<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-10845
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSKARYOTIC THERAPIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2836 04-3027191
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
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. / /
------------------------
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.
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<PAGE> 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 October 4, 1996
2,500,000 Shares
[LOGO]
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. THE
COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "TKTX," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------
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."
------------------------
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
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
<FN>
- ------------
(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."
</TABLE>
------------------------
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
<PAGE> 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").]
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.
2
<PAGE> 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>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 20
Business.................................................................. 24
Management................................................................ 42
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 56
Underwriters.............................................................. 58
Legal Matters............................................................. 60
Experts................................................................... 60
Additional Information.................................................... 60
Index to Financial Statements.............................................F-1
</TABLE>
3
<PAGE> 5
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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 8,614,026 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 one of the largest pharmaceutical groups in the
world 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. Under the terms of the
alliances, if both products are successfully developed, TKT has the potential to
receive a total of $125 million in license fees, equity investments, milestone
payments and research funding from HMRI. To date, TKT has received a total of
$42 million from HMRI in connection with these two alliances, consisting of $20
million in license fees, $15 million in equity investments, $5 million in
research funding and $2 million in milestone payments.
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4
<PAGE> 6
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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 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.
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5
<PAGE> 7
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<TABLE>
THE OFFERING
<CAPTION>
<S> <C>
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... 16,668,796 shares(3)
Use of Proceeds..................................... Research, preclinical and clinical
product development, and general
corporate purposes
Nasdaq National Market Symbol....................... TKTX
- ---------------
<FN>
(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) 817,086 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
875,249 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."
</TABLE>
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6
<PAGE> 8
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<TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
SIX
MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
JUNE 30, 1996
--------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
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
<FN>
- ---------------
(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 1,457,559 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 8,614,026 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.
</TABLE>
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7
<PAGE> 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, the manufacturers of which can be expected to employ intellectual
property challenges to commercialization of these products. See "-- Patents and
Proprietary Rights." There can be no assurance that the Company's Gene
Activation products, if any, will be able to be commercialized or, if
commercialized, that they 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 no assurance that the Company will be
able to
8
<PAGE> 10
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. In
September 1996, the Company received a letter from Amgen, Inc. ("Amgen")
stating, without further elaboration, that in Amgen's opinion any implication
that the Company will be able to commercialize GA-EPO in the United States is
"materially false and misleading." The Company has received an
9
<PAGE> 11
opinion of Hamilton, Brook, Smith & Reynolds, P.C., counsel to the Company, that
the technologies employed by the Company and the method of their use in the
Company's products do not infringe U.S. Patent Numbers 4,703,008, 5,441,868 and
5,547,933, the principal Amgen patents, and would not infringe such patents
under the doctrine of equivalents. Based upon this opinion as well as its and
its counsel's review of other relevant patents, the Company believes that it
will be able to commercialize GA-EPO in the United States upon successful
completion of its clinical trials and receipt of FDA approval. This opinion,
however, is not binding on any court, and there can be no assurance that the
Company will not in the future become subject, in the United States or any other
country, to patent infringement claims, interferences and other litigation
involving patents, including the three referenced Amgen patents, or any patents
that may issue on any pending patent applications, including Amgen patent
applications. 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
10
<PAGE> 12
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 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.
11
<PAGE> 13
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 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 HMRI AND OTHER 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. Each agreement is subject to termination
without cause on short notice under certain circumstances and there is no
assurance that in the future either partner will not exercise its termination
rights. The Company is relying on HMRI to develop, conduct clinical trials,
obtain regulatory approval for the sale of, manufacture and market GA-EPO and
the undisclosed second protein worldwide. There can be no assurance that HMRI
will devote the resources necessary to complete development of and commercialize
these two potential products. Should
12
<PAGE> 14
HMRI fail to develop and commercialize these two potential products, the
Company's business would be materially adversely affected.
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 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.
13
<PAGE> 15
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of this offering, the 13,811,653 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 1,390,552 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 1,455,402 outstanding shares that 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 458,155 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 2,014,073 outstanding shares that would be
eligible for sale in such time were they not subject to the lock-up agreements
described below). Holders of 11,869,398 shares of Common Stock have entered into
lock-up agreements pursuant to which they have agreed 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 8,614,026
shares of Common Stock were 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 will 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."
14
<PAGE> 16
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.
15
<PAGE> 17
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 (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, competing technological and market developments, the
ability of the Company to establish and maintain collaborative arrangements, 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 or at all.
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.
16
<PAGE> 18
DILUTION
<TABLE>
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
8,614,026 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:
<S> <C> <C>
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
======
</TABLE>
<TABLE>
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.
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 13,811,653 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.................. 16,668,796 100.0% $128,804,858 100.0%
========== ===== ============ =====
<FN>
- ---------------
(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 875,249 shares of Common Stock for nominal consideration and
outstanding warrants to purchase an aggregate of 817,086 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.
</TABLE>
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<PAGE> 19
CAPITALIZATION
<TABLE>
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
1,457,559 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."
<CAPTION>
JUNE 30, 1996
----------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------------ ------------ --------------
<S> <C> <C> <C>
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; 14,168,796 shares issued and outstanding pro
forma; 16,668,796 shares issued and outstanding as adjusted(3).... 51,977 141,688 166,688
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 91,891,765 123,736,765
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
============ ============ ============
<FN>
- ---------------
(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 1,457,559 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 8,614,026 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 817,086 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
875,249 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.
</TABLE>
18
<PAGE> 20
SELECTED FINANCIAL DATA
<TABLE>
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.
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------- AS OF JUNE 30,
1991 1992 1993 1994 1995 1996(2)
------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
<FN>
- ---------------
(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.
</TABLE>
19
<PAGE> 21
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. 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. 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
"Business -- Patents, Proprietary Rights and Licenses." Furthermore, the
Company's success will also depend on its ability to obtain FDA approval to
market its products. The regulatory process for new therapeutic products, which
includes preclinical and clinical testing of each product, can take many years
and require the expenditure of substantial resources. Delays or rejections may
be encountered based upon changes in FDA policy during the period of product
development and FDA regulatory review. 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 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
products for a considerable or indefinite period of time, materially increase
the cost involved in developing, manufacturing and marketing the 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 products will require a significant commitment of time,
money and effort by the
20
<PAGE> 22
Company and there can be no assurances that any approval will ultimately be
granted on a timely basis, if at all.
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 a total of $58 million upon completion of all
milestones and objectives set forth in the agreement, 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 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 a total of $67 million upon
completion of all milestones and objectives set forth in the agreement, 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
21
<PAGE> 23
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.
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 $61,936,000,
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.
22
<PAGE> 24
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.
At December 31, 1995, the Company had net operating losses of approximately
$22 million which expire through 2009. Since the Company expects to incur
substantial losses for at least several years, the Company believes that as of
December 31, 1995, it is more likely than not that all of the deferred tax
assets will not be realized and, therefore, no tax benefit for the prior losses
has been provided. The future utilization of net operating loss carryforwards
may be subject to limitation under the changes in stock ownership rules of the
Internal Revenue Code. Because of this limitation, it is possible that taxable
income in future years, which would otherwise be offset by net operating losses,
will not be offset and therefore will be subject to tax. See Note 14 of the
Notes to the Financial Statements.
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 products that are approved for commercial sale.
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. 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.
23
<PAGE> 25
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
24
<PAGE> 26
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 The Regulation of Gene Expression and Gene Structure
[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.
25
<PAGE> 27
Figure 2A The Conventional Approach to Protein Production
[LOGO]
Figure 2B TKT's Approach to Protein Production by Gene Activation
[LOGO]
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
26
<PAGE> 28
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
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
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many additional proteins are currently in clinical development will provide a
large number of candidates for commercialization using TKT's Gene Activation
technology.
<TABLE>
TABLE I. 1995 WORLDWIDE PROTEIN PRODUCT REVENUES (IN MILLIONS)
<CAPTION>
PROTEIN PRIMARY INDICATION REVENUES
- ------- ------------------ --------
<S> <C> <C>
Erythropoietin Anemia $2,900
Insulin Diabetes 1,950
G-CSF Neutropenia 1,700
Growth Hormone Short stature 1,500
[alpha]-Interferon Hepatitis/Cancer 1,000
Factor VIII Hemophilia A 950
tPA Myocardial infarction 450
[beta]-Interferon Multiple sclerosis 350
</TABLE>
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
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<PAGE> 30
functional in patients because extensive preclinical testing has demonstrated
that the protein has the structural 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"). This assumption is based
on the fact that erythropoietin products have historically been reviewed by CBER
and on the Company's preliminary discussions with CBER officials. 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). In addition, subsequent to the passage of the Prescription Drug User
Fee Act of 1992, all sections of the FDA (including CBER) are committed to
reviewing and acting upon complete new drug and biologic license applications
within twelve months. 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 one of the largest
pharmaceutical groups in the world 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 a total of $58 million upon completion
of all milestones and objectives set forth in the agreement. 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 a total of $67 million upon completion of all milestones
and objectives set forth in the agreement. 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.
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<PAGE> 31
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 commercialization 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
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<PAGE> 32
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 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).
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<PAGE> 33
<TABLE>
TABLE II. TKT'S GENE THERAPY SYSTEM: SUMMARY OF SELECTED TECHNICAL ACCOMPLISHMENTS
<CAPTION>
TASKS ACHIEVEMENT COMMENTS
----- ----------- --------
<S> <C> <C>
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
</TABLE>
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.
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Figure 3 Transkaryotic Therapy in Practice
[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
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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.
- 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
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<PAGE> 36
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 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
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<PAGE> 37
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.
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.
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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 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
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<PAGE> 39
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. In September 1996, the Company received a letter
from Amgen, Inc. ("Amgen") stating, without further elaboration, that in Amgen's
opinion any implication that the Company will be able to commercialize GA-EPO in
the United States is "materially false and misleading." The Company has received
an opinion of Hamilton, Brook, Smith & Reynolds, P.C., counsel to the Company
that the technologies employed by the Company and the method of their use in the
Company's products do not infringe U.S. Patent Numbers 4,703,008, 5,441,868 and
5,547,933, the principal Amgen patents, and would not infringe such patents
under the doctrine of equivalents. Based upon this opinion as well as its and
its counsel's review of other relevant patents, the Company believes that it
will be able to commercialize GA-EPO in the United States upon successful
completion of its clinical trials and receipt of FDA approval. This opinion,
however, is not binding on any court, and there can be no assurance that the
Company will not in the future become subject, in the United States or any other
country, to patent infringement claims, interferences, and other litigation
involving patents, including the three referenced Amgen patents, or any patents
that may issue on any pending patent applications, including Amgen patent
applications. See "Risk Factors -- Patents and Proprietary 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 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
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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 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.
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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 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
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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.
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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The directors, executive officers and key employees of the Company are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard F Selden, M.D., Ph.D. ........ 38 President; Chief Executive Officer; and Director
Christoph M. Adams, Ph.D. ............ 39 Vice President, Business Development
Kurt Gunter, M.D. .................... 42 Vice President, Clinical and Regulatory Affairs
Anthony R. Hall....................... 57 Vice President, Finance and Administration; Chief
Financial Officer
Douglas A. Treco, Ph.D. .............. 39 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
<FN>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
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.
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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.
Directors are elected by the stockholders at each annual meeting to serve
until the next annual meeting of stockholders or until their successors are duly
elected and qualified. Effective upon the closing of this offering, at each
meeting of the Company's stockholders at which directors are to be elected, the
Company has agreed to nominate, recommend the election by the Company's
stockholders and use its best efforts to effect the election to the Board of
Directors of the Company of (i) two individuals designated by Warburg, Pincus
Capital Partners, L.P. ("Warburg"), as long as Warburg beneficially owns at
least 20% of the outstanding Common Stock of the Company and (ii) one individual
designated by Warburg, as long Warburg beneficially owns at least 10% or more,
but less than 20%, of the outstanding Common Stock of the Company. Officers are
selected by and serve at the discretion of the Board of Directors.
All of the current directors of the Company were elected pursuant to an
Amended and Restated Voting Rights Agreement. The Voting Rights Agreement will
expire by its terms upon the consummation of this offering.
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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 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
44
<PAGE> 46
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 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
<TABLE>
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 $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) RESTRICTED
-------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($)(2) COMPENSATION($)(3)
- --------------------------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
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
<FN>
- ---------------
(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.
</TABLE>
45
<PAGE> 47
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 (128,571 shares), Dr. Treco (25,714 shares), Dr. Adams (6,429 shares) and
Mr. Pazzano (5,143 shares) at an exercise price of $.01 per share. All such
options vest in equal annual installments over six years on the anniversary of
the grant date and expire on January 17, 2006.
<TABLE>
Year-End Option Table. The following table sets forth certain information
concerning exercisable and unexercisable stock options as of December 31, 1995.
None of the Named Executive Officers exercised options during the fiscal year
ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- -------------------------
<S> <C> <C>
Richard F Selden..................... -- --
Douglas A. Treco..................... -- --
Christoph M. Adams................... 8,571/42,858 $119,927 / $599,679
Robert A. Pazzano.................... 5,143/10,286 $ 71,960 / $143,920
<FN>
- ---------------
(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.
</TABLE>
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.
46
<PAGE> 48
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 875,249 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
47
<PAGE> 49
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.
48
<PAGE> 50
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").
Effective upon the closing of this offering, at each meeting of the
Company's stockholders at which directors are to be elected, the Company has
agreed to nominate, recommend the election of the Company's stockholders and use
its best efforts to effect the election of the Board of Directors of the Company
of (i) two individuals designated by Warburg, Pincus Capital Partners, L.P.
("Warburg"), as long as Warburg beneficially owns at least 20% of the
outstanding Common Stock of the Company and (ii) one individual designated by
Warburg, as long as Warburg beneficially owns at least 10% or more, but less
than 20%, of the outstanding Common Stock of the Company.
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 8,614,026 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 803,858 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 455,692
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
49
<PAGE> 51
$10,000,000. Pursuant to the Company's Restated Certificate of Incorporation, as
amended, all of such shares will automatically convert into 672,947 shares of
Common Stock upon the closing of this offering.
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 will 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 725,436 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.
50
<PAGE> 52
PRINCIPAL STOCKHOLDERS
<TABLE>
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:
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE OWNERSHIP
OWNED PRIOR TO -------------------------------------
NAME OFFERING(1) BEFORE OFFERING AFTER OFFERING(2)
- ---- ------------------- --------------- -----------------
<S> <C> <C> <C>
Warburg, Pincus Capital.......................... 5,958,057 41.7% 34.7%
Company, L.P.(3)
466 Lexington Avenue
New York, NY 10017
Hoechst Marion Roussel, Inc. .................... 1,854,075 13.4% 13.3%(4)
9300 Ward Parkway
Kansas City, MO 64114
Biotech Target, S.A. ............................ 1,168,907 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)............................ 17,143 * *
William R. Miller................................ 28,928 * *
Rodman W. Moorhead, III(6)(7).................... 5,958,057 41.7% 34.7%
Robert Pazzano(8)................................ 7,715 * *
Richard F Selden(9).............................. 806,875 5.8% 4.8%
James E. Thomas(6)(7)............................ 5,958,057 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)............................... 7,063,800 49.3% 41.1%
<FN>
- ---------------
* 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 13,811,653 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.
(3) Includes 478,966 shares issuable upon the exercise of outstanding warrants
and 428,571 shares of Class A Redeemable Convertible Preferred Stock
converted at an assumed initial public offering price
</TABLE>
51
<PAGE> 53
of $14.00 per share. The sole general partner of Warburg, Pincus Capital
Company, L.P. ("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. James E. Thomas, a director of the Company, is a Managing
Director of EMW and a general partner of WP. As such, Messrs. Moorhead and
Thomas may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Exchange Act) in an indeterminate portion
of the shares beneficially owned by Warburg. See Note (6) below.
(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 17,143 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within the 60-day period following
August 15, 1996.
(6) All of the shares indicated as owned by Messrs. Moorhead and Thomas are
owned directly by Warburg and are included herein because of the
affiliation of Messrs. Moorhead and Thomas with Warburg. Messrs. Moorhead
and Thomas disclaim "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act. See Note (3) above.
(7) Stockholder's address is c/o Warburg, Pincus Capital Company, L.P., 466
Lexington Avenue, New York, New York 10017.
(8) Reflects 7,715 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 24,858 shares of Common Stock that are issuable upon exercise of
outstanding stock options exercisable within the 60-day period following
August 15, 1996.
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<PAGE> 54
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 13,811,653 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 8,614,026 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 16,668,796 shares of
Common Stock outstanding upon the closing of this offering. An additional
875,249 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 817,086 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.
53
<PAGE> 55
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.
54
<PAGE> 56
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 and of shares of Common Stock to
be purchased by HMRI in the HMRI New Investment ("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. Furthermore, HMRI will have one demand registration right with
respect to the shares of Common Stock to be purchased by it in the HMRI New
Investment. 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.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering the Company will have 16,668,796
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 14,168,796 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 1,390,552 of these Restricted Shares will be
eligible for sale in the public market immediately after this offering pursuant
to Rule 144(k). Approximately 458,155 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
9,302,890 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 (166,687 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 1,848,707 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
9,302,890 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 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.
56
<PAGE> 58
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 11,869,398 shares of Common Stock, have agreed 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 8,971,169 shares of Common Stock
(including 357,143 shares of Common Stock to be sold to HMRI in the HMRI New
Investment) (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
connection with the sale of 357,143 shares of Common Stock in the HMRI New
Investment, the Company will 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."
57
<PAGE> 59
UNDERWRITERS
<TABLE>
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:
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.........................................
UBS Securities LLC........................................................
Pacific Growth Equities, Inc. ............................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
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 12,023,307 shares of Common Stock, have
agreed 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
58
<PAGE> 60
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.
59
<PAGE> 61
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.
60
<PAGE> 62
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Financial Statements
Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 (unaudited) and Pro
Forma 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
</TABLE>
F-1
<PAGE> 63
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
<PAGE> 64
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,606,792 $ 11,539,531 $ 17,798,459 $ 46,268,461
Marketable securities........................................... 4,972,492 22,945,311 10,975,201 10,975,201
Prepaid expenses and other current assets....................... 268,148 97,010 243,139 243,139
------------ ------------ ------------ ------------
Total current assets...................................... 7,847,432 34,581,852 29,016,799 57,486,801
Property and equipment, net....................................... 4,902,961 3,998,653 3,754,445 3,754,445
Other assets...................................................... 721,793 637,014 854,318 854,318
------------ ------------ ------------ ------------
$ 13,472,186 $ 39,217,519 $ 33,625,562 $ 62,095,564
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 352,685 $ 515,335 $ 483,378 $ 483,378
Accrued expenses................................................ 449,231 541,352 575,382 575,382
Current portion of bank debt.................................... 1,097,945 -- -- --
------------ ------------ ------------ ------------
Total current liabilities................................. 1,899,861 1,056,687 1,058,760 1,058,760
Long-term portion of deferred rent................................ 268,800 179,200 134,400 134,400
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, 5,197,662 (unaudited) and 14,168,796
(unaudited) shares issued and outstanding at December 31,
1994, 1995, June 30, 1996 and Pro Forma June 30, 1996,
respectively.................................................. 51,718 51,977 51,977 141,688
Additional paid-in capital........................................ 34,140,551 57,087,079 57,567,805 91,891,765
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) (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 60,902,404
------------ ------------ ------------ ------------
$ 13,472,186 $ 39,217,519 $ 33,625,562 $ 62,095,564
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 65
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
PERIOD
JULY 7, 1988
(DATE OF
INCEPTION)
YEAR ENDED DECEMBER 31, JUNE 30, SIX MONTHS
----------------------------------------- -------------------------- ENDED
1993 1994 1995 1995 1996 JUNE 30, 1996
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
License and contract fee
revenues from Hoechst
Marion Roussel, Inc.
(HMRI)................ $ -- $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
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 66
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
CUMULATIVE (LOSS)
ACCRETION 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)
-------- --------- --------- ------- ---------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock
for cash at September
and December 1988
($.01 per share).. 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 ($.01
per share)........ 227,089 2,270 (2,231) 39
Preferred stock
dividend
accretion......... (160,520) (160,520)
Net loss........... (1,346,189) (1,346,189)
--------- --------- --------- ------- ----------- --------- ----------- ------- ----------
BALANCE AT DECEMBER
31, 1989.......... 4,132,445 41,324 (40,610) (180,273) (1,445,920) (1,625,479)
Sale of common stock
for cash at February,
May and November
1990 ($.01 per
share)............ 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
($1,000 per
share)............ 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 ($.01 per
share)............ 367,798 3,678 (3,615) 63
Repurchase of common
stock for cash at
August 1991....... (1,446) (14) 14
Preferred stock
dividend
accretion......... (210,000) (210,000)
Net loss........... (4,389,924) (4,389,924)
--------- --------- --------- ------- ----------- --------- ----------- ------- ----------
BALANCE AT DECEMBER
31, 1991.......... 3,000 3,000 4,519,973 45,200 2,952,581 (600,273) (8,313,975) (5,913,467)
Sale of common stock
for cash at March,
May, June, August
and December 1992
($.01 per share).. 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
($400 per
share)............ 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 ($400
per share)........ 9,880 9,880 3,915,780 3,925,660
Sale of Class C
preferred stock for
cash at November
1993 ($8 per
share)............ 1,015,974 1,015,974 7,059,222 8,075,196
</TABLE>
F-5
<PAGE> 67
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Compensation expense related to
equity issuances ................... $ 238,571
Preferred stock dividend accretion ...
Net loss .............................
--------- ---------- --------- ------- -----------
BALANCE AT DECEMBER 31, 1993 ......... 1,068,313 $1,068,313 5,294,101 $52,941 29,419,432
Repurchase of common stock for
cash at January, February, June,
August and September 1994 .......... (122,342) (1,223) (99,008)
Sale of Class D preferred stock to
HMRI for cash at May 1994
($17.83 per share) ................. 280,367 280,367 4,455,053
Compensation expense related to
equity issues ...................... 365,074
Preferred stock dividend accretion ...
Unrealized loss on available-for-
sale securities ....................
Net loss .............................
--------- ---------- --------- ------- -----------
BALANCE AT DECEMBER 31, 1994 ......... 1,348,680 1,348,680 5,171,759 51,718 34,140,551
Sale of common stock for cash
at June and August 1995 ($.01
per share) ......................... 30,957 310 (69)
Repurchase of common stock for
cash at January, June and
September 1995 ..................... (5,054) (51) 11
Sale of Class E preferred stock to
HMRI for cash at March 1995
($19.10 per share) ................. 523,560 523,560 9,344,440
Sale of Class F preferred stock for
cash at October and December 1995
($14 per share) .................... 1,071,429 1,071,429 13,179,894
Compensation expense related to
equity issues ....................... 422,252
Preferred stock dividend accretion ...
Unrealized gain on available-for-
sale securities ....................
Net income ...........................
--------- ---------- --------- ------- -----------
BALANCE AT DECEMBER 31, 1995 ......... 2,943,669 2,943,669 5,197,662 51,977 57,087,079
Sale of common stock for cash at
January and June 1996
(unaudited)($.01 per share) ........ 289 3 (1)
Repurchase of common stock for
cash at January 1996
(unaudited) ........................ (289) (3) 1
Compensation expenses related to
equity issues (unaudited) .......... 480,726
Preferred stock dividend accretion ...
Unrealized loss on available-for-
sale securities (unaudited) ........
Net loss (unaudited) .................
--------- ---------- --------- ------- -----------
BALANCE AT JUNE 30, 1996
(UNAUDITED) ........................ 2,943,669 $2,943,669 5,197,662 $51,977 $57,567,805
========= ========== ========= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN
CUMULATIVE (LOSS)
ACCRETION ON TOTAL
OF AVAILABLE- STOCKHOLDERS'
PREFERRED ACCUMULATED FOR-SALE EQUITY
STOCK DEFICIT SECURITIES (DEFICIT)
----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Compensation expense related to
equity issuances ................... $ 238,571
Preferred stock dividend accretion ... $ (210,000) (210,000)
Net loss ............................. $ (9,082,759) (9,082,759)
----------- ------------ -------- -----------
BALANCE AT DECEMBER 31, 1993 ......... (1,020,273) (23,796,575) 5,723,838
Repurchase of common stock for
cash at January, February, June,
August and September 1994 .......... (100,231)
Sale of Class D preferred stock to
HMRI for cash at May 1994
($17.83 per share) ................. 4,735,420
Compensation expense related to
equity issues ...................... 365,074
Preferred stock dividend accretion ... (210,000) (210,000)
Unrealized loss on available-for-
sale securities .................... (19,248) (19,248)
Net loss ............................. (3,421,601) (3,421,601)
----------- ------------ -------- -----------
BALANCE AT DECEMBER 31, 1994 ......... (1,230,273) (27,218,176) (19,248) 7,073,252
Sale of common stock for cash
at June and August 1995 ($.01
per share) ......................... 241
Repurchase of common stock for
cash at January, June and
September 1995 ..................... (40)
Sale of Class E preferred stock to
HMRI for cash at March 1995
($19.10 per share) ................. 9,868,000
Sale of Class F preferred stock for
cash at October and December 1995
($14 per share) .................... 14,251,323
Compensation expense related to
equity issues ....................... 422,252
Preferred stock dividend accretion ... (210,000) (210,000)
Unrealized gain on available-for-
sale securities .................... 61,860 61,860
Net income ........................... 2,074,471 2,074,471
----------- ------------ -------- -----------
BALANCE AT DECEMBER 31, 1995 ......... (1,440,273) (25,143,705) 42,612 33,541,359
Sale of common stock for cash at
January and June 1996
(unaudited)($.01 per share) ........ 2
Repurchase of common stock for
cash at January 1996
(unaudited) ........................ (2)
Compensation expenses related to
equity issues (unaudited) .......... 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) ........................ $(1,545,273) $(31,131,049) $ -- $27,887,129
=========== ============ ======== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 68
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
F-7
<PAGE> 69
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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 to HMRI...... $ 4,735,420 4,735,420
Sale of Class E convertible
preferred stock to HMRI...... $ 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
===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 70
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. Gains and losses on the sale of securities are determined
using the specific identification method.
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.
F-9
<PAGE> 71
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
Revenues from nonrefundable license fees are recognized upon execution of
the underlying license agreement. Fees from research milestones are recognized
upon the achievement of the related milestones. Revenues from contract research
are recognized in accordance with the underlying agreement as research is
conducted.
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 BALANCE SHEET (UNAUDITED)
The unaudited pro forma balance sheet is presented to give pro forma effect
to the sale of 1,133,589 shares of Class G Convertible Preferred Stock at $22
per share in July and August 1996, and the assumed conversion of the Class A
Redeemable, Class A, Class B, Class C, Class D, Class E, Class F, and Class G
Convertible Preferred Stock into an aggregate of 8,614,026 shares of Common
Stock, and the sale of 357,143 shares of Common Stock to HMRI, assuming an
initial public offering price of $14 per share, both upon the completion of the
initial public offering as contemplated in this Prospectus.
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).
F-10
<PAGE> 72
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. AVAILABLE-FOR-SALE SECURITIES
<TABLE>
The following is a summary of available-for-sale securities at December 31,
1994 and 1995, and June 30, 1996:
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
=========== ======= ======== ===========
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies................... $29,750,091 $44,886 $ (2,274) $29,792,703
=========== ======= ======== ===========
<CAPTION>
JUNE 30, 1996 (UNAUDITED)
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies................... $27,074,385 $ -- $ -- $27,074,385
=========== ======= ======== ===========
</TABLE>
<TABLE>
These securities are classified in the accompanying balance sheet as
follows:
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
========== =========== ===========
</TABLE>
Available-for-sale securities classified as cash equivalents at December
31, 1994, consist of obligations of U.S. government agencies.
F-11
<PAGE> 73
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The amortized cost and fair value of available-for-sale securities are as
follows:
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
--------------------------- ---------------------------
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following:
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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.
F-12
<PAGE> 74
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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 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 the
number of shares of common stock of the Company determined by dividing
$3,000,000 by the initial public offering price per share. At an assumed initial
public offering price of $14.00, the Class A Redeemable preferred stock converts
into 214,286 shares of common stock.
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
F-13
<PAGE> 75
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 the number of shares of common stock of the
Company determined by dividing $3,000,000 by the initial public offering price
per share. At an assumed initial public offering price of $14.00, the Class A
preferred stock converts into 214,285 shares of common stock.
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.
<TABLE>
The liquidation preference and conversion ratio per share of each class of
convertible preferred stock are as follows:
<CAPTION>
LIQUIDATION CONVERSION
PREFERENCE RATIO
----------- ----------
<S> <C> <C>
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
</TABLE>
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 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.
F-14
<PAGE> 76
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $239,000, $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, 1995, 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 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.
F-15
<PAGE> 77
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The following exercisable common stock warrants are outstanding at December
31, 1995 and June 30, 1996:
<CAPTION>
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
------- -------- --------------
<S> <C> <C>
86,786 $ 6.22 November 1997
77,181 6.91 April 1998
653,126 7.78 November 1998
</TABLE>
12. LICENSE AND CONTRACT FEE REVENUES FROM HOECHST MARION ROUSSEL, INC.
In May 1994 and March 1995, the Company entered into license and stock
purchase agreements with Hoechst Marion Roussel, Inc. (HMRI), whereby HMRI 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, HMRI 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.
14. INCOME TAXES
Prior to 1995, the Company had incurred only operating losses. Since the
Company expects that it will continue to incur substantial losses for at least
several years, management believes that as of December 31, 1995, it is more
likely than not that all of the deferred tax assets will not be realized and
therefore no tax benefit for the prior operating losses or other deferred tax
assets has 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.
F-16
<PAGE> 78
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
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):
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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.
<TABLE>
Future annual minimum payments under all noncancelable operating leases are
as follows:
<CAPTION>
Year ended:
<S> <C>
1996................................................... $1,154,000
1997................................................... 1,056,000
1998................................................... 1,028,000
----------
Total.......................................... $3,238,000
==========
</TABLE>
Rent expense was approximately $275,000, $1,087,000 and $992,000 in 1993,
1994 and 1995, respectively.
F-17
<PAGE> 79
[LOGO]
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<CAPTION>
<S> <C>
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
========
</TABLE>
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
<PAGE> 81
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
<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
(a) The following exhibits are filed herewith:
<CAPTION>
<S> <C> <C>
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.
</TABLE>
II-3
<PAGE> 83
<TABLE>
<S> <C> <C>
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.
10.35 -- Agreement to Nominate, dated September 23, 1996, by and between Warburg and
the Registrant.
10.36* -- Fifth Amendment to Registration Rights Agreement dated October , 1996 by and
among the Registrant and certain holders of the Registrant's Preferred Stock
named therein.
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.
27 -- Financial Data Schedule.
<FN>
- ---------------
* Filed herewith.
All other exhibits previously filed.
+ 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.
</TABLE>
II-4
<PAGE> 84
(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.
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 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
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on October 3, 1996.
TRANSKARYOTIC THERAPIES, INC.
By: /s/ ANTHONY R. HALL
------------------------------------
Anthony R. Hall
Vice President, Finance
and Administration; Chief
Financial Officer
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
RICHARD F SELDEN* President, Chief Executive October 3, 1996
- --------------------------------------------- Officer, Treasurer and
Richard F Selden Director (principal
executive officer)
/s/ ANTHONY R. HALL Vice President, Finance and October 3, 1996
- --------------------------------------------- Administration; Chief
Anthony R. Hall Financial Officer (principal
financial and accounting
officer)
WILLIAM R. MILLER* Director October 3, 1996
- ---------------------------------------------
William R. Miller
RODMAN W. MOORHEAD, III* Director October 3, 1996
- ---------------------------------------------
Rodman W. Moorhead, III
JAMES E. THOMAS* Director October 3, 1996
- ---------------------------------------------
James E. Thomas
<FN>
*By: /s/ ANTHONY R. HALL
- ---------------------------------------------
Anthony R. Hall
Attorney-in-fact
</TABLE>
II-6
<PAGE> 86
<TABLE>
EXHIBIT INDEX
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<S> <C> <C>
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. ...................................................
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<S> <C> <C>
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. ...........................................................
10.35 -- Agreement to Nominate, dated September 23, 1996, by and between
Warburg and the Registrant. ...........................................
10.36* -- Fifth Amendment to Registration Rights Agreement dated October ,
1996 by and among the Registrant and certain holders of the
Registrant's Preferred Stock named therein. ...........................
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......................................................
27 -- Financial Data Schedule................................................
<FN>
- ---------------
* Filed herewith.
All other exhibits previously filed.
+ 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.
</TABLE>
<PAGE> 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
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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;
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(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,
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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)
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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;
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<PAGE> 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:
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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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
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<PAGE> 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 -
<PAGE> 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
<PAGE> 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 -
<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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,
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
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<PAGE> 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,
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<PAGE> 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
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<PAGE> 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
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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
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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
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<PAGE> 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);
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<PAGE> 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
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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
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<PAGE> 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.
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(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
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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
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<PAGE> 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.
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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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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(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
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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;
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<PAGE> 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:
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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.
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<PAGE> 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
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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.
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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.
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(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
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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
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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
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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);
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(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
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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.
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(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
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<PAGE> 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.
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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
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<PAGE> 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;
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 97
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSKARYOTIC THERAPIES, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------
TRANSKARYOTIC THERAPIES, INC. (hereinafter called the "Corporation"), a
corporation existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Delaware Law"), does hereby certify that (a) at a
meeting of the Board of Directors of the Corporation held on July 22, 1996, the
Board of Directors duly adopted resolutions pursuant to Section 242 of the
Delaware Law proposing certain amendments to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendments to
be advisable; and (b) that in lieu of a meeting and vote of the Stockholders,
the Stockholders of the Corporation have given their written consent to said
amendments in accordance with the provisions of Section 228 of the Delaware Law
and a notice of such action has been sent to stockholders who did not execute
the Written Consent.
Pursuant to the foregoing resolutions, the first paragraph of Article IV of
the Corporation's Certificate of Incorporation, as amended and restated, be and
hereby is deleted and the following paragraph is inserted in lieu thereof:
<PAGE> 98
"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 30,000,000, par value $0.01 per share, and the total number of shares
of Preferred Stock this Corporation shall have authority to issue is 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")."
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by its President this 25th day of September, 1996.
TRANSKARYOTIC THERAPIES, INC.
By: /s/ Richard F Selden
-----------------------------
Richard F Selden, M.D., Ph.D.
President
- 2 -
<PAGE> 1
Exhibit 10.36
Fifth Amendment to Registration Rights Agreement
This Fifth Amendment to the Registration Rights Agreement, dated as of
October 1, 1996 (the "FIFTH AMENDMENT"), by and among Transkaryotic Therapies,
Inc., a Delaware corporation (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 (as defined below), hereby amends the
Registration Rights Agreement, dated as of November 3, 1993, by and among the
Company and the Purchasers listed on Schedule A thereto, as amended by (i) the
Consent and Amendment, dated as of November 18, 1993, (ii) the Amendment to
Registration Rights Agreement, dated as of May 18, 1994, (iii) the Second
Amendment to the Registration Rights Agreement, dated as of March 1, 1995, (iv)
the Third Amendment to Registration Rights Agreement, dated as of October 26,
1995, (v) the Fourth Amendment to Registration Rights Agreement, dated as of
July 10, 1996 and (vi) the Supplemental Class G Preferred Stock Purchase
Agreement, dated as of August 7, 1996 (as so amended, the "REGISTRATION RIGHTS
AGREEMENT").
WHEREAS, pursuant to the Registration Rights Agreement, the Company has
granted certain registration rights (the "REGISTRATION RIGHTS") to the Holders;
and
WHEREAS, in connection with the purchase by Hoechst Marion Roussel, Inc.
("HMRI") of $5 million of shares of the Company's Common Stock, $.01 par value
per share, at a price per share equal to the initial public offering price (the
"HMRI Shares"), the Company and the Holders desire to amend the Registration
Rights Agreement in accordance with the provisions of Section 11 thereof to
provide registration rights with respect to the HMRI Shares and to include the
HMRI Shares 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, the shares of Class
G Preferred Stock purchased pursuant to the Class G Preferred Stock Purchase
Agreement and the Supplemental Class G Preferred Stock
<PAGE> 2
Agreement dated as of August 7, 1996, and the HMRI Shares purchased pursuant to
the Class D 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 the HMRI Shares and
any other shares of Common Stock issued with respect to the HMRI Shares by
reason of stock dividends, stock splits, recapitalizations, reorganization, or
similar corporate action.
1.3 The term "HOLDER", as defined in Section 1(c) of the Registration
Rights Agreement, is hereby amended to include HMRI (in its capacity as holder
of any Shares and the HMRI Shares and for so long as it holds such Shares of
HMRI Shares), and such of its respective successors and assigns who acquire
Shares of HMRI Shares in accordance with the terms of the Registration Rights
Agreement and who agree in writing with the Company to acquire and hold the
Shares or HMRI Shares subject to all of the restrictions thereof but in no event
shall "Holder" include any transferee of HMRI Shares pursuant to sales made
under a registration statement filed under the Securities Act.
1.4 Section 2 of the Registration Rights Agreement is hereby amended to add
the following at the end of the second sentence thereof: ", PROVIDED, HOWEVER,
that, and notwithstanding the foregoing, in the event of a registration
initiated by the Holder(s) of the HMRI Shares with respect to the HMRI Shares,
the HMRI Shares shall be the last to be excluded."
1.5 Section 3 of the Registration Rights Agreement is hereby amended to
add the following sentence after the second sentence thereof: "Notwithstanding
the foregoing, and without regard to such 30% and 15% requirements or such
12-month limitation, the Holder(s) of the HMRI Shares may on one occasion
request the Company to cause the HMRI Shares to be registered under the
Securities Act pursuant to the procedures set forth in this Section 3; PROVIDED,
HOWEVER, that such request shall be in addition to the other rights of the
Holder(s) of the HMRI Shares under this Section 3 or Section 2; PROVIDED,
FURTHER, that in the event of a firm commitment underwriting of the HMRI Shares,
such underwriter(s) shall be chosen by the Company, subject to the approval of
the Holder(s) of the HMRI Shares, which approval shall not be unreasonably
withheld."
1.6 Section 6.1 of the Registration Rights Agreement is hereby amended to
add the following in clause (b) after the words "Form S-3" and before the
closing parenthesis: ", but not excluding a demand registration of HMRI Shares."
1.7 The provisions of Section 9 of the Registration Rights Agreement are
hereby amended to include the HMRI Shares.
1.8 Section 16.3 of the Registration Rights Agreement is hereby amended to
add the following in the third sentence thereof after the words "Notwithstanding
the foregoing," and before the words "no course of": "no change in, addition to,
or noncompliance by the Company with respect to, the rights of the Holder(s) of
the HMRI Shares only with respect to one demand registration as set forth in
Section 3 under this Agreement may be made or waived without the prior written
consent of the Holder(s) of the HMRI Shares, and".
- 2 -
<PAGE> 3
1.9 Except as expressly amended hereby, the Registration Rights Agreement
shall remain in full force and effect.
2. Miscellaneous.
-------------
2.1 GOVERNING LAW. This Fifth 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 Fifth Amendment are for
reference purposes only and shall not affect the meaning, interpretation,
enforceability or validity of this Fifth Amendment.
2.3 COUNTERPARTS. This Fifth 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.
IN WITNESS WHEREOF, the Company and the Holders have each caused this Fifth
Amendment to Registration Rights Agreement to be executed by their duly
authorized officers as of the date first written above.
TRANSKARYOTIC THERAPIES, INC.
By: /s/ Richard F Selden
------------------------
Richard F Selden
President and
Chief Executive Officer
HOLDERS
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: Warburg, Pincus & Co.
Its General Partner
By: /s/ James E. Thomas
------------------------
James E. Thomas
Partner
- 3 -
<PAGE> 4
HOECHST MARION ROUSSEL, INC.
By: /s/ Rebecca Tilden
------------------------
Name: Rebecca Tilden
Title: Vice President, Assistant
General Counsel and Assistant
Secretary
H&Q LIFE SCIENCES INVESTORS
By: /s/ Alan Carr
------------------------
Name: Alan Carr
Title: President
H&Q HEALTHCARE INVESTORS
By: /s/ Alan Carr
------------------------
Name: Alan Carr
Title: President
- 4 -
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INTELLECTUAL PROPERTY COUNSEL
HAMILTON, BROOK, SMITH & REYNOLDS, P.C.
TWO MILITIA DRIVE
LEXINGTON, MA 02173
October 2, 1996
We hereby consent to the reference to our firm under the captions "Risk
Factors", "Business", "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.
<PAGE> 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 Amendment No. 4 to the Registration Statement (Form S-1 No. 333-10845)
and related Prospectus of Transkaryotic Therapies, Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
October 1, 1996
