promptly to restore the Building (consistent, however, with governmental laws and codes then in existence) to substantially the condition thereof at the time of such damage, but Landlord shall not be responsible for delay in such 16 33 restoration which may result from External Causes, as hereinafter defined. For purposes of this Lease, External Causes shall mean (i) Acts of God, war, civil commotion, fire, flood or other casualty, strikes or other extraordinary and unforeseeable labor difficulties, extraordinary and unforeseeable shortages of labor or materials or equipment, government order or regulations or other cause not reasonably within Landlord's control and not due to the fault or neglect of Landlord, and (ii) any act, failure to act or neglect of Tenant or Tenant's servants, agents, employees, licensees or any person claiming by, through or under Tenant, which actually delays Landlord in the performance of any act required to be performed by Landlord under this Lease. For purposes of this Lease, partially damaged shall mean damage to the Premises by casualty, the cost of repair of which shall not exceed Seven Thousand Five Hundred dollars ($7,500). (c) If the Building shall be damaged as a result of a casualty, the cost of repair of which is reasonably expected to exceed Seven Thousand Five Hundred dollars ($7,500), but which in the ordinary course can reasonably be expected to be repaired within ninety (90) days from the time the repair work would commence, which casualty is covered by insurance attributable to the Premises, and the holder of any mortgage on the Premises allows the insurance proceeds to be applied to the restoration of the Building, Landlord shall, promptly after such casualty and after the determination of the net amount of insurance proceeds available to Landlord, expend so much as may be necessary of such net amount to restore (consistent, however, with governmental laws and codes then in existence) the Building to substantially the condition thereof at the time of such Casualty, except as provided in paragraph (e) below. If the Building shall be so damaged by a casualty (i) not covered by insurance attributable to the Premises, or (ii) the holder of any mortgage on the Premises does not allow the insurance proceeds to be applied to the restoration of the Building, or (iii) the net amount of insurance proceeds available to Landlord are insufficient to cover the cost of restoring the Building in the reasonable estimate of Landlord, then in any such case, Landlord may, but shall have no obligation to, restore the Building. If Landlord elects not to restore the Building, Landlord shall terminate this Lease by giving notice to Tenant within a reasonable time after Landlord has determined the net amount of insurance proceeds available to Landlord and the estimated cost of such restoration. If Landlord shall notify Tenant that Landlord does not intend to restore the Building and intends to terminate this Lease by reason of the unavailability or insufficiency of insurance proceeds, Tenant shall have the right to contribute to Landlord the amount of such insufficiency, and if Tenant shall promptly notify Landlord of Tenant's desire to contribute such insufficiency and provide Landlord with security for Tenant undertaking in this respect reasonably satisfactory to Landlord, this Lease shall not terminate, and Landlord shall restore the Building unless otherwise excused and permitted to terminate by some other provision of this Article VIII. (d) If the Building shall be Substantially Damaged by a casualty covered by insurance attributable to the Premises, and the holder of any mortgage on the Premises allows the insurance proceeds to be applied to the restoration of the Building, Landlord shall, promptly after such casualty and the determination of the net amount of insurance proceeds available to Landlord, expend so much as may be necessary of such net amount to restore (consistent, however, with governmental laws and codes then in existence) the Building to substantially the 17 34 condition thereof at the time of such casualty, except as provided in paragraph (e) below. If the Building shall be Substantially Damaged by a casualty (i) not covered by insurance attributable to the Premises, or (ii) the holder of any mortgage on the Premises does not allow the insurance proceeds to be applied to the restoration of the Building, or (iii) the net amount of insurance proceeds available to Landlord are insufficient to cover the cost of restoring the Building in the reasonable estimate of Landlord, then, in any such case, Landlord may, but shall have no obligation to, restore the Building. If Landlord elects not to restore the Building, Landlord shall terminate this Lease by giving notice to Tenant within a reasonable time after Landlord has determined the net amount of insurance proceeds available to Landlord and the estimated cost of such restoration. If Landlord shall notify Tenant that Landlord does not intend to restore the Building and intends to terminate this Lease by reason of the unavailability or insufficiency of insurance proceeds, Tenant shall have the right to contribute to Landlord the amount of such insufficiency, and if Tenant shall promptly notify Landlord of Tenant's desire to contribute such insufficiency and provide Landlord with security for Tenant's undertaking in this respect reasonably satisfactory to Landlord, this Lease shall not terminate, and Landlord shall restore the Building unless otherwise excused and permitted to terminate by some other provision of this Article VIII. Unless Landlord, within ninety (90) days after the casualty, advises Tenant of the status of Landlord's obligations with respect to reconstruction, Tenant shall have the right to terminate this Lease, such termination to take effect as of the date of such Tenant's notice. (e) If the Building shall be Substantially Damaged or damaged by casualty, the repair of which would cost more than Seven Thousand Five Hundred dollars ($7,500) but which reasonably be expected to be repaired within ninety (90) days from the time that repair work commences, within the last twelve (12) months of the Term (as the same may have been extended hereunder), either party shall have the right, by giving notice to the other not later than sixty (60) days after such damage, to terminate this Lease, whereupon this Lease shall terminate as of the date of such notice. 7.2 Condemnation. Except as hereinafter provided, if the Premises, or such portion thereof as to render the balance (if reconstructed to the maximum extent practicable in the circumstances) unsuitable for Tenant's purposes, shall be taken by eminent domain, Landlord and Tenant each shall have the right to terminate this Lease by notice to the other of its desire to do so, provided that such notice is given not later than thirty (30) days after the effective date of such taking. Should any part of the Premises be so taken, and should this Lease be not terminated in accordance with the foregoing provisions, Landlord agrees to use due diligence to put what may remain of the Premises (consistent, however, with governmental laws and codes then in existence) into proper condition for use and occupation as nearly like the condition of the Premises prior to such taking as shall be practicable, but Landlord shall not be required to expend funds in excess of the damages recovered by Landlord as a result of such taking. 7.3 Abatement of Rent. If the Premises shall be damaged by casualty, the Annual Fixed Rent and additional rent shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant; and in case of a taking which permanently reduces the area of the Premises, a just proportion of the Annual Fixed Rent and 18 35 additional rent shall be so abated and reduced for the remainder of the Term. 7.4 Condemnation Award. Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Premises, and the leasehold interest hereby created, and all rights to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, as aforesaid, and by way of confirming the foregoing, Tenant hereby grants and assigns to Landlord all rights to such damages or compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority pursuant to the preceding sentence. ARTICLE VIII Default 8.1 Tenant's Default. In the event that: (a) Tenant shall fail to pay the Annual Fixed Rent, additional rent or any other charges for which provision is made herein on or before the date on which the same become due and payable, and such condition continues for five (5) days after notice from Landlord to Tenant that the same are due, unless the failure to pay the foregoing items when due occurs in any year during which Landlord has previously given Tenant notice of default twice, in which event the failure to pay when due shall constitute an event of default without notice; or (b) Tenant shall fail to perform or observe any other term or condition contained in this Lease and Tenant shall not cure such failure within thirty (30) days after notice from Landlord to Tenant thereof or, if such failure cannot be cured within such thirty (30) days, if Tenant shall fail to commence to cure such failure within such thirty (30) days and promptly and diligently complete the curing of the same, and shall in any event complete the cure within 180 days; or (c) The estate hereby created shall be taken on execution or by other process of law, or if Tenant shall be judicially declared bankrupt or insolvent according to law, or if any assignment or trust mortgage arrangement, so-called, shall be made of the property of Tenant for the benefit of creditors, or if a receiver, guardian, conservator, trustee in bankruptcy or other similar officer shall be appointed to take~ charge of all or any substantial part of Tenant's property by a court of competent jurisdiction, or if a petition shall be filed by Tenant under any provisions of the federal Bankruptcy Code or any similar federal or state law now or hereafter enacted or if a petition shall be filed against Tenant thereunder and the same is not dismissed within ninety (90) days, or if Tenant shall file such a petition, 19 36 then, in any such case, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter and without demand or notice and with or without due process of law, (forcibly if necessary) enter into and upon the Premises or any part thereof or mail a notice of termination addressed to Tenant at the Premises, and repossess the same as of Landlord's former estate, and expel Tenant and those claiming by, through or under Tenant and remove its and their effects (forcibly if necessary) without being deemed guilty of any manner of trespass and without prejudice to any remedies that might otherwise be used for arrears of rent (or prior breach of covenant), and upon such entry or mailing as aforesaid this Lease shall terminate, as fully and completely as if such date were the date herein originally fixed for the expiration of the Term (Tenant hereby waiving any rights of redemption), and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. 8.2 Damages. In the event that this Lease is terminated under any of the provisions contained in Section 8.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay to Landlord forthwith on Landlord's demand, as compensation, in addition to any other amounts to which Landlord may be entitled, an amount equal to the excess, if any, of the discounted present value of the total rent reserved for the residue of the Term or the Extension Term if so exercised, over the then discounted present fair rental value of the Premises for the residue of the Term. In calculating the rent reserved, there shall be included, in addition to the Annual Fixed Rent and all additional rent, the value of all other considerations agreed to be paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such termination to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be credited with (a) any amount received from Tenant under the first sentence of this Section 8.2; and (b) the net proceeds of any rent obtained by reletting the Premises, after deducting all Landlord's expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed that Landlord may (i) relet the Premises, or any part or parts thereof, for a term or terms which may, at Landlord's option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term, and may grant such concessions and free rent as Landlord in its reasonable commercial judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its reasonable commercial judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. Landlord agrees to use reasonable efforts to attempt to relet the Premises, but shall be entitled to seek to rent other properties of Landlord prior to reletting the Premises. 8.3 Remedies Cumulative. The specific remedies to which Landlord may resort under 20 37 the terms of this Lease are cumulative and are not intended to be exclusive of each other or of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions in the event a legal remedy will be insufficient. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy, insolvency or like proceedings, 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, equal to, or less than the amount of the loss or damages referred to above. 8.4 Landlord's Election. If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but not the obligation, upon fifteen (15) days' notice to Tenant (except in case of emergency in which case no notice need be given), to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance is made in this Lease with respect to such default. In performing such obligation, Landlord may (but shall not be required to) make any payment of money or perform any other act, and all sums so paid by Landlord and all necessary incidental costs and expenses thereof, including, without limitation, reasonable legal fees in connection with enforcement of its rights under this Section incurred by Landlord, together with interest on all such amounts at two percent (2%) above the First National Bank of Boston's large business prime rate from time to time in effect, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise its rights under this Section without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 8.5 Effect of Waivers of Default. Any consent or permission by Landlord to any act or omission which otherwise would be a breach of any covenant or condition herein, or any waiver by Landlord of the breach of any covenant or condition herein, shall not in any way be held or construed (unless expressly so declared) to operate so as to impair the continuing obligation of any covenant or condition herein, or otherwise, except as to the specific instance, or to operate to permit similar acts of omission. 8.6 No Waiver. No waiver by Landlord shall be valid unless in writing and signed by Landlord, and the failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been waiver of such breach by Landlord unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 21 38 8.7 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than the Annual Rent, additional rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. 8.8 Delivery of Keys. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises. 8.9 Attorneys' Fees. Tenant agrees, as additional rent, to pay all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease. ARTICLE IX Mortgagees' and Ground Lessors' Rights 9.1 Superiority of Lease. Except as provided in Section 9.2 below, this Lease shall be superior to and shall not be subordinated to any future mortgage, lien or other encumbrance on the Premises. Upon entry and taking possession of the Premises for the purpose of foreclosure the holder thereof shall have all the rights of Landlord. No such holder shall be liable, either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall enter and take possession of the Premises for the purpose of foreclosure. Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord accruing from and after such entry, but not before, provided that a discontinuance of any foreclosure proceeding shall operate as a transfer of all such liability to the owner of the equity of the Premises. 9.2 Subordination. Tenant shall, at the request of Landlord, subordinate this Lease to any mortgage, lien or other encumbrance now or hereafter on the Premises, so that the lien thereof shall be superior to all rights hereby or hereafter vested in Tenant, provided that the holder thereof enters into an agreement with Tenant by the terms of which the holder will agree to recognize the rights of Tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize such holder as Landlord in such event, which agreement shall be made to expressly bind and inure to the benefit of the Successors and assigns of Tenant and of the holder and upon anyone purchasing said Premises at any foreclosure sale. 22 39 9.3 Limitation on Tenant's Rights. Notwithstanding Sections 9.1 or 9.2 above, unless the holder of such a mortgage, lien or other encumbrance of the Premises otherwise agrees in writing, no such holder shall be obligated to recognize or accept any of Tenant's rights under Section 2.4 of this Lease. Further, any such holder whose mortgage, or other encumbrance is superior to this Lease pursuant to the terms of Section 9.1 may elect to subordinate only those rights of Tenant under this Lease to purchase all or any portion of the Premises, including, without limitation, the rights of Tenant under Sections 2.4 of this Lease, to such mortgage, or other encumbrance. 9.4 Exercise of Mortgagee's Remedies. Notwithstanding any other provision of this Lease, in no event shall Tenant's rights under Section 2.4 apply to any exercise of remedies by any mortgagee, or holder of a similar interest in the Premises, including, without limitation, any foreclosure sale or any conveyance by deed in lieu of foreclosure. 9.5 Further Assurances. Tenant agrees, upon Landlord's request, promptly (but in any event within fifteen (15) days after Landlord's request) to execute and deliver such documents and instruments as Landlord may reasonably request to carry out the agreements contained in this Article IX. 9.6 No Prepaid Rent. No Annual Fixed Rent, additional rent, or any other charge payable to Landlord shall be paid more than thirty (30) days prior to the due date thereof under the terms of this Lease, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee) be a nullity as against such mortgagee, and Tenant shall be liable for the amount of such payments to such mortgagee. ARTICLE X Miscellaneous 10.1 Estoppel Certificates. Tenant shall, from time to time, with fifteen (15) days after a written request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying to Landlord or an independent third party designated by Landlord: that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that the same is in full force and effect as modified and stating the modifications); that Tenant has no knowledge of any defenses, offsets or counterclaims against its obligations to pay the Annual Fixed Rent and additional rent and to perform its other covenants under this Lease (or if there are any defenses, offsets, or counterclaims, setting them forth in reasonable detail); that there are no known uncured defaults of Landlord or Tenant under this Lease (or if there are known uncured defaults, setting them forth in reasonable detail); the dates to which the Annual Fixed Rent, additional rent and other charges payable hereunder have been paid; and such other matters as Landlord may reasonably request. On the Commencement Date, Tenant shall, at the request of Landlord, promptly execute, acknowledge and deliver to Landlord a statement in writing that the Commencement Date has occurred, stating the date that the Annual Fixed Rent will begin to accrue, and that Tenant has taken occupancy of the Premises. Any such statement 23 40 delivered pursuant to this Section may be relied upon by any mortgagee or purchaser of the Premises and shall be binding on Tenant. 10.2 No Recordation. Tenant agrees not to record this Lease, but if the Term hereof (as the same may be extended hereunder) is for seven years or more, then upon request of either party, both parties shall execute and deliver a memorandum of this Lease in form appropriate for recording or registration, an instrument in such form acknowledging the Commencement Date of the Term, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. 10.3 Notices. Whenever any notice, approval, consent, request, election, offer or acceptance is given or made pursuant to this Lease, it shall be in writing. Communications and payments shall be addressed, if to Landlord, at Landlord's Original Address or at such other address as may have been specified by prior notice to Tenant; and if to Tenant, at Tenant's Original Address or at such other address as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly served on the earlier of (i) the date received, or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt, if deposited in a United States Postal Service Depository, postage prepaid, sent by registered or certified mail, return receipt requested or if sent by a recognized overnight delivery service providing for a receipt. If Landlord by notice to Tenant at any time designates some other person to receive payments or notices, all payments or notices thereafter by Tenant shall be paid or given to the agent designated until notice to the contrary is received by Tenant from Landlord. 10.4 Successors and Assigns. Subject to Section 6.5 regarding Tenant's right to assign and sublet, this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the original Landlord named herein and each successive landlord shall be liable only for obligations accruing during the period of its ownership. 10.5 Limitation of Liability. The obligations of Landlord shall be binding upon the assets of Landlord consisting of an equity ownership interest in the Premises, but not upon any other assets of Landlord, and neither Tenant, nor anyone claiming by, under or through Tenant, shall be entitled to obtain any judgment creating personal liability on the part of Landlord or enforcing any obligations of Landlord against any assets of Landlord other than an equity ownership in the Premises. Landlord has executed this Lease in a fiduciary capacity, therefore, only the assets of the trust under the will of Harry F. Stimpson shall be bound hereby, and no beneficiary thereof shall be personally liable for any obligation under this Lease. 10.6 Covenants and Conditions. All provisions, whether covenants or conditions, on the part of Tenant to be performed under this Lease shall be deemed to be both covenants and conditions. 10.7 Severability. If any term of this Lease, or the application thereof to any person 24 41 or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. 10.8 Quiet Enjoyment. So long as Tenant pays the Annual Fixed Rent and additional rent and other charges provided for under this Lease, performs all other covenants of this Lease to be performed by Tenant and observes all conditions of this Lease to be observed by Tenant, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the Term in accordance with the terms of this Lease against all those claiming by, under or through Landlord. 10.9 Entire Agreement. This Lease contains all of the agreements of the parties with respect to the subject matter hereof and supersedes all prior dealings between them with respect to such subject matter, including, without limitation, any letters of intent. 10.10 Brokers. Tenant represents and warrants that it has had no dealings with any broker or agent in connection with this Lease other than Whittier Partners and shall indemnify and hold harmless Landlord from any claims for any brokerage commission as a result of the failure of this warranty. Landlord represents and warrants that it has had no dealings with any broker or agent other than Whittier Partners in connection with this Lease and shall indemnify and hold harmless Tenant from any claims for any brokerage commission as a result of the failure of this warranty. Landlord acknowledges that the fees of Whittier Partners are its exclusive obligation. 10.11 Applicable Law and Construction. This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease. 10.12 Time of Essence. Time is of the essence of each provision of this Lease. 10.13 Authorization. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its Board of Directors authorizing the execution of this Lease and naming the officers that are authorized to execute this Lease on behalf of the corporation. 25 42 EXECUTED as a sealed instrument on the day and year first above written. TENANT: Massachusetts Institute of Technology By: /s/ Philip A. Trussell --------------------------------------- Name: Philip A. Trussell Title: Director of Real Estate Associate Treasurer /s/ Harry F. Stimpson, as Trustee --------------------------------------- Harry F. Stimpson, III, as Trustee u/w/o/ Harry F. Stimpson, and not individually 26 43 Exhibit A A parcel of land with the buildings thereon in Cambridge, Middlesex County, Massachusetts: That certain parcel of land known as and numbered 185-187 Albany Street, being Lot C on "Plan of Land in Cambridge, Mass. surveyed for Stimpson Investment Corp." dated October 22, 1947 by W.A. Mason & Son, Co., Surveyors, recorded with Middlesex South District Registry of Deeds as plan No. 1566 of 1947 at the end of Book 7206 and bounded: SOUTHEASTERLY by said Albany Street by two courses one hundred and five and 29/100 (105.29) feet; and five and 11/100 (5.11) feet, respectively; SOUTHWESTERLY by Lot B as shown on said plan by a line running through the middle of the common area shown on said plan, one hundred and five and 64/100 (105.64) feet; NORTHWESTERLY by the same, seven and 02/100 (7.02) feet; SOUTHWESTERLY by the same, by a line running through the middle of a 12" brick wall, which shall be and remain a common party wall, one hundred fifteen and 70/100 (115.70) feet; NORTHWESTERLY by Purrington Street, by the southeasterly sideline thereof, one hundred ten and 24/100 (110.24) feet; and NORTHEASTERLY by land now or formerly of Edward S. Stimpson, et al Trustees two hundred twenty one and 28/100 (221.28) feet. Containing according to said Plan 22,903 square feet. The above-described premises are subject to and have the benefit of the following rights and easements (in common with the Landlord and others): 1. 25 foot wide right of way and platform rights on the northeasterly side of Lot C, as set forth in deed from Harry F. Stimpson to Stimpson Investment Corporation dated January 12, 1925 recorded with said Deeds in Book 4806, Page 506. 2. Lot A is subject to and with the benefit of the right to use, in common with the owners and occupants of Lot B, the common way forty-five (45) feet wide for all purposes for which private ways may be used in said Cambridge, as set forth in a deed from Stimpson Investment Corporation to Edward S. Stimpson, et al dated 27 44 October 4, 1948 recorded with said Deeds in Book 7370, Page 304. 3. The right of Lot B to use the common area shown on said plan and the platform therein for the purpose of loading and unloading vehicles and for ingress and egress to and from Lot B and the right of Lot B to use for all purposes of ingress and egress the stairway situated in the building upon Lot C and adjacent to said common area leading from the second floor to the basement; all as set forth in said deed recorded in Book 7370, Page 304. The subject premises are subject to the following: 1. Deed of spur track rights on Purrington Street as set forth in a Deed from Harry F. Stimpson to Stimpson Terminal Company dated May 12, 1919 recorded with said Deeds in Book 4262, Page 482. 2. Deed of spur track rights as set forth in a Deed from Stimpson Terminal Company to Stimpson Investment Corporation dated October 1, 1948 and recorded with said Deeds in Book 7344, Page 581. 28 EX-10.14 21 1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN 1 EXHIBIT 10.14 TRANSKARYOTIC THERAPIES, INC. 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 2 TRANSKARYOTIC THERAPIES, INC. 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1. PURPOSE.................................................................. 3 2. DEFINITIONS.............................................................. 3 3. TERM OF THE PLAN......................................................... 4 4. STOCK SUBJECT TO THE PLAN................................................ 4 5. ADMINISTRATION........................................................... 4 6. ELIGIBILITY.............................................................. 5 7. TERMS OF OPTION GRANTS................................................... 5 8. RESTRICTIONS ON ISSUANCE OF SHARES....................................... 5 9. EFFECT OF CERTAIN TRANSACTIONS........................................... 6 10. TERMINATION AND AMENDMENT OF THE PLAN AND OPTIONS....................... 6 11. MISCELLANEOUS PROVISIONS................................................ 6 3 TRANSKARYOTIC THERAPIES, INC. 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1. PURPOSE The purpose of this Plan is to promote the interests of the Company and its shareholders by (i) attracting, retaining and motivating top caliber Directors; (ii) strengthening the mutuality of interest between Directors and the Company's shareholders; and (iii) enabling Directors to participate in the long-term success of the business. 2. DEFINITIONS For the purposes of the Plan, the following terms shall have the meanings set forth below 2.1. Affiliate means a parent or subsidiary corporation of the Company, as defined in Sections 424(e) and (f), respectively, of the Code. 2.2. Board means the Board of Directors of the Company. 2.3. Code means the federal Internal Revenue Code of 1986, as amended from time to time, or any statute successor thereto, and any regulations issued from time to time thereunder. 2.4. Committee means a committee appointed by the Board, responsible for the administration of the Plan, as provided in Section 5 of the Plan. Members of the Committee shall be eligible to receive Options under the Plan if otherwise eligible. For any period during which no such committee is in existence all authority and responsibility assigned the Committee under the Plan shall be exercised, if at all, by the Board 2.5. Company means Transkaryotic Therapies, Inc., a corporation organized under the laws of the State of Delaware. 2.6. Disability means long-term disability as determined under rules and procedures identical to those that apply in the Company's long-term disability plan for employees then in effect. 2.7. Eligible Director means a member of the Board who is eligible for grants under the Plan pursuant to the provisions of Section 6. 2.8. Fair Market Value means, as of any given 4 date, the last reported sales price of the Stock as reported in The Wall Street Journal for such date or, if either no such sale is reported or the Stock is not publicly traded on or as of such date, the fair market value of the Stock as determined by the Committee in good faith based on the available facts and circumstances at the time. 2.8. Fair Market Value means, as of any given date, the last reported sales price of the Stock as reported in The Wall Street Journal for such date or, if either no such sale is reported or the Stock is not publicly traded on or as of such date, the fair market value of the Stock as determined by the Committee in good faith based on the available facts and circumstances at the time. 2.9. Option means an option to purchase shares of Stock granted under the Plan. 2.10. Option Agreement means an agreement evidencing the grant of an Option under the Plan, in such form as the Committee may prescribe. 2.11. Participant means an Eligible Director to whom an Option shall have been granted under the Plan. 2.12. Plan means this 1993 Non-Employee Directors Stock Option Plan of the Company, as amended from time to time. 2.13. Retirement means cessation of active service as a member of the Board at or after the normal retirement date specified in the Company's pension or other deferred compensation plan applicable generally to employees of the Company. 2.14. Stock means Common Stock, par value S.01 per share, of the Company. 2.15. Vesting Period means the three-year period commencing on the date of an Option grant, over which period shares subject to such Option shall become fully vested and available for purchase by exercise of the Option, as follows: (a) one-third on the first anniversary of grant; (b) one-third on the second anniversary of the grant; and (c) one-third on the third anniversary of the grant. 2.16. Vested Shares, as of any date, means those shares of Stock available at that date for purchase by exercise of the Option, as determined by application of the Vesting Period for such Option. 3. TERM OF THE PLAN Unless the Plan shall have been earlier terminated by the Board, Options may be granted hereunder at any time in the period commencing on the approval of the Plan by the Board and 5 ending on the tenth anniversary of the earlier of the adoption of the Plan by the Board or approval of the Plan by the Company's shareholders. Options granted pursuant to the Plan within such period shall not expire solely by reason of the termination of the Plan. 4. STOCK SUBJECT TO THE PLAN 4.1. Aggregate Limit on Options. At no time shall the number of shares of Stock issued pursuant to or subject to Options granted under the Plan exceed 180,000 shares, subject, however, to the provisions of Section 4.2 below. Such shares may be either authorized but unissued shares or shares held by the Company in its treasury. The Company shall at all times reserve and make available in sufficient number of shares to meet the requirements of the Plan, provided that following termination of the Plan the number of shares reserved need not exceed the number of shares issuable under Options outstanding from time to time thereafter. 4.2. Adjustment for Corporate Transactions. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the character and aggregate number of shares reserved for issuance under the Plan, and in the number and option price of shares subject to outstanding Options, as may be determined to be appropriate by the Committee, provided that the number of shares subject to any Option shall always be a whole number. 5. ADMINISTRATION The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to resolve all disputes arising under the Plan, and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that the Committee shall have no discretionary authority over the persons entitled to receive the Options, or the terms and conditions thereof The Committee's determinations shall be conclusive, final and binding upon all persons having or claiming any interest in the Plan or in any Option pursuant to the Plan. 6. ELIGIBILITY Only members of the Board who (a) are not employees of the Company, or of any subsidiary, affiliate or five or more percent shareholder of the Company and (b) do not own or hold any Stock which was purchased prior to the Board's approval of the Plan and remains at the time the Director is being considered for eligibility hereunder for any specific grant subject to substantial risk of forfeiture under an agreement entered into with the Company are eligible to receive grants of Options under the Plan. Any member of the Board to whom Options have been granted and who thereafter becomes an employee of the Company or of any subsidiary or affiliate of the Company shall cease to be eligible for any further Option grants under this Plan while an employee, but shall not, by reason of becoming an employee, cease to be eligible to retain Options previously granted under the Plan. 6 7. TERMS OF OPTION GRANTS Options under the Plan shall be granted on the following terms: 7.1. Timing of Awards. During the term of the Plan, each Eligible Director shall receive an Option grant on the first business day immediately following the annual meeting of stockholders of the Company (or special meeting or written consent in lieu thereof). 7.2. Option Grant. Each Option grant shall consist of an Option to acquire in aggregate 5,250 shares of Stock and shall be exercisable at a price equal to the Fair Market Value of the Stock at the time of the grant No Option granted hereunder is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. 7.3. Exercise of Option. An Option may be exercised to the extent of the Vested Shares thereunder at any time and from time to time during their respective terms by giving written notice of exercise to the Company, in the manner set out in Section 11.4, specifying the number of Vested Shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by certified or bank check, or such other instrument as the Committee may accept. Payment in full or in part for such exercise may also be made with unrestricted Stock already owned by the Participant Such unrestricted Stock shall be priced at their Fair Market Value on the date of exercise. If payment of the Option exercise price of a Stock Option is made in whole or in part in the form of unrestricted Stock already owned by the Participant, such Stock must have been owned by the Participant for a period of not less than six (6) months prior to the date of exercise. No Stock will be issued under the Plan until full payment for such shares has been received by the Company. No Eligible Director exercising an Option shall be considered a shareholder with respect to the Vested Shares so acquired until a certificate for the same shall have been delivered to the Director. 7.4. Option Term. The term of each Stock Option shall be than ten years, subject to Section 7.7 below. No Stock Option may be exercised by any person after expiration of the term of the Option. 7.5. Transferability. No Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. 7.6. Option Agreement. The prospective recipient of an Option Grant shall not have any rights with respect to such Options to be granted unless, within 30 days of the date of the Option Grant, such recipient delivers an executed copy of the Option Agreement to the Company, and complies with the applicable terms and conditions of the Option Agreement. 7 7.7. Accelerated Vesting and Forfeiture. Notwithstanding anything to the contrary in this Plan: (a) Death, Retirement, etc. In the event a Participant ceases to be a member of the Board on account of death, Disability, or Retirement, all shares available under any Option theretofore granted to that Participant under this Plan shall automatically become Vested Shares and such Option shall remain exercisable for the lesser of three years or the remaining term of the Option. (b) Other Termination. In the event a Participant ceases to be a member of the Board for reasons other than as described (a) above, any Option granted to the Participant under this Plan shall remain exercisable for the lesser of ninety (90) days from the date of such event or the remaining term of the Option but only to the extent of the number of Vested Shares under such Option as of the date of such cessation of service for which such Option had not previously been exercised. All shares of Stock subject to the Option which are not then Vested Shares shall thereafter cease to be available under the Option and shall be forfeited by Participant. 8. RESTRICTIONS ON ISSUANCE OF SHARES 8.1. Securities Laws. Notwithstanding any other provision of the Plan, if, at any time, in ) the reasonable opinion of the Company the issuance of shares of Stock covered by any option granted under the Plan may constitute a violation of law, then the Company may delay such issuance and the delivery of a certificate for such shares until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation; and (ii) in the case where such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied: (a) the shares with respect to which such Option has been exercised are at the time of the issue of such shares effectively registered under the Securities Act of 1933, as amended (the "Securities Act"); or (b) a no-action letter in form and substance reasonably satisfactory to the Company with respect to the issuance of such shares shall have been obtained by the Company from the Securities and Exchange Commission. The Company shall make all reasonable efforts to bring about the occurrence of said events. 8.2. Investment Representation. Unless the shares to be issued in connection with any Option granted under the Plan have been effectively registered under the Securities Act, the Company shall be under no obligation to issue any shares covered by such Option unless the person to acquire such shares shall give a written representation to the Company which is satisfactory in form and substance to its counsel and upon which the Company may reasonably rely, that he or she is acquiring the shares issued pursuant to such exercise of the Option as an investment and not with a view to, or for sale in connection with, the distribution of any such 8 shares. 8.3. Placement of Legends; Stop Orders, etc. Each share of Stock issued pursuant to an Option granted under this Plan may bear a reference to the investment representation made in accordance with Section 8.2 in addition to any other applicable restriction under the Plan, and the terms of the Option and, if applicable, to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to said Stock. All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 8.4. Registration. If the Company shall deem it necessary or desirable to register under the Securities Act or other applicable statutes any shares with respect to which an Option shall have been granted, or to qualify any such shares for exemption from the Securities Act or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each Participant, and each holder of shares of Stock acquired pursuant an Option granted under the Plan, such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Company and its officers and directors from such holder against all losses, claims, damage and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements herein not misleading in the light of the circumstances under which they were made. 8.5. Applicability of Shareholders Agreement. Whenever shares are to be issued pursuant to an Option granted hereunder, the Company shall have the right to require the Participant to execute and deliver and otherwise become a party to the Shareholders Agreement in respect of such shares. 9. EFFECT OF CERTAIN TRANSACTIONS 9.1. Liquidation or Dissolution of the Company. In the event of a proposed dissolution or liquidation of the Company, each outstanding Option granted hereunder shall terminate on consummation of such action but for the twenty (20) day period preceding such action each Optionee shall have the right to exercise his Option as to all or any part of the shares of Stock covered by an Option, including shares of Stock as to which the Option would not otherwise be exercisable (but not any shares of Stock previously forfeited). 9.2. Sale of Assets, Merger or Consolidation. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger or consolidation of the Company with or into another corporation in a transaction in which the Company does not survive, but for the twenty (20) day period preceding such action each Optionee shall have the right to exercise his Option as to all or any part of the shares of Stock covered by an Option, including 9 shares of Stock as to which the Option would not otherwise be exercisable (but not any shares of Stock previously forfeited). 10. TERMINATION AND AMENDMENT OF THE PLAN AND OPTIONS The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable; provided, however, that the Board may not, without approval of the shareholders of the Company, increase the maximum number of shares of Stock purchasable under the Plan, change the description of the individuals eligible to receive Options or materially increase the benefits accruing to Participants hereunder; and provided, further, however, that no amendment of any provision of the Plan governing the amount of Stock and price under, and timing of, grants of Options pursuant to the Plan (or of any other provision of the Plan to the extent a limitation on amendments is required to preserve the status of Eligible Directors as "disinterested" persons under Rule 16b-3 as promulgated by the Securities Exchange Commission under the Securities Exchange Act of 1934) shall be made more frequently than once in any six month period, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. No termination or amendment of the Plan may, without the consent of the Participant to whom any Option shall theretofore have been granted, adversely affect the rights of such Participant under such Option. 11. MISCELLANEOUS PROVISIONS 11.1. Adoption of Other Plans. Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or Ma . applicable only in specific cases. 11.2. Tax Withholding. No later than the date as of which an amount first becomes includable in the gross income of the Participant for federal income tax purposes with respect to any Option, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, or local taxes of any kind required by law to be withheld (whether so required to secure an otherwise available tax deduction or otherwise) with respect to such amount. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company shalL to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 11.3. No Special Employment or Other Rights. Nothing contained in the Plan or in any Option shall confer upon any Participant any right with respect to the continuation of his or her association with the Company. 11.4. Notices and Other Communications. All notices and other communications required or permitted under the Plan shall be effective if in writing and if delivered or sent by certified or registered mail, return receipt requested (a) if to the Participant, at his or her residence address last filed with the Company, and (b) if to the Company, at 195 Albany Street, Cambridge, MA 02139 Attention: Treasurer or to such other persons or addresses as the 10 Participant or the Company may specify by a written notice to the other from time to time. 11.5. Governing Law. The Plan and all Options and actions taken thereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof Date of Board Approval: June 16, 1993 Date of Shareholder Approval: June 24, 1993 11 EXHIBIT A ACCELERATED VESTING This Exhibit A provides for accelerated vesting of shares under the Option prior to the 10th anniversary of the grant of this Option (which is the date all shares covered by this Option will vest absent acceleration as provided herein or as provided by the Company's Board of Directors (or a committee thereof) pursuant to this option). As specifically set forth below. in the event the Company realizes a valuation in a public offering or acquisition context, which realized valuation exceeds a base target Company valuation applicable at that time, these accelerated vesting provisions are intended to provide the optionee with the immediate ability to exercise the Option for some portion or all of the underlying option shares. 1. DEFINED TERMS. For the purposes of this Exhibit A, the following terms shad have the following meanings: (a) "Acceleration Event": an Acquisition or an IPO. (b) "Acquisition": the closing of a merger or consolidation of the Company with or into any other entity in which the Company or the stockholders of the Company (prior to the merger or consolidation) will not own immediately after the merger or consolidation securities having more than fifty percent (50%) of the outstanding voting power of the surviving corporation's capital stock, or the sale of all or substantially all of the assets of the Company. In the event that material assets, but less than an or substantially an of the assets, of the Company are sold, the Company's Board of Directors (or a committee thereof) shad in good faith consider the appropriateness of providing accelerated vesting of some or an of the shares covered by this Option. (c) "Initial Public Offering" ("IPO"): the closing of an initial public offering and sale by the Company of shares of its capital stock pursuant to an effective registration statement filed with the Securities and Exchange Commission. For purposes of making fair market valuation determinations hereunder, the value shad be that set as of the close of trading on the last business day Preceding the closing of the IPO (said closing date typically occurring 5 business days after the commencement of public trading in the issuer's securities). (d) "Acceleration Event Per Share Price" ("Per Share Price"): (i) In connection with an IPO or any annual anniversary thereof and at the time any determination is taking place, Per Share Price shad be equal to the fair market value per share of Common Stock of the Company, determined as follows: (i) The average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or 12 (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List. (iv) In connection with an Acquisition and at the time any determination is taking place, Per Share Price shall be equal to the sum of the cash consideration and the fair market value of any other consideration (as determined by the Company's Board of Directors (or a committee thereof)) payable by the purchaser in respect of a single share of Common Stock or common 'stock equivalent of the Company upon the closing of such Acquisition. The value of any consideration to be received following the closing of the Acquisition shall be accounted for as provided in Paragraph 5 below. 2. SHARES SUBJECT TO ACCELERATED VESTING. (A) At the time any determination of accelerated vesting is taking place under Paragraph 3 or 4 below, this Option will become immediately exercisable for % of the number of shares (rounded to the nearest whole share, with .5 being rounded up) as set forth on the Accelerated Vesting Schedule attached as Schedule A-1 hereto (i) under the column dated the first day of the calendar quarter in which the date of the event causing the determination of accelerated vesting hereunder occurs, and (in) opposite the applicable per share price, subject to the remainder of this Paragraph 2(a). In the event that the actual Per Share Price for an Acquisition, an LPO or the anniversary of an IPO falls between t vie prices listed on Schedule A-I, then the following averaging mechanism shad apply. In the event the Per Share Price is a price fazing between two stated prices on the table contained on Schedule A-1, a rounding shad be computed such that this Option win then be immediately exercisable for _______% of a number of shares equal to the sum of: (A)the number of shares set forth on Schedule A-1 under the applicable column and opposite the next lowest per share price, and (B) the result obtained by subtracting (1) the number of shares set forth on Schedule A-1 under the applicable column and opposite the next lowest per share price from (2) the number of shares set forth on Schedule A-1 under the applicable column and opposite the next highest per share price, and then multiplying the result of such subtraction by (3) a fraction, the numerator of which is the Per Share Price minus the next lowest per share price set forth on Schedule A-1 under the applicable column, and the denominator of which is the next highest per share price minus the next lowest per share price as set forth in each case on Schedule A-1 under the applicable column (such number of shares rounded to the nearest whole share, with .5 being rounded up). (b) The per share prices and numbers of shares set forth on the Accelerated Vesting Schedule shall be equitably adjusted by the Company's Board of Directors (or a committee thereof) for stock splits, stock dividends and the like affecting the number of shares of outstanding Common 13 Stock issued and outstanding and reserved for issuance. 3. OPTION VESTING ON INITIAL ACCELERATION EVENT. If the Optionee has continued to maintain a Business Relationship with the Company at the time of an Acceleration Event, then the Optionee may, upon the occurrence of the Acceleration Event, exercise this option for a number of shares determined in accordance with Paragraph 2. 4. ACCELERATION ON ANNIVERSARY OF IPO. If the Acceleration Event is an IPO and the optional has continued to maintain a Business Relationship with the Company at the time of any twelve-month anniversary of the Acceleration Event, this option shad become exercisable on each such anniversary for an additional number of shares determined by subtracting (A) the number of shares previously vested under this Exhibit A from (B) a number of shares determined in accordance with Paragraph 2 at the time such anniversary occurs, determining Per Share Price for the purposes of this clause (B) as of such anniversary date. 5. SUBSTITUTE BENEFIT ON ACQUISITION EARN-OUT. In the event of an Acquisition, no further vesting of shares shall occur hereunder after the initial vesting of shares on the date of the Acquisition. In lieu of such additional vesting, and whether or not the optionee continues to be involved in a Business Relationship with the Company or any successor entity, the holder of this Option shall be entitled to participate in any consideration payable after the closing of the Acquisition as follows. In the event the holders of Common Stock receive additional consideration ("Earn-Out Payments") paid after the closing of the Acquisition as a result of earn-outs or other future or contingent payments in connection therewith (other than the consideration included in Per Share Price at the time of the Acquisition), the Company's Board of Directors (or a committee thereof) shall provide for payments of a portion of such Earn-Out Payments to the holder of this option equal to the fair market value of the additional shares which would have vested under this option as of the closing of the Acquisition, net of the applicable exercise price, had such Earn-Out Payments been made as of the closing of the Acquisition and included in Per Share Price. Such payments shall be made at the times when holders of Common Stock of the Company (as of the closing of the Acquisition) receive payments subsequent to the closing date. The Company's Board of Directors (or a committee thereof) shall determine the amount and timing of such substituted payment in a manner it deems equitable in order to provide the holder of this Option with the benefits intended hereunder. 6. MAXIMUM NUMBER OF SHARES. In no event shall the total number of shares which become exercisable under this Exhibit A exceed the total number of shares for which this Option has been granted (subject to adjustment as provided in paragraph 2(d)). EX-10.15 22 1993 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.15 TRANSKARYOTIC THERAPIES, INC. 1993 LONG-TERM INCENTIVE PLAN 2 TABLE OF CONTENTS 1. PURPOSE........................................................... 1 2. DEFINITIONS....................................................... 1 2.1. Affiliate................................................ 1 2.2. Award.................................................... 1 2.3. Board.................................................... 1 2.4. Code..................................................... 1 2.5. Committee................................................ 1 2.6. Company.................................................. 1 2.7. Employment Agreement..................................... 1 2.8. Fair Market Value........................................ 2 2.9. Incentive Option......................................... 2 2.10. Long-Term Performance Award or Long-Term Award........... 2 2.11. Nonstatutory Option...................................... 2 2.12. Participant.............................................. 2 2.13. Plan..................................................... 2 2.14. Restricted Stock......................................... 2 2.15. Stock.................................................... 2 2.16. Shareholders Agreement................................... 2 2.17. Stock Appreciation Right................................. 2 2.18. Stock Grant.............................................. 2 2.19. Stock Option or Option................................... 2 2.20. Ten Percent Owner........................................ 3 3. TERM OF THE PLAN.................................................. 3 4. STOCK SUBJECT TO THE PLAN......................................... 3 5. ADMINISTRATION.................................................... 4 6. ELIGIBILITY....................................................... 5 7. STOCK OPTIONS..................................................... 5 7.1. Provision for Grant...................................... 5 7.2. Terms and Conditions..................................... 5 8. STOCK APPRECIATION RIGHTS......................................... 8 8.1. Provision for Grant...................................... 8 8.2. Termination.............................................. 8 8.3. Manner and Effect of Exercise............................ 8 i 3 8.4. Other Terms and Conditions............................... 8 9. RESTRICTED STOCK.................................................. 9 9.1. Provision for Grant...................................... 9 9.2. Awards and Certificates.................................. 9 9.3. Additional Terms and Conditions.......................... 9 10. LONG-TERM PERFORMANCE AWARDS...................................... 11 10.1. Provision for Grant...................................... 11 10.2. Periodic Determination of Performance.................... 11 10.3. Adjustment of Awards..................................... 11 10.4. Effect of Termination of Employment or Association....... 11 10.5. Form of Payment.......................................... 12 11. STOCK GRANTS...................................................... 12 12. RESTRICTIONS ON ISSUANCE OF SHARES................................ 12 12.1. Securities Laws.......................................... 12 12.2. Investment Representation................................ 13 12.3. Placement of Legends; Stop Orders; etc................... 13 12.4. Registration............................................. 13 12.5. Applicability of Shareholders Agreement.................. 13 13. EFFECT OF CERTAIN TRANSACTIONS.................................... 14 13.1. Liquidation or Dissolution of the Company................ 14 13.2. Sale of Assets, Merger or Consolidation.................. 14 14. TERMINATION AND AMENDMENT OF THE PLAN AND AWARDS.................. 14 15. MISCELLANEOUS PROVISIONS.......................................... 14 15.1. Unfunded Status of Plan.................................. 14 15.2. Adoption of Other Plans.................................. 15 15.3. Payments on Death........................................ 15 15.4. Tax Withholding.......................................... 15 15.5. Limitation of Rights in Stock............................ 16 15.6. No Special Employment or Other Rights.................... 16 15.7. Notices and Other Communications......................... 16 15.8. Governing Law............................................ 16 ii 4 TRANSKARYOTIC THERAPIES, INC. 1993 LONG-TERM INCENTIVE PLAN 1. PURPOSE The purpose of this Plan is to enable key employees of and consultants to Transkaryotic Therapies, Inc. (the "Company") to (i) own shares of stock in the Company, (ii) participate in the shareholder value which has been created, (iii) have a mutuality of interest with other shareholders and (iv) enable the Company to attract, retain and motivate key employees and consultants of particular merit. 2. DEFINITIONS For the purposes of the Plan, the following terms shall have the meanings set forth below: 2.1. Affiliate means a parent or subsidiary corporation of the Company, as defined in Sections 424(e) and (f), respectively, of the Code. 2.2. Award means the grant or sale pursuant to the Plan of any of Stock Options, Restricted Stock, Stock Appreciation Rights, Stock Grants, and Long Term Awards. 2.3. Board means the Board of Directors of the Company. 2.4. Code means the federal Internal Revenue Code of 1986, as amended from time to time, or any statute successor thereto, and any regulations issued from time to time thereunder. 2.5. Committee means a committee appointed by the Board, responsible for the administration of the Plan, as provided in Section 5 of the Plan. No member of the Committee shall be eligible to receive an Award under the Plan, and no individual shall be eligible for membership on the Committee within one year of having received an Award under the Plan. For any period during which no such committee is in existence all authority and responsibility assigned the Committee under the Plan shall be exercised, if at all, by the Board. 2.6. Company means Transkaryotic Therapies, Inc., a corporation organized under the laws of the State of Delaware. 2.7. Employment Agreement means an agreement, if any, between the Company and a Participant, setting forth, inter alia, conditions and restrictions upon the transfer of shares of Stock. 5 2.8. Fair Market Value means, as of any given date, the last reported sales price of the Stock as reported in The Wall Street Journal for such date or, if either no such sale is reported or the Stock is not publicly traded on or as of such date, the fair market value of the Stock as determined by the Committee in good faith based on the available facts and circumstances at the time. 2.9. Incentive Option means an Option which by its terms is to be treated as an "incentive stock option" within the meaning of Section 422 of the Code. 2.10. Long-Term Performance Award or Long-Term Award means an award made pursuant to Section 10 below that is payable in cash and/or Stock (including Restricted Stock) in accordance with the terms of the grant, based on Company, business unit and/or individual performance. 2.11. Nonstatutory Option means any Option that is not an Incentive Option. 2.12. Participant means an employee or consultant to whom an Award, as provided in Section 6, shall have been granted under the Plan. 2.13. Plan means this 1993 Long-Term Incentive Plan of the Company, as amended from time to time. 2.14. Restricted Stock means an Award pursuant to Section 9 below of shares of Stock subject to restrictions or other forfeiture conditions. 2.15. Stock means Common Stock, par value $.01 per share of the Company. 2.16. Shareholders Agreement means the agreement, if any, between the Company and certain shareholders, setting forth, inter alia, certain restrictions upon the transfer of shares of Stock. 2.17. Stock Appreciation Right means the right, pursuant to an Award granted under Section 8 below, to surrender to the Company all (or a portion) of a Stock Option in exchange for an amount equal to the difference between (i) the Fair Market Value, as of the date such Stock Option (or such portion thereof) is surrendered, or the shares of Stock covered by such Stock Option (or such portion thereof), and (ii) the aggregate exercise price of such Stock Option (or such portion thereof). 2.18. Stock Grant means an Award pursuant to Section 11 below of shares of Stock not subject to restrictions or other forfeiture conditions. 2.19. Stock Option or Option means any option to purchase shares of Stock (including Restricted Stock) granted pursuant to Section 7 below. 2 6 2.20. Ten Percent Owner means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Affiliate). Whether a person is a Ten Percent Owner shall be determined with respect to an Incentive Option based on the facts existing immediately prior to the grant date of such Option. 3. TERM OF THE PLAN Unless the Plan shall have been earlier terminated by the Board, Awards may be granted hereunder at any time in the period commencing on the approval of the Plan by the Board and ending on the tenth anniversary of the earlier of the adoption of the Plan by the Board or approval of the Plan by the Company's shareholders. Awards granted pursuant to the Plan within such period shall not expire solely by reason of the termination of the Plan. 4. STOCK SUBJECT TO THE PLAN (a) Aggregate Limit On Awards. At no time shall the number of shares of Stock issued pursuant to Awards granted under the Plan exceed 1,250,000 shares, subject, however, to the provisions of subsection (c) below. Such shares may be either authorized but unissued shares or shares held by the Company in its treasury. The Company shall at all times reserve and make available in sufficient number of shares to meet the requirements of the Plan, provided that following termination of the Plan the number of shares reserved need not exceed the number of Shares issuable under Awards outstanding from time to time thereafter. (b) Computation of Available Shares. For the purpose of computing the total number of shares of Stock available for Plan purposes at any time during which the Plan is in effect, there shall be debited against the total number of shares determined to be available pursuant to paragraphs (a) and (c) of this Section 4(i) any outstanding Restricted Stock and Stock Grants, (ii) the maximum number of shares of Stock subject to issuance upon exercise of Options or upon settlement of other Awards theretofore made under the Plan, (iii) the shares related to the unexercised or undistributed portion of any terminated, expired or forfeited Award for which a material benefit was received by a Participant (e.g. dividends, but not including voting rights), and the equivalent number of shares (determined as of the date of settlement) of any portion of any Award settled in cash. (c) Other Adjustment. In the event of any merger, reorganization, consolidation, recapitalization, Stock dividend, or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the character and aggregate number of shares reserved for issuance under the Plan, and in the number and option price of shares subject to outstanding Options and other stock based Awards granted under the Plan, as may be determined to be appropriate by the Committee, provided that the number of shares subject to any Award shall always be a whole number. Any such adjusted 3 7 option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option. 5. ADMINISTRATION The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee 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 (a) grant to eligible individuals, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Long-Term Performance Awards, and (v) Stock Grants; (b) select from time to time the officers, other employees and consultants of the Company and its Affiliates to whom Awards shall be granted hereunder; (c) determine whether and to what extent Incentive Options, Nonstatutory Options, Stock Appreciation rights, Restricted Stock, Long-Term Performance Awards and Stock Grants or any combination thereof, are to be granted hereunder; (d) determine the number of shares of Stock to be covered by each Award granted hereunder; (e) 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 Stock Option or other Award and the shares of Stock relating thereto, based on such factors as the Committee shall determine; (f) determine whether and under what circumstances a Stock Option may be settled in cash or Stock, including Restricted Stock, as provided in Section 7.2; (g) determine whether and under what circumstances a Stock Option may be exercised without a payment of cash as provided in Section 7.2; and (h) determine whether, to what extent and under what circumstances 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 Committee may take into account the nature of the services rendered by the respective employees and consultants, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the 4 8 Committee 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. The Committee's determinations shall be conclusive, final and binding upon all persons having or claiming any interest in the Plan or in any Award pursuant to the Plan. 6. ELIGIBILITY Awards shall be granted under the Plan only to employees of or consultants to one or more of the Company or an Affiliate (but excluding members of the Committee) who are responsible for or contribute to, as determined by the Committee, the management, growth and profitability of the business of the Company and its Affiliates. A director of one or more of the Company or any Affiliate who is not also an employee or consultant of one or more of the Company or an Affiliate shall not be eligible to receive an Award under the Plan. 7. STOCK OPTIONS 7.1. Provision for Grant. Stock Options may be granted alone, in addition to or in tandem with other Awards under the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. The Committee shall have the authority to grant any optionee who is an employee of the Company, or an Affiliate, Incentive Options, Nonstatutory Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Option, it shall constitute a separate Nonstatutory Option. In the case of any other person eligible for an Award under the Plan, any Stock Option granted under the Plan shall be a Nonstatutory Option (with or without Stock Appreciation Rights). Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the code, or, without the consent of the optionee(s) affected, to disqualify any Incentive Option under such Section 422. 7.2. Terms and Conditions. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant but in the case of any Incentive Option shall be not less than 100% of the Fair Market Value of the Stock at 5 9 the time of grant (110% of Fair Market Value, in the case of any grant of an Incentive Option to a Ten Percent Owner). (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but not Incentive Option shall be exercisable more than ten years after the date the Option is granted (or, more than five years after the date the Option is granted, in the case of any grant of an Incentive Option to a Ten Percent Owner). No Stock Option may be exercised by any person after expiration of the term of the Option. (c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant, provided, however, that, except as provided in this Section 7 and Section 13, at or after grant no Stock Option shall be exercisable during the six months following the date of the granting of the Option. If the Committee provides, in its discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time at or after grant in whole or in part, based on such factors as the Committee shall determine. (d) Method of Exercise. Subject to whatever installment exercise provisions may apply, Stock Options may be exercised in whole or in part at any time and from time to time during the option period, by giving written notice of exercise to the Company, in the manner set out in Section 15.7, specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by certified or bank check, or such other instrument as the Committee may accept. As determined by the Committee, at or after grant, payment in full or in part may also be made in the form of unrestricted Stock already owned by the optionee or, in the case of the exercise of a Nonstatutory Option, Restricted Stock subject to an Award hereunder (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee); provided, however, that, in the case of an Incentive Option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted. If payment of the option exercise price of a Nonstatutory Option is made in whole or in part in the form of Restricted Stock, such Restricted Stock (and any replacement shares relating thereto) shall remain (or be) restricted in accordance with the original terms of the Restricted Stock Award in question, and any additional Stock received upon the exercise shall be subject to the same forfeiture restrictions, unless otherwise determined by the Committee, at or after grant. If payment of the Option exercise price of a Stock Option is made in whole or in part in the form of unrestricted Stock already owned by the Participant, the Company may require that the Stock has been owned by the Participant for a specified minimum period of time, for the purpose of avoiding any charge to the Company's earnings, limiting the 6 10 pyramiding of Stock Option exercises, or such other purposes as the Company deems appropriate. (e) Replacement Options. If a Nonstatutory Option granted pursuant to the Plan may be exercised by an optionee by means of the delivery of previously acquired Stock, then the Committee may, at the time of the original option grant, authorize the Participant to automatically receive a replacement Nonstatutory Option to the extent shares are available under Section 4 at the time such replacement Option would be issued. Any such replacement Option shall cover such number of shares as may be determined by the Committee, but in no event more than the number of shares equal to the difference, if any, between the number of shares for which the original Option is exercised and the net shares received by the Participant from such exercise. Any such replacement Option shall have an exercise price equal to the then Fair Market Value of Stock, and a term extending to the expiration date of the original Option. The Committee shall have the right at any time to discontinue the automatic grant of replacement Options. (f) Transferability. No Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. (g) Effect of Termination of Employment Or Association. If an optionee's employment by or association with the Company and its Affiliates terminates for any reason whatsoever, unless the Committee shall have provided otherwise, any Stock Option held by such optionee shall thereupon terminate; provided, however, that military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which the absent optionee's reemployment rights, if any, are guaranteed by statute or by contract. (h) Incentive Option Limitations. To the extent required for "Incentive Option" status under Section 422 of the Code, the aggregate Fair Market Value (determined as of the date of grant) of the Stock with respect to which Incentive Options become exercisable for the first time by the optionee during any calendar year under the Plan and any other stock option plan of the Company and any Affiliate shall not exceed $100,000. In the event shares of Stock in excess of the preceding limitation become exercisable for the first time in a calendar year under any such Options or options, such shares shall be considered to have become exercisable under separate Nonstatutory Options (with the Options or options granted earliest in time considered to constitute to the maximum extent possible the Incentive Options). (i) Cash-out of Option; Settlement of Spread Value in Restricted Stock. On receipt of written notice to exercise, the Committee may elect to cash out all or part of the portion of the Option(s) to be exercised by paying the optionee an amount, in cash or Stock, equal to the excess of the Fair Market Value of the Stock over the option price (the "Spread Value") on the effective date of such exercise. In addition, if the Option agreement 7 11 so provides at grant or is amended after grant and prior to exercise to so provide (with the optionee's consent), the Committee may require that all or part of the shares to be issued with respect to the Spread Value of an exercised Option take the form of Restricted Stock, which shall be valued on the date of exercise on the basis of the Fair Market Value of such Restricted Stock determined without regard to the forfeiture restrictions involved. (j) Cashless Exercise. To the extent permitted under the applicable laws and regulations and the terms of a Participant's Option agreement, at the request of the Participant and with the consent of the Committee, the Company agrees to cooperate in a "cashless exercise" of an Option. The cashless exercise shall be effected by the Participant delivering to a registered securities broker acceptable to the Company instructions to sell a sufficient number of shares of Stock from which such Option is then exercisable to cover the costs and expenses associated with such exercise and sale. (k) Grant Date. The granting of an Option shall take place at the time specified in the agreement set forth the terms of such Option. Only if expressly so provided in the Option agreement, shall the grant date be the date on which an Option agreement shall have been duly executed and delivered by the Company and the Participant. 8. STOCK APPRECIATION RIGHTS 8.1. Provision for Grant. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Nonstatutory Option, such rights may be granted either at or after the time of the grant of such Stock Option. In the case of an Incentive Option, such rights may be granted only at the time of the grant of such Stock Option. 8.2. Termination. A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise determined by the Committee at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of shares covered by a related Stock Option shall not be reduced until the number of shares covered by an exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right. 8.3. Manner and Effect of Exercise. A Stock Appreciation Right may be exercised by an optionee, in accordance with Section 8.4, by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 8.4. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Right has been exercised. 8.4. Other Terms and Conditions. Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions, and shall contain such additional 8 12 terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem appropriate: (a) Exercisability. Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate, if any, shall be exercisable in accordance with the provisions of Section 7 and this Section 8.4 of the Plan; provided, however, that any Stock Appreciation Right granted subsequent to the grant of the related Stock Option shall not be exercisable during the first six months of its term; and provided, further, however, that a Stock Appreciation Right granted in connection with an Incentive Option may be exercised only if and when the market price of the Stock subject to the Incentive Option exceeds the exercise price of such Stock Option. (b) Amount Payable. Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive up to, but not more than, an amount in cash or shares of Stock equal in value to the excess of the Fair Market Value of one share of Stock over the option price per share specified in the related Stock Option, multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised. The Committee shall determine the form of payment. (c) Transferability. Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 7.2 of the Plan. 9. RESTRICTED STOCK 9.1. Provision for Grant. Shares of Stock may be issued either alone or in addition to other Awards granted under the Plan at such price, if any, as the Committee may determine. The Committee may condition the grant of Restricted Stock upon the completion of additional service, attainment of specified performance goals or such other factors as the Committee may determine. 9.2. Awards and Certificates. The prospective recipient of a Restricted Stock Award shall not have any rights with respect to such Award, unless and until such recipient has executed an agreement evidencing the Award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. 9.3. Additional Terms and Conditions. Grants of Restricted Stock may be made under the following additional terms and conditions: (a) Purchase Price. The purchase price for shares of Restricted Stock shall be equal to or less than their Fair Market Value and may be zero, as determined by the Committee. 9 13 (b) Acceptance of Awards. Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify at grant) after the Award date, by executing a Restricted Stock Award agreement and paying whatever price (if any) is required pursuant to the terms of the Award. (c) Issuance of Certificates. Each Participant receiving a Restricted Stock Award shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such Participant and, if applicable, shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, in addition to legends authorized pursuant to Section 12, substantially in the following form: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Transkaryotic Therapies, Inc. 1993 Long-Term Incentive Plan and an Agreement entered into between the registered owner and Transkaryotic Therapies, Inc. Copies of such Plan and Agreement are on file in the offices of Transkaryotic Therapies, Inc. at 195 Albany Street, Cambridge, MA 02139." (d) Escrow of Shares. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that the Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award. (e) Transferability. Subject to the provisions of this Plan and the Award agreement, during the period set by the Committee commencing with the date of such Award (the "Restriction Period"), the Participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber shares of Restricted Stock awarded under the Plan. Within these limits, the Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance and/or such other factors or criteria as the Committee may determine. (f) Rights Pending Lapse of Restrictions or Forfeiture of Award. Except as provided in this subsection (f) and subsection (e) above, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the shares, and the right to receive any cash dividends. The Committee, as determined at the time of Award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares are available under Section 4. (g) Effect of Termination of Employment or Association. Unless otherwise determined by the Committee and subject to the applicable provisions of the Award 10 14 agreement and this Section 9, upon termination of a Participant's employment or other association with the Company and its Affiliates for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the Participant; provided, however, that military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which the absent optionee's reemployment rights, if any, are guaranteed by statute or by contract. (h) Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, the certificates for such shares shall be delivered to the Participant promptly if not theretofore so delivered. 10. LONG-TERM PERFORMANCE AWARDS 10.1. Provision for Grant. Long-Term Performance Awards may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the nature, length and starting date of the performance period (the "Performance Period") for each Long-Term Performance Award, which subject to Section 13 below shall be a period of at least two years, and shall determine the performance objectives to be used in valuing Long-Term Performance Awards and determining the extent to which such Long-Term Performance Awards have been earned. Performance objectives may vary from Participant to Participant and between groups of Participants and shall be based upon such Company, business unit and/or individual performance factors and criteria as the Committee may deem appropriate, including, but not limited to, earnings per share or return on equity. Performance Periods may overlap and Participants may participate simultaneously with respect to Long-Term Performance Awards that are subject to different Performance Periods and/or different performance factors and criteria. 10.2. Periodic Determination of Performance. At the beginning of each Performance Period, the Committee shall determine for each Long-Term Performance Award subject to such Performance period the range of dollar values or number of shares of Stock to be awarded to the Participant at the end of the Performance period if and to the extent that the relevant measure(s) of performance for such Long Term Performance is (are) met. Such dollar values or number of shares of Stock may be fixed or may vary in accordance with such performance or other criteria as may be specified by the Committee. 10.3. Adjustment of Awards. In the event of special or unusual events or circumstances affecting the application of one or more performance objectives to a Long- Term Performance Award, the Committee may revise the performance objectives or underlying factors and criteria applicable to the Long-Term Performance Awards affected, to the extent deemed appropriate by the Committee, to avoid unintended windfalls or hardship. 10.4. Effect of Termination of Employment or Association. Unless otherwise determined by the Committee, upon termination of a Participant's employment or other 11 15 association with the Company and its Affiliates for any reason during a Performance period, the Participant shall not be entitled to any payment with respect to the Long-Term Performance Awards subject to such Performance period; provided, however, that military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which the absent Participant's reemployment rights, if any, are guaranteed by statute or by contract. 10.5. Form of Payment. The earned portion of a Long-Term Performance Award may be paid currently or on a deferred basis with such interest or earnings equivalent as may be determined by the Committee. Payment shall be made in the form of cash or whole shares of Stock, including Restricted Stock, either in a lump sum payment or in annual installments commencing as soon as practicable after the end of the relevant Performance Period, all as the Committee shall determine at or after grant. 11. STOCK GRANTS In recognition of significant contributions to the success of the Company or its Affiliates, and in such other circumstances as the Committee deems appropriate shares of Stock may be issued either alone or in addition to other stock or cash-based Awards granted under the Plan at such price, if any, as the Committee may determine. Subject to adjustment pursuant to Section 4(c) above, the number of shares awarded as Stock Grants shall not exceed 125,000 of the 1,250,000 shares of Stock subject to this Plan. Stock Grant Awards shall be made without forfeiture conditions of any kind and otherwise pursuant to such terms and conditions as the Committee may determine. 12. RESTRICTIONS ON ISSUANCE OF SHARES 12.1. Securities Laws. Notwithstanding any other provision of the Plan, if, at any time, in the reasonable opinion of the Company the issuance of shares of Stock covered by any Award granted under the Plan may constitute a violation of law, then the Company may delay such issuance and the delivery of a certificate for such shares until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation; and (ii) in the case where such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied: (a) the shares with respect to which such Option has been exercised are at the time of the issue of such shares effectively registered under the Securities Act of 1933, as amended (the "Securities Act"); or (b) a no-action letter in form and substance reasonably satisfactory to the Company with respect to the issuance of such shares shall have been obtained by the Company from the Securities and Exchange Commission. 12 16 The Company shall make all reasonable efforts to bring about the occurrence of said events. 12.2. Investment Representation. Unless the shares to be issued in connection with any Award granted under the Plan have been effectively registered under the Securities Act, the Company shall be under no obligation to issue any shares covered by such Award unless the person to acquire such shares shall give a written representation to the Company which is satisfactory in form and substance to its counsel and upon which the Company may reasonably rely, that he or she is acquiring the shares issued pursuant to such Award as an investment and not with a view to, or for sale in connection with, the distribution of any such shares. 12.3. Placement of Legends; Stop Orders; etc. Each share of Stock issued pursuant to an Award granted under this Plan may bear a reference to the investment representation made in accordance with Section 12.2 in addition to any other applicable restriction under the Plan, the terms of the Award, and any applicable Shareholders Agreement and Employment Agreement, and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to said Stock. All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 12.4. Registration. If the Company shall deem it necessary or desirable to register under the Securities Act or other applicable statutes any shares with respect to which an Option shall have been granted or to qualify any such shares for exemption from the Securities Act or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each Participant, and each holder of shares of Stock acquired pursuant to an Award granted under the Plan such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Company and its officers and directors from such holder against all losses, claims, damage and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 12.5. Applicability of Shareholders Agreement. Whenever shares are to be issued pursuant to an Award granted hereunder, the Company shall have the right to require the Participant to execute and deliver and otherwise become a party to the Shareholders Agreement in respect of such shares. 13 17 13. EFFECT OF CERTAIN TRANSACTIONS 13.1. Liquidation or Dissolution of the Company. In the event of a proposed dissolution or liquidation of the Company, each outstanding Award granted hereunder shall terminate (i.e., Options and Stock Appreciation Rights shall lapse, Restricted Stock shall be forfeited and any Performance Awards cancelled) immediately prior to the consummation of such action, without any payment therefore, unless otherwise provided by the Committee. As to outstanding Options, the Committee may, in the exercise of its sole discretion in such instances, declare that any such Option shall terminate as of a date fixed by the Committee and give each Optionee the right to exercise his option as to all or any part of the shares of Stock covered by an Option for a period of twenty (20) days following such date, including shares of Stock as to which the Option would not otherwise be exercisable. 13.2. Sale of Assets, Merger or Consolidation. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger or consolidation of the Company with or into another corporation in a transaction in which the Company does not survive, the Committee may, in the exercise of its sole discretion in such instances, give each Participant the right to exercise his Option as to all or any part of the shares of Stock covered by an Option, including shares of Stock as to which the Option would not otherwise be exercisable, waive any remaining restrictions applicable to Restricted Stock and provide for the pro rata payment of Performance Awards based on performance through the date of such transaction. In the event the Committee elects to authorize the exercise of outstanding and otherwise unexercisable Options, the Committee shall notify the Participant that the Option shall be fully exercisable for a period of not less than twenty (20) nor more than sixty (60) days from the date of such notice, and if such Option shall not be exercised, the Committee may, in the exercise of its sole discretion in such instances, determine that the Option shall terminate upon the expiration of such period and be of no further force or effect. 14. TERMINATION AND AMENDMENT OF THE PLAN AND AWARDS The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable. No termination or amendment of the Plan may, without the consent of the Participant to whom any Award shall theretofore have been granted, adversely affect the rights of such Participant under such Award. The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any Participant without the Participant's consent. 15. MISCELLANEOUS PROVISIONS 15.1. Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to 14 18 a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of any other general creditor of the Company. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to Awards hereunder, provided, however, unless the Committee otherwise determines with the consent of the affected participant, the existence of such trusts or other arrangements is consistent with the "unfunded" status of the Plan. 15.2. Adoption of Other Plans. Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 15.3. Payments on Death. The Committee shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of the Participant's death are to be paid. 15.4. Tax Withholding. (a) In General. No later than the date as of which an amount first becomes includable in the gross income of the Participant for federal income tax purposes with respect to any Award, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, or local taxes of any kind required by law to be withheld (whether so required to secure an otherwise available tax deduction or otherwise) with respect to such amount. If authorized by the Committee at the grant of an Award (or, other than in the case of Incentive Option, at any time thereafter) and so elected by the Participant, the minimum required withholding obligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. (b) Disqualifying Dispositions. The Company may require as a condition to the issuance of shares covered by any Incentive Option that the party exercising such Option give a written representation to the Company which is satisfactory in form and substance to its counsel and upon which the Company may reasonably rely, that he or she will report to the Company any disposition of such shares prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code. If and to the extent that the realization of income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, the Company shall have the right to require that the recipient remit to the Company an amount sufficient to satisfy those requirements. 15 19 15.5. Limitation of Rights in Stock. No Participant shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the shares of Stock covered by an Award, except to the extent any payment required therefor shall have been received by the Company and a certificate shall have been issued therefor and delivered to the Participant or his or her agent (or, in the case of Restricted Stock, the Company as escrow agent). Any Stock issued pursuant to an Award shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the Certificate of Incorporation, the By-laws of the Company, the Shareholders Agreement and the Employment Agreement. 15.6. No Special Employment or Other Rights. Nothing contained in the Plan or in any Award shall confer upon any Participant any right with respect to the continuation of his or her employment or other association with the Company (or any Affiliate), or interfere in any way with the right of the Company (or any Affiliate), subject to the terms of any separate employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment or consulting agreement or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award under the Plan. 15.7. Notices and Other Communications. All notices and other communications required or permitted under the Plan shall be effective if in writing and if delivered or sent by certified or registered mail, return receipt requested (a) if to the Participant, at his or her residence address last filed with the Company, and (b) if to the Company, at 195 Albany Street, Cambridge, MA 02139 Attention: Treasurer or to such other persons or addresses as the Participant or the Company may specify by a written notice to the other from time to time. 15.8. Governing Law. The Plan and all Awards and actions taken thereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. Date of Board Approval: June 16, 1993 Date of Shareholder Approval: June 24, 1993 16 EX-10.16 23 LETTER AGREEMENT: CONFIRDENTIALITY, INVENTIONS 1 EXHIBIT 10.16 TKT LETTERHEAD ______________, 1996 <> <
> Re: Confidentiality. Inventions and Noncompetition ---------------------------------------------- Dear <>: This letter is being written for the purpose of setting forth certain of the terms of the understandings between Transkaryotic Therapies, Inc. (the "Company") and you in connection with your employment by the Company. If you are in agreement with these terms, please sign and date the last page of one copy of this letter and return it to the Company, whereupon this letter shall represent a legally binding agreement between the Company and you. Please keep the other copy of this letter for your files. A. Consideration. - ----------------- As consideration for your employment by the Company and as a condition of your employment by the Company, you hereby agree to the following: 1) CONFIDENTIALITY. You recognize and acknowledge that the Company's trade secrets, know-how and proprietary processes as they may exist from time to time (including, but not limited to, information regarding methods, cultures, subcultures, mutants, plasmids, synthesis techniques, gene mapping data, experimental animals and assay procedures) as well as the Company's, confidential business plans and financial data are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of your duties as an employee of the Company. In addition, you acknowledge that as an employee of the Company, you may be given access to confidential information regarding the research of certain consultants or advisors to the Company and other scientists who may enter into discussions with the Company ("Third Party Research"). You shall not, during or after the term of your employment by the Company, in whole or in part, disclose such secrets, know-how, processes, business plans, financial data or Third Party Research to any person, firm, corporation, association or other entity (except the Company) for any reason or purposes whatsoever, nor shall you make use of any property owned by the Company or of any Third Party Research for your own purposes or for the benefit of any third party (except the Company) under any circumstances during or after the term of your employment. These restrictions shall not apply to such secrets, know-how and processes which you can establish by competent proof: i. were known to you, other than under binder of secrecy, prior to your employment by the Company; or 2 ii. have passed into the public domain prior to or after their development by or for the Company, or their disclosure to the Company, other than through acts or omissions attributable to you; or iii. were subsequently obtained, other than under binder of secrecy, from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. Upon termination of your employment with the Company, you shall promptly turnover to the Company all originals and copies which you may have of any of the Company's confidential information described in this Agreement or any Third Party Research. You will not disclose to the Company any confidential information, proprietary material, or trade secrets belonging to any former employer or other third party. 2) INTELLECTUAL PROPERTY. You hereby sell, transfer and assign to the Company, or to any person or entity designated by the Company, your entire right, title and interest in and to all inventions, ideas, discoveries, and improvements (including, but not limited to, cultures, subcultures, mutants, plasmids, synthesis techniques, gene mapping data, experimental animals and assay procedures), whether patented or unpatented, and materials subject to copyright, made or conceived by you, solely or jointly, during the term of your employment by the Company and for six (6) months thereafter which arise out of or in connection with research or other activities conducted by, for, or under the direction of the Company, whether or not conducted at the Company's facilities, or which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company. You acknowledge that all copyrightable materials developed or produced by you within the scope of your employment constitute works made for hire. you shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements; and you shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents and shall give such testimony as may be necessary or required of you to permit the Company or any person or entity designated by the Company to file and prosecute patent applications and, as to material subject to copyright, to obtain copyrights thereof. 3) NONCOMPETITION. So long as you are employed by the Company, (and, if your employment is terminated for cause or terminated by you, for a period of one year thereafter), you shall not engage in any business (whether as an officer, director, owner, employee, partner, consultant, advisor or other direct or indirect participant) engaged in the commercial exploitation of research in gene therapy, gene mapping, or any other business which competes with the business of the Company, provided that during any period on which this covenant may be in effect, you may be employed as a faculty member of any educational institution or an employee of any non profit entity after termination of your employment by the Company. So long as you are employed by the Company and for a period of one year thereafter you shall not interfere with, disrupt or attempt to disrupt, the relationship (contractual or otherwise) between the Company and any of its customers, suppliers, lessors, lessees, employees, consultants research partners, creditors or investors. It is the intent of the Company and you that the provisions of this Paragraph 3 be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought. Accordingly, if any portion of this 3 Paragraph 3 shall be adjudicated to be invalid or unenforceable, this Paragraph 3 shall be deemed amended to delete therefrom the portion so adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Paragraph 3 in the particular jurisdiction in which such adjudication is made. 4) INJUNCTIVE RELIEF. If there is a breach or threatened breach of the provisions of Paragraphs 1, 2, or 3 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining you from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. B. Rights Conferred. - -- ----------------- Nothing contained in this Agreement shall be construed as giving you any legal or equitable rights against the Company or any subsidiary corporation or any director, officer, employee, or agent thereof except for such rights as are expressly provided herein. Under no circumstances shall this Agreement be construed as a contract of continuing employment of you, nor shall this Agreement obligate the Company to continue your employment. C. Governing Law. - -- -------------- This Agreement will be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. D. Severability. - -- ------------- If any portion of this Agreement shall, in whole or in part, provide to be invalid for any reason, such invalidity shall affect only the portion of such provision which shall be invalid, and no other portion or provisions of this Agreement shall be invalidated or affected thereby. Please indicate your acceptance and approval of the foregoing in the space provided below. TRANSKARYOTIC THERAPIES, INC. BY: Richard F. Selden Founder and Chief Executive Officer ACCEPTED AND APPROVED: <> DATED: EX-10.17 24 LETTER AGREEMENT: RESTRICTED STOCK 1 EXHIBIT 10.17 TKT LETTERHEAD Re: Restricted Stock Agreement -------------------------- Dear Dr. : This letter is being written for the purpose of setting forth the basic terms of the understandings between Transkaryotic Therapies, Inc. (the "Company') and you in connection with the purchase by you and sale by the Company of shares of Common Stock, par value one cent ($0.01) per share of the Company (the "Restricted Stock"). Promptly after the execution of this Agreements the Company will issue and sell to you, and you will purchase from the Company, at a purchase price of per share, the Restricted Stock. If you are in agreement with these terms, please sign and date the last page of one copy of this letter and return it to the Company, whereupon this letter shall represent a legally binding agreement between the Company and you. Please keep the other copy of this letter for your files. A. Restrictions on Stock. --------------------- All shares of Restricted Stock sold hereunder (including any Shares received by you in respect of the Restricted Stock as a result of stock dividends, stock splits or any other forms of recapitalization) shall be subject to the following restrictions: 1) No shares of Restricted Stock shall be disposed of by you either voluntarily or involuntarily, directly or indirectly, during the period commencing on the date hereof and ending on (the "Restricted Stock Period") unless such shares of Restricted Stock shall have then been released from such restrictions pursuant to Paragraph 2 hereof, and any attempted disposition of shares of Restricted Stock while they are restricted shall be null and void and of no effect. 2) The restrictions imposed under Paragraph 1 above upon shares of Restricted Stock shall terminate with respect to one fourth of the shares on and on each successive thereafter. 3) If you cease to be an employee of the Company at any time during the Restricted Stock Period for any reason, then within the period following the termination of your employment with the Company, the Company will buy and you (or your personal representative if you should die) will sell to the Company all of the shares of Restricted Stock which are then restricted under this agreement for a cash purchase price of (such price per share to be adjusted ratably in the event of any stocksplit, stock dividend, combination, reclassification, recapitalization, or other similar event). 4) You hereby confirm that you are acquiring the shares of Restricted Stock solely for your own account for investment and not with a view to any distribution or public offering thereof. You agree that you will not, at any time (before or after the Restricted Stock 2 Period) sell, offer for sale, pledge or otherwise dispose of any of the shares acquired hereunder, or any interest therein in the absence of either an effective current registration statement relating thereto under the Securities Act of 1933 (the "Act") or an opinion of counsel. in form and substance satisfactory to the Company to the effect that registration is not required. You hereby acknowledge having been advised that (i) you must hold the shares acquired hereunder indefinitely unless they are registered under the Act, or an exemption from registration becomes available, (ii) there is not likely to be a market for such shares in the foreseeable future and therefore no sales of such shares under Rule 144 under the Act will be possible, and (iii) sales of shares in reliance upon Rule 144 may be made only after the expiration of two years from the date of purchase and then only in limited amounts in accordance with the conditions of that rule, all of which must be met. 5) You hereby agree to execute, prior to your receipt of the Restricted Stock, an Instrument of Adherence to that certain Stockholders' Agreement, dated as of September 16, 1988, among the company and certain of its stockholders, which agreement provides that the shares acquired hereunder are subject to certain rights of first refusal in favor of the Company and certain of its stockholders. 6) The certificates evidencing the Restricted Stock shall bear the following legends: Transfer of this certificate and the shares represented hereby is restricted pursuant to the terms of an agreement, dated as of between Transkaryotic Therapies, Inc. and the holder hereof. A copy of such agreement is on file at the principal offices of Transkaryotic Therapies, Ink. The shares of stock represented by this certificate are subject to all the terms of that certain Stockholders' Agreement, dated as of September 16, 1988, among Transkaryotic Therapies, Inc., and certain of its Stockholders, a copy of which agreement is on file at the offices of Transkaryotic Therapies, Inc. Such agreement provides that shares represented hereby are subject to rights of first refusal in favor of certain Stockholders and Transkaryotic Therapies, Inc. The shares evidenced by this certificate have not been registered under the Securities Act of 1933, as amended. No transfer, sale or other disposition of these shares may be made unless a Registration Statement with respect to these shares has become effective under said Act, or Transkaryotic Therapies, Inc., has been furnished with an opinion of counsel satisfactory to it that such registration is not required. The issuer has multiple classes of stocks. The full text of the preferences, powers, qualifications and special and relative rights 3 of the shares of each such class as set forth in the Certificate of Incorporation will be furnished to the holder of this Certificate upon written request to the issuer and without charge. and stop transfer instructions shall be delivered by the Company to any transfer agent for the Restricted Stock. At the time or times when the restrictions in Paragraph I of this Section A are terminated with respect to the Restricted Stock or the Restricted Stock is registered under the Act, the relevant legends on the certificates evidencing such shares shall be appropriately amended and the stop transfer instructions shall be appropriately modified. If shares of Restricted Stock are repurchased by the company pursuant to Paragraph 3 of this Section A, then any property of any description distributed with respect to the shares repurchased, including but not limited to stock dividends, but excluding cash dividends, shall be transferred to the Company at the same time the shares so repurchased are transferred to the Company. 7) During the Restricted Stock Period, the Company will retain possession of all stock certificates evidencing Restricted Stock. Promptly after the release of any portion of the Restricted Stock from the restrictions provided for in this Agreement, the Company will deliver to you a certificate evidencing such portion of the Restricted Stock. B. Rights Conferred. ---------------- Nothing contained in this Agreement, nor the purchase of the Restricted Stock, hereunder, shall be construed as giving you any legal or equitable rights against the Company or any subsidiary corporation or any director, officer, employee, or agent thereof except for such rights as are expressly provided herein. Under no circumstances shall this Agreement: be construed as a contract of continuing employment of you, nor shall this Agreement or the Restricted Stock purchased hereunder Obligate the Company to continue your employment. C. Governing Law. ------------- This Agreement will be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. D. Severability. ------------ If any portion of this Agreement shall, in whole or in pan, provide to be invalid for any reason, such invalidity shall affect only the portion of such provision which shall be invalid, and no other portion or provisions of this Agreement shall be invalidated or affected thereby. 4 Please indicate your acceptance and approval of the foregoing in the space provided below. TRANSKARYOTIC THERAPIES INC. BY: ------------------------------------- TITLE: President ACCEPTED AND APPROVED - ---------------------------------- DATED: ---------------------------- EX-10.18 25 SCIENTIFIC ADVISOR AGREEMENT 1 Exhibit 10.18 [FORM OF SCIENTIFIC ADVISORY BOARD MEMBER AGREEMENT] Dear Dr. This letter is being written for the purpose of setting forth the basic terms of the understandings between Transkaryotic Therapies, Inc., ("the Company") and you (the "Scientific Advisor"). If you are in agreement with these terms, please sign and date the last page of one copy of this letter and return it to us, whereupon this letter shall represent a legally binding agreement between us. Please keep the other copy of this letter for your files. 1. Academic Responsibilities. You, as a member of the Professional Staff of the _____________ and as a full-time employee of___________ are responsible for teaching and conducting, supervising and administering a variety of research programs in molecular biology and biochemistry, and you are subject to all requirements imposed by the consulting, conflict of interest and patent policies of ___________ and_______________. 2. Duties. As a Scientific Advisor to the extent not prohibited by your obligations to __________ and _____________including your obligations to any sponsor of research at ______________ or _____________ your duties will consist of using your best efforts during each year of the term of this agreement to attend meetings of the Scientific Advisors of the Company (two to three per year as scheduled by the Company), and at such meetings to discuss research conducted by the Company and new developments in research areas of interest to the Company, including work done in your own laboratories which has been made public by presentation at an open scientific meeting or by written publications, and potentials for commercial application of developments in gene therapy, molecular biology as it relates to gene therapy, and gene mapping. In addition, as the Company's business develops, the Company will be able to look to you to help evaluate or screen specific research proposals which are presented to the Company and, if such proposals are pursued, to help the Company in monitoring their progress. As a Scientific Advisor to the Company, you will also be expected to attend regular scientific meetings (at an internal and location to be mutually agreed to by the Company and the Scientific Advisor), for the purpose of reviewing data and planning experiments related to the Company's hematology gene therapy research programs. From time to time, the Company may also ask certain of its Scientific Advisors who have interests or specialties in a particular field to attend additional meetings or to undertake one or more special consulting projects for the Company. Attendance at such additional meetings or acceptance of such special engagements will be at the option of each Scientific Advisor and all arrangements with respect thereto will be mutually agreed to in advance by the Scientific Advisor and the Company. 2 The Company recognizes that in accepting a position as the Scientific Advisor our role must be viewed as one which clearly allows you to continue to function in your academic environment without alteration of your research, publication or professional goals and practices. Nothing herein shall be construed to permit or require you to disclose, and you shall not disclose, to the Company any information including without limitation any advice or suggestions regarding any product, product development, formula, or technological or manufacturing process, whether or not related to your services hereunder, which you shall be under any duty, express or implied, to ______________ or _____________ or any other person or persons, including any sponsor of research at ______________ or at ___________________, to keep secret, develop or otherwise to deal with. 3. Funding of Your Research. Nothing contained in this Agreement shall be construed to require the Company to fund research in the laboratory with which you are affiliated or to require you to seek funding for such laboratory or projects being conducted in such laboratory from the Company, or to prevent the ____________ from obtaining from any source funding for research to be conducted in whole or in part by you or any other member of _______________. Should you and the Company wish to pursue such a funding or research arrangement, then such arrangement shall be the subject of a separate agreement between the institutions with which you are affiliated and the Company, which agreement shall set forth among other terms the level of funding, the rights of the Company in intellectual property resulting from such research, confidentiality provisions and other matters specifically negotiated with respect to the particular research project. 4. Existing and Future Commitments. You represent and warrant to the Company that: (a) You are permitted under the terms of your employment by __________ and the terms of your affiliation with __________ to enter into this agreement; and you have furnished such institutions with such notice, and obtained such approvals, regarding your accepting a position as a Scientific Advisor of the Company as are required under the term of your employment and affiliation; (b) You are not presently a party to any agreement under which you conduct research for or render services to any commercial enterprise, other than as set forth in Schedule A to this agreement, nor except as disclosed on such Schedule A do you have any equity participation in any enterprise engaged in the commercialization of developments in gene therapy, molecular biology as it relates to gene therapy, or gene mapping, (other than investments in securities in any corporation whose securities are regularly traded and in which your beneficial ownership does not exceed one percent (1%) of the equity securities of such corporation); and -2- 3 (c) If during the term of this agreement you enter into any additional agreements under which you conduct research or provide services in molecular biology of blood clotting factors, hematopoietic factors, or oncology, to any commercial enterprise so engaged you will (i) obtain from such enterprise the right to disclose the fact of such agreement to the company, (ii) provide to the company written notice of the fact that such agreement is fully executed, and (iii) prior to the execution of such agreement inform such enterprise of your position as a Scientific Advisor for the Company. 5. Confidentiality. In the performance of your duties under this agreement, you may be given access to confidential information regarding the research of other Scientific Advisors as well as other scientists, confidential research proposals, proprietary processes and trade secrets, confidential business plans of the company and third parties with whom it may have business dealings, confidential financial data and other information of a confidential or proprietary nature (collectively "Confidential Information"). You will not, during or for a period of ten (10) years after the term of this agreement, disclose such Confidential Information to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, nor shall you make use of such confidential Information for your own purposes or for the benefit of any person, firm, corporation, association or other entity under any circumstances during or for a period of ten (10) years after the term of this agreement, provided that these restrictions will not apply to such Confidential Information which, as can be established by you by competent proof: (i) was known to you, other than under binder of secrecy, prior to ____________, at which time you entered into discussions with company personnel, or prior to its disclosure to you in the course of performing your duties under this agreement, (ii) has passed into the public domain other than through acts or omissions attributable to you, (iii) was subsequently obtained by you other than under binder of secrecy from a third party not acquiring the information under an obligation of confidentiality from the disclosing party, or (iv) can be shown by appropriate documentation to have been developed by you or on your behalf independent of any disclosure hereunder. The Company shall not require you to and you shall not disclose to the Company any information (except information made public by presentation at an open scientific meeting or by written publication) as to which you are under any duty express or implied not to disclose. Nothing contained in this agreement, however, shall be construed to preclude a publication by you, by journals, conferences, symposia or other means, of any of the results of your own research. 6. Covenants Not to Compete. During the term of this Agreement, you agree that, except for the commitments that you now have as set forth in Schedule A to this Agreement, you will not without prior written consent of the Company serve as an -3- 4 officer, director, owner, employee, partner, consultant or advisor for any commercial enterprise engaged in the commercial exploitation of research in gene therapy, molecular biology as it relates to gene therapy, or gene mapping. The foregoing restriction shall not be deemed to preclude you from (i) investing your personal assets in businesses which are so engaged and whose securities are regularly traded in recognized securities markets, provided that such investments shall not result in your owning beneficially at any time 1% or more of the equity securities of any corporation so engaged or (ii) participating in any research at __________ or at ______________, including research sponsored by a commercial enterprise. During the period in which this covenant not to compete is in effect, you agree that you will also not materially interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any of the Company's research partners, customers, suppliers, employees or consultants; provided, that carrying out your responsibilities to ___________ and ____________ including but not limited to participation in research sponsored by any commercial enterprise shall not be construed to be material interference with or disruption of relationships between the Company and others. You acknowledge that the Company shall have the right to enforce this covenant on your part to the fullest extent permissible under Massachusetts law, and that the Company shall be entitled to an injunction, without bond, restraining you from the breach of this covenant. 7. Compensation. As compensation for your services as the Scientific Advisors, the Company will pay you an honorarium of $1,000 per day for each of the regular meetings which you attend. Such amount will be paid to you promptly after each of such meetings. As compensation for your involvement in research activities with the Company which require you to perform regular services on-site at TKT in Cambridge, Massachusetts, the Company will pay you $ per year, payable in quarterly installments on the last days of the months June, September and December, and March, and at three months intervals thereafter. In addition, the company will reimburse you for reasonable out-of-pocket expenses incurred by you in connection with the rendering of services to the company, which reimbursement shall be made upon presentation to the Company of an itemized and documented accounting of such expenses. 8. Sale of Stock; Annual Vesting. Simultaneously with the execution of this agreement, the Company will issue and sell to you, and you will purchase from the Company, at a purchase price of _________ per share, ____________ shares of Common Stock of the Company, equivalent to approximately ___% of all of the Company's issued shares as of_____________. Of the shares of Common Stock sold to you, ____________ shares shall initially constitute restricted stock subject to the restrictions described below (the "Restricted Stock"). All shares of Restricted Stock sold hereunder (including any shares received by you as a result of stock dividends, stock splits or any other forms of recapitalization) shall be subject to the following restrictions: -4- 5 (a) No shares of Restricted Stock shall be disposed of by you either voluntarily or involuntarily, directly or indirectly, during the period commencing on the date hereof and ending on the third anniversary of the date hereof (the "Restricted Stock Period") unless such shares of Restricted Stock shall have then been released from such restriction pursuant to subparagraph 8(b), and any attempted disposition of shares of Restricted Stock while they are restricted shall be null and void and of no effect. (b) The restrictions imposed under subparagraph 8(a) above upon shares of Restricted Stock shall terminate with respect to __________ of the shares on ____________ and each successive ____________thereafter. (c) If you cease to be the Scientific Advisors of the Company at any time during the Restricted Stock Period for any reason, then within the thirty day period following the termination of your affiliation with the Company as a Scientific Advisor, the Company will buy and you (or your personal representative if you should die) will sell to the company all of the shares of Restricted Stock which are then restricted under this Agreement for a cash purchase price of per share. (d) You hereby confirm that you are acquiring the shares of Restricted Stock solely for your own account for investment and not with a view to any distribution or public offering thereof. You agree that you will not, at any time (before or after the Restricted Stock Period) sell, offer for sale, pledge or otherwise dispose of any of the shares acquired hereunder, or any interest therein in the absence of either an effective current registration statement relating thereto under the Securities Act of 1933 (the "Act") or an opinion of counsel, in form and substance satisfactory to the Company, to the effect that registration is not required. You hereby acknowledge having been advised that (i) you must hold the shares acquired hereunder indefinitely unless they are registered under the Act, or an exemption from registration becomes available, (ii) there is not likely to be a market for such shares in the foreseeable future and therefore no sales of such shares under rule 144 under the Act will be possible, and (iii) sales of shares in reliance upon Rule 144 may be made only after the expiration of two years from the date of purchase and then only in limited amounts in accordance with the conditions of that rule, all of which must be met. (e) The certificates evidencing the Restricted Stock shall bear the following legend; "Transfer of this certificate and the shares represented hereby is restricted pursuant to the terms of a Scientific Advisor's Agreement, dated as of________________, between Transkaryotic Therapies, Inc. -5- 6 and the holder hereof. A copy of such agreement is on file at the principal offices of Transkaryotic Therapies, Inc. The securities represented by this certificate have not been registered under the Securities Act of 1933 and may be offered and sold only if registered pursuant to the provisions of such Act or if any exemption from registration is available." and stop transfer instructions shall be delivered by the Company to any transfer agent for the Restricted Stock. At the time or times when the restrictions in subparagraph 8(a) hereof are terminated with respect to the Restricted Stock or the Restricted Stock is registered under the Act, such legend on the certificates evidencing such shares shall be appropriately modified. If shares of Restricted Stock are repurchased by the Company pursuant to subparagraph 8(c) hereof, then any property of any description distributed with respect to the shares repurchased, including but not limited to stock dividends, but excluding cash dividends, shall be transferred to the Company at the same time the shares so repurchased are transferred to the Company. (f) During the Restricted Stock Period, the Company will retain possession of all stock certificates evidencing Restricted Stock. Promptly after the release of any portion of the Restricted Stock from the restrictions provided for in this Agreement, the Company will deliver to you a certificate evidencing such portion. 9. Nothing herein shall be construed to grant the Company any right to any invention which you are required to assign to ______________ or _______________ pursuant to any agreement with ______________ or______________. 10. Term. This agreement shall be for an initial term of three years commencing on the date hereof. Thereafter, unless terminated by either party on not less than 30 days notice, this agreement will continue for successive one (1) year periods. Notwithstanding the foregoing, you may terminate this agreement at any time by giving ninety (90) days prior written notice to the Company, and, the Company may terminate this agreement upon written notice to you in the event that 1) you violate the provisions of Paragraph 5 or 6 hereof or, 2) upon the decision of the Chief Scientific Officer of the Company in the event you are unable to fulfill your responsibilities as outlined in Paragraph 2 above. 11. Independent Contractor. Nothing contained in this agreement shall be deemed to constitute you an employee of the Company, it being the desire and intent of both you and the Company to establish an independent contractor relationship. -6- 7 12. Governing Law. This agreement will be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. Any litigation with respect to this contract shall occur only in the courts of the Commonwealth of Massachusetts. Please indicate your acceptance and approval of the foregoing in the space provided below. TRANSKARYOTIC THERAPIES, INC. _____________________________ ACCEPTED AND APPROVED AS OF THE____________ DAY OF ____________, 199 -7- EX-10.19 26 PROMISSORY NOTE - SELDEN 1 Exhibit 10.19 AMENDED AND RESTATED PROMISSORY NOTE $125,000 June 16, 1993 FOR VALUE RECEIVED, the undersigned Richard F. Selden, a resident of the Commonwealth of Massachusetts (the "Debtor") hereby promises to pay to the order of Transkaryotic Therapies, Inc. (the "Creditor"), at its principal business address, the principal sum of One Hundred Twenty-Five Thousand Dollars ($125,000) payable (subject to the other provisions of this Note) in six (6) installments of Seventeen Thousand Eight Hundred Fifty-Seven Dollars ($17,857) each on January 31 1992, 1994, 1995, 1996, 1997 and 1998, and a final installment of Seventeen Thousand Eight Hundred Fifty-Eight Dollars ($17,858) on January 31, 1999. This Note shall bear interest on the unpaid balance of such principal amount from May 14, 1991 until paid. The interest rate applicable during each calendar year or portion thereof shall be the rate equal to one percent (1%) per annum above the average yield in percent 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. Accrued interest hereunder shall be due and payable in arrears on each principal installment payment date, commencing January 31, 1992. Overdue principal, and, to the extent permitted by applicable law, overdue interest thereon and all other annual rate two percent (2%) above the annual interest rate applicable to principal not overdue, payable on demand and compounded monthly. Whenever any payment under this Note becomes due on a date which is not a regular business day, the maturity thereof shall be extended to the next succeeding business day and interest shall accrue at the applicable rate during such extension. This Note may be prepaid, in whole or in part, at any time without penalty. This Note amends and restates in its entirety a certain Promissory Note dated May 14, 1991 made by the Debtor and payable to the order of the Creditor (the "Original Note"), which Original Note has been delivered to the Debtor for cancellation in exchange for this Note. The Debtor and the Creditor, by its acceptance of this Note, agree that (i) the indebtedness evidenced by this Note shall be secured by, and the holder of this Note shall be entitled to the benefits of, a certain Pledge Agreement dated as of May 14, 1991, between the Creditor and the Debtor, in all respects as though this Note were the "Note" referred to in Section 2(c) of such Pledge Agreement, and (ii) notwithstanding any other provision hereof, in the event that the aggregate amount of payments heretofore made by the Debtor under the Original Note is more or less than the aggregate amount that would have been payable heretofore under this Note as hereby amended and restated, then such excess or shortfall shall be deducted from or added to, as the case may be, the amount otherwise due hereunder on the date of the next scheduled payment hereunder. In the event that (i) the Debtor defaults in the payment of any principal or interest 2 hereunder for more than five (5) days after the date due, or (ii) the Debtor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due, or (iii) any order, judgment or decree is entered adjudicating the Debtor bankrupt of insolvent, or (iv) the Debtor petitions (or consents to any petition to) any tribunal for the appointment of a trustee or receiver of the Debtor or of any substantial part of his assets under any bankruptcy, debt readjustment, insolvency, dissolution, or liquidation law of any jurisdiction, or (v) the Debtor's employment by the Creditor is terminated either by the Creditor for cause (which term shall mean (a) the Debtor's breach of his obligations under the Employment Agreement between the Debtor and the Creditor dated as of February 1, 1991 or (b) the Debtor's having been convicted of a felony) or by the Debtor, then, and in every such event (each, an "Event of Default"), the Creditor may declare all amounts owing with respect this Note, and such amounts shall thereupon become, due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived. To the extent permitted by applicable law, any sums credited by or due from the Creditor to the Debtor, including, but not limited to, annual employment bonuses and amounts payable to the Debtor by the Creditor upon or after the termination of the Debtor's employment by the Creditor, may at any time be applied to the Debtor's obligations hereunder. Should the indebtedness evidenced by this Note or any part thereof be collected by action at law, or in bankruptcy, receivership or other court proceedings, or should this note be placed in the hands of attorneys for collection after default, the Debtor 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. The Debtor and all indorsers and/or guarantors hereof (i) consent and agree to be bound by the provisions of this Note, absolutely and unconditionally, to pay the principal of this note as herein provided, (ii) waive trial by jury in any action on this Note, (iii) waive presentment, notice of nonpayment, notice of protest, suit and all other conditions precedent in connection with the collection and enforcement of this Note, (iv) waive any right to the benefit of, or to direct the application of, any security for this Note 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. No delay or omission on the part of the Creditor in exercising any right hereunder shall operate as a waiver of such right or of any right under this Note. No waiver shall be deemed binding on the Creditor unless in writing signed by the Creditor, and then only to the extent specifically set forth therein. This Note shall be deemed to take effect as a sealed instrument under, and be construed in accordance with, the laws of the Commonwealth of Massachusetts. 3 /s/ Donald P. Richards /s/ Richard F. Selden - ----------------------------- ------------------------- Witness Richard F. Selden EX-10.20 27 PROMISSORY NOTE - TRECO 1 Exhibit 10.20 PROMISSORY NOTE $60,000 June 16, 1993 FOR VALUE RECEIVED, the undersigned Douglas A. Treco, a resident of the Commonwealth of Massachusetts (the "Debtor") hereby promises to pay to the order of Transkaryotic Therapies, Inc. (the "Creditor"), at its principal business address, the principal sum of Sixty Thousand Dollars ($60,000) payable (subject to the other provisions of this Note) in six annual installments of Eight Thousand Five Hundred Seventy-One Dollars ($8,571) each on September 1, 1992, 1993, 1994, 1995, 1996, and 1997, and a seventh installment of Eight Thousand Five Hundred Seventy-Four Dollars ($2,574) on September 1, 1998. This Note shall bear interest: on the unpaid balance of such principal amount from August 15, 1991 until paid. The interest rate applicable during each calendar year or portion thereof shall be the rate equal to one percent (1%) per annum above the average yield in percent 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. Accrued interest hereunder shall be due and payable in arrears on each principal installment payment date, commencing September 1, 1992. Overdue principal, and, to the extent permitted by applicable law, overdue interest thereon and all other overdue amounts payable hereunder shall bear interest at an annual rate two percent (2%) above the annual interest rate applicable to principal not overdue, payable on demand and compounded monthly. Whenever any payment under this Note becomes due on a date which is not a regular business day, the maturity thereof shall be extended to the next succeeding business day and interest shall accrue at the applicable rate during such extension. This Note may be prepaid, in whole or in part, at any time without penalty. This Note amends and restates in its entirety a certain Promissory Note dated August 15, 1991 made by the Debtor and payable to the order of the Creditor (the "Original Note"), which Original Note has been delivered to the Debtor for cancellation in exchange for this Note. The Debtor and the Creditor, by its acceptance of this Note, agree that (i) the indebtedness evidenced by this Note shall be secured by, and the holder of this Note shall be entitled to the benefits of, a certain Pledge Agreement dated as of August 15, 1991, between the Creditor and the Debtor, in all respects as though this Note were the "Note" referred to in Section 2(c) of such Pledge Agreement, and (ii) notwithstanding any other provision hereof, in the event that the aggregate amount of payments heretofore made by the Debtor under the Original Note is more or less than the aggregate amount that would have been payable heretofore under this Note as hereby amended and restated, then such excess or shortfall shall be deducted from or added to, as the case may be, the amount otherwise due hereunder on the date of the next scheduled payment hereunder. In the event What (i) the Debtor defaults in the Payment of any principal or interest hereunder for more than five (5) days after the date due, or (ii) the Debtor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due, or (iii) any order, judgment or decree is entered adjudicating the Debtor bankrupt 2 of insolvent, or (iv) the Debtor petitions (or consents to any petition to) any tribunal for the appointment of a trustee or receiver of the Debtor or of any substantial part of his assets under any bankruptcy, debt readjustments insolvency, dissolution, or liquidation law of any jurisdiction, or (v) the Debtor's employment by the Creditor is terminated either by the Creditor for cause (which term shall mean (a) the Debtor's breach of his obligations under the Employment Agreement between the Debtor and the Creditor dated as of July 26, 1991 or (b) the Debtor's having been Convicted of a felony) or by the Debtor, then, and in every such event (each, an "Event of Defaults'), the Creditor may declare all amounts owing with respect this Note, and such amounts shall thereupon become, due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived. To the extent permitted by applicable law, any sums credited by or due from the Creditor to the Debtor, including, but not limited to, annual employment bonuses and amounts payable to the Debtor by the Creditor upon or after the termination of the Debtor's employment by the Creditor, may at any time be applied to the Debtor's obligations hereunder. Should the indebtedness evidenced by this Note or any part thereof be collected by action at law, or in bankruptcy, receivership or other court proceedings, or should this note be placed in the hands of attorneys for collection after default, the Debtor 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. The Debtor and all indorsers and/or guarantors hereof (i) consent and agree to be bound by the provisions of this Note, absolutely and unconditionally, to pay the Principal of this note as herein provided, (ii) waive trial by jury in any action on this Note, (iii) waive presentment, notice of nonpayment, notice of protest, suit and all other conditions precedent in Connection with the collection and enforcement of this Note, (iv) waive any right to the benefit of, or to direct the application of, any security for this Note 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. No delay or omission on the part of the Creditor in exercising any right hereunder shall operate as a waiver of such right or of any right under this Note. No waiver shall be deemed binding on the Creditor unless in writing signed by the Creditor, and then only to the extent specifically set forth therein. This Note shall be deemed to take effect as a sealed instrument under, and be construed in accordance with, the laws of the Commonwealth of Massachusetts. WITNESS: /s/ Nancy A. Cornillard /s/ Douglas A. Treco - --------------------------- ---------------------- Douglas A. Treco EX-10.21 28 PROMISSORY NOTE - ADAMS 1 Exhibit 10.21 PROMISSORY NOTE $15,000 April 21, 1995 FOR VALUE RECEIVED, the undersigned Christoph M. Adams, a resident of the Commonwealth of Massachusetts (the "Debtor") hereby promises to pay to the order of Transkaryotic Therapies, Inc. (the "Creditor"), at its principal business address, the principal sum of Fifteen Thousand Dollars ($15,000), payable (subject to the other provisions of this Note) in four annual installments of Three Thousand Seven Hundred Fifty Dollars ($3,750) each on May 1 in 1996, 1997, 1998, and 1999, respectively, in each case with all accrued interest hereon as set forth below. This Note shall bear interest on the unpaid balance of such principal amount from the date of this Note until paid. The interest rate applicable during each calendar year or portion thereof 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. Accrued interest hereunder shall be due and payable upon each installment payment of principal of this Note. Overdue principal, and, to the extent permitted by applicable law, overdue interest thereon and all other overdue amounts payable hereunder shall bear interest at an annual rate two per cent (2%) above the annual interest rate applicable to principal not overdue, payable on demand and compounded monthly. Whenever any payment under this Note becomes due on a date which is not a regular business day, the maturity thereof shall be extended to the next succeeding business day and interest shall accrue at the applicable rate during such extension. This Note may be prepaid, in whole or in part, at any time without penalty. The indebtedness represented by this Note is secured by a certain Pledge Agreement dated as of the date hereof between the Creditor and the Debtor. In the event that (i) the Debtor defaults in the payment of any principal or interest hereunder or under any other promissory note payable to the Creditor for more than five (5) days after the date due, or (ii) the Debtor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due, or (iii) any order, judgment or decree is entered adjudicating the Debtor bankrupt of insolvent, or (iv) the Debtor petitions (or consents to any petition to) any tribunal for the appointment of a trustee or receiver of the Debtor or of any substantial part of his assets under any bankruptcy, debt readjustment, insolvency, dissolution, or liquidation law of any jurisdiction, or (v) the Debtor's employment by the Creditor is terminated either by the Creditor for cause (which term shall mean (a) the Debtor's breach of his obligations under the Employment Agreement between the Debtor and the Creditor dated as of November 20, 1993 (or any successor agreement thereto), or (b) the Debtor's having been convicted of a felony) or by the Debtor, then, and in every such event (each, an "Event of Default"), the Creditor may declare all amounts owing with respect this Note, and such amounts shall thereupon become, due and payable without presentment, demand, 2 protest, or notice of any kind, all of which are hereby expressly waived. To the extent permitted by applicable law, any sums credited by or due from the Creditor to the Debtor, including, but not limited to, annual employment bonuses and amounts payable to the Debtor by the Creditor upon or after the termination of the Debtor's employment by the Creditor, may at any time be applied to the Debtor's obligations hereunder. Should the indebtedness evidenced by this Note or any part thereof be collected by action at law, or in bankruptcy, receivership or other court proceedings, or should this note be placed in the hands of attorneys for collection after default, the Debtor 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. The Debtor and all indorsers and/or guarantors hereof (i) consent and agree to be bound by the provisions of this Note, absolutely and unconditionally, to pay the principal and interest of this note and all other charges for which the Debtor may be or become liable hereunder as herein provided, (ii) waive trial by jury in any action on this Note, (iii) waive presentment, notice of nonpayment, notice of protest, suit and all other conditions precedent in connection with the collection and enforcement of this Note, (iv) waive any right to the benefit of, or to direct the application of, any security for this Note 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. No delay or omission on the part of the Creditor in exercising any right hereunder shall operate as a waiver of such right or of any right under this Note. No waiver shall be deemed binding on the Creditor unless in writing signed by the Creditor, and then only to the extent specifically set forth therein. This Note shall be deemed to take effect as a sealed instrument under, and be construed in accordance with, the laws of the Commonwealth of Massachusetts. /s/ Paul Hassie /s/ Christoph M .Adams - ------------------------- ----------------------- Witness Christoph M. Adams EX-10.22 29 PROMISSORY NOTE - ADAMS 1 Exhibit 10.22 PROMISSORY NOTE $20,000 May 5, 1995 FOR VALUE RECEIVED, the undersigned Christoph M. Adams, a resident of the Commonwealth of Massachusetts (the "Debtor") hereby promises to pay to the order of Transkaryotic Therapies, Inc. (the "Creditor"), at its principal business address, the principal sum of Twenty Thousand Dollars ($20,000), payable (subject to the other provisions of this Note) in four annual installments of Five Thousand Fifty Dollars ($5,000) each on May 1 in 1996, 1997, 1998, and 1999, respectively, in each case with all accrued interest hereon as set forth below. This Note shall bear interest on the unpaid balance of such principal amount from the date of this Note until paid. The interest rate applicable during each calendar year or portion thereof 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-16. Accrued interest hereunder shall be due and payable upon each installment payment of principal of this Note. Overdue principal, and, to the extent permitted by applicable law, overdue interest thereon and all other overdue amounts payable hereunder shall bear interest at an annual rate two per cent (2%) above the annual interest rate applicable to principal not overdue, payable on demand and compounded monthly. Whenever any payment under this Note becomes due on a date which is not a regular business day, the maturity thereof shall be extended to the next succeeding business day and interest shall accrue at the applicable rate during such extension. This Note may be prepaid, in whole or in part, at any time without penalty. The indebtedness represented by this Note is secured by a certain Pledge Agreement dated as of the date hereof between the Creditor and the Debtor. In the event that (i) the Debtor defaults in the payment of any principal or interest hereunder or under any other promissory note payable to the Creditor for more than five (5) days after the date due, or (ii) the Debtor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due, or (iii) any order, judgment or decree is entered adjudicating the Debtor bankrupt of insolvent, or (iv) the Debtor petitions (or consents to any petition to) any tribunal for the appointment of a trustee or receiver of the Debtor or of any substantial part of his assets under any bankruptcy, debt readjustment, insolvency, dissolution, or liquidation law of any jurisdiction, or (v) the Debtor's employment by the Creditor is terminated either by the Creditor for cause (which term shall mean (a) the Debtor's breach of his obligations under the Employment Agreement between the Debtor and the Creditor dated as of November 20, 1993 (or any successor agreement thereto), or (b) the Debtor's having been convicted of a felony) or by the Debtor, then, and in every such event (each, an "Event of Default"), the Creditor may declare all amounts owing with respect this Note, and such amounts shall thereupon become, due and payable without presentment, demand, 2 protest, or notice of any kind, all of which are hereby expressly waived. To the extent permitted by applicable law, any sums credited by or due from the Creditor to the Debtor, including, but not limited to, annual employment bonuses and amounts payable to the Debtor by the Creditor upon or after the termination of the Debtor's employment by the Creditor, may at any time be applied to the Debtor's obligations hereunder. Should the indebtedness evidenced by this Note or any part thereof be collected by action at law, or in bankruptcy, receivership or other court proceedings, or should this note be placed in the hands of attorneys for collection after default, the Debtor 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. The Debtor and all indorsers and/or guarantors hereof (i) consent and agree to be bound by the provisions of this Note, absolutely and unconditionally, to pay the principal and interest of this note and all other charges for which the Debtor may be or become liable hereunder as herein provided, (ii) waive trial by jury in any action on this Note, (iii) waive presentment, notice of nonpayment, notice of protest, suit and all other conditions precedent in connection with the collection and enforcement of this Note, (iv) waive any right to the benefit of, or to direct the application of, any security for this Note 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. No delay or omission on the part of the Creditor in exercising any right hereunder shall operate as a waiver of such right or of any right under this Note. No waiver shall be deemed binding on the Creditor unless in writing signed by the Creditor, and then only to the extent specifically set forth therein. This Note shall be deemed to take effect as a sealed instrument under, and be construed in accordance with, the laws of the Commonwealth of Massachusetts. /s/ Paul Hassie /s/ Christoph M. Adams - ------------------------ ---------------------------- Witness Christoph M. Adams EX-10.23 30 EMPLOYMENT AGREEMENT - SELDEN 1 EXHIBIT 10.23 EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 19, 1991 between Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and Dr. Richard F. Selden (the "Executive"). 1. Employment. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company upon the terms and conditions herein set forth. 2. Duties. The Executive shall be engaged as a full-time employee to act as Chief Scientific Officer and Chairman of the Company's Scientific Advisory Board, and shall be subject to the instruction and control of the Company's Board of Directors (the "Board") of which he shall be a member. The Executive shall devote his entire professional time, attention and energies to the business of the Company and shall not engage in any other business activity or activities, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that, in the judgment of the Board, may conflict with the proper performance of the Executive's duties under this Agreement. Notwithstanding the foregoing, (i) with respect to businesses which do not compete with the Company the Executive may invest his personal or family assets in such form or manner as will not require any services on the part of the Executive in the operation of the affairs of the companies in which such investments are made and in which his participation is solely that of an investor, (ii) the Executive may purchase securities in any corporation whose securities are regularly traded in recognized securities markets, provided that such investments shall not result in his collectively owning beneficially at any time one percent or more of the equity securities of any corporation engaged in a business competitive to that of the Company and (iii) the Executive may continue to pursue professional activities in academic pediatrics to the extent such activities do not conflict with the proper performance of the Executive's duties under this Agreement. 3. Compensation. (a) Base Salary. For services rendered under this Agreement, the Company shall pay the Executive an annual salary of One Hundred Thirty-Five Thousand Dollars ($135,000) (the "Base Salary"), payable (after deduction of applicable withholding for Federal and State income and payroll taxes) in equal monthly installments. The Board (or a Compensation Committee of the Board) may review the Executive's compensation from time to time and award such bonuses or make such increases to the Base Salary as the Board (or Compensation Committee) determines are merited, based upon the Executive's performance and consistent with the Company's compensation policies. (b) Performance Bonus. As soon as practicable, but in any event on or before July 15, 1991, the Board (or a compensation committee thereof) in consultation with the Executive shall establish objective performance goals for the Executive for the remainder of the first Calendar Year (i.e., 1991). In addition to his Base Salary, upon the attainment of such performance goals, the Executive shall be entitled to a cash bonus of up to a maximum of Fifty-Four Thousand Dollars ($54,000) for the first Calendar Year, payable in a tiered manner 2 in three (3) increments of Eighteen Thousand Dollars ($18,000) each as set forth in such goals. At least thirty (30) days prior to each subsequent Calendar Year, the Board (or a compensation committee thereof) in consultation with the Executive shall establish objective performance goals for the Executive for such Calendar Year and the amount of the performance bonus payable upon the attainment of such goals (which maximum potential amount shall not be less than forty percent (40%) of the Executive's Base Salary for the Calendar Year in question). Within twenty (20) days after the close of Calendar Year, the Board (or a compensation committee thereof) shall evaluate the attainment of the performance goals for such Calendar Year and determine the amount of any performance bonus payable hereunder. Any such performance bonus shall be payable within thirty (30) days after the Calendar Year to which it relates. (c) Fringe Benefits. In addition to salary and bonus payments under Sections 3(a) and (b) above, the Executive shall be entitled to (i) term life and accidental death and dismemberment insurance, each in an amount equal to three hundred percent (300%) of his Base Salary plus target performance bonus and (ii) long term disability insurance to age 65 in an amount equal to seventy-five percent (75%) of his Base Salary. The Executive also shall be reimbursed by the Company for all reasonable out-of-pocket expenses incurred by the Executive in connection with the preparation of his personal income tax returns and with personal financial planning services furnished by the Company's auditors, and shall be eligible for and participate in such fringe benefits as shall be generally provided to executives of the Company, including incentive compensation, health insurance and retirement programs which may be adopted from time to time during the term hereof by the Board. Nothing herein contained shall be deemed to preclude the Board from granting such additional compensation or benefits to the Executive as it shall in its sole discretion determine. 4. Sick Leave and Vacation. During the term of this Agreement, the Executive shall be entitled to sick leave and annual vacation consistent with the Company's customary sick leave and vacation policies. 5. Expenses. During the term of this Agreement, the Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in connection with the business of the Company and in performance of his duties under this Agreement upon the Executive's presentation to the Company of an itemized accounting of such expenses with reasonable supporting data. 6. Term. (a) The Executive's employment under this Agreement shall commence on the date first set forth above and shall continue until terminated by the Company as provided in this Section 6(a) or by the Executive as provided in Section 6(c) below. The Company may at its election, as determined by the affirmative vote of not less than a majority of the Board, terminate the obligations of the Company under this Agreement as follows: (i) Upon at least sixty (60) days prior written notice, if the Executive 2 3 becomes physically or mentally incapacitated or is injured so that he is unable to perform the services required of him hereunder and such inability to perform continues for a period in excess of six (6) months and is continuing at the time of such notice; or (ii) For "Cause" upon prior written notice of such termination to the Executive. For purposes of this Agreement, the Company shall have "Cause" to terminate its obligations hereunder upon (A) the Board's determination that the Executive has ceased or failed to substantially perform his duties hereunder (other than as a result of his incapacity due to physical or mental illness or injury), and at least In: sixty (60) days prior written notice to the Executive, (B) the Executive's death, (C) the Board's determination that the Executive has engaged or is about to engage in conduct materially injurious to the Company, (D) the Executive's having been convicted of a felony, or (E) the Executive's participation in activities proscribed by the provisions of Sections 2, 8 or 10 hereof or material breach of any of the other covenants herein; or (iii) Without Cause upon written notice of such termination to the Executive. (b) If this Agreement is terminated pursuant to Section 6(a)(i) above, subject to Section 10(d) below, the Executive shall receive severance pay until the fourth anniversary of the date hereof at the rate of one hundred percent (100%) of the Base Salary, reduced by applicable payroll taxes and further reduced by the amount received by the Executive during such period under any Company-maintained disability insurance policy or plan or under Social Security or similar laws. Such severance payments shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. If this Agreement is terminated pursuant to Section 6(a)(ii) above, the Executive shall receive no severance pay. If this Agreement is terminated pursuant to Section 6(a)(iii) above, the Executive shall receive severance pay, for a period of eighteen (18) months from and after such termination, equal to the Base Salary less the amount, if any, earned by the Executive from any other employer or from self-employment during such eighteen (18) month period whether as salary, consulting fees, deferred payments or other direct or indirect compensation. During such period the Executive shall inform the Company from time to time, but no less often than every three (3) months, of the Executive's employment and the amount of the Executive's compensation and earnings during such period. Such severance payments (less applicable payroll taxes) shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. (c) The Executive may terminate this Agreement for any reason upon at least sixty (60) days prior written notice. In the event of any such termination, the Executive shall not be entitled to any severance payments. 7. Representations. The Executive hereby represents to the Company that (a) he is legally entitled to enter into this Agreement and to perform the services and other obligations 3 4 contemplated herein; (b) he has, and throughout the term of this Agreement will continue to have, the full right, power and authority, subject to no rights of third parties, to grant to the Company the rights contemplated by Section 9 hereof, and (c) he is not subject to any agreement, rule, regulation or policy of any university, research institution or other third party inconsistent with the foregoing representations. 8. Disclosure of Information. (a) The Executive recognizes and acknowledges that the Company's trade secrets, know-how and proprietary processes as they may exist from time to time (including, without limitation, information regarding methods, cultures, vectors, plasmids, synthesis techniques, nucleic acid sequences, purification techniques and assay procedures) as well as the Company's confidential business plans and financial data are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. Except as provided in Section 8(b) below, the Executive shall not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, know-how, processes, business plans or financial data to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Executive make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity (except the Company) under any circumstances during or after the term of his employment, provided that after the term of his employment, these restrictions shall not apply to such secrets, know-how and processes which the Executive can establish by competent proof: (i) were known, other than under binder of secrecy, to the Executive prior to his employment by or consultancy to the Company; (ii) have passed into the public domain prior to or after their development by or for the Company, other than through acts or omissions attributable to the Executive; or (iii) were subsequently obtained, other than under binder of secrecy, from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. (b) Recognizing the desire of the Executive to disclose certain work done at the direction of the Company either in its laboratory or funded by the Company at a third party institution, either through publication in reputable scientific journals, participation in lectures, seminars or symposia, or by correspondence with other members of the scientific community (herein referred to as a "Disclosure"), the Executive and the Board shall confer and consult, one with the other, where any anticipated scientific Disclosure ought, for the sake of completeness, to contain some of the trade secrets, know-how or processes of the Company described in Section 8(a), with a view toward resolving the competing interests of confidentiality and desired scientific credit through disclosure in a manner fairly and reasonably consistent with the interests 4 5 of the Company on one hand, and those of the Executive on the other. No such Disclosure shall be made, nor any manuscript submitted for publication, unless and until (i) the Board has had at least 90 days to review the same, (ii) the Company, if desired, has had ample time to effect associated patent filings so as to preserve patent rights, (iii) with respect to such of the work done in the Company's laboratories, such Disclosure has been expressly authorized by the affirmative vote of at least a majority of the members of the Company's Board and (iv) such Disclosure is not prohibited under any agreement between the Company and any third party. (c) Upon termination of his employment hereunder, the Executive shall promptly turn over to the Company all originals and copies which he may have of any of the Company's confidential information described in this Section then in his possession or under his control. 9. Intellectual Property. The Executive hereby sells, transfers and assigns to the Company, or to any person or entity designated by the Company, the entire right, title and interest of the Executive in and to all inventions, ideas, discoveries and improvements (including, without limitation, all microorganisms, strains or cultures) whether patented or unpatented, and copyrightable material made or conceived by the Executive, solely or jointly, during the term hereof, which arise out of research or other activities conducted by, for or under the direction of the Company, whether or not conducted at the Company's facilities, or which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company. The Executive acknowledges that all copyrightable materials developed or produced by the Executive within the scope of his employment by or consultancy to the Company constitute works made for hire. The Executive shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents and shall give such testimony as may be necessary or required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute patent applications and, as to copyrightable material, to obtain copyrights thereof. Any such invention, idea, discovery or improvement disclosed by the Executive within one year following the termination of this Agreement shall be deemed to fall within the provisions of this Section 9 unless proved to have been first conceived and made following such termination. 10. Covenants Not to Compete or Interfere. (a) Subject to Section 10(b) below, during the term of this Agreement and the period ending twenty-four (24) months from and after the termination of the Executive's employment hereunder (including a termination at the expiration of the term hereof), the Executive shall not engage in any business (whether as an officer, director, owner, employee, partner, consultant, advisor or other direct or indirect participant) engaged in the development of gene therapy and/or gene isolation methods and/or the sale of products or rendering of services related to gene therapy or gene isolation and/or to any other activities which directly 5 6 compete with the Company's business activities. This Agreement shall not be construed to restrict the Executive's right to be employed as a faculty member of any university or employee of any nonprofit agency or foundation after any termination of this Agreement where this covenant not to compete shall continue to be in effect. During the period in which this covenant not to compete is in effect the Executive also shall not interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, supplier, lessor, lessee, employee, consultant, research partner or investor of the Company. (b) If this Agreement is terminated by the Company pursuant to Section 6(a)(iii) above, the provisions of the first sentence of Section 10(a) shall apply until twelve (12) months from and after such termination. (c) It is the desire and intent of the parties that the provisions of this Section 10 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular Subsection or portion of this Section 10 shall be adjudicated to be invalid or unenforceable, this Section 10 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section in the particular jurisdiction in which such adjudication is made. (d) In the event of any breach of the provisions of this Section 10 by the Executive, any and all rights of the Executive to receive severance payments under Section 6(b) above shall automatically terminate. 11. Injunctive Relief. If there is a breach or threatened breach of the provisions of Sections 8, 9 or 10 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining the Executive from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. 12. Sale of Stock; Annual Vesting. Pursuant to a Consulting Agreement, dated July 29, 1988, between the Company and the Executive (the "Consulting Agreement"), the Company issued and sold to the Executive, and the Executive purchased from the Company, at a purchase price of one cent ($0.01) per share, 10,000 shares of Common Stock of the Company (the "Common Stock") of the shares of Common Stock sold to the Executive, 2,500 shares current constitute restricted stock (the "Restricted Stock") subject to the restrictions and other provisions set forth below. All shares of Restricted Stock (including any shares received by Executive as a result of stock dividends, stock splits or any other forms of recapitalization) shall be subject to the restrictions set forth in Sections 12(a) to 12(e) hereof, and all shares of Common Stock owned by the Executive shall be subject to the restrictions set forth in Section 12(d) hereof. (a) No shares of Restricted Stock shall be disposed of by Executive either voluntarily or involuntarily, directly or indirectly, during the period commencing on the date hereof and ending on July 1, 1991 (the "Restricted Stock Period"), and any attempted disposition 6 7 of shares of Restricted Stock while they are restricted shall be null and void and of no effect. (b) If Executive's employment with the Company is terminated at any time during the Restricted Stock Period for any reason, then within the thirty (30) day period following such termination of employment, the Company shall buy and Executive (or Executive's personal representative if Executive is deceased or incompetent) shall sell to the Company all of the shares of Restricted Stock which are then restricted under this Agreement for a cash purchase price of $0.01 per share. (c) Executive hereby confirms that he acquired the shares of Common Stock solely for his own account for investment and not with a view to any distribution or public offering thereof. Executive will not, at any time (before or after the Restricted Stock Period) sell, offer for sale, pledge or otherwise dispose of any of the shares of Common Stock or any interest therein in the absence of either an effective current registration statement relating thereto under the Securities Act of 1933 (the "Act") or an opinion of counsel, in form and substance satisfactory to the Company, to the effect that registration is not required. Executive hereby acknowledges having been advised that (i) he must hold the shares of Common Stock indefinitely unless they are registered under the Act, or an exemption from registration becomes available, (ii) there is not likely to be a market for such shares in the foreseeable future and therefore no sales of such shares under Rule 144 under the Act will be possible, and (iii) sales of shares in reliance upon Rule 144 may be made only after the expiration of two years from the date of purchase and then only in limited amounts in accordance with the conditions of that rule, all of which must be met. (d) The certificates evidencing the Restricted Stock shall bear the following legend: "Transfer of this certificate and the shares represented hereby is restricted pursuant to the terms of an Employment Agreement, dated as of February 1, 1991 between Transkaryotic Therapies, Inc. and Dr. Richard F Selden. A copy of such agreement is on file at the principal offices of the Company. The securities represented by this certificate have not been registered under the Securities Act of 1933 and may be offered and sold only if registered pursuant to the provisions of such Act or if an exemption from registration is available." and stop transfer instructions shall be delivered by the Company to any transfer agent for the Restricted Stock. At the time or times when the restrictions in Subsection 12(a) hereof are terminated with respect to the Restricted Stock or the Restricted Stock is registered under the Act, such legend on the certificates evidencing such shares shall be appropriately amended and the stop transfer instructions shall be appropriately modified. If shares of Restricted Stock are repurchased by the Company pursuant to Subsection 12(c) hereof, then any property of any 7 8 description distributed with respect to the shares repurchased, including but not limited to stock dividends, but excluding cash dividends, shall be transferred to the Company at the same time the shares so repurchased are transferred to the Company. (e) During the Restricted Stock Period, the Company shall retain possession of all stock certificates evidencing Restricted Stock. Promptly after the release of any portion of the Restricted Stock from the restrictions provided for in this Agreement, the Company shall deliver to the Executive a certificate evidencing such portion of Restricted Stock. 13. Insurance. The Company may, at its election and for its benefit, insure the Executive against accidental loss or death, and the Executive shall submit to such physical examinations and supply such information as may be required in connection therewith. 14. Notices. Any notice required or permitted to be given under this Agreement to the Executive shall be sufficient if in writing and if sent by certified or registered mail to his residence, or in the case of the Company, to the Board, c/o Transkaryotic Therapies, Inc., 195 Albany Street, Cambridge, MA 02139, or to such other officers or addresses as the Company shall designate from time to time in writing too the Executive. Any such notice shall be effective on the earlier of (a) the date on which it is personally delivered or (b) three days after it is deposited in the United States mails, postage prepaid. 15. Waiver of Breach. A waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts. 16. Assignment. This Agreement may be assigned, without the consent of the Executive, by the Company to any person, partnership, corporation or other entity which succeeds to the business of the Company or which has purchased substantially all the assets of the Company, provided such assignee assumes all the liabilities of the Company hereunder. 17. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes any prior understandings or agreements between the Executive and the Company relating to the subject matter hereof (including, but not limited to, the Consulting Agreement, which is hereby terminated as of the date hereof). This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 8 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TRANSRARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ---------------------- Name: K. Michael Forrest --------------------- Title: President and CEO -------------------- /s/ Richard F. Selden -------------------------- Dr. Richard F. Selden 9 EX-10.24 31 PLEDGE AGREEMENT - TRECO 1 EXHIBIT 10.24 PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement"), dated as of May 14 , 1991, by and between Richard Selden, a resident of the Commonwealth of Massachusetts (the "Pledger") and Transkaryotic Therapies, Inc., a Delaware corporation (the "Pledgee"). 1. Pledge of Stock. The Pledgor hereby pledges, assigns, grants a security interest in, and delivers to the Pledgee, two thousand five hundred (2,500) shares of the common stock of the Pledgee (the "Stock"), to be held by the Pledgee subject to the terms and conditions hereinafter set forth. The certificates for such shares, accompanied by stock powers or other appropriate instruments of assignment thereof duly executed in blank by the Pledger, have been delivered to the Pledgee. 2. Definitions. As used herein, the following terms shall have the following meanings: (a) The term "Collateral" as used herein means the property at any time, whether now or hereafter, pledged to the Pledgee hereunder (whether described herein or not) and all income therefrom, increases therein and proceeds thereof, other than income, increases or proceeds received by the Pledger pursuant to 56 hereof. (b) The term "Stock" as used herein includes the shares of stock described in Section 1 hereof and any additional shares of stock at the time pledged with the Pledgee hereunder. (c) The term "Obligations" as used herein means all indebtedness, obligations and liabilities of the Pledger under the promissory note dated as of the date hereof, issued by the Pledger to the Pledgee in the original principal amount of $125,000 (the "Note"), now existing or hereafter arising, direct or indirect, absolute or contingent, matured or unmatured, arising by operation of law or otherwise. 3. Security for Obligations. This Agreement and the pledge of the Collateral hereunder is made with the Pledgee as security for the payment and performance of the Obligations. 4. Liquidation, Recapitalization, Etc. Any sums paid upon or with respect to any of the Stock upon the liquidation or dissolution of the issuer thereof shall be paid over to the Pledgee to be held by it as security for the Obligations; and in case any distribution of capital shall be made on or in respect of any of the Stock or any property shall be distributed upon or with respect to any of the Stock pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Pledgee to be held by it as security for the Obligations. All sums of money and 2 property paid or distributed in respect of the Stock upon such a liquidation, dissolution, recapitalization or reclassification which are received by the Pledgor shall, until paid or delivered to the Pledgee, be held in trust for the Pledgee as security for the Obligations. 5. Warrantor of Title. The Pledger warrants that he has good and marketable title to the Stock described in Section 1 hereof, subject to no pledges, liens, security interests, charges, options, restrictions or other encumbrances except the security interest created by this Agreement, and that he has power, authority and legal right to pledge all of such Stock pursuant to this Agreement. The Pledger covenants that he will defend the Pledgee's rights and security interest in such Stock against the claims and demands of all persons whomsoever; and the Pledger covenants that he will have the like title to and right to pledge the Collateral and will likewise defend the Pledgee's rights and security interest therein. 6. Dividends, Voting, Etc., Prior to Maturity. So long as no Event of Default (as such term is defined in the Note) shall have occurred and be continuing, the Pledger shall be entitled to receive all cash dividends paid in respect of the Stock, and payments on account of taxes and allocated corporate expenses in accordance with past practice, to vote the Stock and to give consents, waivers and ratifications in respect of the Stock. The Pledgor acknowledges and agrees that the Pledgee may cause the Stock to be transferred into its own name as collateral security. All such rights of the Pledger to receive cash dividends shall cease in case an Event of Default shall have occurred and be continuing. All such rights of the Pledger to vote and give consents, waivers and ratifications with respect to the Stock shall, at the Pledgee's option, as evidenced by the Pledgee's notifying the Pledger of such election, cease in case an Event of Default shall have occurred and be continuing. 7. Remedies. If an Event of Default shall have occurred and be continuing, the pledgee shall thereafter have the following rights and remedies (to the extent permitted by applicable law) in addition to the rights and remedies of a secured party under the Uniform Commercial Code of Massachusetts, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, at such time or times as the Pledgee deems expedient: (a) if the Pledgee so elects and gives notice of such election to the Pledger, the Pledgee may vote any or all shares of the Stock (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including, without limitation, for the liquidation of the assets of the issuer thereof, and give all consents, waivers and ratifications in respect of the Stock and otherwise act with respect thereto as though it were the outright owner thereof (the Pledger hereby irrevocably constituting and appointing the Agent the proxy and attorney-in-fact of the Pledger, with full power of substitution, to do so); (b) the Pledgee may demand, sue for, collect or make any compromise or settlement the Pledgee deems suitable in respect of any Collateral held by it hereunder; 2 3 (c) the Pledgee may sell, resell, assign and deliver, or otherwise dispose of any or all of the Collateral, for cash and/or credit and upon such terms at such place or places and at such time or times and to such persons, firms, companies or corporations as the Pledgee thinks expedient, all without demand for performance by the Pledgor or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; and (d) the Pledgee may cause all or any part of the Stock held by it to be transferred into its name or the name of its nominee or nominees, if it has not already done so. In the event of any disposition of the Collateral a provided in paragraph (c) of this Section 7, the Pledgee shall give to the Pledgor at least five (5) Business Days' prior written notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition is to be made. The pledgor hereby acknowledges that five (5) Business Days' prior written notice of such sale or sales shall be reasonable notice. The Pledgee may enforce its rights hereunder without any other notice and without compliance with any other Condition precedent now or hereunder imposed by statute, rule or law or otherwise (all of which are hereby expressly waived by the Pledgor, to the fullest extent permitted by law). The Pledgee may buy any part or all of the Collateral at any public sale and if any part or all of the Collateral is of a type customarily sold in a recognized market or is of the type which is the subject of widely-distributed Standard price quotations, the Pledgee may buy at private sale and may make payments thereof by any means. The Pledgee may apply the cash proceeds actually received from any sale or other disposition to the reasonable expenses of retaking, holding, preparing for sale, selling and the like, to reasonable attorneys' fees, travel and all other expenses which may be incurred by the Pledgee in attempting to collect the Obligations or to enforce this Agreement or in the prosecution or defense of any action or proceeding related to the subject matter of this Agreement; and then to the Obligations. Any surplus after the Obligations have been paid in full shall be paid to the Pledgor or to such other persons which are entitled thereto. The Pledger recognizes that the Pledgee may be unable to effect a public Sale of the Stock by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act") and other applicable laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers. The Pledgor agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a Commercially reasonable manner. The Pledgee shall be under no obligation to delay a sale of any of the Stock for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or such other applicable laws, even if the issuer would agree to do so. Subject to the foregoing, the Pledgee agrees that any sale of the Stock shall be made in a commercially reasonable manner. 3 4 The Pledgor agrees to do or cause to be done all such acts and things as may be necessary to make any sales of any portion or all of the Stock pursuant to this Section 7 valid and binding and in compliance with any and all applicable laws (including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations of the Securities and Exchange Commission applicable thereto and all applicable state securities or "Blue Sky" laws), regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. The Pledger further agrees that a breach of any of the covenants contained in this Section 7 will cause irreparable injury to the Pledgee, that the Pledgee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 7 shall be specifically enforceable against the Pledger and the Pledger hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants. 8. Marshaling. The Pledgee shall not be required to marshal any present or future security for (including but not limited to this Agreement and the Collateral pledged hereunder), or other assurances of payment of the Obligations or any of them, or to resort to such security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such security and other assurances of payment shall be cumulative and in addition to all other fights, however existing or arising. To the extent that he lawfully may, the Pledger hereby agrees that he will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Pledgee's rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that he lawfully may, the Pledger hereby irrevocably waives the benefits of all such laws. 9. Pledgor's Obligations Not Affected. The obligations of the Pledger hereunder shall remain in full force and effect without regard to, and shall not be impaired by (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Pledger; (b) any exercise or nonexercise, or any waivers by the Pledgee of any right, remedy, power or privilege under or in respect of any of the Obligations or any security therefor (including this Agreement); (c) any extensions or renewals of any Obligation; (d) any amendment to or modification of the Note or any instrument (other than this Agreement) securing any of the Obligations, or (e) the taking of additional security for, or any other assurances of payment of, any of the Obligations or the release or discharge or termination of any security or other assurances of payment for any of the Obligations, whether or not the Pledger shall have notice or knowledge of any of the foregoing. 10. Transfer, Etc., by Pledgor. Without the prior written consent of the Pledgee, the Pledger will not sell, assign, transfer or otherwise dispose of, grant any option with respect to, or pledge or grant any security interest in or otherwise encumber any of the Collateral or any interest therein, except the pledge thereof provided for in this Agreement. 4 5 11. Further Assurances. The Pledger will do all such acts, and will furnish to the Pledgee all such financing statements, certificates, legal opinions and other documents and will obtain all such governmental consents and corporate approvals and will do or cause to be done all such other things as the Pledgee may reasonably request from time to time in order to give full effect to this Agreement and to secure the rights of the Pledgee hereunder, all without any cost or expense to the Pledgee. 12. Pledgee's Exoneration. The powers conferred on the Pledgee hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon the Pledgee to exercise any such powers. The Pledgee shall be accountable only for the amounts it actually receives as a result of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to the Pledgor for any failure to act, except for its own gross negligence or any intentional misconduct. Under no circumstances shall the Pledgee be deemed to assume any responsibility for or obligation or duty with respect to any part or all of the Collateral of any nature or kind, other than the physical custody thereof, or any matter or proceedings arising out of or relating thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee shall not be required to take any action of any kind to collect, preserve or protect its or the Pledgor's rights in the Collateral or against other parties thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee's sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in i's possession, under Section 9-207 of the Uniform Commercial Code of the Commonwealth of Massachusetts or otherwise, shall be to deal with such Collateral in the same manner as the Pledgee deals with similar property for its own account. The Pledgees prior recourse to any part or all of the Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of the Obligations. 13. No Waiver, Etc. No act, failure or delay by the Pledgee shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by the Pledgee of any default or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. The Pledgor hereby waives presentment, notice of dishonor and protest of all instruments, included in or evidencing any of the Obligations or the Collateral, and any and all other notices and demands whatsoever. 14. Notice, Etc. All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class, postage prepaid, or, in the case of telegraphic, telecopy or telexed notice, when transmitted, answer back received, addressed as follows: if to the Pledgor, at 106 Bristol Road, Wellesley, MA 02181, and if to the Pledgee, at l95 Albany street, Cambridge, MA, or at such address as either party may designate in writing to the other. 15. Termination. Upon payment and performance in full of the Obligations in accordance with their terms and the performance by the Pledger of all of his covenants and 5 6 agreements hereunder or, if earlier, upon the Pledgee's termination of the Pledgor's employment by the Pledgee without cause (as such firm is defined in the Employment Agreement dated as of July 19, 1991 between the Pledgor and the Pledgee), this Agreement shall terminate and the Pledger shall be entitled the return of such Collateral as may then be held by the Pledgee hereunder. 16. Miscellaneous Provisions. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated except by a written document expressly referring to this Agreement and to the provisions so modified or limited, and executed by the party .o be charged. The execution and delivery of this Agreement and pledging of the Stock described in Section 1 hereof are within the Pledger's power and such execution and delivery and she pledging of such Stock do not contravene any law or any rule or regulation thereunder or of any judgment, decree or order of any tribunal or of any agreement or instrument to which the Pledger is a party or by which he or any of his property is bound or constitute a default thereunder. This Agreement and all Obligations of the Pledger shall be binding upon the successors and assigns of the Pledger, and shall, together with the rights and remedies of the Pledgee hereunder, inure to the benefit of the Pledgee, its successors in title and assigns. This Agreement is intended to take effect as an instrument under seal and this Agreement and the obligations of the Pledger hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. The descriptive section headings have been inserted for convenience of reference only and do not define or limit the provisions hereof. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. The pledger acknowledges receipt of a copy of this Agreement. Terms used herein without definition which are defined in the Uniform Commercial Code of Massachusetts have such defined meanings herein, unless the context otherwise indicates or requires. 17. Waiver of Jury Trial. The Pledger waives his right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, any rights or obligations hereunder or the Performance of any such rights or obligations. Except as prohibited by law, the pledger waives any right which he may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Pledgor (a) certifies that neither the Pledgee nor any representative, agent or attorney of the Pledgee has represented, expressly or otherwise, that the Pledgee would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that, in entering into this Agreement, the Pledgee is relying upon, among other things, the waivers and certifications contained in this Section 17. 6 7 IN WITNESS WHEREOF, intending to be legally bound, the Pledger and the Agent have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. PLEDGOR: /s/ Richard F. Selden ------------------------------------------- Richard Selden PLEDGEE: Transkaryotic Therapies, Inc. By: /s/ K. Michael Forrest ------------------------------------------- Title: President and CEO 7 EX-10.25 32 EMPLOYMENT AGREEMENT - TRECO 1 EXHIBIT 10.25 EMPLOYMENT AGREEMENT AGREEMENT, dated as of July 26, 1991 between Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and Dr. Douglas A. Treco (the "Executive"). 1. Employment. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company upon the terms and conditions herein set forth. 2. Duties. The Executive shall be engaged as a full-time employee to act as the Company's Director of Research and shall be subject to the instruction and control of the Company's Chief Scientific Officer. The Executive shall devote his entire time, attention and energies to the business of the Company and shall not engage in any other business activity or activities, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that, in the judgment of the Company, may conflict with the proper performance of the Executive's duties under this Agreement. Notwithstanding the foregoing, (a) with respect to businesses which do not compete with the Company, the Executive may invest his personal or family assets in such form or manner as will not require any services on the part of the Executive in the operation of the affairs of the companies in which such investments are made and in which his participation is solely that of an investor, and (b) the Executive may purchase securities in any corporation whose securities are regularly traded in recognized securities markets, provided that such investments shall not result in his collectively owning beneficially at any time one percent or more of the equity securities of any corporation engaged in a business competitive to that of the Company. 3. Compensation. (a) For services rendered under this Agreement, the Company shall pay the Executive an annual salary of $72,000 (the "Base Salary"), payable (after deduction of applicable withholding for federal and state income and payroll taxes) in equal monthly installments. The Company may review the Executive's compensation from time to time and award such bonuses or make such increases to the Base Salary as the Company determines are merited, based upon the Executive's performance and consistent with the Company's compensation policies. (b) In addition to salary payments under Section 3 (a) above, the Executive shall be eligible for and participate in such fringe benefits as shall be generally provided to executives of the Company, including incentive compensation, health insurance and retirement programs which may be adopted from time to time during the term hereof by the Company. Nothing herein contained shall be deemed to preclude the Company from granting such additional compensation or benefits to the Executive as it shall in its sole discretion determine. 4. Sick Leave and Vacation. During the term of this Agreement, the Executive shall be entitled to sick leave and annual vacation consistent with the Company's customary sick leave and vacation policies. 2 5. Expenses. During the term of this Agreement, the Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in connection with the business of the Company and in performance of his duties under this Agreement upon the Executive's presentation to the Company of an itemized accounting of such expenses with reasonable supporting data. 6. Term. (a) The Executive's employment under this Agreement shall commence on the date first set forth above and shall continue until terminated by the Company as provided in this Section 6(a) or by the Executive as provided in Section 6(c) below. The Company may at its election, terminate the obligations of the Company under this Agreement as follows: (i) Upon at least sixty (60) days prior written notice if the Executive becomes physically or mentally incapacitated or is injured so that he is unable to perform the services required of him hereunder and such inability to perform continues for a period in excess of six (6) months and is continuing at the time of such notice; or (ii) For "Cause" upon prior written notice of such termination to the Executive. For purposes of this Agreement, the Company shall have "Cause" to terminate its obligations hereunder upon (a) the Company's determination that the Executive has ceased or failed to substantially perform his duties hereunder (other than as a result of his incapacity due to physical or mental illness or injury), and at least sixty (60) days prior written notice to the Executive, (b) the Executive's death, (c) the Company's determination that the Executive has engaged or is about to engage in conduct materially injurious to the Company, (d) the Executive's having been convicted of a felony, or (e) the Executive's participation in activities proscribed by the provisions of Sections 2, 8 or 10 hereof or material breach of any of the other covenants herein; or (iii) Without Cause upon at least thirty (30) days prior written notice of such termination to the Executive. (b) If this Agreement is terminated pursuant to Section 6(a)(i) above, subject to Section 10(d) below, the Executive shall receive severance pay until the fourth anniversary of the date hereof at the rate of one hundred percent (100%) of Base Salary, reduced by applicable payroll taxes and further reduced by the amount received by the Executive during such period under any Company maintained disability insurance policy or plan or under Social Security or similar laws. Such severance payments shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. If this Agreement is terminated pursuant to Section 6(a)(ii) above, the Executive shall receive no severance pay. If this Agreement is terminated pursuant to Section 6(a)(iii) above, the Executive shall receive severance pay, for a period of twelve (12) months from and after such termination, equal to the Base Salary less the amount, if any, earned by the Executive from other employer or from selfemployment during such twelve (12) month period whether as salary, consulting fees, 2 3 deferred payments or other direct or indirect compensation. During such period the Executive shall inform the Company from time to time, but no less often than every three (3) months, of the Executive's employment and the amount of the Executive's compensation and earnings during such period. Such severance payments (less applicable payroll taxes) shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. (c) The Executive may terminate this Agreement for any reason upon at least sixty (60) days prior written notice. In the event of any such termination, the Executive shall not be entitled to any severance payments. 7. Representations. The Executive hereby represents- to the Company that (a) he is legally entitled to enter into this Agreement and to perform the services and other obligations contemplated herein, (b) he has, and throughout the term of this Agreement will continue to have, the full right, power and authority, subject to no rights of third parties, to grant to the Company the rights contemplated by Section 9 hereof, and (c) he is not subject to any agreement, rule, regulation or policy of any university, research institution or other third party inconsistent with the foregoing representations. 8. Disclosure of Information. (a) The Executive recognizes and acknowledges that the Company's trade secrets, know-how and proprietary processes as they may exist from time to time (including, without limitation, information regarding methods, cultures, vectors, plasmids, synthesis techniques, nucleic acid sequences, purification techniques and assay procedures) as well as the Company's confidential business plans and financial data are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. Except as provided in Section 8(b) below, the Executive shall not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, know-how, processes, business plans or financial data to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Executive make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity (except the Company) under any circumstances during or after the term of his employment provided that after the term of his employment, these restrictions shall not apply to such secrets, know-how and processes which the Executive can establish by competent proof: (i) were known, other than under binder of secrecy, to the Executive prior to his employment by the Company; (ii) have passed into the public domain prior to or after their development by or for the Company, other than through acts or omissions attributable to the Executive; or (iii) were subsequently obtained, other than- under binder of secrecy, 3 4 from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. (b) Recognizing the desire of the Executive to disclose certain work done at the direction of the Company either in its laboratory or funded by the Company at a third party institution, either through publication in reputable scientific journals, participation in lectures, seminars or symposia, or by correspondence with other members of the scientific community (herein referred to as a "Disclosure"), the Executive and the Company shall confer and consult, one with the other, where any anticipated scientific Disclosure ought, for the sake of completeness, to contain some of the trade secrets, know-how or processes of the Company described in Section 8(a), with a view toward resolving the competing interests of confidentiality and desired scientific credit through disclosure in a manner fairly and reasonably consistent with the interests of the Company on one hand, and those of the Executive on the other. No such Disclosure shall be made, nor any manuscript submitted for publication, unless and until (i) the Company has had at least ninety (90) days to review the same, (ii) the Company, if desired, has had ample time to effect associated patent filings so as to preserve patent rights, (iii) with respect y to such of the work done in the Company's laboratories, such Disclosure has been expressly authorized by the affirmative vote of at least a majority of the members of the Company's Board of Directors and (iv) such Disclosure is not prohibited under any agreement between the Company and any third party. (c) Upon termination of his employment hereunder, the Executive shall promptly turn over to the Company all originals and copies which he may have of any of the Company's confidential information described in this Section 8. 9. Intellectual Property. The Executive hereby sells, transfers and assigns to the Company, or to any person or entity designated by the Company, the entire right, title and interest of the Executive in and to all inventions, ideas, discoveries and improvements (including, without limitation, all microorganisms, strains or cultures), whether patented or unpatented, and copyrightable material made or conceived by the Executive, solely or jointly, during the term hereof, which arise out of research or other activities conducted by, for or under the direction of the Company, whether or not conducted at the Company's facilities, or which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company. The Executive acknowledges that all-copyrightable materials developed or produced by the Executive within the scope of his employment constitute works made for hire. The Executive shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents and shall give such testimony as may be necessary or required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute patent applications and, as to copyrightable material, to obtain copyrights thereof. Any such invention, idea, discovery or improvement disclosed by the Executive within one year following the termination of this Agreement shall be deemed to fall within the 4 5 provisions of this Section 9 unless proved to have been first conceived and made following such termination. 10. Covenants Not to Compete or Interfere. (a) Subject to Section 10(b) below, during the term of this Agreement and the period ending twenty-four (24) months from and after the termination of the Executive's employment hereunder, the Executive shall not engage in any business (whether as an officer, director, owner, employee, partner, consultant, advisor or other direct or indirect participant) engaged in the development of gene therapy and/of gene-isolation methods and/or the sale of products or rendering of services related to gene therapy or gene isolation and/or to any other activities which directly compete with the Company's business activities. This Agreement shall not be construed to restrict the Executive's right to be employed as a faculty member of any university or employee of any nonprofit agency or foundation after any termination of this Agreement where this covenant not to compete shall continue to be in effect. During the period in which this covenant not to compete is in effect the Executive also shall not interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, supplier, lessor, lessee, employee, consultant, research partner or investor of the Company. (b) If this Agreement is terminated by the Company pursuant to Section 6(a)(iii) above, the provisions of the first sentence of Section 10(a) shall apply until twelve (12) months from and after such termination. (c) It is the desire and intent of the parties that the provisions of this Section 10 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular Subsection or portion of this Section 10 shall be adjudicated to be invalid or unenforceable, this Section 10 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section in the particular jurisdiction in which such adjudication is made. (d) in the event of any breach of the provisions of this Section 10 by the Executive, any and all rights of the Executive to receive severance payments under Section 6(b) above shall automatically terminate. 11. Injunctive Relief. If there is a breach or threatened breach of the provisions of Sections 8, 9 or 10 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining the Executive from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. 12. Insurance. The Company may, at its election and for its benefit, insure the Executive against accidental loss or death, and the Executive shall submit to such physical 5 6 examinations and supply such information as may be required in connection therewith. 13. Notices. Any notice required or permitted to be given under this Agreement to the Executive shall be sufficient if in writing and if sent by certified or registered mail to his residence, or in the case of the Company, to Transkaryotic Therapies, Inc., 195 Albany Street, Cambridge, MA 02139, or to such other offices or addresses as the Company shall designate from time to time in writing to the Executive. Any such notice shall be effective on the earlier of (a) the date on which it is personally delivered or (b) three (3) days after it is deposited in the United States mails, postage prepaid. 14. Waiver of Breach. A waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts. 16. Assignment. This Agreement may be assigned, without the consent of the Executive, by the Company to any person, partnership, corporation or other entity which succeeds to the business of the Company or which has purchased substantially all the assets of the Company, provided such assignee assumes all the liabilities of the Company hereunder. 17. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes any prior letters of understanding or employment agreements between the Executive and the Company, except Section 12 of the Employment Agreement between them dated as of July 26, 1988, which Section shall remain in full force and effect. This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ---------------------------------- Title: President & CEO ------------------------------- /s/ Douglas A. Treco ------------------------------------- Douglas A. Treco 6 EX-10.26 33 PLEDGE AGREEMENT - TRECO 1 EXHIBIT 10.26 PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement"), dated as of August 15, 1991, by and between Douglas A. Treco, a resident of the Commonwealth of Massachusetts (the "Pledgor") and Transkaryotic Therapies, Inc., a Delaware corporation (the "Pledgee"). Section 1. Pledge of Stock. The Pledgor hereby pledges, assigns, grants a security interest in, and delivers to the Pledgee, One Thousand Two Hundred Fifty (1,250) shares of the common stock of the Pledgee (the "Stock"), to be held by the Pledgee subject to the terms and conditions hereinafter set forth. The certificates for such shares, accompanied by stock powers or other appropriate instruments of assignment thereof duly executed in blank by the Pledgor, have been delivered to the Pledgee. Section 2. Definitions. As used herein, the following terms shall have the following meanings: (a) The term "Collateral" as used herein means the property at any time, whether now or hereafter, pledged to the Pledgee hereunder (whether described herein or not) and all income therefrom, increases therein and proceeds thereof, other than income, increases or proceeds received by the Pledgor pursuant to Section 6 hereof. (b) The term "Stock" as used herein includes the shares of stock described in Section 1 hereof and any additional shares of stock at the time pledged with the Pledgee hereunder. (c) The term "Obligations" as used herein means all indebtedness, obligations and liabilities of the Pledgor under the promissory note dated as of the date hereof, issued by the Pledgor to the Pledgee in the original principal amount of $60,000 (the "Note"), now existing or hereafter arising, direct or indirect, absolute or contingent, matured or unmatured, arising by operation of law or otherwise. Section 3. Security for Obligations. This Agreement and the pledge of the Collateral hereunder is made with the Pledgee; as security for the payment and performance of the Obligations. Section 4. Liquidation, Recapitalization, Etc. Any sums paid upon or with respect to any of the Stock upon the liquidation or dissolution of the issuer thereof shall be paid over to the Pledgee to be held by it as security for the Obligations; and in case any distribution of capital shall be made on or in respect of any of the Stock or any property shall be distributed upon or with respect to any of the Stock pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Pledgee to be held by it as security for the Obligations. All sums of money 2 and property paid or distributed in respect of the Stock upon such a liquidation, dissolution, recapitalization or reclassification which are received by the Pledgor shall, until paid or delivered to the Pledgee, be held in trust for the Pledgee as security for the Obligations. Section 5. Warranty of Title. The Pledgor warrants that he has good and marketable title to the Stock described in Section 1 hereof, subject to no pledges, liens, security interests, charges, options, restrictions or other encumbrances except the security interest created by this Agreement, and that he has power, authority and legal right to pledge all of such Stock pursuant to this Agreement. The Pledgor covenants that he will defend the Pledgee's rights and security interest in such Stock against the claims and demands of all persons whomsoever, and the Pledgor covenants that he will have the like title to and right to pledge the Collateral and will likewise defend the Pledgee's rights and security interest therein. Section 6. Dividends, Voting, Etc., Prior to Maturity. So long as no Event of Default (as such term is defined in the Note) shall have occurred and be continuing, the Pledgor shall be entitled to receive all cash dividends paid in respect of the Stock, and payments on account of taxes and allocated corporate expenses in accordance with past practice, to vote the Stock and to give consents, waivers and ratifications in respect of the Stock. The Pledgor acknowledges and agrees that the Pledgee may cause the Stock to be transferred into its own name as collateral security. All such rights of the Pledgor to receive cash dividends shall cease in case an Event of Default shall have occurred and be continuing. All such rights of the Pledgor to vote and give consents, waivers and ratifications with respect to the Stock shall, at the Pledgee's option, as evidenced by the Pledgee's notifying the Pledgor of such election, cease in case an Event of Default shall have occurred and be continuing. Section 7. Remedies. If an Event of Default shall have occurred and be continuing, the pledgee shall thereafter have the following rights and remedies (to the extent permitted by applicable law) in addition to the rights and remedies of a secured party under the Uniform Commercial Code of Massachusetts, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, at such time or times as the Pledgee deems expedient: (a) if the Pledgee so elects and gives notice of such election to the Pledgor, the Pledgee may vote any or all shares of the Stock (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including, without limitation, for the liquidation of the assets of the issuer thereof, and give all consents, waivers and ratifications in respect of the Stock and otherwise act with respect thereto as though it were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Agent the proxy and attorney-in-fact of the Pledgor, with full power of substitution, to do so); (b) the Pledgee may demand, sue for, collect or make any compromise or settlement the Pledgee deems suitable in respect of any Collateral held by it hereunder; (c) the Pledgee may sell, resell, assign and deliver, or otherwise dispose of any or all of the Collateral, for cash and/or credit and upon such terms at such place or places and at such time or times and to such persons, firms, companies or corporations - 2 - 3 as the Pledgee thinks expedient, all without demand for performance by the Pledgor or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; and (d) the Pledgee may cause all or any part of the Stock held by it to be transferred into its name or the name of its nominee or nominees, if it has not already done so. In the event of any disposition of the Collateral as provided in paragraph (c) of this Section 7, the Pledgee shall give to the Pledgor at least five (5) Business Days' prior written notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition is to be made. The Pledgor hereby acknowledges that five (5) Business Days' prior written notice of such sale or sales shall be reasonable notice. The Pledgee may enforce its rights hereunder without any other notice and without compliance with any other condition precedent now or hereunder imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by the Pledgor, to the fullest extent permitted by law). The Pledgee may buy any part or all of the Collateral at any public sale and if any part or all of the Collateral is of a type customarily sold in a recognized market or is of the type which is the subject of widely-distributed standard price quotations, the Pledgee may buy at private sale and may make payments thereof by any means. The Pledgee may apply the cash proceeds actually received from any sale or other disposition to the reasonable expenses of retaking, holding, preparing for sale, selling and the like, to reasonable attorneys' fees, travel and all other expenses which may be incurred by the Pledgee in attempting to collect the Obligations or to enforce this Agreement or in the prosecution or defense of any action or proceeding related to the subject matter of this Agreement; and then to the Obligations. Any surplus after the Obligations have been paid in full shall be paid to the pledger or to such other persons which are entitled thereto. The Pledgor recognizes that the Pledgee may be unable to effect a public sale of the Stock by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act") and other applicable laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers. The Pledgor agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a commercially reasonable manner. The Pledgee shall be under no obligation to delay a sale of any of the Stock for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or such other applicable laws, even if the issuer would agree to do so. Subject to the foregoing, the Pledgee agrees that any sale of the Stock shall be made in a commercially reasonable manner. The Pledgor agrees to do or cause to be done all such acts and things as may be necessary to make any sales of any portion or all of the Stock pursuant to this Section 7 valid and binding and in compliance with any and all applicable laws (including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended. The rules and regulations of the Securities and Exchange Commission applicable thereto and all applicable state securities or "Blue Sky" laws), regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction - 3 - 4 over any such sale or sales. All at the Pledgor's expense. The Pledgor further agrees that a breach of any of the covenants contained in this Section 7 will cause irreparable injury to the Pledgee, that the Pledgee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 7 shall be specifically enforceable against the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants. Section 8. Marshaling. The Pledgee shall not be required to marshal any present or future security for (including but not limited to this Agreement and the Collateral pledged hereunder), or other assurances of payment of, the Obligations or any of them, or to resort to such security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that he lawfully may, the Pledgor hereby agrees that he will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Pledgee's rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that he lawfully may, the Pledgor hereby irrevocably waives the benefits of all such laws. Section 9. Pledgor's Obligations Not Affected. The obligations of the Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Pledgor; (b) any exercise or nonexercise, or any waiver, by the Pledgee of any right, remedy, power or privilege under or in respect of any of the Obligations or any security therefor (including this Agreement); (c) any extensions or renewals of any Obligation; (d) any amendment to or modification of the Note or any instrument (other than this Agreement) securing any of the Obligations, or (e) the taking of additional security for, or any other assurances of payment of, any of the Obligations or the release or discharge or termination of any security or other assurances of payment for any of the Obligations, whether or not the Pledgor shall have notice or knowledge of any of the foregoing. Section 10. Transfer, Etc., by Pledgor. Without the prior written consent or the Pledgee, the Pledgor will not sell, assign, transfer or otherwise dispose of, grant any option with respect to, or pledge or grant any security interest in or otherwise encumber any of the Collateral or any interest therein, except for the pledge thereof provided for in this Agreement. Section 11. Further Assurances. The Pledgor will do all such acts, and will furnish to the Pledgee all such financing statements, certificates, legal opinions and other documents and will obtain all such governmental consents and corporate approvals and will do or cause to be done all such other things as the Pledgee may reasonably request from time to time in order to give full effect to this Agreement and to secure the rights of the Pledgee hereunder, all without any cost or expense to the Pledgee. Section 12. Pledgee's Exoneration. The powers conferred on the Pledgee hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon the Pledgee to exercise any such powers. The Pledgee shall be accountable only for the amounts it actually - 4 - 5 receives as a result of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to the Pledgor for any failure to act, except for its own gross negligence or any intentional misconduct. Under no circumstances shall the Pledgee be deemed to assume any responsibility for or obligation or duty with respect to any part or all of the Collateral of any nature or kind, other than the physical custody thereof, or any matter or proceedings arising out of or relating thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee shall not be required to take any action of any kind to collect, preserve or protect its or the Pledgor's rights in the Collateral or against other parties thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee's sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under Sections 9-207 of the Uniform Commercial Code of the Commonwealth of Massachusetts or otherwise, shall be to deal with such Collateral in the same manner as the Pledgee deals with similar property for its own account. The Pledgee's prior recourse to any part or all of the Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of the Obligations. Section 13. No Waiver, Etc. No act, failure or delay by the Pledgee shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by the Pledgee of any default or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. The Pledgor hereby waives presentment, notice of dishonor and protest of all instruments, included in or evidencing any of the Obligations or the Collateral, and any and all other notices and demands whatsoever. Section 14. Notice, Etc. All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class, postage prepaid, or, in the case of telegraphic, telecopy or telexed notice, when transmitted, answer back received, addressed as follows: if to the Pledgor, at his principal residence, and if to the Pledgee, at 195 Albany Street, Cambridge, MA, or at such address as either party may designate in writing to the other. Section 15. Termination. Upon payment and performance in full of the Obligations in accordance with their terms and the performance by the Pledgor of all of his covenants and agreements hereunder or, if earlier, upon the Pledgee' termination of the Pledgor's employment by the Pledgee without cause (as such term is defined in the Employment Agreement dated as of July 26, 1991 between the Pledgor and the Pledgee), this Agreement shall terminate and the Pledgor shall be entitled the return of such Collateral as may then be held by the Pledgee hereunder. Section 16. Miscellaneous Provisions. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated except by a written document expressly referring to this Agreement and to the provisions so modified or limited, and executed by the party to be charged. The execution and delivery of this Agreement and pledging of the Stock described in Section 1 hereof are within the Pledgor's power and such execution and delivery and the pledging of such Stock do not contravene any law or any rule or regulation thereunder or of any judgment, decree or order of any tribunal or of any agreement or instrument to which the Pledgor is a - 5 - 6 party or by which he or any of his property is bound or constitute a default thereunder. This Agreement and all obligations of the Pledgor shall be binding upon the successors and assigns of the Pledgor, and shall, together with the rights and remedies of the Pledgee hereunder, inure to the benefit of the Pledgee, its successors in title and assigns. This Agreement is intended to take effect as an instrument under seal and this Agreement and the Obligations of the Pledgor hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. The descriptive section headings have been inserted for convenience of reference only and do not define or limit the provisions hereof. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. The Pledgor acknowledges receipt of a copy of this Agreement. Terms used herein without definition which are defined in the Uniform Commercial Code of Massachusetts have such defined meanings herein, unless the context otherwise indicates or requires. Section 17. Waiver of Jury Trial. The Pledgor waives his right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, any rights or obligations hereunder or the Performance of any such rights or obligations. Except as prohibited by law, the Pledgor waives any right which he may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Pledgor (a) certifies that neither the Pledgee nor any representative, agent or attorney of the Pledgee has represented, expressly or otherwise, that the Pledgee would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that, in entering into this Agreement, the Pledgee is relying upon, among other things, the waivers and certifications contained in this Section 17. - 6 - 7 IN WITNESS WHEREOF, intending to be legally bound, the Pledgor and the Agent have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. PLEDGOR: /s/ Douglas A. Treco ------------------------------------------ Douglas A. Treco PLEDGEE: TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ------------------------------------------ Title: President and CEO - 7 - EX-10.27 34 EMPLOYMENT AGREEMENT - ADAMS 1 EXHIBIT 10.27 EMPLOYMENT AGREEMENT AGREEMENT, dated as of November 20, 1993, between Transkaryotic Therapies, Inc., a Delaware corporation (the "Company"), and Christoph Michael Adams, Ph.D. (the "Executive"). 1. EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company upon the terms and conditions herein set forth. 2. DUTIES. The Executive shall be engaged as a full-time employee to act as the Company's Vice President, Business Development, and shall report to the Company's President and Chief Executive Officer. The Executive shall perform the duties consistent with such position as the President and Chief Executive Officer shall from time to time designate. The Executive shall devote his entire time, attention and energies to the business of the Company and shall not engage in any other business activity or activities, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that, in the judgment of the Company, may conflict with the proper performance of the Executive's duties under this Agreement. Notwithstanding the foregoing, (a) with respect to businesses which do not compete with the Company, the Executive may invest his personal or family assets in such form or manner as will not require any services on the part of the Executive in the operation of the affairs of the companies in which such investments are made and in which his participation is solely that of an investor, and (b) the Executive may purchase securities in any corporation whose securities are regularly traded in recognized securities markets, provided that such investments shall not result in his collectively owning beneficially at any time one percent (1%) or more of the equity securities of any corporation engaged in a business competitive to that of the Company. 3. COMPENSATION. (a) Base Salary. For services rendered under this Agreement, the Company shall pay the Executive an annual salary of $135,000 (the "Base Salary"), payable (after deduction of applicable withholding for federal and state income and payroll taxes) in equal monthly installments. The Company may review the Executive's compensation from time to time and make such increases to the Base Salary as the Company determines are merited, based upon the Executive's performance and consistent with the Company's compensation policies. (b) Bonus. Within sixty (60) days after the Commencement Date (as defined in Section 6), the Company shall establish objective performance goals for the Executive for the remainder of calendar year 1994. At least thirty (30) days prior to each subsequent calendar year under this Agreement, the Company shall establish objective performance goals for the Executive for such calendar year. Upon the attainment of such performance goals, but subject to the overall performance of the Company during such year, the Executive shall be entitled to a bonus, up to a maximum of 25% of the Executive's Base Salary for the calendar year in question. Within thirty (30) days after the close of each such calendar year, the Company shall evaluate the attainment of the performance goals for such calendar year and determine the 2 amount of any performance bonus payable hereunder. Any such performance bonus shall be payable within ninety (90) days after the calendar year to which it relates. (c) Fringe Benefits. In addition to Base Salary and Bonus payments under Sections 3(a) and 3(b) above, the Executive shall be eligible for and participate in such fringe benefits as shall be generally provided to executives of the Company, including incentive compensation, the Company's 401(k) Plan, health and dental insurance, and any retirement programs, stock option plans or employee stock purchase plans which may be adopted from time to time during the term hereof by the Company. Nothing herein contained shall be deemed to preclude the Company from granting such additional compensation or benefits to the Executive as it shall in its sole discretion determine. (d) Stock Options. Upon authorization by the Company's Board of Directors or Compensation Committee, the Company will promptly grant the Executive under the Company's 1993 Long-Term Incentive Plan (the "Plan") a nonstatutory stock option to purchase an aggregate of forty thousand (40,000) shares of the Common Stock of the Company, par value $.01 per share, at a purchase price of one cent ($0.01) per share. Such option will vest annually for a period of six years in installments of 6,666 shares each, with any remaining shares vesting on the sixth anniversary hereof. Such option shall be exercisable during the ten (10) year period following its date of vesting and shall be subject to all the terms and conditions of the Plan and the Company's standard form of Stock Option Agreement, copies of which have been delivered to the Executive separately. 4. SICK LEAVE AND VACATION. During the term of this Agreement, the Executive shall be entitled to sick leave and annual vacation consistent with the Company's customary sick leave and vacation policies provided that such annual vacation shall in no event be less than three (3) weeks. 5. EXPENSES. (a) General. During the term of this Agreement, the Company shall reimburse the Executive in accordance with the Company's customary policies for all reasonable out-of-pocket expenses incurred by the Executive in connection with the business of the Company and in performance of his duties under this Agreement upon the Executive's presentation to the Company of an itemized accounting of such expenses with reasonable supporting data. (b) Relocation Expenses. The Company shall pay a $20,000 lump sum amount to the Executive which may be applied to the costs of purchasing a home in the greater Boston area. In addition, the Company will reimburse the Executive (x) for the Executive's reasonable, out-of-pocket moving expenses relating to his relocation from Switzerland to the greater Boston area, (y) for the reasonable, out-of-pocket expense of staying two weeks at a hotel in the greater Boston area, together with reasonable, out-of-pocket living expenses during such two-week period, and (z) for the reasonable out-of-pocket rental (but no other expenses) of an apartment for a four-week period. Reimbursement of expenses by the Company hereunder will be made upon the Executive's presentation of an itemized accounting of such expenses with reasonable supporting data. - 2 - 3 6. TERM. (a) The Executive's employment under this Agreement shall commence on or before February 21, 1994 or such other date as the parties may mutually agree upon (the "Commencement Date") and shall continue until terminated by the Company as provided in this Section 6(a) or by the Executive as provided in Section 6(c) below. The Company may, at its election, terminate the obligations of the Company under this Agreement as follows: (i) Upon at least sixty (60) days prior written notice if the Executive becomes physically or mentally incapacitated or is injured so that he is unable to perform the services required of him hereunder and such inability to perform continues for a period in excess of six (6) months and is continuing at the time of such notice; or (ii) For "Cause" upon prior written notice of such termination to the Executive. For purposes of this Agreement, the Company shall have "Cause" to terminate its obligations hereunder upon (a) the Company's determination that the Executive has ceased or failed to substantially perform his duties hereunder (other than as a result of his incapacity due to physical or mental illness or injury), and at least thirty (30) days prior written notice to the Executive, (b) the Executive's death, (c) the Company's determination that the Executive has engaged or is about to engage in conduct materially injurious to the Company, (d) the Executive's having been convicted of a felony, or (e) the Executive's participation in activities proscribed by the provisions of Sections 2, 8 or 10 hereof or material breach of any of the other covenants herein; or (iii) Without Cause upon at least sixty (60) days prior written notice of such termination to the Executive. (b) If, within six (6) months of the date the Executive's employment hereunder commences, this Agreement is terminated for any reason (including, without limitation, termination by the Company without Cause or voluntary termination by the Executive, the Executive shall receive no severance pay. If, subsequent to such six (6) month period, this Agreement is terminated pursuant to Section 6(a)(i) above, subject to Section 10(d) below, the Executive shall receive severance pay until the fourth anniversary of the date hereof at the rate of one hundred percent (100%) of Base Salary, reduced by applicable payroll taxes and further reduced by the amount received by the Executive during such period under any Company maintained disability insurance policy or plan or under Social Security or similar laws. Such severance payments shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. If this Agreement is terminated at any time pursuant to Section 6(a)(ii) above, the Executive shall receive no severance pay. If this Agreement is terminated pursuant to Section 6(a)(iii) above more than six (6) months but within one (1) year after the date the Executive's employment hereunder commences, the Executive shall receive severance pay, for a period of six (6) months from and after such termination, equal to the Base Salary less the amount, if any, earned by the Executive during such six (6) month period, whether as salary, consulting fees, deferred payments or other direct or indirect compensation. If this Agreement is terminated pursuant to Section 6(a)(iii) above more than one (1) year after the date the Executive's employment hereunder commences, the Executive shall receive severance pay, for a period of twelve (12) months from and after such termination, equal to the Base Salary less - 3 - 4 the amount, if any, earned by the Executive during such twelve (12) month period, whether as salary, consulting fees, deferred payments or other direct or indirect compensation. During any such six (6) month or twelve (12) month period the Executive shall inform the Company from time to time, but no less often than every three (3) months, of the Executive's employment and the amount of the Executive's compensation and earnings during such period. Such severance payments (less applicable payroll taxes) shall be paid periodically to the Executive as provided in Section 3(a) for the payment of Base Salary. (c) The Executive may terminate this Agreement for any reason upon at least sixty (60) days prior written notice. In the event of any such termination, the Executive shall not be entitled to any severance payments. 7. REPRESENTATIONS. The Executive hereby represents to the Company that (a) he is legally entitled to enter into this Agreement and to perform the services and other obligations contemplated herein, (b) he has, and throughout the term of this Agreement will continue to have, the full right, power and authority, subject to no rights of third parties, to grant to the Company the rights contemplated by Section 9 hereof, and (c) he is not subject to any agreement, rule, regulation or policy of any university, research institution or other third party inconsistent with the foregoing representations. 8. DISCLOSURE OF INFORMATION. (a) The Executive recognizes and acknowledges that the Company's trade secrets, know-how and proprietary processes as they may exist from time to time (including, without limitation, information regarding methods, cultures, vectors, plasmids, synthesis techniques, nucleic acid sequences, purification techniques and assay procedures) as well as the Company's confidential business plans and financial data are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. The Executive shall not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, know-how, processes, business plans or financial data to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Executive make use of any such property for his own purposes or for the benefit of any person, firm, Corporation or other entity (except the Company) under any circumstances during or after the term of his employment, provided that after the term of his employment, these restrictions shall not apply to such secrets, know-how and processes which the Executive can establish by competent proof: (i) were known, other than under binder of secrecy, to the Executive prior to his employment by the Company; (ii) have passed into the public domain prior to or after their development by or for the Company, other than through acts or omissions attributable to the Executive; or (iii) were subsequently obtained, other than under binder of secrecy, from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. - 4 - 5 (b) Upon termination of his employment hereunder, the Executive shall promptly turn over to the Company all originals and copies which he may have of any of the Company's confidential information described in this Section 8. 9. INTELLECTUAL PROPERTY. The Executive hereby sells, transfers and assigns to the Company, or to any person or entity designated by the Company, the entire right, title and interest of the Executive in and to all inventions, ideas, discoveries and improvements (including, without limitation, all microorganisms, strains or cultures), whether patented or unpatented, and copyrightable material made or conceived by the Executive, solely or jointly, during the term hereof, which arise out of research or other activities conducted by, for or under the direction of the Company, whether or not conducted at the Company's facilities, or which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company. The Executive acknowledges that all copyrightable materials developed or produced by the Executive within the scope of his employment constitute works made for hire. The Executive shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any such inventions, ideas, discoveries and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents and shall give such testimony as may be necessary or required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute patent applications and, as to copyrightable material, to obtain copyrights thereof. Any such invention, idea, discovery or improvement disclosed by the Executive within one (1) year following the termination of this Agreement shall be deemed to fall within the provisions of this Section 9 unless proved to have been first conceived and made following such termination. 10. COVENANTS NOT TO COMPETE OR INTERFERE. (a) Subject to Section 10(b) below, during the term of this Agreement and the period ending twenty-four (24) months from and after the termination of the Executive's employment hereunder, the Executive shall not engage in any business (whether as an officer, director, owner, employee, partner, consultant, advisor or other direct or indirect participant) engaged in the development of gene therapy and/or gene targeting and/or gene isolation methods and/or the sale of products or rendering of services related to gene therapy and/or gene targeting and/or gene isolation and/or to any other activities which directly compete with the Company's business activities. This Agreement shall not be construed to restrict the Executive's right to be employed as a faculty member of any university or employee of any nonprofit agency or foundation after any termination of this Agreement where this covenant not to compete shall continue to be in effect. During the period in which this covenant not to compete is in effect the Executive also shall not interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, supplier, lessor, lessee, employee, consultant, research partner or investor of the Company. (b) If this Agreement is terminated by the Company pursuant to Section 6(a)(iii) above, the provisions of the first sentence of Section 10(a) shall apply until twelve (12) months from and after such termination. - 5 - 6 (c) It is the desire and intent of the parties that the provisions of this Section 10 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular Subsection or portion of this Section 10 shall be adjudicated to be invalid or unenforceable, this Section 10 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section in the particular jurisdiction in which such adjudication is made. (d) In the event of any breach of the provisions of this Section 10 by the Executive, any and all rights of the Executive to receive severance payments under Section 6(b) above shall automatically terminate. 11. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the provisions of Sections 8, 9 or 10 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining the Executive from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. 12. INSURANCE. The Company may, at its election and for its benefit, insure the Executive against accidental loss or death, and the Executive shall submit to such physical examinations and supply such information as may be required in connection therewith. 13. NOTICES. Any notice required or permitted to be given under this Agreement to the Executive shall be sufficient if in writing and if sent by certified or registered mail to his residence, or in the case of the Company, to Transkaryotic Therapies, Inc., 195 Albany Street, Cambridge, MA 02139, Attention: President, or to such other offices or addresses as the Company shall designate from time to time in writing to the Executive. Any such notice shall be effective on the earlier of (a) the date on which it is personally delivered or (b) three (3) days after it is deposited in the United States mails, postage prepaid. 14. WAIVER OF BREACH. A waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 15. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts. 16. ASSIGNMENT. This Agreement may be assigned, without the consent of the Executive, by the Company to any person, partnership, corporation or other entity which succeeds to the business of the Company or which has purchased substantially all the assets of the Company, provided such assignee assumes all the liabilities of the Company hereunder. 17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and supersedes any prior understandings or agreements between the Executive and the Company. This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is - 6 - 7 sought. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written. TRANSKARYOTIC THERAPIES, INC. By: /s/ K. Michael Forrest ---------------------------------------- K. Michael Forrest, President and Chief Executive Officer /s/ Christoph Adams ---------------------------------------- Christoph Michael Adams, Ph.D. To be completed upon commencement of employment of the Executive: The definition of the Commencement Date, previously set forth in Section 6 hereof, is superseded and declared to be ___________________ , 199___. By: _______________________________ Christoph Michael Adams, Ph.D. TRANSKARYOTIC THERAPIES, INC. By: _________________________________ By: Title: - 7 - EX-10.28 35 PLEDGE AGREEMENT - ADAMS 1 EXHIBIT 10.28 PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement"), dated as of April 21, 1995, by and between Christoph M. Adams, a resident of the Commonwealth of Massachusetts (the "Pledgor") and Transkaryotic Therapies, Inc., a Delaware corporation (the "Pledgee"). Section 1. Pledge. The Pledgor hereby pledges, assigns, grants a security interest in, and delivers to the Pledgee, the Collateral (as defined below), to be held by the Pledgee subject to the terms and conditions hereinafter set forth. Section 2. Definitions. As used herein, the following terms shall have the following meanings: (a) The term "Collateral" as used herein means all the estate, right, title, and interest of the Pledgor, now owned or hereafter acquired, in, to, and under (i) the Option Agreement dated as November 16, 1994, between the Pledgee and the Pledgor, evidencing the Pledgor's option to purchase up to 40,000 shares of the Pledgee's Common Stock, $0.01 par value, at an exercise price of $0.01 per share, a copy of which Option Agreement is attached hereto as Exhibit A, to the extent (but only to the extent) applicable to 10,000 shares of the Pledgee's Common Stock (the "Stock") issuable thereunder (the security interest hereby granted being applicable to the first 10,000 shares of the Pledgee's Common Stock in respect of which the Pledgor's options vest in accordance with the terms of such Option Agreement) and (ii) any shares of the Pledgee's capital stock or other cash, securities, and/or other property that may be issued or issuable upon exercise of the Pledgor's rights under such Option Agreement in respect of the Stock. (b) The term "Obligations" as used herein means all indebtedness, obligations and liabilities of the Pledgor in respect of (i) a certain promissory note of the Pledgor to the Pledgee, dated as of the date hereof, in the original principal amount of $15,000; and (ii) a certain promissory note of the Pledgor to the Pledgee, to be dated as of May 5, 1995, in the original principal amount of $20,000, but only from and after the making of such promissory note (each of the foregoing promissory notes, a "Note," and collectively, the "Notes"). Section 3. Security for Obligations. This Agreement and the pledge of the Collateral hereunder is made with the Pledgee as security for the payment and performance of the Obligations. Section 4. Liquidation, Recapitalization, Etc. Any sums paid upon or with respect to any of the Stock upon the liquidation or dissolution of the issuer thereof shall be paid over to the Pledgee to be held by it as security for the Obligations; and in case any distribution of capital shall be made on or in respect of any of the Stock or any property shall be distributed upon or with respect to any of the Stock pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Pledgee to be held by it as security for the Obligations. All sums of money 2 and property paid or distributed in respect of the Stock upon such a liquidation, dissolution, recapitalization, or reclassification that are received by the Pledgor shall, until paid or delivered to the Pledgee, be held in trust for the Pledgee as security for the Obligations. Section 5. Warranty of Title. The Pledgor warrants that he has good and marketable title to the Stock described in Section 1 hereof, subject to no pledges, liens, security interests, charges, options, restrictions, or other encumbrances except the security interest created by this Agreement, and that he has power, authority, and legal right to pledge all of such Stock pursuant to this Agreement. The Pledgor covenants that he will defend the Pledgee's rights and security interest in such Stock against the claims and demands of all persons whomsoever; and the Pledgor covenants that he will have the like title to and right to pledge the Collateral and will likewise defend the Pledgee's rights and security interest therein. Section 6. Exercise of Options; Dividends, Voting, Etc., Prior to Maturity. The Pledgor shall not exercise his stock option rights comprised within the Collateral, unless the Pledgor first agrees to deliver the stock certificate(s) representing the shares for which such stock option rights are exercised, duly indorsed in blank for transfer or accompanied by appropriate stock powers duly executed in blank for transfer, which shares, certificates, and stock powers will constitute Collateral and will be held by the Pledgee until payment and performance in full of the obligations. So long as no Event of Default (as such term is defined in the Note) shall have occurred and be continuing, the Pledgor shall be entitled to receive all cash dividends paid in respect of the Stock, to vote the Stock, and to give consents, waivers, and ratifications in respect of the Stock. The Pledgor acknowledges and agrees that the Pledgee may cause the Stock to be transferred into its own name as collateral security. All such rights of the Pledgor to receive cash dividends shall cease in case an Event of Default shall have occurred and be continuing. All such rights of the Pledgor to vote and give consents, waivers, and ratifications with respect to the Stock shall, at the Pledgee's option, as evidenced by the Pledgee's notifying the Pledgor of such election, cease in case an Event of Default shall have occurred and be continuing. Section 7. Remedies. If an Event of Default shall have occurred and be continuing, the Pledgee shall thereafter have the following rights and remedies (to the extent permitted by applicable law) in addition to the rights and remedies of a secured party under the Uniform Commercial Code of Massachusetts, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively, or concurrently, at such time or times as the Pledgee deems expedient: (a) if the Pledgee so elects and gives notice of such election to the Pledgor, the Pledgee may vote any or all shares of the Stock (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including without limitation for the liquidation of the assets of the issuer thereof, and give all consents, waivers and ratifications in respect of the Stock and otherwise act with respect thereto as though it were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Agent the proxy and attorney-in-fact of the Pledgor, with full power of substitution, to do so); 2 3 (b) the Pledgee may demand, sue for, collect, or make any compromise or settlement the Pledgee deems suitable in respect of any Collateral held by it hereunder; (c) the Pledgee may sell, resell, assign, and deliver, or otherwise dispose of, any or all of the Collateral, for cash and/or credit and upon such terms at such place or places and at such time or times and to such persons, firms, companies, or corporations as the Pledgee thinks expedient, all without demand for performance by the Pledgor or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; (d) the Pledgee may cancel all or any portion of the options representing the Collateral (the dollar amount applied to reduce the Obligations secured by the Collateral to be equal to the difference between (A) the fair market value of a share of the Pledgee's Common Stock on the day prior to such option cancellation, as determined in good faith by the Pledgee's Board of Directors, minus (B.) the per share option exercise price of $0.01, multiplied by the number of options canceled, with any portion of such difference in excess of the Obligations to be remitted to the Pledgor upon satisfaction in full of all Obligations), and (e) the Pledgee may cause all or any part of the Stock held by it to be transferred into its name or the name of its nominee or nominees, if it has not already done so. In the event of any disposition of the Collateral as provided in paragraph (c) of this Section 7, the Pledgee shall give to the Pledgor at least five (5) business days' prior written notice of the time and place of any public sale of the Collateral or of the time after which any private sale or any other intended disposition is to be made. The Pledgor hereby acknowledges that five (5) business days' prior written notice of such sale or sales shall be reasonable notice. The Pledgee may enforce its rights hereunder without any other notice and without compliance with any other condition precedent now or hereunder imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by the Pledgor, to the fullest extent permitted by law). The Pledgee may buy any part or all of the Collateral at any public sale and if any part or all of the Collateral is of a type customarily sold in a recognized market or is of the type that is the subject of widely distributed standard price quotations, the Pledgee may buy at private sale and may make payments thereof by any means. The Pledgee may apply the cash proceeds actually received from any sale or other disposition to the reasonable expenses of retaking, holding, preparing for sale, selling and the like, to reasonable attorneys' fees, travel and all other expenses that may be incurred by the Pledgee in attempting to collect the Obligations or to enforce this Agreement or in the prosecution or defense of any action or proceeding related to the subject matter of this Agreement; and then to the Obligations. Any surplus after the Obligations have been paid in full shall be paid to the Pledgor or to such other persons that are entitled thereto. The Pledgor recognizes that the Pledgee may be unable to effect a public sale of the Stock by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act") and other applicable laws, but may be compelled to resort to one or more 3 4 private sales thereof to a restricted group of purchasers. The Pledgor agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a commercially reasonable manner. The Pledgee shall be under no obligation to delay a sale of any of the Stock for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or such other applicable laws, even if the issuer would agree to do so. Subject to the foregoing, the Pledgee agrees that any sale of the Stock shall be made in a commercially reasonable manner. The Pledgor agrees to do or cause to be done all such acts and things as may be necessary to make any sales of any portion or all of the Stock pursuant to this Section 7 valid and binding and in compliance with any and all applicable laws (including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations of the Securities and Exchange Commission applicable thereto and all applicable state securities or "Blue Sky" laws), regulations, orders, writs, injunctions, decrees, or awards of any and all courts, arbitrators, or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees that a breach of any of the covenants contained in this Section 7 will cause irreparable injury to the Pledgee, that the Pledgee has no adequate remedy at law in respect of such breach, and as a consequence, agrees that each and every covenant contained in this Section 7 shall be specifically enforceable against the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants. Section 8. Marshaling. The Pledgee shall not be required to marshal any present or future security for (including but not limited to this Agreement and the Collateral pledged hereunder), or other assurances of payment of, the Obligations or any of them, or to resort to such security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that he lawfully may, the Pledgor hereby agrees that he will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Pledgee's rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that he lawfully may, the Pledgor hereby irrevocably waives the benefits of all such laws. Section 9. Pledgor's Obligations Not Affected. The obligations of the Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Pledgor; (b) any exercise or nonexercise, or any waiver, by the Pledgee of any right, remedy, power or privilege under or in respect of any of the Obligations or any security therefor (including this Agreement); (c) any extensions or renewals of any of the Obligations; (d) any amendment to or modification of the Notes or any instrument (other than this Agreement) securing any of the Obligations, or (e) the taking of additional security for, or any 4 5 other assurances of payment of, any of the Obligations or the release or discharge or termination of any security or other assurances of payment for any of the Obligations, whether or not the Pledgor shall have notice or knowledge of any of the foregoing. Section 10. Transfer, Etc., by Pledgor. Without the prior written consent of the Pledgee, the Pledgor will not sell, assign, transfer, or otherwise dispose of, grant any option with respect to, or pledge or grant any security interest in or otherwise encumber any of the Collateral or any interest therein, except for the pledge thereof provided for in this Agreement. Section 11. Further Assurances. The Pledgor will do all such acts, and will furnish to the Pledgee all such financing statements, certificates, legal opinions, and other documents, and will obtain all such governmental consents and corporate approvals, and will do or cause to be done all such other things, as the Pledgee may reasonably request from time to time in order to give full effect to this Agreement and to secure the rights of the Pledgee hereunder, all without any cost or expense to the Pledgee. Section 12. Pledgee's Exoneration. The powers conferred on the Pledgee hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon the Pledgee to exercise any such powers. The Pledgee shall be accountable only for the amounts it actually receives as a result of such powers and neither it nor any of its officers, directors, employees, or agents shall be responsible to the Pledgor for any failure to act, except for its own gross negligence or any intentional misconduct. Under no circumstances shall the Pledgee be deemed to assume any responsibility for or obligation or duty with respect to any part or all of the Collateral of any nature or kind, other than the physical custody thereof, or any matter or proceedings arising out of or relating thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee shall not be required to take any action of any kind to collect, preserve, or protect its or the Pledgor's rights in the Collateral or against other parties thereto, other than to exercise reasonable care in the physical custody of the Collateral. The Pledgee's sole duty with respect to the custody, safekeeping, and physical preservation of the Collateral in its possession, under Sections 9-207 of the Uniform Commercial Code of the Commonwealth of Massachusetts or otherwise, shall be to deal with such Collateral in the same manner as the Pledgee deals with similar property for its own account. The Pledgee's prior recourse to any part or all of the Collateral shall not constitute a condition of any demand, suit, or proceeding for payment or collection of the Obligations. Section 13. No Waiver, Etc. No act, failure, or delay by the Pledgee shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by the Pledgee of any default, right, or remedy that it may have shall operate as a waiver of any other default, right, or remedy or of the same default, right or remedy on a future occasion. The Pledgor hereby waives presentment, notice of dishonor, and protest of all instruments included in or evidencing any of the Obligations or the Collateral, and any and all other notices and demands whatsoever. Section 14. Notice, Etc. All notices and other communications called for hereunder shall be 5 6 made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first-class, postage prepaid,~ or, in the case of telegraphic, telecopy or telexed notice, when transmitted, answer back received, addressed as follows: if to the Pledger, at his principal residence, and if to the Pledgee, at 195 Albany Street, Cambridge, MA, or at such address as either party may designate in writing to the other. Section 15. Termination. Upon payment and performance in full of the Obligations in accordance with their terms and the performance by the Pledgor of all of his covenants and agreements hereunder or, if earlier, upon the Pledgee's termination of the Pledgor's employment by the Pledgee without cause (as such term is defined in the Employment Agreement dated as of November 20, 1993, by and between the Pledgor and the Pledgee, or any successor agreement thereto), this Agreement shall terminate and the Pledgor shall be entitled the return of such Collateral as may then be held by the Pledgee hereunder. Section 16. Miscellaneous Provisions. Neither this Agreement nor any term hereof may be changed, waived, discharged, or terminated except by a written document expressly referring to this Agreement and to the provisions so modified or limited, and executed by the party to be charged. The execution and delivery of this Agreement and pledging of the Stock described in Section 1 hereof are within the Pledgor's power and such execution and delivery and the pledging of such Stock do not contravene any law or any rule or regulation thereunder or of any judgment, decree, or order of any tribunal or of any agreement or instrument to which the Pledgor is a party or by which he or any of his property is bound or constitute a default thereunder. This Agreement and all obligations of the Pledgor shall be binding upon the successors and assigns of the Pledgor, and shall, together with the rights and remedies of the Pledgee hereunder, inure to the benefit of the Pledgee and its successors in title and assigns. This Agreement is intended to take effect as an agreement under seal and this Agreement and the obligations of the Pledgor hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. The descriptive section headings have been inserted for convenience of reference only and do not define or limit the provisions hereof. If any term of this Agreement shall be held to be invalid, illegal, or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal, or unenforceable term had not been included herein. The Pledgor acknowledges receipt of a copy of this Agreement. Terms used herein without definition that are defined in the Uniform Commercial Code of Massachusetts have such defined meanings herein, unless the context otherwise indicates or requires. Section 17. Waiver of Jury Trial. The Pledgor waives his right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, any rights 6 7 or obligations hereunder or the Performance of any such rights or obligations. Except as prohibited by law, the Pledgor waives any right which he may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive, or consequential damages or any damages other than, or in addition to, actual damages. The Pledgor (a) certifies that neither the Pledgee nor any representative, agent or attorney of the Pledgee has represented, expressly or otherwise, that the Pledgee would not, in the event of litigation, seek to enforce the foregoing waivers, and (b) acknowledges that, in entering into this Agreement, the Pledgee is relying upon, among other things, the waivers and certifications contained in this Section 17. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement under seal as of the date first above written. PLEDGOR: PLEDGEE: TRANSKARYOTIC THERAPIES, INC. /s/ Christoph Adams By: /s/ Richard F. Selden - --------------------------------- -------------------------------- Christoph M. Adams Name: Richard F. Selden Title: President & CEO 7 8 TRANSKARYOTIC THERAPIES, INC. STOCK OPTION AGREEMENT AGREEMENT dated this 16th day of November, 1994, between Transkaryotic Therapies, Inc., a corporation organized under the laws of the State of Delaware (the "Company"), and the individual identified below, residing at the address there set out (the "Optionee"). 1. GRANT OF OPTION. Pursuant to the Company's 1993 Long-Term Incentive Plan as attached hereto as EXHIBIT A (the "Plan"), the Company grants to the Optionee an option (the "Option") to purchase from the Company all or any part of a total of forty thousand (40,000) shares (the "Optioned Shares") of the Company's Common Stock, par value $0.01 per share (the "Stock"), at a price of $0.01 per share. This Option is granted as of March 1, 1994 (the "Grant Date"). 2. CHARACTER OF OPTION. This Option is not to be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 3. DURATION OF OPTION. This Option shall expire (the "Option Expiration Date") on the earlier of (a) the tenth anniversary of the Grant Date and (b) the Optionee's termination of employment on account of death, disability or for another reason or other association with the Company and its Affiliates for any reason. For this purpose, military or sick leave shall not be deemed a termination of employment or other association, if it does not exceed the longer of 90 days or the period during which the Optionee's reemployment rights are guaranteed by statute or contract. 4. EXERCISE OF OPTION. Until its expiration, this Option may be exercised, in the manner specified in Section 7.2(d) of the Plan and subject to Section 7 hereof, in those installments of Optioned Shares identified in the table below, in full or in part, within the exercise period set opposite each such installment; provided, however, that if this Option does not otherwise terminate immediately upon the termination of the Optionee's employment or other association with the Company, after such termination this Option shall, until its expiration, be exercisable only to the extent exercisable immediately prior to such termination: NUMBER OF SHARES IN EACH INSTALLMENT EXERCISE PERIOD FOR SHARES IN INSTALLMENT
Not Earlier Than No Later Than ---------------- ------------- 6,666 First Anniversary Grant Date Option Expiration Date 6,667 Second Anniversary Grant Date Option Expiration Date 6,667 Third Anniversary Grant Date Option Expiration Date 6,666 Fourth Anniversary Grant Date Option Expiration Date
9 NUMBER OF SHARES IN EACH INSTALLMENT EXERCISE PERIOD FOR SHARES IN INSTALLMENT
Not Earlier Than No Later Than ---------------- ------------- 6,667 Fifth Anniversary Date Option Expiration Date 6,667 Sixth Anniversary Grant Date Option Expiration Date
5. TRANSFER OF OPTIONS. This Option is not transferable, and may be exercised only by the Optionee. 6. INCORPORATION OF PLAN TERMS. This Option is granted subject to all of the applicable terms and provisions of the Plan, including but not limited to the limitations on the Company's obligation to deliver Optioned Shares upon exercise set forth in Section 12 (Restrictions on Issuance of Shares), Section 15.4 (Tax Withholding) and Section 15.5 (Limitations of Rights in Stock). 7. STOCKHOLDERS' AGREEMENT. This Option may not be exercised unless the Optionee, on or prior to such date, has executed and delivered to the Company an Instrument of Adherence to the Stockholders' Agreement, dated as of September 16,1988 (the "Stockholders' Agreement), among the Company and certain of its stockholders, copies of which are attached hereto as Exhibit B. All Optioned Shares issued to the Optionee during the term of the Stockholders' Agreement shall be subject to the restrictions contained therein, and all stock certificates issued to the Optionee evidencing such shares shall contain a legend stating that the shares evidenced thereby are subject to certain restrictions under the Stockholders' Agreement. 8. MISCELLANEOUS. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts and shall be binding upon and inure to the benefit of any successor or assign of the Company and any executor, administrator, trustee, guardian, or other legal representative of the Optionee. IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date first above written. TRANSKARYOTIC THERAPIES, INC. /s/ Richard F. Selden /s/ C. Adams - ------------------------------------- ----------------------------------- Richard F. Selden Christoph M. Adams President and Chief Executive Officer Ten Baskin Road Lexington, MA 02173 EX-10.29 36 AGREEMENT DATED SEPTEMBER 1, 1991 1 EXHIBIT 10.29 TRANSKARYOTIC THERAPIES, INC. 195 Albany Street Cambridge, Massachusetts 02139 September 1, 1991 Mr. William R. Miller 150 East 52nd Street New York, New York 10022 Dear Mr. Miller: We are pleased to offer you a position on TKT's Board of Directors effective as of September 1, 1991, upon the following terms and conditions: 1. TERM. Unless you earlier resign or are removed, you will serve until the nest annual meeting of the Companies stockholders and until your successor is elected and qualified. 2. DIRECTORS' FEES. As compensation for your services, you will receive a Director's fee of $1,000 per Board meeting attended, payable promptly after each meeting. The Company will also reimburse you for reasonable out-of-pocket expenses incurred by you in rendering services to the Company upon presentation to the Company of an itemized and appropriately documented invoice for such expenses. 3. STOCK. The Company will sell to you upon joining the Board 500 shares of its Common Stock for $0.01 per share (an aggregate purchase price of $5.00), representing approximately 0.5% of the Companies currently outstanding Common Stock. Such stock will vest over a four-year period in accordance with the enclosed letter agreement. 4. CONFIDENTIALITY. (a) You recognize and acknowledge that the Company's trade secrets, know-how and proprietary processes as they may exist from time to time (including, without limitation, information regarding methods, cultures, vectors, plasmids, synthesis techniques, nucleic acid sequences, purification techniques and assay procedures) as well as the Company's confidential business plans and financial data are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of your duties as a Director of the Company. You agree that you will not, while you are serving as a Director of the Company or thereafter, in whole or in part, disclose such secrets, know-how, processes, business plans or financial data to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall you make use of any such property for your own purposes or for the benefit of any person, firm, corporation or other entity (except the Company) under any circumstances while you are Serving as a Director of the Company or thereafter, PROVIDED that these restrictions shall not apply to such secrets, know-how and processes which you can establish by competent proof: 2 (i) were known to you, other than under binder of secrecy, prior to your serving as a Director of the Company; (ii) have passed into the public domain prior to or after their development by or for the Company, other than through acts or omissions attributable to you; or (iii) were subsequently obtained by you, other than under binder of secrecy, from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. (b) Upon your resignation, removal or completion of your term as a Director of the Company, you shall promptly turn over to the Company all originals and copies of the Company's confidential information described in this Section 4 then in your possession or under your control. 5. COVENANTS NOT TO COMPETE. (a) While you serve as a Director of the Company, you shall not engage in any business (whether as an officer, director, owner, employee, partner, consultant, advisor or other direct or indirect participant) engaged in the development of gene therapy methods, and/or the sale of products or rendering of services related to gene therapy, and/or to any other activities which directly compete with the Company's business activities. During the period in which this covenant not to compete is in effect you also shall not interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, supplier, lessor, lessee, employee, consultant, research partner or investor of the Company. (b) It is the desire and intent of the parties that the provisions of this Section 5 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular subsection or portion of this Section 5 shall be adjudicated to be invalid or unenforceable, this Section 5 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section in the particular jurisdiction in which such adjudication is made. - 2 - 3 If you would like to accept our offer, please so indicate by countersigning the enclosed duplicate of this letter and returning it to the undersigned. Very truly yours, TRANSKARYOTIC THERAPIES, INC. By: /S/ K. Michael Forrest ------------------------------------ K. Michael Forrest President Accepted and agreed to: /S/ William R. Miller - ---------------------------------- William R. Miller Date: 9-27-91 - 3 - EX-10.30 37 AGREEMENT DATED JULY 30, 1993 1 EXHIBIT 10.30 AGREEMENT TO NOMINATE This Agreement to Nominate (the "Agreement"), made as of July 30, 1993, is by and between Transkaryotic Therapies, Inc., a Delaware corporation the Company), and Warburg, Pincus Capital Company, L.P., a Delaware corporation (the "Investor"). W I T N E S S E T H: WHEREAS, the Company and Warburg are parties to a Stock Purchase Agreement, dated as of July, 1988 (the "Class A Agreement"), which requires that the Company use its best efforts to cause certain nominees of Warburg to be elected an directors of the Company is certain circumstances; and WHEREAS, the Company, Warburg and certain other stockholders are party to a voting Rights Agreement, dated as of February 14, 1992 (the "Class B Agreement"), which provides for the election of certain designees of Warburg to the Board of Directors of the Company; and WHEREAS, the Company is contemplating a public offering of its securities which would cause the voting provisions of the Class A Agreement and the Class B Agreement to be terminated; and WHEREAS, Warburg has agreed to assist the Company in the contemplated public offering on the condition that the Company enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenant; hereinafter contained, the parties agree with each other ax follows: 1. Definitions. ----------- (a) "Common Stock" shall mean the Common Stock, par value $.01 per share, of the Company. (b) "IPO" shall mean the initial public offering of Common Stock to be underwritten on a firm commitment basis by Lehman Brothers and Morgan Stanley & Co., Incorporated, as Representatives of the underwriters,, as contemplated by the Company 8 Registration statement on Form S-1, Registration Number 33-65328. The Company hereby agrees, that from and after the closing of the IPO, (i) so long as Warburg owns at least twenty-five percent (25%) of the issued and outstanding Common Stock, the Company shall, at each annual meeting of stockholders of the Company, cause the nomination for election as directors of the Company (each, a "Nominee") at least two persons designated by Warburg, and (ii) so long as Warburg owns at least ten percent (log) of the issued and outstanding Common Stock, the Company shall, at each annual meeting of stockholders of the Company, cause the nomination for election as directors of the Company at least one person 2 designated by Warburg. In the absence of any designation by Warburg, the Company shall cause to nominated, as Nominee(s), the director(s) previously designated by Warburg and then serving if still eligible to serve. In the event of any vacancy on the Board of Directors created by the resignation, removal, incapacity or death of any person elected as a Nominee of Warburg, the Company shall cause a person designated by Warburg to be elected to fill such vacancy. 2. EFFECTIVENESS. This Agreement shall only take effect and be binding on the parties hereto if the IPO shall occur. 3. TERMINATION. This Agreement shall terminate on the earlier to occur of (i) the date on which Warburg holds less than ten percent (10%) of the Common Stock, or (ii) the tenth anniversary of the closing of the IPO. 4. REMEDIES. Each party to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement, and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that Warburg may in its sole discretion apply to any court of law or equity of competent jurisdiction in order to enforce or prevent any violations of the provisions of this Agreement. 5. NOTICES. All notices or other communications required or permitted to be delivered hereunder shall be in writing signed by the party giving the notice (i) to the Company, at Transkaryotic Therapies, Inc., 195 Albany Street, Cambridge, Massachusetts 02139, Attention: President, with a copy to Leslie Shapiro, Esq., Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts 02110; (ii) to Warburg, c/o E.M. Warburg, Pincus & Co., 466 Lexington Avenue, New York, New York 10017, Attention: James E. Thomas with a copy to Rodman W. Moorhead, III, at the same address; or (iii) to such other address as may be furnished in writing by either party to the other party. Notices shall be deemed effectively given when personally delivered or sent by telex, or a facsimile transmission, when delivered to a receipted courier, properly addressed, or three days after having been deposited into the United States mail, postage prepaid, and addressed to the recipient at the address set forth above whichever is earlier. 6. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the matters contemplated herein. This Agreement supersedes any and all prior understandings as to the subject matter of this Agreement, including without limitation the voting agreements contained in the Class A Agreement and the Class B Agreement. 2 3 7. AMENDMENTS WAIVERS AND CONSENTS. Any amendments to this Agreement, and any waivers of the provisions hereof, shall be in writing and shall be executed by both parties hereto. 8. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon the personal representatives, successors, transferees and assignees of the respective parties hereto. No party to this Agreement may assign any right granted or implied by this Agreement without the written consent of the other party. 9. GENERAL. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. In this Agreement the singular includes the plural, the plural, the singular, the masculine gender includes the neuter, masculine and feminine genders. This Agreement shall be governed by and construed under the laws of the State of Delaware. 10. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 11. COUNTERPARTS. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. TRANSKARYOTIC THERAPIES, INC. By: /S/ K. Michael Forrest ------------------------------------ Title: President and CEo WARBURG, PINCUS CAPITAL COMPANY, L.P. By: Warburg, Pincus & Co. ------------------------------------ Its General Partner By: /S/ Peter Stalker, III ------------------------------------ Title: Partner 3 EX-10.31 38 COMMON STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.31 THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. TRANSKARYOTIC THERAPIES, INC. Common Stock Purchase Warrant TRANSKARYOTIC THERAPIES, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received, Warburg Pincus Capital Company, L.P., or assigns, is entitled, subject to the terms set forth below, to purchase from the Company on or before 5:00 P.M., Boston time, on April 22, 1996, 1,334 fully paid and nonassessable shares of Common Stock, $0.01 par value, of the Company at a purchase price per share of $400.00 (such purchase price, as adjusted from time to time as provided herein, the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price thereof are subject to adjustment as provided in this Warrant. This Warrant is issued pursuant to and arising out of a certain Promissory Note (the "Note"), dated April 22, 1991 between the Company and the original holder of this Warrant, a copy of which Note is on file at the principal office of the Company. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Transkaryotic Therapies, Inc. and any corporation that shall succeed to or assume the obligations of Transkaryotic Therapies, Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $0.01 par value, as authorized on the date hereof, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Expiration Date" shall mean April 22, 1996. 2 (d) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Sections 4 and 5 or otherwise. (e) The term "Venture Capital Financing" shall mean any venture capital or institutional financing of the Company in which the aggregate gross proceeds received by the Company is at least $1,000,000 and in which the Company issues Common Stock or equity securities directly or indirectly convertible into Common Stock. (f) The term "Venture Capital Security" shall mean the Common Stock or equity security directly or indirectly convertible into Common Stock issued by the Company in a Venture Capital Financing. 1. Exercise of Warrant. ------------------- 1.1. FULL EXERCISE. This Warrant may be exercised in full by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment to the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.2. PARTIAL EXERCISE. This Warrant may be exercised in part by the holder hereof by surrender of this Warrant in the manner and place described in Section 1.1 above PROVIDED that the amount payable by the holder shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the accompanying subscription form by (b) the Purchase Price then in effect and provided further that the total number of exercises under this Warrant and any replacement Warrant(s) shall not exceed four. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the holder a new Warrant or Warrants of like tenor, in the name of the holder hereof, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of this Warrant minus the number of such shares with respect to which the partial exercise shall have occurred. 1.3. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof, acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, PROVIDED that if the holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4. TRUSTEE FOR WARRANT HOLDER. In the event that a bank or trust - 2 - 3 company shall have been appointed as trustee for the holder of this Warrant pursuant to Section 5.2, such bank or trust company shall have all the powers and duties of a warrant agent appointed pursuant to Section 13 and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after the exercise of this Warrant and in any event within thirty (30) days thereafter, the Company at its expense including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully said and nonassessable shares of Common Stock to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, and (b) will take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of this Warrant. 4. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, OR RECLASSIFICATION. In case at any time or from time to time, the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, OTHER THAN additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 6), then and in - 3 - 4 each such case the holder of this Warrant, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other Securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 4) which such holder would hold on the date of such exercise if on the date hereof he had been the holder of record of the number of shares of Common Stock provided for herein and had thereafter, during the period from the date hereof to find including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 4) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 5 and 6. 5. Adjustment for Reorganization, Consolidation or Merger. ------------------------------------------------------ 5.1. REORGANIZATION, CONSOLIDATION OR MERGER. In case at any time or from time to time the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, the holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date or such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise immediately prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustments thereafter as provided in Sections 4 and 6. 5.2. DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) (the "Property") receivable by tale holder of this Warrant after the effective date of such dissolution pursuant to this Subsection 5.2 to a bank or trust company having its principal office in Boston, Massachusetts, as trustee for the holder of this Warrant, pending the exercise of this Warrant. Such Property shall be delivered to the holder hereof upon payment of the Purchase Price for all of the shares of Common Stock subject to this Warrant. If this Warrant expires unexercised, then such Property shall be distributed pro rata to the stockholders of the Company. 5.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolutions following any transfer) referred to in this Section 5, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case maybe, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of - 4 - 5 this Warrant as provided in Section 3. 6. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (i) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, (X) be adjusted by multiplying the then current Purchase Price by a fraction, (a) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect and (Y) the number of shares of Common Stock for which this Warrant is then exercisable shall be increased or decreased, as the case may be, by the percentage increase or decrease in the total number of shares of Common Stock outstanding immediately after such event over the total number of shares of Common Stock outstanding immediately prior to such event and the result so obtained shall be the number of shares of Common Stock for which this Warrant is exercisable then in effect. The Purchase Price and the number of shares of Common Stock for which this Warrant is then exercisable, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 6. 7. CHIEF FINANCIAL OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, the Company at its expense will promptly cause its chief financial officer to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of this Warrant, and will, on the written request at any time of the holder of this Warrant, furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 8. Notices of Record Date. In the event of ---------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into - 5 - 6 any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least twenty (20) days prior to the date specified in such notice on which any such action is to be taken. 9. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock from time to time issuable on the exercise of this Warrant. 10. EXCHANGE OF WARRANT. Subject to Section 14, on surrender for exchange of this Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder (on payment by such holder or any applicable transfer taxes) may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. 11. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of a Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 12. WARRANT AGENT. The Company may, by written notice to the holder of this warrant, appoint an agent having an office in either Boston, Massachusetts or New York, New York for the purpose of issuing Common Stock on the exercise of the Warrant pursuant to Section 1, exchanging Warrants pursuant to Section 10, and replacing Warrants pursuant to Section 11, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 13. REMEDIES. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that - 6 - 7 such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. NEGOTIABILITY. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) Notwithstanding anything to the contrary contained in this Warrant, the holder of this Warrant shall not transfer, endorse, pledge, mortgage or otherwise convey this Warrant (or the shares of Common Stock issuable upon its exercise) without the Company's prior written consent. (b) Subject to Subsection (a), title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; PROVIDED that this Warrant may not be divided and/or transferred to more than one holder at any given time. (c) Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. (d) No holder of this Warrant shall, as such, be entitled to vote or to receive dividends or to be deemed the holder of Common Stock that may at any time be issuable upon exercise of the Warrant for any purpose whatsoever, nor shall anything contained herein be construed to confer upon such holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such holder shall have exercised the Warrant and been issued shares of Common Stock in accordance with the provisions hereof. (e) Neither this Warrant nor any shares of Common Stock purchased pursuant to this Warrant shall be registered under the Securities Act of 1933 and applicable state securities laws. Therefore, the Company may require, as a condition of allowing the transfer or exchange of this Warrant or such shares, that the holder or transferee of this Warrant or such shares, as the case may be, furnish to the Company an opinion of counsel reasonably acceptable to the Company to the effect that such transfer or exchange may be made without registration under the Securities Act of 1933 and applicable state securities laws. The certificates evidencing the shares of Common Stock issued on the exercise of the Warrant shall bear a legend to the effect that the shares evidenced by such certificates have not been registered under the Securities Act of 1933 and applicable state securities laws. 15. NOTICES. All notices and other communications from the Company to the holder - 7 - 8 of this Warrant shall be mailed by first Class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 16. MISCELLANEOUS. This Warrant and any terms hereof may be changed, waived, discharges or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination on is sought. This warrant shall be construed and enforced in accordance with and covered by the laws of the Commonwealth of Massachusetts. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the arms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Dated: September 12, 1991 TRANSKARYOTIC THERAPIES, INC. By: /S/ K. Michael Forrest -------------------------- Title: President and CEO [Corporate Seal] Attest: By: /S/ Leslie H. Shapiro ---------------------------- Title: Secretary - 8 - 9 FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO: TRANSKARYOTIC THERAPIES, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, ____________ shares of Common Stock of TRANSKARYOTIC THERAPIES, INC., and herewith makes payment of $_________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _____________, whose address __________________ is ____________________________. Dated: _________________________________ (Signature must conform to name of holder as Specified on the face of the Warrant) ---------------------------------- (Address) FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto ___________________ the right represented by the within Warrant to purchase shares of Common Stock of TRANSKARYOTIC THERAPIES, INC. to which the within Warrant relates, and appoints __________________ Attorney to transfer such right on the books of TRANSKARYOTIC THERAPIES, INC. with full power of substitution in the premises. Dated: ____________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) ------------------------------------- (Address) Signed in the presence of: - ---------------------------- - 9 - 10 AMENDMENT TO AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT This Amendment is dated as of October 26, 1995 and amends the Amended and Restated Common Stock Purchase Warrant, dated September 12, 1991, issued by Transkaryotic Therapies, Inc. (the "Company") to Warburg Pincus Capital Company, L.P. relating to 1.334 shares of Common Stock, $0.01 par value of the Company (the "Warrant"). The Company desires to amend the terms of the Warrant as follows: The date "April 22, 1996" appearing in the first paragraph of the Warrant is hereby changed to April 22, 1998. Similarly, the Expiration Date of the Warrant, as defined in the Warrant, is hereby amended to be April 22, 1998. Except as modified hereby, the Warrant shall remaining full force and effect in accordance with its terms. EXECUTED as of the date first appearing above. TRANSKARYOTIC THERAPIES, INC. By: /S/ Richard F. Selden ----------------------------------------- Richard F. Selden President and Chief Executive Officer - 10 - EX-11.1 39 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE -- PRO FORMA
SIX MONTHS ENDED YEAR ENDED ------------------------------- DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996 ----------------- ------------- ------------- Weighted average common shares outstanding....... 5,195,472 5,195,587 5,197,007 Effect of Preferred Stock -- assumed converted at date of issuance............................... 5,666,165 5,666,163 5,776,819 Weighted average common equivalent shares resulting from stock options and warrants...... 489,723 496,488 -- Effect of Common and Common equivalent shares issued by the Company during the twelve month period immediately preceding the Company's filing of the registration statement for its initial public offering (using the treasury stock method).................................. 3,281,510 3,281,510 3,281,510 ---------- ---------- ----------- Shares used in computing pro forma net income (loss) per share............................... 14,632,870 14,639,748 14,255,336 ========== ========== =========== Net income (loss)................................ $ 2,074,471 $ 5,105,020 $ (5,987,344) Pro forma net income (loss) per share............ $ 0.14 $ 0.35 $ (0.42)
EX-23.2 40 CONSENT OF HAMILTON, BROOK, SMITH & REYNOLDS PC 1 EXHIBIT 23.2 CONSENT OF INTELLECTUAL PROPERTY COUNSEL HAMILTON, BROOK, SMITH & REYNOLDS, P.C. TWO MILITIA DRIVE LEXINGTON, MA 02173 August 23, 1996 We hereby consent to the reference to our firm under the captions "Legal Matters" and "Experts" in the Prospectus that is a part of the Registration Statement on Form S-1 of Transkaryotic Therapies, Inc. Hamilton, Brook, Smith & Reynolds, P.C. EX-23.3 41 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts," and to the use of our report dated February 23, 1996, in the Registration Statement (Form S-1) and related Prospectus of Transkaryotic Therapies, Inc. for the registration of 2,875,000 shares of its common stock. ERNST & YOUNG LLP Boston, Massachusetts August 21, 1996 EX-27 42 FINANCIAL DATA SCHEDULE
5 6-MOS YEAR DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 JUN-30-1996 DEC-31-1995 17,798,459 11,539,531 10,975,201 22,945,311 0 0 0 0 0 0 29,016,799 34,581,852 8,836,511 8,329,439 5,082,066 4,330,786 33,625,562 39,217,519 1,058,760 1,056,687 0 0 4,545,273 4,440,273 2,943,669 2,943,669 51,977 51,977 (24,891,483) (30,545,713) 33,625,562 39,217,519 0 0 1,975,000 15,400,000 0 0 8,750,469 14,356,610 0 0 0 0 0 13,220 (5,987,344) 2,159,471 0 85,000 (5,987,344) 2,074,471 0 0 0 0 0 0 (5,987,344) 2,074,471 (.42) .14 (.42) .14
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