GENENCOR INTERNATIONAL INC, S-1/A, 2000-07-24

GENENCOR INTERNATIONAL INC
S-1/A, 2000-07-24
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 2000

REGISTRATION NO. 333-36452
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--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

PRE-EFFECTIVE AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

GENENCOR INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 8731 16-1362385
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

925 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 846-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

STUART L. MELTON
SENIOR VICE PRESIDENT,
COMMERCIAL AND LEGAL AFFAIRS
GENENCOR INTERNATIONAL, INC.
925 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 846-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
CHRISTOPHER KAUFMAN, ESQ. MICHAEL R. MCEVOY, ESQ. PETER J. LOUGHRAN, ESQ.
CYNTHIA ROTELL, ESQ. SUSAN M. BRANDT, ESQ. DEBEVOISE & PLIMPTON
LATHAM & WATKINS HARTER, SECREST & EMERY LLP 875 THIRD AVENUE
633 W. FIFTH STREET, SUITE 4000 700 MIDTOWN TOWER NEW YORK, NY 10022
LOS ANGELES, CA 90071 ROCHESTER, NY 14604 (212) 909-6000
(213) 485-1234 (716) 232-6500
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.

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, please 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 SAID SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY SECURITIES, IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED JULY 24, 2000

PROSPECTUS

7,000,000 SHARES

GENENCOR INTERNATIONAL, INC. LOGO
COMMON STOCK
----------------------

This is Genencor International, Inc.'s initial public offering of common
stock. Genencor is selling all of the shares.

We estimate the public offering price to be between $16.00 and $18.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National Market
under the symbol "GCOR."

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

----------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Genencor...................... $ $
</TABLE>

The underwriters may also purchase up to an additional 1,050,000 shares
from Genencor at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

The shares will be ready for delivery on or about , 2000.

----------------------

MERRILL LYNCH & CO.

CHASE H&Q
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
----------------------

The date of this prospectus is , 2000.
<PAGE> 3

[COVER ARTWORK AND GRAPHICS]

[Inside front cover: Genencor logo followed by a header reading "Genencor
International discovers, develops and delivers biotechnology products for the
health care, agriculture and industrial chemicals markets.", followed by photos
which depict (1) laundry detergents; (2) pills; (3) a woman applying face
cream; (4) wheat; (5) a computer-generated, space-filling model of a protein;
and (6) a computer-generated, back-bone model of a protein. Additional text
reading "Innovative by Nature(TM)" and text identifying the industries in which
Genencor operates: "Health Care Agriculture Industrial Chemicals."]

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Note Regarding Forward-Looking Statements................... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 30
Management.................................................. 47
Principal Stockholders...................................... 57
Certain Transactions........................................ 58
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
United States Federal Tax Considerations for Non-United
States Holders............................................ 65
Underwriting................................................ 68
Legal Matters............................................... 71
Experts..................................................... 71
Where You Can Find More Information......................... 72
Index to Consolidated Financial Statements.................. F-1
</TABLE>

----------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.

i
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and the financial statements
and related notes, before you decide whether to invest in our common stock.

GENENCOR

OVERVIEW

We are a global leader in the development of genetically based
biotechnology products using our group of technologies, which we refer to as our
technology platforms. These platforms include gene discovery and functional
genomics, which enables the discovery of genes and the determination of gene
function, molecular evolution and design, and human immunology. Over our 18-year
operating history, we have built an intellectual property portfolio of
approximately 3,000 owned and licensed patents and patent applications. We
deliver over 250 products to customers in over 80 countries and generated over
$300 million in 1999 revenues. We currently market enzymes, a type of protein,
whose performance we have enhanced for use in the industrial chemical and
agriculture markets. We refer to the process of enhancing proteins as
optimization. We intend to capitalize on our proven and proprietary technology
platforms to take advantage of large opportunities in the health care and
agriculture markets. As an example, we believe that we may utilize our
technologies to design and develop vaccines, protein-based pharmaceuticals and
foods with enhanced nutritional value.

A key part of our strategy has been and will continue to be forming
strategic alliances with industry leaders in our target markets. We have
long-standing relationships with strategic partners such as The Procter & Gamble
Company, E.I. du Pont de Nemours and Company and Eastman Chemical Company. We
are currently working on programs with these partners for the creation of novel
bio-engineered products with broad market potential.

OUR i-BIOTECH APPROACH

The discovery and commercialization of novel biologically derived
materials, or biomaterials, is a complex and lengthy process. We have developed
an approach to address this complexity and to exploit new opportunities in the
health care, agriculture and industrial chemicals markets. We refer to this
approach as our i-biotech approach. Our approach integrates several related
technology platforms that we apply to the discovery, optimization, production
and delivery of biomaterials.

Using our i-biotech approach, we have taken an enzyme derived from an
organism living in an extreme environment from gene discovery to commercial
production in less than 12 months. We believe this is an example of how our
integrated approach results in fast, efficient and successful discovery and
production of biomaterials. We are also using our i-biotech approach to develop
a proprietary agent for the topical treatment of viral infections associated
with skin diseases and cervical cancer, and a more cost-effective process for
converting agricultural waste, referred to as biomass, to fuel ethanol.

OUR STRATEGY

Our strategy is to strengthen our position in the markets we currently
serve and employ our i-biotech approach to address new opportunities in health
care, agriculture and industrial chemicals. We plan to capitalize on our proven
track record for innovating, developing and delivering products to market
through our global manufacturing, sales and distribution infrastructure to
capture new opportunities in our target markets. We intend to increase our
investment in research and development to enhance our existing technology
platforms and build new competencies. We expect to structure strategic alliances
with industry leaders in our target markets with a combination of research and
development funding and royalties. In these alliances, we intend to continue to
retain a proprietary interest in the products and technology that

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<PAGE> 6

we develop with our partners, as well as the related manufacturing rights.
Additionally, we will explore acquisitions of strategic businesses and
technologies.

OUR TECHNOLOGY PLATFORMS

Using our i-biotech approach, we discover genes whose encoded proteins we
can produce in organisms that we have adapted for the production of proteins,
which we refer to as host production organisms. We then modify the genes to
produce an optimized protein and reduce the protein's potential to cause a human
allergic response. Our i-biotech approach includes the following technology
platforms:

- Gene Discovery and Functional Genomics. We use a network of
internationally respected scientists to gather and preserve materials
from ecosystems as extreme and diverse as Antarctica and the high
mountain, soda lakes of Kenya. We use state-of-the-art screening
techniques to identify genes from organisms living in these diverse
environments whose genes are compatible with our proven host production
organisms. Through our process we eliminate leads that we cannot
produce in our host production organisms. Our gene discovery and
functional genomics platform has yielded sizeable collections of genes
from which we can develop products.

- Biomaterial Production Systems. We use our fungal or bacterial host
production organisms to produce the proteins encoded by the genes we
have discovered. We grow, or ferment, our host organisms under
controlled conditions, allowing them to grow, divide and efficiently
produce these proteins.

- Molecular Evolution and Design. When the desired biomaterial is a
protein, we use molecular evolution techniques to accelerate the
natural evolutionary process in order to engineer, or optimize, gene
products for an identified customer need. When the desired biomaterial
is a small molecule or chemical, we use our MutatorTechnology to
simultaneously modify hundreds of genes in a host production organism.

- Human Immunology. We use an automated assay or test that is predictive
of human immune response to identify and modify proteins that may cause
an immune response. We are also developing a model of the human immune
system in mice to test products for their human allergenic potential.
This platform, a direct outgrowth of our development of enzymes for
cleaning applications in the industrial chemicals markets, has enabled
us to begin developing enzymes for the consumer health care and
agriculture markets.

- Metabolic Pathway Engineering. Metabolic pathway engineering is a
process we use to modify our host production organisms to produce small
molecules and chemicals such as amino acids and vitamins.

- Formulation Delivery Systems. We formulate our biomaterials in a manner
customized for the intended use. These formulations can protect
biomaterials against harsh chemical and environmental conditions.

OUR PRODUCTS

We currently sell products in a broad range of markets. Some examples of
our products include:

- Puradax, Purafect and Purastar for the removal of stains from laundry
and dishware;

- Optimax and Spezyme for the production of sweeteners; and

- Multifect and Optidex for baking and brewing processes.

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<PAGE> 7

PRODUCT DEVELOPMENT

We are developing products for the health care, agriculture and
industrial chemicals markets. While we have product development programs
underway in each of our target markets, to date, we have not produced any
products for the health care market or segments of the agriculture market in
which we do not compete and therefore have not realized any product revenues
from these targeted markets. Our ability to develop products for these markets
may be limited by our resources, our ability to develop and maintain strategic
alliances, and the licensing and development of necessary technology. To date,
we have financed operations and product development from the sale of products,
research and development funding from our strategic partners, government grants
and short-term and long-term borrowings.

CORPORATE INFORMATION

Our principal offices are located at 925 Page Mill Road, Palo Alto,
California 94304. Our telephone number is (650) 846-7500.

3
<PAGE> 8

THE OFFERING

Genencor's common stock offering........ 7,000,000 shares

Shares outstanding after the offering... 58,856,500 shares

Use of proceeds......................... We estimate that our net proceeds
from this offering without exercise
of the underwriters' over-allotment
options will be approximately $109
million. We intend to use the net
proceeds of this offering for
research and development
activities, for capital
expenditures, to finance possible
acquisitions and for working
capital and other general corporate
purposes.

Proposed Nasdaq National Market
symbol.................................. GCOR

The number of shares of common stock that will be outstanding after the
offering is based on the number of shares of common stock outstanding as of July
21, 2000, and excludes shares of common stock issuable upon exercise of
outstanding employee stock options and shares reserved for issuance under our
stock option plan.

Unless we indicate otherwise, all information in this prospectus reflects
the following:

- a one-for-two reverse stock split of our common stock prior to the
completion of the offering;

- the filing of a restated certificate of incorporation with the
Secretary of State of the State of Delaware prior to the closing of
this offering; and

- no exercise by the underwriters of their over-allotment option to
purchase up to 1,050,000 additional shares of common stock.

DesignPath, Enzoguard, Fermenzyme, Genencor, i-biotech, i-mune, Indiage,
Multifect, MutatorTechnology, Optidex, Optimax, Properase, Puradax, Purafect,
Purastar, Spezyme and our logo are pending or registered trademarks of Genencor.
All other trademarks or trade names referred to in this prospectus are the
property of their respective owners.

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<PAGE> 9

SUMMARY FINANCIAL INFORMATION

The following table presents our summary consolidated financial data. You
should read this information together with our consolidated financial statements
and the notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------
AS ADJUSTED
ACTUAL FOR OFFERING
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 53,863 $163,831
Working capital............................................. 98,959 208,927
Total assets................................................ 509,422 619,390
Total long-term debt and capital leases..................... 147,060 147,060
Total liabilities........................................... 236,297 236,297
Redeemable preferred stock.................................. 149,744 149,744
Total shareholders' equity.................................. 123,381 233,349
</TABLE>

A number of items impact the comparability of the summary financial
information:

- In 1995, we acquired the outstanding shares of common stock of Royal
Gist-Brocades Bio-Specialties, the detergent, starch and textile
business of Royal Gist-Brocades. We accounted for this transaction by
the purchase method of accounting.

- In 1996, we acquired from Solvay S.A. the outstanding shares of common
stock of Solvay Enzymes Inc., Solvay Enzymes Verwaltungs GmbH, Solvay
Enzimas S.A., and fifty percent of the outstanding shares of Kyowa
Solzyme K.K. We accounted for this transaction by the purchase method
of accounting.

- In 1996, we extinguished certain long-term debt.

- In 1999, we implemented a plan to restructure our manufacturing
facility in Belgium.

- In 1999, we acquired an 80% ownership interest in Genencor (Wuxi)
Bio-Products Company, Ltd. We accounted for this transaction by the
purchase method of accounting.

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<PAGE> 10

- In 1999, our board of directors and stockholders approved a
25,000-for-1 stock split of our common stock. All references to share
and per share amounts have been restated retroactively to reflect the
split.

- All references to per share and per share amounts give effect to a
one-for-two reverse stock split which will occur prior to the
completion of this offering.

- During the three months ended March 31, 2000, we realized a gain on the
sale of marketable securities of $15.0 million, $9.2 million
tax-effected, and recognized back royalties in connection with a
settlement of patent infringement claims of $3.5 million, $2.1 million
tax-effected.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties we describe below and all of the
other information contained in this prospectus before deciding whether to invest
in shares of our common stock. If any of the following risks actually occurs,
they could harm our business, financial condition, and/or results of operations.
In such case, the trading price of our common stock could decline, and you may
lose all or part of your investment.

IF WE FAIL TO DEVELOP PRODUCTS FOR THE HEALTH CARE AND AGRICULTURE MARKETS, THEN
WE MAY NEVER ACHIEVE A RETURN ON OUR RESEARCH AND DEVELOPMENT EXPENDITURES OR
REALIZE PRODUCT REVENUES FROM THESE MARKETS.

A key element of our business strategy is to utilize our technologies for
the development and delivery of products to the health care market and segments
of the agriculture market in which we do not compete. We have not produced any
products for these markets. We intend to significantly increase our investment
in research and development to develop products for these markets. The
successful development of products is highly uncertain and is dependent on
numerous factors, many of which are beyond our control, and may include the
following:

- The product may be ineffective or have undesirable side effects in
preliminary and commercial testing or, specifically in the health care
area, in preclinical and clinical trials;

- The product may fail to receive necessary governmental and regulatory
approvals, or the government may delay regulatory approvals
significantly;

- The product may not be economically viable because of manufacturing
costs or other factors;

- The product may not gain acceptance in the marketplace; or

- The proprietary rights of others or competing products or technologies
for the same application may preclude us from commercializing the
product.

Due to these factors we may never achieve a return on our research and
development expenditures or realize product revenues from the health care and
agriculture markets that we are targeting.

IF WE FAIL TO ENTER INTO STRATEGIC ALLIANCES WITH PARTNERS IN OUR TARGET MARKETS
OR INDEPENDENTLY RAISE ADDITIONAL CAPITAL, WE WILL NOT HAVE THE RESOURCES
NECESSARY TO CAPITALIZE ON ALL OF THE MARKET OPPORTUNITIES AVAILABLE TO US.

We do not currently possess the resources necessary to independently
develop and commercialize products for all of the market opportunities that may
result from our technologies. We intend to form strategic alliances with
industry leaders in our target markets to gain access to funding for research
and development, expertise in areas we lack and distribution channels. We may
fail to enter into the necessary strategic alliances or fail to commercialize
the products anticipated from the alliances. Our alliances could be harmed if:

- We fail to meet our agreed upon research and development objectives;

- We disagree with our strategic partners over material terms of the
alliances, such as intellectual property or manufacturing rights; or

- Our strategic partners become competitors of ours or enter into
agreements with our competitors.

New strategic alliances that we enter into, if any, may conflict with the
business objectives of our current strategic partners and negatively impact
existing relationships. In addition, to capitalize on the market opportunities
we have identified, we may need to seek additional capital, either through
private or public offerings of debt or equity securities. Due to market and
other conditions beyond our control, we may not be able to raise additional
capital on acceptable terms or conditions, if at all.

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WE INTEND TO ACQUIRE BUSINESSES, TECHNOLOGIES AND PRODUCTS, BUT WE MAY FAIL TO
REALIZE THE ANTICIPATED BENEFITS OF SUCH ACQUISITIONS AND WE MAY INCUR COSTS
THAT COULD SIGNIFICANTLY NEGATIVELY IMPACT OUR PROFITABILITY.

We intend to acquire businesses, technologies and products that we
believe are a strategic fit with our business. If we undertake any transaction
of this sort, we may not be able to successfully integrate any businesses,
products, technologies or personnel that we might acquire without a significant
expenditure of operating, financial and management resources, if at all.
Further, we may fail to realize the anticipated benefits of any acquisition.
Future acquisitions could dilute your ownership interest in us and could cause
us to incur substantial debt, expose us to contingent liabilities and result in
amortization expenses related to goodwill and other intangible assets and could
negatively impact our profitability.

OUR CURRENT AND TARGET MARKETS ARE EXTREMELY COMPETITIVE AND IF WE FAIL TO
COMPETE EFFECTIVELY OUR REVENUES AND PROFITS WILL DECLINE.

Our current and target markets are highly competitive. Some of our
competitors in our current and target markets have superior technology and
greater financial, operational, sales and marketing, and research and
development resources than we do. Our primary competitor in the industrial
enzymes sector of the industrial chemicals market is Novo Nordisk A/S and our
primary competitor in the sectors of the agriculture market we currently address
is DSM N.V. Competitors in our target markets, particularly health care, include
companies that are more established and have strong brand name recognition.
Technological advances and new product introductions are typical for the markets
we serve and intend to serve. Our success will depend on continuous, timely
development and introduction of new products. To the extent we fail to introduce
new and innovative products, we may lose market share to our competitors, which
may be difficult to regain. Competition in our current and target markets is
primarily driven by:

- The establishment of long-term customer relationships;

- The development and protection of proprietary products and
technologies;

- Price, availability, features, quality and reliability relative to
competitive products;

- Manufacturing, sales and distribution capabilities;

- Technical support and service;

- Breadth of product line; and

- General market trends.

Our competitors have in the past and may in the future compete by
lowering prices. We may respond by lowering our prices, which could reduce
revenues and profits.

THE LOSS OF SOME OR ALL OF OUR BUSINESS WITH MAJOR CUSTOMERS WOULD CAUSE A
DECLINE IN REVENUES AND PROFITABILITY.

Our five largest customers collectively accounted for approximately 55%
of our 1999 revenues, with our largest customer, The Procter & Gamble Company,
accounting for approximately 30% of such revenues. Our five largest customers
are The Procter & Gamble Company, Unilever N.V., Benckiser N.V., Cargill Inc.
and the FinnFeeds Division of Danisco A/S. Any one of these customers may reduce
their level of business with us. Should our largest customer or any mix of our
other large customers decide to reduce or terminate its business with us, our
revenues and profitability would decline significantly.

IF THE DEMAND FOR PROTEIN DEGRADING ENZYMES UTILIZED IN CLEANING PRODUCTS
DECREASES, OUR REVENUES COULD SIGNIFICANTLY DECLINE.

Our largest selling family of products, protein degrading enzymes, or
proteases, utilized in cleaning products accounted for approximately 39% of our
1999 revenue. If the demand for proteases as an

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ingredient in cleaning products decreases or alternative proteases render our
products noncompetitive, our revenues could significantly decline.

IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO
ACHIEVE OUR EXPANSION OBJECTIVES.

Our ability to manage our anticipated growth, if realized, effectively
depends on our ability to attract and retain highly qualified executive officers
and technology and business personnel. In particular, our product development
programs depend on our ability to attract and retain highly skilled researchers.
Competition for such individuals is intense. If we fail to attract and retain
qualified individuals, we will not be able to achieve our expansion objectives.

IF THE OWNERSHIP OF OUR COMMON STOCK CONTINUES TO BE HIGHLY CONCENTRATED, IT MAY
PREVENT YOU AND OTHER STOCKHOLDERS FROM INFLUENCING SIGNIFICANT CORPORATE
DECISIONS AND MAY RESULT IN CONFLICTS OF INTEREST THAT COULD CAUSE OUR STOCK
PRICE TO DECLINE.

Upon completion of this offering, Eastman Chemical Company and affiliates
of Danisco A/S, referred to as our majority stockholders, will each own
approximately 42.5% of our outstanding common stock. They will therefore have
the ability, acting together, to control fundamental corporate transactions
requiring stockholder approval, including the election of a majority of our
directors, approval of merger transactions involving us and the sale of all or
substantially all of our assets or other business combination transactions. The
concentration of ownership of our common stock may have the effect of delaying
or preventing a change in our control favored by our other stockholders. If the
concentration of ownership delays a change of control or change in management,
the market price of our common stock could decline or stockholders might not
receive a change of control premium over the then-current market price of the
common stock.

In addition, the majority stockholders' control over our management could
create conflicts of interest between the majority stockholders and us and
between the majority stockholders and other stockholders, which could result in
one or more of the following occurring:

- Our majority stockholders, acting together, could cause us to enter
into contracts with another entity against our interests or cause us to
decline a transaction that is in our best interest;

- Our majority stockholders may engage in other businesses that compete
or may in the future compete with us; and

- Conflicts could arise with respect to allocation of corporate
opportunities between our majority stockholders and us and between our
majority stockholders and other stockholders, and we have not
instituted any formal plans to address such allocation of corporate
opportunities.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS WHICH COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK.

Provisions of our restated certificate of incorporation, bylaws, new
stockholders agreement and Delaware law could make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our stockholders.
These provisions could discourage potential takeover attempts and could
adversely affect the market price of our common stock. Because of these
provisions, you might not be able to receive a premium on your investment. See
"Certain Transactions -- Agreements with Significant Stockholders" and
"Description of Capital Stock."

IF WE FAIL TO SECURE ADEQUATE INTELLECTUAL PROPERTY PROTECTION OR BECOME
INVOLVED IN AN INTELLECTUAL PROPERTY DISPUTE, IT COULD SIGNIFICANTLY HARM OUR
FINANCIAL RESULTS AND ABILITY TO COMPETE.

The patent positions of biotechnology companies, including our patent
positions, can be highly uncertain and involve complex legal and factual
questions and, therefore, enforceability is uncertain. We will be able to
protect our proprietary rights from unauthorized use by third parties only to
the extent that we protect our technologies with valid and enforceable patents
or as trade secrets. We rely in part on trade secret protection for our
confidential and proprietary information by entering into confidentiality
agreements and non-disclosure policies with our employees and consultants.
Nonetheless, confidential and

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proprietary information may be disclosed and others may independently develop
substantially equivalent information and techniques or otherwise gain access to
our trade secrets.

We file patent applications in the United States and in foreign countries
as part of our strategy to protect our proprietary products and technologies.
The loss of significant patents or the failure of patents to issue from pending
patent applications that we consider significant could impair our operations. In
addition, third parties could successfully challenge, invalidate or circumvent
our issued patents or patents licensed to us so that our patent rights would not
create an effective competitive barrier. Further, we may not obtain the patents
or licenses to technologies that we will need to develop products for our target
markets. The laws of some foreign countries may also not protect our
intellectual property rights to the same extent as United States law.

Extensive litigation regarding patents and other intellectual property
rights is common in the biotechnology industry. We periodically receive notices
of potential infringement of patents held by others. In the event of an
intellectual property dispute, we may become involved in litigation.
Intellectual property litigation is expensive and may divert management's time
and resources away from our operations. The outcome of any such litigation is
inherently uncertain. Even if we are successful, the litigation would be costly
in terms of dollars spent and diversion of management time.

If a third party successfully claims an intellectual property right to
technology we use, it may force us to discontinue an important product or
product line, alter our products and processes, pay license fees, pay damages
for past infringement or cease certain activities. Under these circumstances, we
may attempt to obtain a license to this intellectual property; however, we may
not be able to do so on commercially reasonable terms, or at all.

STRINGENT LAWS AND REQUIRED GOVERNMENT APPROVALS AND CHANGES IN THE APPROVAL
PROCESS COULD DELAY OUR INTRODUCTION OF PRODUCTS.

Federal, state, local and foreign government agencies regulate all phases
of our product development and commercialization. Some of our potential
products, and particularly products for the health care and agriculture markets,
will be subject to significantly greater oversight and longer approval processes
than our current products. Regulatory agencies, including the Food and Drug
Administration, the Environmental Protection Agency, the U.S. Department of
Agriculture and their foreign counterparts, may not allow us to conduct
research, produce and market our products in a timely manner or under
technically or commercially feasible conditions, or at all. This could delay the
introduction of new products, which could negatively impact anticipated growth.

ETHICAL, LEGAL AND SOCIAL CONCERNS ABOUT GENETICALLY ENGINEERED PRODUCTS COULD
RESULT IN OUR INABILITY TO COMMERCIALIZE PRODUCTS.

We produce a significant amount of our products from genetically modified
microorganisms. Additionally, we intend to expand into agriculture markets,
either alone or with strategic partners, through the development of genetically
modified foods and transgenic crops. We cannot predict public attitudes and
acceptance of products we may make from genetically modified microorganisms. As
a result, if we are not able to overcome the ethical, legal and social concerns
relating to safety and environmental hazards of genetic engineering, the general
public may not accept our products and this may prevent us from commercializing
products dependent on our technologies or inventions. In addition, public
attitudes may influence laws and regulations governing the ownership or use of
genetic material, which could result in greater government regulation of genetic
research and bioengineered products.

FOREIGN CURRENCY FLUCTUATIONS AND ECONOMIC AND POLITICAL CONDITIONS IN FOREIGN
COUNTRIES COULD CAUSE OUR REVENUES AND PROFITS TO DECLINE.

In 1999, we derived approximately 60% of our revenues from our foreign
operations. Our foreign operations generate sales and incur expenses in local
currency. As a result, we are exposed to market risk related to unpredictable
interest rates and foreign currency exchange rate fluctuations. We recognize

10
<PAGE> 15

foreign currency gains or losses arising from our operations in the period
incurred. As a result, currency fluctuations between the U.S. dollar and the
currencies in which we do business could cause our revenues and profits to
decline.

Product revenues denominated in Euros account for approximately 40% of
total product revenues and the fluctuations in the currency exchange rate
against the U.S. dollar can have a significant impact on our reported product
revenues. In the first quarter of 2000, the strengthening of the U.S. dollar
reduced our reported product revenues by $3.6 million, or 5%. However, because
we incur most of our costs associated with our Euro revenues in Euros, we
minimize the impact on net income.

We expect to continue to operate in foreign countries and that our
international sales will continue to account for a significant percentage of our
revenues. Any one of the following factors arising from our international
business operations could be costly in terms of dollars spent and the diversion
of management's time, and could cause our revenues and profits to decline,
including:

- Difficulties and costs associated with staffing and managing foreign
operations;

- Unexpected changes in regulatory requirements;

- Difficulties of compliance with a wide variety of foreign laws and
regulations;

- Changes in our international distribution network and direct sales
force;

- Potential trade restrictions and exchange controls;

- Political and social unrest;

- Labor disputes including work stoppages, strikes and embargoes;

- Inadequate and unreliable services and infrastructure;

- Import or export licensing or permit requirements; and

- Greater risk on credit terms and long accounts receivable collection
cycles in some foreign countries.

WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.

A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if product revenue
declines or does not grow as we anticipate or non-product revenue declines due
to the expiration or termination of strategic alliance agreements or the failure
to obtain new agreements or grants, we may not be able to correspondingly reduce
our operating expenses in any particular quarter. Our quarterly revenue and
operating results have fluctuated in the past and are likely to do so in the
future. If our operating results in some quarters fail to meet the expectations
of stock market analysts and investors, our stock price would likely decline.
Some of the factors that could cause our revenue and operating results to
fluctuate include:

- The ability and willingness of strategic partners to commercialize
products derived from our technology or containing our products on
expected timelines;

- Our ability to successfully commercialize products developed
independently and the rate of adoption of such products;

- Fluctuations in consumer demand for products containing our
technologies or products, such as back to school sales of blue jeans
and other denim products, resulting in an increase in textile
processing enzymes, and fluctuations in laundry detergent use due to
promotional campaigns run by consumer products companies; and

- Fluctuations in geographic conditions including currency and other
economic conditions such as economic crises in Brazil or Asia.

11
<PAGE> 16

We also have incurred significant one-time charges within given quarters,
such as those incurred in conjunction with restructuring activities, and
recognized investment income from sales of available-for-sale marketable
securities.

MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN.

Management will retain broad discretion over the use of proceeds from
this offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to finance
potential acquisitions or investments. There are a number of factors that will
influence our use of the net proceeds from this offering, and these uses may
vary substantially from our current plans.

IF WE ARE SUBJECT TO A COSTLY PRODUCT LIABILITY DAMAGE CLAIM OR AWARD, OUR
PROFITS COULD DECLINE.

We may be held liable if any product we develop, or any product that a
third party makes with the use or incorporation of any of our products, causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Our current product liability insurance may not cover our
potential liabilities. Inability to obtain sufficient insurance coverage in the
future at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or inhibit the commercialization of products
developed by us or our strategic partners. If a third party sues us for any
injury caused by our products, our liability could exceed our insurance coverage
amounts and total assets and our profits could decline.

IF WE ARE SUBJECT TO COSTLY ENVIRONMENTAL LIABILITY DUE TO THE USE OF HAZARDOUS
MATERIALS IN OUR BUSINESS, OUR PROFITS COULD DECLINE.

Our research and development processes involve the controlled use of
hazardous materials, including chemical, radioactive and biological materials.
Our operations also generate potentially hazardous waste. We cannot eliminate
entirely the risk of contamination or the discharge of hazardous materials and
any resultant injury from these materials. Federal, state, local and foreign
laws and regulations govern the use, manufacture, storage, handling and disposal
of these materials. Third parties may sue us for any injury or contamination
that results from our use or the third party's use of these materials. Any
accident could partially or completely shut down our research and manufacturing
facilities and operations. In addition, if we comply with applicable
environmental laws and regulations, we may incur additional costs, and current
or future environmental regulations may impair our research, development or
production efforts.

OUR UNITED STATES RESEARCH AND DEVELOPMENT FACILITY AND CORPORATE OFFICE IS
LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE OF AN EARTHQUAKE
OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO THIS FACILITY AND
EQUIPMENT, WHICH COULD IMPAIR OUR ABILITY TO OPERATE THE FACILITY.

Our United States research and development facility and corporate office
is located in Palo Alto, California near known earthquake fault zones and is
vulnerable to damage from earthquakes. In October 1989 a major earthquake that
caused significant property damage and a number of fatalities struck this area.
We are also vulnerable to damage from other types of disasters, including fire,
floods, power loss, communications failures and similar events. If any disaster
were to occur, our ability to operate our business at our facilities would be
seriously, or potentially completely, impaired. In addition, the unique nature
of our research activities and much of our equipment could make it difficult for
us to recover from a disaster. The insurance we maintain may not be adequate to
cover our losses resulting from disasters or other business interruptions.

12
<PAGE> 17

BECAUSE THERE IS NO PRIOR MARKET FOR OUR COMMON STOCK, YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE.

Prior to this offering, there has been no public market for shares of our
common stock. An active, liquid trading market may not develop following
completion of this offering, or if developed, may not be maintained. We will
determine the public offering price for the shares through negotiations between
representatives of the underwriters and us. This price may not be indicative of
prices that will prevail later in the trading market. The market price of the
common stock may decline below the public offering price, and you may not be
able to resell your shares at or above the public offering price.

BECAUSE WE OPERATE IN THE BIOTECHNOLOGY INDUSTRY, OUR STOCK PRICE MAY BE
PARTICULARLY VOLATILE.

The stock market, from time to time, has experienced significant price
and volume fluctuations that are unrelated to the operating performance of
companies. The market prices for securities of biotechnology companies, in
general, have been highly volatile and may continue to be highly volatile in the
future. Our stock may be affected by this type of market volatility, as well as
by our own performance. The following factors, among other risk factors, may
have a significant effect on the market price of our common stock:

- Developments in our relationships with current or future strategic
partners;

- Announcements of technological innovations or new products by us or our
competitors;

- Developments in patent or other intellectual proprietary rights or
announcements relating to these matters;

- Investor concern regarding the public acceptance of the safety of
biotechnology products or announcements relating to these matters;

- Litigation or governmental proceedings or announcements relating to
these matters;

- Developments in domestic and international governmental policy or
regulation, for example, relating to intellectual property rights;

- Economic and other external factors or other disaster or crisis;

- Future royalties from product sales, if any, by our licensees;

- Our ability to access genetic material from diverse ecological
environments and the development of our technologies; and

- Fluctuations in our operating results.

IF EXISTING STOCKHOLDERS SELL LARGE NUMBERS OF SHARES OF OUR COMMON STOCK, OUR
STOCK PRICE COULD DECLINE.

The market price of our common stock could decline as a result of sales
by our existing stockholders of a large number of shares of our common stock in
the public market after the closing of this offering, or the perception that
these sales could occur. Such sales also could make it more difficult for us to
sell equity securities in the future at a time and price that we deem
appropriate. After this offering, we will have 58,856,500 shares of common stock
outstanding. All the shares sold in this offering will be freely tradable,
except those held by our affiliates. Of the remaining shares of common stock
outstanding after this offering, all of the shares held by Eastman Chemical
Company and affiliates of Danisco A/S will be subject to registration rights.
See "Certain Transactions -- Agreements with Significant Stockholders."

After this offering, we also intend to register up to approximately
9,000,000 shares of our common stock for sale upon exercise of outstanding stock
options issued pursuant to compensatory benefit plans or reserved for future
issuance pursuant to our stock option plan. In addition, the market price of our
common stock could decline if we sell additional equity securities in connection
with financings, acquisitions or strategic alliance arrangements. See "Shares
Eligible for Future Sale."
13
<PAGE> 18

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations regarding
our future products, market and growth opportunities, and general industry and
business conditions applicable to us. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to a number of risks, uncertainties
and assumptions about us, including those we describe in the "Risk Factors"
section of this prospectus. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.

14
<PAGE> 19

USE OF PROCEEDS

We expect to receive approximately $109 million from the sale of the
shares offered by this prospectus at an assumed public offering price of $17.00
per share, the mid-point of the range set forth on the cover of this prospectus,
after deducting estimated underwriting discounts and offering expenses. We
currently intend to use the net proceeds of this offering for research and
development activities, for capital expenditures, to finance possible
acquisitions and for working capital and other general corporate purposes.

We have not yet finalized the amount of net proceeds we will use
specifically for each of the foregoing purposes. Accordingly, our management
will have significant flexibility in applying the net proceeds of this offering.
Pending any use, as described above, we intend to invest the net proceeds in
high quality, interest-bearing securities. See "Risk Factors -- Management may
invest or spend the proceeds of this offering in ways with which you may not
agree and in ways that may not yield a return."

DIVIDEND POLICY

We currently intend to retain future earnings, if any, to finance the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, general
business conditions and other factors that the board of directors may deem
relevant. In addition, covenants in our senior note agreement may limit our
ability to declare and pay cash dividends on our capital stock.

15
<PAGE> 20

CAPITALIZATION

This table sets forth as of March 31, 2000:

- our actual capitalization; and

- our capitalization as adjusted to give effect to the sale of 7,000,000
shares of our common stock in this offering at an assumed public
offering price of $17.00 per share after deducting estimated
underwriting discounts and estimated expenses of this offering, and
giving effect to the issuance of 1,856,500 shares of restricted common
stock to certain key employees at a price of $9.70 per share which
occurred prior to May 4, 2000. The employees purchased the restricted
shares through the use of notes receivable from these employees.

This table excludes 9,000,000 shares of our common stock reserved for
issuance under our stock option plan, of which 4,453,500 shares are subject to
options outstanding as of July 21, 2000, at a weighted average exercise price of
$9.97 per share.

You should read this table in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and the notes to those statements included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities..................... $143,660 $143,660
Redeemable preferred stock:
7 1/2% cumulative series A preferred stock, without par
value, authorized 1,000 shares, 970 shares issued and
outstanding, including dividends in arrears of
$52,744................................................ 149,744 149,744
Shareholders' equity:
Common stock, par value $.01 per share, 200,000,000 shares
authorized, 50,000,000 shares issued and outstanding
actual, 58,856,500 shares issued and outstanding as
adjusted............................................... 500 589
Preferred stock, par value $.01 per share, 1,000,000
shares authorized, no shares issued and outstanding
actual and as adjusted................................. -- --
Additional paid-in capital................................ 188,975 316,362
Deferred stock-based compensation......................... (2,649) (2,649)
Notes receivable.......................................... -- (18,008)
Accumulated deficit....................................... (20,235) (20,235)
Accumulated other comprehensive loss...................... (43,210) (43,210)
-------- --------
Total shareholders' equity........................... 123,381 232,849
-------- --------
Total capitalization................................. $416,785 $526,253
======== ========
</TABLE>

16
<PAGE> 21

DILUTION

Our net tangible book value as of March 31, 2000 was approximately $33.5
million, or approximately $0.67 per share of common stock, based on an aggregate
of 50,000,000 shares of common stock outstanding. The number of shares
outstanding as of March 31, 2000 excludes 5,739,450 shares of our common stock
issuable upon exercise of the then outstanding options to purchase common stock
under our stock option plan. "Net tangible book value" per share represents the
amount of our total consolidated tangible assets minus total consolidated
liabilities and redeemable preferred stock, divided by the shares of our common
stock outstanding, before giving effect to the sale of our common stock in this
offering. Assuming the sale by us of the shares offered by this prospectus at an
assumed public offering price of $17.00 per share and after deducting
underwriting discounts and the estimated offering expenses payable by us, and
giving effect to the issuance which occurred after March 31, 2000 of 1,856,500
shares of restricted common stock to certain key employees at a price of $9.70
per share, our pro forma net tangible book value as of March 31, 2000 would have
been $161.0 million, or $2.74 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $2.07 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $14.26 per share to new investors purchasing common stock in this
offering at the assumed public offering price. The following table illustrates
this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $17.00
Historical net tangible book value per share as of March
31, 2000............................................... $0.67
Increase in net tangible book value per share attributable
to issuance of restricted shares....................... 0.32
Increase in net tangible book value per share attributable
to this offering....................................... 1.75
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.74
------
Dilution per share to new investors......................... $14.26
======
</TABLE>

We determined dilution per share to new investors by subtracting pro
forma net tangible book value per share after this offering from the assumed
public offering price per share paid by a new investor. If we issue any shares
in connection with outstanding options or the underwriters' over-allotment
option, you will experience further dilution.

The following table summarizes, on a pro forma basis as of March 31,
2000, the difference between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid at an assumed public
offering price of $17.00 per share, before deducting estimated underwriting
discounts and commissions and offering expenses payable by us:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 51,856,500 88% $207,483 64% $ 4.00
New investors........................... 7,000,000 12% 119,000 36% 17.00
---------- --- -------- ---
Total................................. 58,856,500 100% $326,483 100%
========== === ======== ===
</TABLE>

The foregoing table assumes no exercise of stock options. As of July 21,
2000, there were options outstanding to purchase 4,453,500 shares of our common
stock at a weighted average exercise price of $9.97 per share. To the extent
that holders exercise outstanding options, new investors will experience further
dilution.

17
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our financial statements and the notes to our financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. We derived the
statement of operations and balance sheet data for the five-year period ended
December 31, 1999 from our audited financial statements. We derived the
statement of operations and balance sheet data for the three-month period ended
March 31, 2000 from our unaudited interim financial statements. In our opinion,
we have prepared the unaudited financial statements on substantially the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. Historical results
are not indicative of the results to be expected in the future.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS
Revenues:
Product revenue............... $ 189,107 $ 235,041 $ 293,643 $ 279,492 $ 305,637 $ 72,602 $ 73,640
Fees and royalty revenues..... 26,006 24,951 16,699 9,619 10,965 2,264 6,059
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues................ 215,113 259,992 310,342 289,111 316,602 74,866 79,699
Operating expenses:
Cost of product sold.......... 124,261 164,440 179,112 167,604 176,756 43,500 41,998
Research and development...... 31,196 33,989 37,306 40,205 43,955 10,022 11,824
Sales, marketing and business
development................. 21,876 22,837 25,392 24,394 24,564 5,162 5,665
General and administrative.... 13,931 16,027 17,995 22,940 22,984 4,900 5,542
Amortization.................. 5,934 8,659 7,773 8,272 8,750 2,071 2,351
Restructuring and related
charges..................... -- -- -- -- 7,500 -- --
Other (income)/expense........ 609 (37) 938 (342) (845) (143) (299)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses...... 197,807 245,915 268,516 263,073 283,664 65,512 67,081
Operating income................ 17,306 14,077 41,826 26,038 32,938 9,354 12,618
Non operating (income)/expenses:
Investment income............. -- -- -- (990) -- -- (15,046)
Interest expense.............. 7,630 12,419 11,633 10,727 10,487 2,503 2,660
Interest income............... (637) (1,084) (446) (557) (750) (140) (560)
Other (income)/expense........ 5,200 (5,381) 1,100 (1,442) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total non operating
(income)/expenses........... 12,193 5,954 12,287 7,738 9,737 2,363 (12,946)
Income before provision for
income taxes and extraordinary
item.......................... 5,113 8,123 29,539 18,300 23,201 6,991 25,564
Provision for income taxes...... 1,316 6,036 5,106 3,279 5,294 1,595 8,700
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income before extraordinary
item.......................... 3,797 2,087 24,433 15,021 17,907 5,396 16,864
Extraordinary loss on early
extinguishment of debt (Net
of income tax benefit of
$1,302)..................... -- 1,954 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income.................... $ 3,797 $ 133 $ 24,433 $ 15,021 $ 17,907 $ 5,396 $ 16,864
=========== =========== =========== =========== =========== =========== ===========
Net income available to
holders of common stock..... $ (3,478) $ (7,142) $ 17,158 $ 7,746 $ 10,632 $ 3,577 $ 15,045
=========== =========== =========== =========== =========== =========== ===========
Earnings per common share
before extraordinary item:
Basic....................... $ (0.07) $ (0.10) $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.30
=========== =========== =========== =========== =========== =========== ===========
Diluted..................... $ (0.07) $ (0.10) $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.29
=========== =========== =========== =========== =========== =========== ===========
Earnings per common share:
Basic....................... $ (0.07) $ (0.14) $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.30
=========== =========== =========== =========== =========== =========== ===========
Diluted..................... $ (0.07) $ (0.14) $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.29
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding:
Basic....................... 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
=========== =========== =========== =========== =========== =========== ===========
Diluted..................... 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 51,816,735
=========== =========== =========== =========== =========== =========== ===========
Dividends per common share.... -- -- $ 0.20 $ 0.20 -- -- --
=========== =========== =========== =========== =========== =========== ===========
</TABLE>

18
<PAGE> 23

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............................... $ 28,047 $ 13,597 $ 10,310 $ 12,792 $ 39,331 $ 53,863
Working capital......................................... 30,767 63,084 68,485 84,871 82,414 98,959
Total assets............................................ 418,213 534,580 500,535 508,016 512,120 509,422
Total long-term debt and capital leases................. 92,058 194,000 171,000 158,000 146,080 147,060
Total liabilities....................................... 197,666 280,610 249,819 243,515 246,239 236,297
Redeemable preferred stock.............................. 118,825 126,100 133,375 140,650 147,925 149,744
Total shareholders' equity.............................. 101,722 127,870 117,341 123,851 117,956 123,381
</TABLE>

A number of items impact the comparability of the selected consolidated
financial data:

- In 1996, we extinguished certain long-term debt.

- In 1999, we implemented a plan to restructure our manufacturing
facility in Belgium.

- In 1999, we acquired an 80% ownership interest in Genencor (Wuxi)
Bio-Products Company, Ltd. We accounted for this transaction by the
purchase method of accounting.

- All references to per share and per share amounts give effect to a
one-for-two reverse stock split which will occur prior to the
completion of this offering.

19
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and
results of operations in conjunction with the consolidated financial statements
and the notes to those statements included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
by forward-looking information due to factors discussed under "Risk Factors" and
"Business" and elsewhere in this prospectus.

OVERVIEW

We are engaged in the discovery, development, manufacturing and marketing
of biotechnology products for the industrial chemicals, agriculture and health
care markets. Our current revenues result primarily from the sale of novel
enzymes to the cleaning, grain processing and textile industries, with the
remainder from research funding and technology fees and royalties. We intend to
apply our proven and proprietary technologies and manufacturing capabilities to
expand sales in our existing markets and address new opportunities in the health
care, agriculture and industrial chemicals markets. We have formed, and plan to
continue to form, strategic alliances with market leaders to collaborate with us
to develop and launch products.

We manufacture our products through our eight manufacturing facilities
located in the United States, Finland, Belgium, China and Argentina. We conduct
our sales and marketing activities through our direct sales organizations in the
United States, the Netherlands, Singapore, Japan and Argentina. In 1999, we
derived approximately 60% of our revenues from our foreign operations.

RECENT DEVELOPMENTS

Two non-recurring transactions favorably impacted net income for the
quarter ended March 31, 2000. We recognized a gain of $15.0 million, $9.2
million tax-effected, from the sale of marketable equity securities. We received
this stock upon the sale of an equity investment made in 1998. In January 2000,
we successfully settled patent infringement issues with one of our customers,
which resulted in back royalties of $3.5 million, $2.1 million tax-effected. We
are also entitled to future royalties related to this intellectual property
arrangement.

On December 9, 1999, our board of directors approved the implementation
of an employee stock option and stock appreciation right plan. Under the terms
of this plan, we may grant stock options and stock appreciation rights for, in
the aggregate, up to 9 million shares of common stock. Options vest ratably over
a three-year period and expire ten years from their grant date. Stock
appreciation rights vest 50% after three years, with the remaining 50% vesting
after four years, and expire ten years from their grant date. On December 31,
1999, there were stock options to purchase 5.5 million shares and 0.5 million
stock appreciation rights outstanding, at an exercise price of $9.70 per share.

On March 28, 2000 we granted 0.3 million stock options. We determined
that the estimated market value of our common stock exceeded the exercise price
at the time of grant. As a result, we recorded deferred compensation expense of
$2.6 million related to those options for the quarter ended March 31, 2000. We
will amortize this amount over the three year vesting period, beginning in April
2000. On May 3, 2000, we issued an additional 0.3 million stock options at an
exercise price of $9.70 per share. Accordingly, we will recognize deferred
compensation expense of $2.6 million related to these options for the quarter
ended June 30, 2000. We also will amortize this amount over the vesting period
of three years, beginning in May 2000. As of July 21, 2000, we issued an
additional 0.3 million stock options at a weighted average exercise price of
$13.77 per share. Accordingly, we will recognize deferred compensation expense
of $1.7 million related to these options for the quarter ended September 30,
2000. We will amortize this amount over the vesting period of three years,
beginning in July 2000. The total deferred compensation noted above of $6.9
million will result in annual deferred stock based compensation expense of $1.5
million, $2.3 million, $2.3 million and $0.8 million in 2000, 2001, 2002 and
2003, respectively. On April 28, 2000, the board of directors allowed certain
key employees to accelerate the exercise provisions on 1.9 million stock options
and purchase restricted shares of

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<PAGE> 25

our common stock through the use of promissory notes from the employees. For
further information, please refer to note 18 to our consolidated financial
statements. At July 21, 2000, we had outstanding stock options to purchase 4.5
million shares at a weighted average exercise price of $9.97 per share, 0.5
million stock appreciation rights at an exercise price of $9.81 per share and
1.9 million shares of restricted common stock.

In June 1999, our board of directors terminated the long-term incentive
plan that we had established in 1994. Under this plan, we granted employees
units with values established at least annually by our board of directors. We
recognized the appreciation in value multiplied by the number of units, at their
assumed vesting percentage for accounting purposes, as long-term incentive
compensation expense. We reduced our 1999 net income of $17.9 million, 1998 net
income of $15.0 million, and 1997 net income of $24.4 million by our long-term
incentive compensation expense of $3.6 million, $12.3 million and $3.3 million,
respectively, or on a tax-effected basis of $2.3 million, $8.0 million and $2.2
million, respectively. We included these amounts in cost of product sold and
research and development, sales, marketing and business development, and general
and administrative expenses for all periods presented.

In July 1999, we implemented a plan to restructure our manufacturing
facility in Belgium. Two factors primarily drove our decision: developments
leading to a production overcapacity in the enzyme market and operating costs of
the Belgian plant that were considerably higher than in any of our other plants.
We eliminated approximately 58 positions as a result of this restructuring, with
staggering termination dates of July 1999 through January 2001. We immediately
notified all affected employees of the restructuring plan. As of December 31,
1999, 23 employees had terminated their employment with us. As a result of this
plan, we recorded restructuring and related charges of $7.5 million, or $6.2
million after taxes, in 1999. These charges relate primarily to employee
severance and related social costs of $4.9 million, a curtailment loss of $0.8
million under a related defined benefit pension arrangement, and $1.8 million
for manufacturing equipment that we deemed impaired as it would no longer be
utilized after the restructuring. We determined the impairment charge based on
remaining book value as we believe there is no market in which to sell the
specific assets. At December 31, 1999, we had a remaining severance liability of
$2.9 million related to this restructuring. We expect that this restructuring
program will result in an on-going pre-tax savings of approximately $5.0 million
annually. We expect to realize part of this annual cost savings during 2000. We
estimate pre-tax savings through March 31, 2000 at $1.2 million, resulting
primarily in lower cost of product sold. As of March 31, 2000, we had completed
our activities under this plan and no adjustments were made to the original
plan.

In May 1999, we acquired an 80% ownership interest in Genencor (Wuxi)
Bio-Products Company, Ltd. located in Wuxi, China, for a total cash purchase
price of $9.9 million. We accounted for the acquisition under the purchase
method. Therefore, we allocated the purchase price to the acquired assets and
liabilities based upon management estimates of fair value. We are amortizing
goodwill of $7.5 million on a straight-line method over ten years. As we intend
to significantly improve the efficiency of the facility, which will continue to
operate as a manufacturing site in the region, we recorded a provision to
restructure the entity of approximately $3.2 million with an offset included in
goodwill. Based on our preliminary assessment, the provision includes estimated
employee related costs of $2.2 million, demolishing costs of $0.3 million for
pre-existing structures on the site that we do not intend to use, and costs to
effect the restructuring of $0.1 million. The provision further includes a
reserve for incurred but unrecorded liabilities of the acquired entity of $0.6
million. As of December 31, 1999, we had not charged any costs to this
restructuring provision. During 2000, we will continue to assess the cost of
this restructuring. We will reallocate to goodwill any changes in the
anticipated cost to restructure the facility. We expect that this restructuring
program will result in an on-going pre-tax savings of approximately $0.5 million
annually. We expect to realize limited benefit from this cost savings during
2000. The acquired company's results of operations, which we have consolidated
since May 1, 1999, approximated a loss of $0.3 million in 1999 and a loss of
$0.2 million for the quarter ended March 31, 2000.

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<PAGE> 26

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2000 and 1999

Revenues. Total revenues for the first quarter of 2000 increased $4.8
million, or 6%, to $79.7 million from the first quarter of 1999, primarily due
to an increase in fees and royalty revenues.

Product Revenues. Product revenues for the first quarter of 2000
increased $1.0 million, or 1%, to $73.6 million from the first quarter of 1999.
In the first quarter of 2000, unit volume grew by 7%, while price fell 1%.
Volume increased primarily due to increased protease enzyme sales to our largest
customer, The Procter & Gamble Company, of $2.2 million, new product
introductions and expanded business with our textiles customers of $1.1 million,
and product revenue of $2.0 million related to our joint venture, Genencor
(Wuxi) Bio-Products, which we acquired in May 1999.

On a regional basis, our first quarter 2000 product revenues in North
America showed a $3.8 million, or 12%, increase to $34.5 million over the first
quarter of 1999 due primarily to increased protease sales to our largest
customer. Revenues in Asia benefited from increased market penetration and our
acquisition of an ownership interest in Genencor (Wuxi) Bio-Products in Wuxi,
China. In total, product revenues in Asia increased $2.0 million, or 35%, to
$7.7 million in the first quarter of 2000. Europe showed a decrease of $5.0
million, or 16%, to $27.1 million primarily driven by the impact of the stronger
U.S. dollar against the Euro and a decrease in sales of cellulase products to
our animal feed customers of $0.9 million. Latin America product revenues
increased by $0.3 million, or 8%, to $4.3 million due to improving economic
conditions impacting our customers in Brazil.

Approximately 40% of our product revenues are denominated in Euros and
the fluctuations in the currency exchange rate against the U.S. dollar can have
a significant impact on our reported product revenues. In the first quarter of
2000, the strengthening of the U.S. dollar caused a reduction in our product
revenues of $3.6 million, or 5%. However, because we incur most of the costs
associated with our Euro revenues in Euros, we minimize the impact on net
income.

Fees and Royalty Revenues. Our fees and royalty revenues consist
primarily of funded research. Revenues generated from research funding result
from collaborative agreements with various parties, including the U.S.
Government, whereby we perform research activities and receive revenues that
partially reimburse us for expenses incurred. Under such agreements we retain a
proprietary interest in the products and technology developed. Overall, funded
research revenues increased $0.3 million, or 14%, to $2.5 million from the first
quarter of 1999 to 2000. Our funded research revenue as it relates to U.S.
Government collaborations increased $0.1 million, or 17%, to $0.7 million from
the first quarter of 1999 to 2000 primarily due to an increase in funding
provided by the Advanced Technology Program of the National Institute of
Standards and Technology to develop a biotechnology-driven production process
for ascorbic acid. Funded research revenues provided by customers increased $0.2
million, or 13%, to $1.8 million from the first quarter of 1999 to 2000
primarily due to funding from our second largest customer.

Royalties increased $3.5 million, or 100%, in the first quarter of 2000
due to resolution of patent infringement issues with a customer. These one-time
royalties pertain to previous sales, using patented technology, made by the
customer to third parties. The related intellectual property agreement also
provides for future royalties.

Operating Expenses

Cost of Product Sold. Cost of product sold decreased $1.5 million, or 3%,
to $42.0 million in the first quarter of 2000 from the first quarter of 1999
based on favorable impacts of cost reduction efforts and reductions in our fixed
manufacturing costs due to the change in the Euro of $2.4 million, offset by
increases in our distribution costs of $1.1 million.

Gross Profit and Margins from Product Sold. Gross profit from product
sold for the first quarter of 2000 increased $2.5 million, or 9%, to $31.6
million from the first quarter of 1999. This increase was

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<PAGE> 27

caused by the significant product revenue-related factors of a 7% increase in
unit volume and a 1% decrease in price. These product revenue-related factors
were combined with a decrease of 3% in cost of product sold due to the favorable
impacts of cost reduction efforts and reductions in our fixed manufacturing
costs offset by increases in our distribution costs. As a result of these
factors, gross margin on product revenue increased to 43% in the first quarter
of 2000 from 40% in the first quarter of 1999.

Research and Development. Research and development expenses primarily
consist of the personnel related, consulting, and facilities costs incurred in
connection with our research activities conducted in Palo Alto, California, and
Leiden, the Netherlands. These expenses increased $1.8 million, or 18%, to $11.8
million in the first quarter of 2000 from the first quarter of 1999 as we
continue to increase our investment in technology platforms and enzyme discovery
for new markets. As a part of total research and development expenses, estimated
expenses related to research collaborations partially funded by customers
increased by $0.4 million, or 12%, to $3.8 million in the first quarter of 2000
from the first quarter of 1999. We currently anticipate that our research and
development expenditures as a percentage of revenues will grow in the near
future, as well as other business expenses related to research and development
activities in conjunction with our strategic development opportunities.

Sales, Marketing and Business Development. Sales, marketing and business
development expenses primarily consist of the personnel related and marketing
costs incurred by our global sales force. Total expenses increased $0.5 million,
or 10%, to $5.7 million in the first quarter of 2000 from the first quarter of
1999 due to personnel related costs, such as an increase in salaries and
benefits of $0.3 million and costs related to internal sales meetings of $0.1
million.

General and Administrative. General and administrative expenses include
the costs of our corporate executive, finance, information technology, legal,
human resources, and communications functions. In total, these expenses
increased $0.6 million, or 12%, to $5.5 million in the first quarter of 2000
from the first quarter of 1999 due primarily to personnel related costs, such as
increases in salaries and benefits of $0.2 million and $0.2 million related to
new office space in Rochester, New York.

Amortization. We amortize our intangible assets, consisting of patents,
licenses, technology and goodwill, on a straight-line basis over their estimated
useful lives, with a weighted average life of 18 years. Amortization expense
increased $0.3 million, or 14%, to $2.4 million in the first quarter of 2000
from the first quarter of 1999 primarily due to the goodwill related to the 1999
acquisition of Genencor (Wuxi) Bio-Products. For further information, please
refer to note 2 to our consolidated financial statements.

Other Expense and Income. Other expense and income relates primarily to
foreign currency exchange gains and losses on transactions denominated in other
than our functional currency.

Non Operating Expenses and Income

Investment Income. Investment income represents gains from the sale of
marketable equity securities. Investment income increased $15.0 million, or
100%, from the first quarter of 1999 due to the sale of marketable equity
securities. We received these securities upon our sale of an equity investment
in 1998.

Income Taxes. The effective income tax rate for the quarter ended March
31, 2000 was 34% as compared to 23% for the same quarter of 1999. The higher
effective tax rate for the current quarter primarily increased due to the
pre-tax income resulting from two one-time events. During the first quarter of
2000, we realized $15.0 million of pre-tax gains from the sale of marketable
equity securities and a $3.5 million pre-tax gain from the settlement of certain
patent infringement issues, both in the United States. These items were tax
effected at a marginal rate of 38.6%.

Deferred Compensation and Other Non-Cash Compensation Charges. We
determine deferred compensation for options granted to employees as the
difference between the grant price and the fair value of our common stock, as
estimated for financial reporting purposes, on the date we granted the options.
In connection with the grant of stock options to employees on March 28, 2000, we
recorded deferred compensation expense of approximately $2.6 million. We
recorded this amount as a component of
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<PAGE> 28

shareholders' equity and we amortize it as a charge to operations over the
vesting period of the options. There was no amortization of deferred
compensation expense for the period ended March 31, 2000.

Comparison of Years Ended December 31, 1999, 1998 and 1997

Revenues. Total revenues for 1999 increased $27.5 million, or 10%, to
$316.6 million from 1998, primarily due to an increase in product revenues.
Total revenues for 1998 decreased $21.2 million, or 7%, to $289.1 million from
1997 to 1998 primarily due to reduced product revenues related to divested and
discontinued product lines. Additionally, 1997 fees and royalty revenues
included certain non-recurring items, which we discuss more fully below.

Product Revenues. Product revenues in 1999 increased $26.1 million, or
9%, to $305.6 million from 1998. Without the impact of the stronger U.S. dollar
against the Euro in 1999 versus 1998, product revenues in 1999 would have
further increased by 2%. In 1999, unit volume grew by 13%, while price fell 2%.
Volume increased primarily due to increased protease enzyme sales of
approximately $20.0 million to our largest customer and the successful launch of
a new enzyme-based dishwasher-cleaning product by our third highest volume
customer of approximately $11.0 million. In 1999, 1998 and 1997, our two largest
customers accounted for 39%, 39% and 36% of our product revenues, respectively.

For 1999 and 1998, The Procter & Gamble Company, Unilever N.V., and
Benckiser N.V. were our three largest customers in rank order. For 1997, The
Procter & Gamble Company, Unilever N.V., and Cargill, Inc. were our three
largest customers in rank order.

Regionally, our 1999 product revenues in Europe showed a $14.0 million,
or 13%, increase to $123.3 million from 1998 due primarily to the increased
protease sales to our largest customer, while our revenues in Asia benefited
from increased market penetration of $6.4 million and the acquisition of an
ownership interest in Genencor (Wuxi) Bio-Products, which reported $6.8 million
in product revenues in 1999. In total, product revenues in Asia increased $13.2
million, or 66%, to $33.2 million from 1998. North America also showed an
increase of $5.2 million, or 4%, to $131.8 million driven by our grain
processing sales, but Latin America product revenues declined by $6.3 million,
or 27%, to $17.3 million due to the economic crisis in Brazil.

Product revenues in 1998 decreased $14.2 million, or 5%, to $279.5
million from 1997, driven largely by divested and discontinued product lines of
$11.5 million and termination of third party contract manufacturing arrangements
of $6.3 million. In addition, the 1998 economic crisis in Asia negatively
impacted revenues by $1.6 million. These decreases were partially offset by
growth in sales to our largest customer of approximately $3.5 million and in
sales of our animal feed enzymes of $3.6 million. On a regional basis our 1998
product revenues in North America declined by $9.5 million, or 7%, primarily due
to a product rationalization program.

In 1999, the strengthening of the U.S. dollar caused a reduction in our
product revenues of $5.0 million. The strengthening of the U.S. dollar also
caused a reduction in our product revenues in 1998 from 1997 of $3.0 million.
However, because we incur most of the costs associated with our Euro revenues in
Euros, we minimize the impact on net income.

Fees and Royalty Revenues. Our fees and royalty revenues consist
primarily of funded research. Overall, funded research revenues increased $1.6
million, or 18%, to $10.7 million from 1998 to 1999. Our funded research revenue
as it relates to U.S. Government collaborations decreased $0.4 million, or 16%,
to $2.1 million from 1998 to 1999 primarily due to a decrease in funding
provided by the Advanced Technology Program of the National Institute of
Standards and Technology to develop low allergenicity enzyme products. Funded
research revenues provided by customers increased $2.0 million, or 30%, to $8.6
million from 1998 to 1999 primarily due to reaching the second of three
milestone targets under our collaborative program with E.I. du Pont de Nemours
and Company to develop an efficient biological process for making 1,3
propanediol from glucose.

Overall, funded research revenue increased $0.6 million, or 7%, to $9.0
million from 1997 to 1998. Our funded research revenue as it relates to U.S.
Government collaborations increased $0.6 million, or
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<PAGE> 29

32%, to $2.5 million from 1997 to 1998 primarily due to funding provided by the
Advanced Technology Program of the National Institute of Standards and
Technology noted above. Funded research revenues provided by customers were flat
from 1997 to 1998 due to the receipt of the first of three milestone payments
from E.I. du Pont de Nemours and Company referenced above of $0.5 million and
the initiation of a program with FinnFeeds International specifically related to
in vivo applications in nutrition and health of animals of $0.7 million, offset
by $1.2 million related to the culmination of programs in 1997.

License and technology fees decreased $7.1 million, or 97%, to $0.2
million in 1998 due to one-time gains of $7.2 million included in 1997 from the
transfer of certain technical and manufacturing know-how and the grant of a
fully paid-up license to a third party.

Royalties in both 1999 and 1998 decreased from 1997 due to a reduction in
a royalty on diagnostic products as the related patents expired in 1997.

Operating Expenses

Cost of Product Sold. Cost of product sold increased $9.2 million, or 5%,
to $176.8 million in 1999 from 1998 based on increased product volume of $13.3
million and costs associated with the establishment of new warehouse facilities
in Singapore of $0.5 million, partially offset by favorable impacts of cost
reduction efforts of $1.3 million and a decrease in long-term incentive
compensation expense of $2.1 million. Cost of product sold decreased $12.0
million, or 7%, to $167.6 million in 1998 from 1997 due to the decrease in total
product revenues discussed above of $2.7 million, technological and process
improvements, and a shift in the mix of products sold from higher to lower cost
products of $9.0 million. Partially offsetting the above noted decrease in 1998
was an increase in long-term incentive compensation expense of $2.2 million.

Gross Profit and Margins from Product Sold. Gross profit from product
sold in 1999 increased $17.0 million, or 15%, to $128.9 million from 1998. This
increase was caused by significant product revenue-related factors including a
13% increase in unit volume and a price decline of 2%. These product
revenue-related factors were combined with an increase of 5% in cost of product
sold due to increased unit volume and costs associated with the establishment of
new warehouse facilities in Singapore. These increases were partially offset by
favorable impacts of cost reduction efforts and a decrease in long-term
incentive compensation expense.

Gross profit from product sold in 1998 decreased $2.6 million, or 2% to
$111.9 million from 1997. This decrease was caused by significant product
revenue-related factors including divested and discontinued product lines and
termination of third party contract manufacturing arrangements of approximately
$17.8 million and a $1.6 million negative impact on revenues due to the economic
crisis in Asia. These decreases were partially offset by growth in sales to our
largest customer and sales of our animal feed enzymes. These product
revenue-related factors were combined with a decrease of 6% in cost of product
sold due to reduced product revenues cited above, technological and process
improvements, and a shift in the mix of products sold from higher to lower cost
products, partially offset by increased costs in long-term incentive
compensation expense.

As a result of these factors, gross margin on product revenue increased
to 42% in 1999 from 40% in 1998 and 39% in 1997.

Research and Development. These expenses increased $3.8 million, or 9%,
to $44.0 million in 1999 from 1998 as we increased our investment in technology
platforms and enzyme discovery for new markets. The increase from 1998 was
substantially offset by a decrease in long-term incentive compensation expense.
As a part of total research and development expenses, estimated expenses related
to research collaborations partially funded by customers increased by $5.0
million, or 46%, to $15.8 million in 1999 from 1998. The increase of $2.9
million, or 8%, to $40.2 million in 1998 from 1997 was primarily driven by
long-term incentive compensation expense. Estimated expenses related to funded
research collaborations with customers increased by $1.4 million, or 15%, to
$10.9 million from 1997 to 1998

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primarily due to the initiation of a program with FinnFeeds International
specifically related to in vivo applications in nutrition and health of animals.

Sales, Marketing and Business Development. Total expenses remained
constant in 1999 from 1998. The decrease of $1.0 million, or 4%, to $24.4
million in 1998 from 1997 was due primarily to final royalty payments in 1997 of
$2.0 million resulting from a 1990 acquisition.

General and Administrative. In total, these expenses were consistent from
1998 to 1999. Increases, due primarily to strategic consulting fees of $1.0
million and Year 2000 system compliance consulting fees of $0.2 million, were
offset by decreased long-term incentive compensation expense. Increases in
general and administrative expenses of $4.9 million, or 27%, to $22.9 million in
1998 from 1997 related primarily to long-term incentive compensation expense of
$2.1 million, the further development of our information technology
infrastructure of $1.4 million, the creation of a formal corporate
communications function for $0.5 million, and outside legal consulting expenses
of $0.6 million incurred in connection with the defense of a patent infringement
claim settled in our favor in early 1998.

Amortization. Amortization expense increased $0.5 million, or 6%, to $8.8
million in 1999 from 1998 due to amortization of the intangible assets resulting
from the acquisition of Genencor (Wuxi) Bio-Products Company, Ltd discussed
above. Amortization expense increased $0.5 million, or 6%, to $8.3 million in
1998 from 1997 primarily due to amortization of an increase in goodwill in
December 1997 of $8.2 million related to an adjustment to the purchase
accounting of prior acquisitions.

Other Expense and Income. Other expense and income relates primarily to
foreign currency exchange gains and losses on transactions denominated in other
than our functional currency.

Non Operating Expense and Income

Investment Income. Investment income represents gains from the sale of
marketable equity securities. During 1998 we realized a $1 million gain on the
sale of an equity investment.

Other Expense and Income. Other non operating income, net of other
expenses, decreased $1.4 million, or 100%, in 1999 from 1998 due to the
non-recurring nature of certain items recognized in 1998. These non-recurring
events related to the settlement of patent infringement litigation of $1.0
million, and to a lesser extent, the sale of assets related to divested product
lines of $0.4 million. The increase of $2.5 million of income from 1997 to 1998
primarily related to the settlement of the patent infringement litigation and
the 1997 non-recurring expense of $1.1 million related to the impairment
write-off of a joint venture equity investment.

Income Taxes. Several factors affected our effective income tax rate in
1999, including the statutory income tax rate in foreign jurisdictions,
amortization of intangible assets which is not deductible for tax purposes, and
research and experimental tax credits. The effective income tax rate for 1999
was 23% compared with 18% in 1998 and 17% in 1997. The 1998 effective rate
includes the effect of the utilization of research and experimental tax credits
totaling $2.5 million. The effective income tax rate for 1997 includes a $3.1
million impact associated with the increased likelihood of the utilization of
net operating loss carry forwards that have since been realized. Without these
one-time adjustments, the effective income tax rates for 1997 and 1998 would
have remained comparable but significantly higher than the rate in 1999. We are
subject to a tax ruling in the Netherlands that reduces the local effective
income tax rate from 35% to 17.5%. This ruling will expire at the end of 2005.
More information regarding our income tax position can be found in note 13 to
our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Our funding needs consist primarily of capital expenditures, research and
development activities, sales and marketing expenses, and general corporate
purposes. We have financed our operations primarily through cash from the sale
of products, research and development funding from partners, government grants,
and short-term and long-term borrowings.

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<PAGE> 31

We believe that our current cash balances plus funds to be provided from
our current year operating activities will satisfy our funding needs over the
next twelve months. We believe that the proceeds from this offering plus funds
to be provided from our operating activities will adequately fund our
anticipated long-term needs thereafter. Factors that could negatively impact our
cash position include, but are not limited to, future levels of product, fees
and royalty revenues, expense levels, capital expenditures, acquisitions, and
foreign currency exchange rate fluctuations.

As of March 31, 2000, cash and cash equivalents totaled $53.9 million,
which we invested in short-term instruments including commercial paper,
institutional money market funds and bank deposits.

Cash provided by operations was $3.4 million in the first quarter of
2000, $10.1 million for the first quarter of 1999, $58.2 million in 1999, $46.1
million in 1998, and $47.3 million in 1997. The decrease of $6.7 million in the
first quarter of 2000 from the first quarter of 1999 and the increase of $12.1
million in 1999 from 1998 was generated principally by operating earnings, net
of non-cash items such as depreciation and amortization, and changes in
operating assets and liabilities. Cash provided by operations decreased by only
$1.2 million in 1998 from 1997.

Cash provided by investing activities was $12.3 million in the first
quarter of 2000 compared to $1.0 million in the first quarter of 1999. This
difference of $11.3 million was driven by proceeds from the sale of marketable
securities, completion of a sale/leaseback transaction in 1999 and a reduced
level of capital spending in the first quarter of 2000. Cash used in investing
activities was $20.1 million in 1999, $21.2 million in 1998 and $16.8 million in
1997. Spending in each of these years was driven by capital expenditures, which
totaled $21.3 million in 1999 compared with $22.9 million in 1998 and $23.9
million in 1997. A significant portion of this spending included process
improvement projects at our manufacturing and research and development
facilities and information technology enhancements. Capital projects in process
at December 31, 1999 relate primarily to further manufacturing process
improvements and information technology system enhancements. We estimate the
cost to complete these projects is $12.6 million, of which we have committed
approximately $9.0 million.

During 1998, we constructed a new technology and regional operations
center in Leiden, the Netherlands. We included the cost of this project in our
cash paid for purchases of property, plant and equipment under cash flows for
investing activities in our 1998 consolidated financial statements. In 1999, we
sold this facility to ABM AMRO Onroerend Goed Lease en Financieringen B.V. for
$4.2 million and leased it back for a period of 20 years as more fully discussed
in note 6 to our consolidated financial statements.

To expand our industrial enzyme manufacturing and distribution presence
in Asia, we invested $9.9 million to acquire an 80% interest in a joint venture
in Wuxi, China, in 1999. This investment consisted of approximately $4.0 million
paid to acquire shares from pre-existing owners, $5.0 million of cash infused to
improve operations and provide liquidity and approximately $0.9 million in
acquisition related costs.

Cash used in financing activities of $1.0 million during the first
quarter of 1999 resulted from the reductions in our outstanding borrowings on
our revolving credit facilities. Cash used in financing activities was $9.7
million in 1999, $23.0 million in 1998 and $33.0 million in 1997. This spending
was primarily driven by reductions in our outstanding borrowings on our
revolving credit facilities, which were fully repaid as of December 31, 1999,
and dividends to our common shareholders. These dividends consisted of $10.0
million paid to our common shareholders in both 1998 and 1997. However, we
currently intend to retain future earnings to finance the expansion of our
business. Any future determination to pay cash dividends will be at the
discretion of our board of directors and will depend upon our financial
condition, results of operations, capital requirements, general business
conditions and other factors that the board of directors may deem relevant,
including covenants in our debt instruments that may limit our ability to
declare and pay cash dividends on our capital stock. Covenants in our senior
note agreement restrict the payment of dividends or other distributions in cash
or other property to the extent the payment puts us in default of these
covenants. Such covenants include, but are not limited to, maintaining a debt to
total capitalization of at least 55% and a maximum ratio of debt to EBITDA of
3.5:1.
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We currently have a $30.0 million line of credit with a commercial bank,
which is available for general corporate purposes. At July 21, 2000 there were
no borrowings under the agreement. The line of credit matures on the earlier of
November 6, 2000, or when we execute a new revolving credit agreement. We are
currently negotiating a new facility which we expect to have in place by the end
of August 2000. Our long-term debt consists primarily of $140.0 million in
senior notes issued in 1996 to certain institutional investors. These notes bear
interest at 6.82% and are payable in annual installments of $28.0 million
commencing in March 2002. We are currently in compliance with all of the
financial covenants included in the senior note agreement. For more information,
please refer to note 8 to our consolidated financial statements. We also paid a
$10.0 million note in June 2000, which related to the acquisition of the enzyme
business of Gist-Brocades in 1995.

MARKET RISK

Foreign currency risk and interest rate risk are the primary sources of
our market risk. Foreign operations, mainly denominated in Euros, accounted for
approximately 60% of our 1999 revenues. We believe that we mitigate our risk due
to foreign currency exchange rate fluctuation by our strategy of locating our
manufacturing facilities so that the costs are denominated in the same currency
as our product revenues. We manage the foreign currency exposures that remain
through the use of foreign currency forward contracts and currency options. We
do not use these instruments for speculative purposes. We had no material
foreign currency forward contracts or currency options outstanding at March 31,
2000.

As of March 31, 2000, cash and short-term investments totaled $53.9
million. Of this amount, $22.4 million was denominated in Euros. Our short-term
debt outstanding was not significant as of March 31, 2000. To the extent U.S.
dollar and Euro interest rates decline, the return on the cash investments would
also decline. To the extent such deposits remain outstanding, we will be subject
to risks associated with future foreign exchange fluctuations. If we were to
borrow from our line of credit, our cost of short-term debt would be sensitive
to changes in the general level of interest rates in the United States.

Our subsidiary based in the Netherlands, which adopted the Euro as its
functional currency, has average annual U.S. Dollar and Japanese Yen denominated
revenues of approximately $40.0 million and $4.0 million, respectively. We use
forward currency contracts to hedge these anticipated revenues. At March 31,
2000, we had total Japanese Yen denominated forward contracts of approximately
$1.4 million. All of the contracts mature between April and September, 2000. The
fair market value of the contracts was equal to the face value of the contracts.

Interest Rates

Our interest income is sensitive to changes in the general level of
interest rates primarily in the United States and Europe. In this regard,
changes in the U.S. dollar and Euro currency rates affect the interest earned on
our cash equivalents, short-term investments, and long-term investments.

Foreign Currency Exposure

We conduct business throughout the world. We derived over 50% of our 1999
revenues and operating income from foreign operations. Economic conditions in
countries where we conduct business and changing foreign currency exchange rates
affect our financial position and results of operations. We are exposed to
changes in exchange rates in Europe, Latin America and Asia. The Euro presents
our most significant foreign currency exchange risk. Changes in foreign currency
exchange rates, especially the strengthening of the U.S. dollar, may have an
adverse effect on our financial position and results of operations as they are
expressed in U.S. dollars.

Management monitors foreign currency exposures and may in the ordinary
course of business enter into foreign currency forward contracts or options
contracts related to specific foreign currency transactions or anticipated cash
flows. These contracts are generally for periods of less than nine months and
are not material. We do not hedge the translation of financial statements of
consolidated subsidiaries that maintain their local books and records in foreign
currencies.

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NEW ACCOUNTING STANDARD

In July 1999, The Financial Accounting Standards Board announced the
delay of the effective date of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," for one
year, to the first quarter of 2001.

SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires companies to recognize
all derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Under this SFAS, accounting for gains or losses
resulting from changes in the values of those derivatives would depend on the
use of the derivative and whether it qualifies for hedge accounting under SFAS
No. 133. Based on the requirements of SFAS No. 133, there may be changes to the
reported assets and liabilities in the balance sheet. Though we are currently
evaluating the impact of SFAS No. 133 on our financial position and results of
operations, based on our limited use of derivative instruments as discussed in
the "Market Risk" section above, we believe the impact of adoption of this
statement will not be material.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
We believe that the impact of FIN 44 will not have a material effect on the
consolidated financial statements.

YEAR 2000 COMPLIANCE

As of July 21, 2000, we had not experienced any Year 2000 related
disruption in the operation of our business. We cannot be sure, however, that
all potential Year 2000 problems involving our business or the business of our
customers have become apparent. We continue to monitor our technological
operations to evaluate whether there are any indications that Year 2000 problems
may still impact our business. Given the general uncertainty regarding Year 2000
issues, Year 2000 issues may have a material adverse effect on our business. We
spent approximately $0.8 million in Year 2000 related remediation costs. These
costs did not have a material effect on our results of operations and financial
condition and we do not anticipate that we will incur these types of costs in
the future.

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BUSINESS

OUR COMPANY

We are a global leader in the development of genetically based
biotechnology products using our group of technologies, which we refer to as our
technology platforms, including gene discovery and functional genomics,
molecular evolution and design, and human immunology. Over our 18-year operating
history, we have built an intellectual property portfolio of approximately 3,000
owned and licensed patents and patent applications. We deliver over 250 products
to customers in over 80 countries and generated over $300 million in 1999
revenues.

Our products include proprietary enzymes, proteins and biochemicals and
are used in applications as diverse as removing stubborn stains from clothing,
converting starch to the sweetener in soft drinks and enhancing the nutritional
value of grains and animal feed. Our strategy is to apply our proven and
proprietary technologies and manufacturing capabilities to expand sales in our
existing markets and address new opportunities in the health care, agriculture
and industrial chemicals markets. Using our i-biotech approach we are currently
developing enzymes with reduced potential for human allergic response for
consumer health care products, a proprietary agent for the topical treatment of
human papilloma virus, an infection associated with warts and cancer, and a more
cost-effective process for converting biomass to fuel ethanol.

We have long-standing relationships with strategic partners such as
Danisco/Cultor, Eastman Chemical Company, E.I. du Pont de Nemours and Company
and The Procter & Gamble Company, and customers such as Benckiser N.V., Cargill
Inc. and Unilever N.V. A key aspect of our strategy is to continue to identify
and develop long-term strategic alliances with industry leaders in each of our
target markets. These relationships have provided us with access to funding for
research and development, distribution channels and access to industry expertise
in our target markets.

SCIENTIFIC OVERVIEW

Genomics is the study of the genetic content of an organism. Each
organism inherits its genetic information, or DNA, from the previous generation.
DNA is found in cells of all living organisms and is written as a linear code
that is divided into discrete units called genes. A collection of genes form a
chromosome, which, when bundled with other chromosomes, constitutes the genetic
blueprint of the organism, or its genome. Each gene carries instructions or
codes for the production, or expression, of proteins.

Proteins have various roles in a cell. Proteins act as structural
building blocks, sensors which identify environmental changes and the presence
of foreign materials and enzymes that catalyze reactions. Enzymes are catalysts
for virtually all the chemical reactions that are key to life. Subtle changes in
the genetic code of an enzyme can dramatically alter its characteristics and
function.

Enzymes are valuable for use in several applications such as enhancing
chemical reactions, laundry detergent and drug development. The commercial
success of new products and new applications depends on the discovery of new
genes, the optimization of these genes and the ability to produce their encoded
protein products or enzymes economically.

Scientists can read genetic code by sequencing an organism's DNA, which
allows the identification of proteins encoded in the genes. Scientists compile
these genes and their sequences into large data libraries that they can search
and screen automatically using automated robotic systems, also known as high
throughput screening technologies, to ascribe function to these proteins. This
process is known as functional genomics.

Changes in DNA, or mutations, occur naturally in organisms. Beneficial
mutations may improve an organism's ability to survive. Over time, these
mutations and their related traits are passed on to subsequent generations in a
process known as evolution. Scientists attempt to accelerate evolution in a

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process known as directed evolution. Scientists can use directed evolution to
change genes and their encoded proteins to design commercially useful
biologically-derived materials, or biomaterials.

Commercial production of biomaterials requires the use of organisms that
have been adapted for the production of proteins. We refer to these organisms as
host production organisms. Through the application of molecular biology,
scientists move genes from one organism into a host production organism. By
introducing new genes into a host production organism, scientists can create new
chemical pathways to direct the production of a desired biomaterial in that host
production organism.

COMPLEXITY OF COMMERCIALIZING BIOMATERIALS

Commercialization of biomaterials is a complex process requiring the
integration of a number of technologies, including gene discovery, gene
optimization, production and allergenic analysis and testing. Many companies
focus on one or a subset of these technologies. In addition, many companies may
not apply these technologies in the context of an identified customer need or
the economical production of the desired biomaterial.

Traditional genomics approaches to gene discovery have focused primarily
on screening microorganisms from new and unique environments, relying upon high
throughput screening to identify a biomaterial with the desired properties.
These techniques are laborious and do not always yield materials that can be
commercialized successfully because the discovered genes may be incompatible
with the necessary host production organism. Specifically, the host production
organism may not be able to express the desired biomaterial at all or in
sufficient quantity to be commercially viable.

Once identified, the biomaterial produced by a discovered gene may not be
optimal for the intended commercial application. Therefore, gene discovery
typically is followed by gene optimization to improve the performance and
stability of the gene product in its intended environment. In some cases, gene
optimization may result in biomaterials that upon exposure induce a human
allergic response. Traditional approaches to commercializing biomaterials fail
to identify the potential for allergenic responses early in the development
process. This inability to predict allergic potential may result in wasted
investment and the development of products that are not viable for applications
such as skin care, cosmetics and biopharmaceuticals.

Despite improvements in DNA sequencing and functional genomics, the
complexity of the commercialization process has limited the development of new
biomaterials. Successful commercialization of enzymes and other biomaterials
requires effective gene discovery to deliver biomaterials that can be produced
on an economic basis in host production organisms while concurrently optimizing
the biomaterial and reducing its potential to cause human allergic response.

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OUR I-BIOTECH APPROACH -- AN INTEGRATED SOLUTION

We have developed an approach to address the complexity inherent in the
commercialization of biomaterials for application in the health care,
agriculture and industrial chemicals markets. We refer to this approach as
i-biotech. i-biotech integrates several related technology platforms that we
apply to the discovery, optimization, production and delivery of biomaterials.
We believe that our integrated approach results in fast, efficient and
successful discovery and production of biomaterials. The following diagram
illustrates the integration of our technology platforms.

FLOW CHART

In the discovery and development of commercial products, we employ our
i-biotech approach in the following manner:

- We define an opportunity based on the needs of our customers;

- We use our gene discovery and functional genomics platform to search
our libraries of microorganisms for genes that express proteins capable
of solving the customer need;

- We refine these libraries to identify biomaterials that can be produced
in our bacterial and fungal host production systems, which comprise our
biomaterial production systems platform;

- We apply our molecular evolution and design platform to genetically
engineer and evolve, or optimize, the desired biomaterial;

- We apply our human immunology platform to assess and limit the
allergenic risk of the desired biomaterial; and

- We apply our metabolic pathway engineering platform to reengineer the
metabolism of our host production systems to permit production of small
molecules and chemicals in large quantities.

We have consistently demonstrated our ability to discover novel gene
products, optimize these products to improve performance in commercial
applications and deliver the improved products to our customers in a timely,
cost-efficient manner. For example, we recently commercialized Indiage Neutra, a
cellulase enzyme derived from organisms living in extreme environments. This
enzyme gives denim a stonewashed appearance. Using our i-biotech approach, we
took this product from gene discovery to commercial production in less than 12
months.

Our immunology platform is an integral part of our i-biotech approach.
This platform allows us to assess and reduce the human allergenic risk of
biomaterials early in the discovery and development process. This platform is a
direct outgrowth of our development of enzymes for cleaning applications in the
industrial chemicals markets. This platform has enabled us to begin developing
enzymes for the consumer health care and agriculture markets.

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OUR STRATEGY

Our strategy is to continue to strengthen our position in the markets we
currently serve and employ our i-biotech approach to capitalize on new
opportunities in health care, agriculture and industrial chemicals. Key elements
of our strategy include:

Leverage our technology platforms and commercial experience to address new
large markets

We believe our proprietary technologies are applicable to a broad range
of growth opportunities in the health care, agriculture and industrial chemicals
markets. For example, we are developing two products for the health care market,
an enzyme with reduced potential for human allergic response for use in skin
care products and a compound for the topical treatment of human papilloma virus,
each of which we leveraged from our existing industrial chemicals and
agriculture businesses. We plan to capitalize on our proven track record for
innovating, developing and delivering products to market through our global
manufacturing, sales and distribution infrastructure to capture new
opportunities in our target markets.

Accelerate research and development with increased investment

We intend to increase our investment in research and development to
enhance our existing technology platforms and build new competencies. We believe
this increase, combined with our proven ability to commercialize products, will
accelerate our product development efforts and permit us to successfully capture
the growth opportunities in our target markets.

Pursue additional long-term strategic alliances with industry leaders

We have long-standing strategic alliances with industry leaders such as
The Procter & Gamble Company, E.I. du Pont de Nemours and Company and Eastman
Chemical Company. We intend to continue establishing long-term strategic
alliances with industry leaders that will provide us with access to research and
development expertise and distribution channels across our target markets. We
expect to structure these relationships with a combination of research and
development funding and royalties. We intend to continue to retain a proprietary
interest in the products and technology that we develop with these partners, as
well as the related manufacturing rights, allowing us to leverage our
discoveries into other market segments.

Make selected enabling technology and business acquisitions

We have in the past acquired technologies and businesses and integrated
those successfully into our operations. We will continue to identify, evaluate
and acquire or license enabling technologies to enhance our technology
platforms. Since 1995 we have successfully acquired and integrated three
businesses, adding significantly to our revenues and our technology and
manufacturing capabilities. We will explore acquisitions of strategic businesses
and technologies to expand our market presence and to enhance our technology
platforms.

OUR TECHNOLOGY PLATFORMS

Our development process begins with the identification and understanding
of a customer need. Understanding this need permits us to develop a predictive
test, or assay, that simulates the conditions or environment in which the
desired biomaterial will be used. We believe that by incorporating the customer-
driven predictive assay into our i-biotech approach, we can achieve a higher
probability of success in the commercialization of our products.

Gene discovery and functional genomics

Gene discovery is a series of techniques used to identify diverse genes
whose encoded proteins are capable of solving customer needs. We identify genes
in two ways, either on the basis of their sequence or on the basis of the
function of their encoded protein products.

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We utilize a network of internationally respected scientists to gather
and preserve materials from ecosystems as extreme and diverse as Antarctica and
the high mountain, soda lakes of Kenya. From our hundreds of preserved
ecosystems, each of which includes thousands of microorganisms, we have the
potential to evaluate billions of genes. Using state-of-the-art robotics and
high throughput screening technology, we apply our customer driven predictive
assays to generate proteins which work for the intended purpose, but that
require optimization. We refer to these proteins as product leads.

When searching for novel bacterial genes, we search our ecosystems to
identify those organisms whose genes are compatible with our host production
organisms. By linking gene discovery to protein production, we increase the
probability of success through the elimination of incompatible leads. Through
this approach, we have access to a diverse set of bacterial genes that we are
confident can be expressed in our host production organisms.

We also search fungi for product leads. Traditionally, fungi have been
screened only for genes whose protein products are expressed at a high level. We
create a library of all the genes of a particular fungus and remove the
repetitive sequences through a process known as normalization. We systematically
express each gene and screen its protein product including those proteins that
are normally produced at extremely low levels. By screening the entire genome of
a single fungal organism, we gain access to a diverse set of genes, including
previously undiscovered genes.

Biomaterial production systems

A key element of our i-biotech approach is the concurrent application of
our biomaterial production systems platform with our other technology platforms.
Biomaterial production systems consist of: (a) host production organisms that we
have adapted to accept genes from other organisms, or foreign genes, and produce
the proteins encoded by these foreign genes; and (b) a proprietary process for
growing our host production organisms, which we refer to as our proprietary
fermentation processes. We grow, or ferment, our host production organisms under
controlled conditions, allowing these organisms to grow, divide and efficiently
produce optimized proteins. In our 18 years of operations, we have developed
numerous host production organisms backed by patented technology and process
know-how.

Each host production organism has a unique set of requirements that must
be met before the organism can accept a foreign gene. For each host production
organism, we have identified the key elements that must be added to a foreign
gene to enable the host production organism to accept the gene and to produce
the gene's product, the desired protein. To produce the desired product we
cultivate the host production organisms using our proprietary fermentation
processes.

Molecular evolution and design

Molecular evolution and design is the process or set of tools by which we
accelerate the natural evolutionary process in order to engineer or optimize
gene products for customer needs.

In nature, evolution occurs at a very slow rate. We accelerate the
evolutionary process to engineer and evolve, or optimize, the function of the
protein we identify in the discovery process to address the customer need. We
optimize genes by changing or mutating their DNA sequence to produce a variant
protein with a modified function. This process is known as mutagenesis. We alter
these proteins at a single site, at multiple sites or randomly over the entire
length of the protein sequence. We employ several state-of-the-art chemical and
enzymatic methods for mutating the DNA sequence of genes. We insert these
altered genes into our proprietary host production organisms so that we can
screen the variant proteins they produce for the identification of product
leads.

Generally, we can evaluate the properties of variant proteins generated
through single and multiple site mutation using high throughput screening. When
we randomly mutate living organisms over the entire length of the protein
sequence, the number of protein variants becomes too large to be screened
efficiently. We evaluate these variants using selection. In this approach, we
make the survival of the host organism dependent upon its production of an
improved protein variant. The organisms that produce improved

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protein variants survive. We then evaluate the surviving organisms using high
throughput screens to determine which variant is best.

Conventional mutagenesis is limited to modification of one or more genes
of a single protein. If the desired biomaterial is a small molecule or chemical
the simultaneous modification of a large number of different proteins may be
required. Conventional techniques cannot create and evaluate such a large number
of variants simultaneously. We have developed MutatorTechnology to address this
shortcoming. Using this approach, we can simultaneously modify hundreds of genes
in a host production organism and select the best host candidate in order to
produce these desired small molecules or chemicals.

Human immunology

The potential for human allergic response limits the application of some
engineered enzymes in the health care, agriculture and industrial chemicals
markets. To address this limitation, we have developed our human immunology, or
i-mune, platform. We are developing this platform which includes an automated
assay that predicts human immune response and a mouse that incorporates parts of
the human immune system, which we refer to as our transgenic mouse model. We
believe that this platform will also allow us to create models for defective
immune systems associated with genetic autoimmune disorders and study disease
progression.

i-mune assay. The human immune system is an extraordinary defense
mechanism capable of rapidly responding to invading pathogens and other foreign
molecules. We have developed a method to recreate the first steps of the human
immune response in an automated assay format. We take a target protein and
divide it into a series of small, easily synthesized pieces. Using the assay, we
determine if the protein contains any pieces capable of causing an immune
response. We then use the same system to determine how to modify the protein to
eliminate the response using our molecular evolution and design platform.

Using this tool, we can determine allergenic risk and reduce it without
human testing. We also believe that we can utilize this technology to develop
knowledge-based vaccines for bacterial and viral pathogens and as anti-cancer
therapeutics.

i-mune transgenic mouse model. We are also developing a transgenic mouse
model of the human immune system. Current transgenic mouse models either employ
mice which are abnormal and do not live their full life span or do not develop
normal immune systems when supplied with normal mouse or human immune cells. Our
transgenic mouse cannot develop its own immune system but in all other respects
is normal. We are in the process of creating a transgenic mouse that we believe
will be capable of developing a functional human immune system. As proof of
concept, we have transplanted bone marrow cells from a genetically distinct
donor mouse into our immune deficient mouse and restored an immune system in the
transgenic mouse. We believe that this model could be an important new system
for the modeling of human genetically linked immune disorders.

The human immunology platform allows us to determine the allergenic
potential of proteins, recommend ways to reduce their allergenic potential, and
using our molecular evolution and design platform, develop new materials with
reduced allergenic response profiles without human testing.

Metabolic pathway engineering

Metabolic pathway engineering is a process we use to modify our host
production organisms to produce small molecules and chemicals, or biochemicals.
Microorganisms make biochemicals through sequences of enzyme-catalyzed
reactions, referred to as pathways. In order to produce these biochemicals, we
often add new pathways or parts of pathways from a variety of organisms into our
host production organisms.

Our approach to metabolic pathway engineering, referred to as DesignPath,
is the integration of a variety of tools including genomics and functional
genomics. We begin with known metabolic pathways of our host production
organisms and then reconstruct the pathways based upon our analysis. Then we add
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new genes, identified through our gene discovery and functional genomics
platform and optimized through our molecular evolution and design platform.

In parallel, we apply MutatorTechnology to adapt the host production
organism to allow economical, high level production of the desired biochemicals.
For example, using our MutatorTechnology we have increased the solvent tolerance
of a biochemical production host organism for 1,3 propanediol, a component of
high performance polyester, by more than 250% in less than a month. In addition,
using this platform, we have reengineered our host production organisms to use
renewable resources such as corn for the economical production of biochemicals
including ascorbic acid and 1,3 propanediol.

Formulation delivery systems

Once we have developed a desired biomaterial, we typically formulate it
in a manner customized for the intended use of the customer. Our patented
formulations range from stable liquids to multi-layer granular formulations,
including our Enzoguard granular products, which have sophisticated properties
such as delayed release and oxidation barriers. These formulations protect
biomaterials against harsh chemical and environmental conditions. In addition,
we have designed and developed highly efficient fluidized coating equipment and
processes to make our formulated products.

Early in a project, we develop prototype formulations to establish a
thorough understanding of the product requirements. In addition, through close
cooperation between our research and development and manufacturing
organizations, we ensure rapid technology transfer to our production facilities.

OUR MARKET OPPORTUNITIES

We believe we can apply our i-biotech approach to develop a broad range
of biotechnology products for the health care, agriculture and industrial
chemicals markets.

Health care. We believe that the relevant market segments within health
care that our technologies can address, and their respective 1998 worldwide
market sizes, are as follows: according to Chemical Marketing Reporter, skin
care products was approximately $4.6 billion; according to Med Ad News,
therapeutic vaccines was approximately $3.1 billion, antiviral agents was
approximately $0.4 billion, products to treat autoimmune disorders was
approximately $3.4 billion and transplant rejection therapies was approximately
$1.8 billion.

We currently have exploratory programs to:

- Design over-the-counter and prescription skin care and cosmetic
products;

- Design vaccines for bacterial and viral pathogens such as salmonella,
AIDS and hepatitis C;

- Design therapeutic vaccines to treat chronic infection and cancers of
the immune system;

- Design and evolve second generation reduced immunogenic
biopharmaceuticals; and

- Develop transgenic models for various applications.

Agriculture. An article published in Report from the Freedonia Group
indicated that in 1997, the United States agriculture market for biologically
derived products was approximately $875 million and the market for transgenic
seeds and plants was $405 million. In addition, according to Chemical Marketing
Reporter, in 1998, the global market for animal health was estimated at $11.3
billion.

We currently have exploratory programs to:

- Develop reduced allergenic and enhanced nutritional foods;

- Evaluate the absence of allergens in transgenic crops;

- Develop novel traits in crops; and

- Develop vaccines against livestock pathogens.

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Industrial chemicals. According to Hoover's Online, the 1996 global
chemical industry market was estimated to exceed $1.7 trillion. In the Office
for Economic Co-Operation and Development's 1998 book entitled "Biotechnology
for Clean Industrial Products and Processes: Towards Industrial Sustainability,"
the value of biotechnology-derived products in this sector was estimated to be
approximately $10 billion. In 1999, according to Chemical Marketing Reporter,
the global market for industrial enzymes was estimated at $1.4 to $1.6 billion.

We currently have exploratory programs to:

- Develop new biomaterials, including plastics and monomers from
renewable resources;

- Develop low cost processes for the production of specialty chemicals
for the pharmaceutical industry; and

- Develop enzyme systems for modification and derivatization of synthetic
textiles.

Whether we address the opportunities in health care, agriculture and
industrial chemicals, however, will depend on a number of factors, including
potential market size of the product, developing the appropriate strategic
alliance consistent with our business strategy, licensing patent rights and
technology, and allocation of our resources.

PRODUCTS AND PRODUCT DEVELOPMENT

We have over 250 products that are distributed to over 500 customers in
over 80 countries. The continued success of our business, however, depends on
our ability to continuously develop innovative products that meet our customers'
needs.

Products under development

We have product development programs underway in each of our target
markets. The timeline from discovery to market for products in our industry can
vary significantly based upon a number of factors, including the complexity of
the product and the regulatory approval required. Generally, the longer the
development time of a product, the higher the degree of risk associated with its
commercialization. We reduce the financial aspects of this risk, in some
instances, by entering into strategic alliances that provide us with research
and development funding and payments, such as up-front or milestone payments,
during the development period. We currently have a number of products under
development in our target markets including the following:

Health care

Low allergenic proteases. We believe proteases, enzymes that break down
proteins, will be useful in personal and skin care products, because they
release dead skin cells, refreshing, softening and renewing the skin surface.
Using our i-biotech approach we are developing reduced allergenic proteases for
the personal care market. Specifically, in conjunction with our strategic
partner, The Procter & Gamble Company, we are developing reduced allergenic
proteases for consumer skin care applications.

Human papilloma virus. We have developed a lead compound with topical,
anti-human papilloma virus activity. According to the American Social Health
Association, 5.5 million new cases of human papilloma viral infections are
reported each year in the United States. In addition, the human papilloma virus
has been shown to contribute to increased incidence of cervical cancer.

Agriculture

Phytase for animal feed and nutrition. We are developing a production
system for a phytase enzyme together with our strategic alliance partner,
Danisco/FinnFeeds. The agriculture industry uses phytase in animal feed to
increase animal weight gain and limit phosphate pollution in animal waste.

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Biomass conversion to ethanol. The agriculture industry produces a vast
amount of waste product, known as biomass. Currently, the agriculture industry
cannot economically convert biomass on a large scale to useful chemicals, such
as ethanol. We maintain and are building a significant technological lead in the
development of advanced, low-cost cellulases and other related enzymes for the
conversion of biomass into value-added chemicals. We have been awarded a $17
million grant by the National Renewable Energy Laboratory to develop a total
process for the enzymatic conversion of biomass into ethanol.

Production of enzymes from transgenic plants. We are developing a
transgenic plant system for the production of oxidase enzymes together with
Prodigene Inc. Oxidase enzymes, such as laccase, are used in a variety of
applications including bleaching of stains on clothing, the production of
biological glue for particle boards and the processing of textile fabrics.

Industrial chemicals

Ascorbic acid. Together with Eastman Chemical Company, we have recently
announced our intent to commercialize an advanced process for the production of
ascorbic acid, or vitamin C, from glucose. We believe our biotechnology-driven
aqueous process will deliver the world's lowest cost ascorbic acid production
process as it eliminates several steps from the traditional chemical synthesis.
According to Chemical Marketing Reporter, the world market for ascorbic acid in
1999 was approximately $500 to $600 million.

Polymer intermediates. The industrial chemicals industry currently
manufactures a polyester intermediate, 1,3 propanediol, using a chemical
process. Propanediol is a critical component of a high performance polyester,
Sorona, that E.I. du Pont de Nemours and Company plans to commercialize. The
benefits of Sorona include improved fit and comfort, softness of touch, easy
dyeability, and resilience and stretch recovery. This polyester has applications
in textiles and engineering thermoplastics. It is anticipated that its most
significant uses will be for making apparel, upholstery, home fashions and
carpets. Together with our strategic partner E.I. du Pont de Nemours and
Company, we have developed a novel biological process for the production of 1,3
propanediol that we believe will be less expensive than the current chemical
process.

Low allergenic amylases. Following our development of a low allergenic
protease for the health care market, we intend to apply our i-mune platform to
develop reduced allergenic amylases for use in cleaning products such as laundry
detergents and dish care products.

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<PAGE> 43

Current products

We group our products into three functional categories: enzymes that
break down protein, starch or cellulose. The following table illustrates classes
of our products, based on enzyme function, and includes examples of their
applications and the markets in which they are utilized.

<TABLE>
-------------------------------------------------------------------------------------------------------
PRODUCT FAMILY APPLICATIONS MARKETS
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
Protein Degrading - Removing protein-based stains (such as Industrial Chemicals
Enzymes blood, grass, gravy, tomato sauce and milk) and Agriculture
from soiled surfaces
- Modifying or treating protein-based fibers
(such as silk and wool)
- Producing fermentation alcohols
- Enhancing flavor and digestibility of pet
foods
- Cleaning contact lenses
- Protein separation from animal blood
products
-------------------------------------------------------------------------------------------------------
Starch Degrading Enzymes - Producing sweeteners such as high fructose Industrial Chemicals
corn syrup and Agriculture
- Producing fuel ethanol from renewable
resources
- Enhancing digestibility of animal feed
- Removing starch based stains (such as
spaghetti, chocolate, oatmeal, rice and
baby food) from soiled surfaces
- Treating textiles to remove starch-based
sizing materials
-------------------------------------------------------------------------------------------------------
Cellulose Degrading - Depilling, creating the stonewashed look Industrial Chemicals
Enzymes and softening of fabrics such as cotton and Agriculture
- Reducing viscosity of products in the
starch and alcohol industries
- Brightening of colors and anti-graying of
whites in laundry
- Enhancing the digestibility and
nutritional value of animal feed
-------------------------------------------------------------------------------------------------------
</TABLE>

Protein degrading enzyme products. Proteases are a group of enzymes
capable of breaking down proteins into peptides and amino acids. This family of
products includes bacterial and fungal acid, alkaline, high alkaline and
engineered proteases. We currently sell these products primarily to the cleaning
segment of the industrial chemicals market. We distribute these products under
trademarks such as Properase and Purafect. Our protease family of products
accounted for 48%, 50% and 56% of revenue in 1997, 1998 and 1999, respectively.
The Procter & Gamble Company is our largest customer of protein degrading enzyme
products, accounting for approximately 30% of our 1999 revenue.

Starch degrading enzyme products. Our starch degrading enzyme products
include enzymes that break down starch to intermediate and small sugars. This
family of products includes enzymes such as amylase, glucoamylase, glucose
isomerase and pullulanase. We currently sell these products primarily to the
grain processing segment of the agriculture markets. We distribute these
products under trademarks

39
<PAGE> 44

such as Optimax, Fermenzyme and Spezyme. Our starch degrading family of products
accounted for 30%, 30% and 29% of revenue in 1997, 1998 and 1999, respectively.

Cellulose degrading enzyme products. Our cellulose degrading enzyme
products include enzymes or a mixture of enzymes that break down cellulose to
intermediate and small sugars such as glucose. This family of products includes
bacterial and fungal whole cellulase, xylanase and cellulase components. We
currently sell these products primarily to the textile processing segment of the
industrial chemicals market and the grain and animal feed segments of the
agriculture market. We distribute these products under trademarks such as
Puradax, Multifect and IndiAge. Our cellulase family of products accounted for
16%, 17% and 13% of revenue in 1997, 1998 and 1999, respectively.

STRATEGIC ALLIANCES

A key part of our strategy has been and will continue to be forming
strategic alliances with industry leaders in our target markets. In forming
commercial alliances we seek partners that share our desire and commitment to
grow, hold or have access to significant market share in the target market and
are willing to fund or participate in research and development efforts. We also
fund external alliances to access, apply and develop technologies that are
strategic to our target markets. Some of our key strategic alliances are as
follows.

The Procter & Gamble Company. Our alliance with The Procter & Gamble
Company began in 1984 and continues to the present. Through this relationship we
have conducted joint research and development leading to the commercialization
of five engineered protease enzymes. This relationship has enabled the launch of
major new brand initiatives involving their flagship detergent products TIDE and
ARIEL. As a result of the success of this relationship, we are now exploring
product opportunities in the personal care markets.

Our alliance with The Procter & Gamble Company is evidenced by three
agreements. We are party to a new research agreement and a new technology
transfer agreement, each dated June 30, 2000. These two agreements expire on
June 30, 2003. Together, the agreements provide a framework for cooperation in
areas to be agreed, particularly laundry and cleaning products. The research
agreement provides for funding of $1.5 million over the term of the agreement.
We are also party to a commercialization agreement dated April 25, 2000 relating
to the development of proteins with reduced allergic potential for skin care
products. This agreement provides for milestone payments up to $5.0 million and
commercial terms, including product sales and royalties, contingent on the
successful development and commercialization of one or more products. This
agreement remains in effect through execution of a supply agreement or
expiration of cooperative product development efforts.

E.I. du Pont de Nemours and Company. On September 1, 1995, we entered
into a collaborative research and development agreement with E.I. du Pont de
Nemours and Company to develop and commercialize a biologically derived 1,3
propanediol, a key intermediate for the production of a new type of polyester.
The agreement provides for research funding and technical milestone payments up
to $17 million over the term of the agreement as well as commercial terms,
including royalties and commercial milestones, contingent on the success of the
research program and commercialization of the product. To date, the alliance has
already met two key technical milestones and is meeting its intended
commercialization timeline. The agreement terminates on February 1, 2001.

Eastman Chemical Company. Established in 1994, this alliance represents a
$30 million investment in the development of continuous biocatalytic processes
for the production of a variety of chemicals using renewable resources. In 1995,
the Advanced Technology Program/National Institute of Science and Technology
awarded our partnership a matching funds five-year grant of over $15 million.

Our alliance with Eastman Chemical Company is evidenced by a joint
research and development venture agreement among Eastman Chemical Company,
ElectroSynthesis Company, MicroGenomics and Argonne National Laboratory and us
dated September 14, 1995. This agreement sets forth the intellectual property
rights arising from the Advanced Technology Program of the National Institute of
Science and

40
<PAGE> 45

Technology grant. The agreement terminates on September 15, 2000; however, we
have announced our intention to commercialize the first product from this
alliance, ascorbic acid or vitamin C.

Prodigene, Inc. In 1997, we acquired rights to a portion of Prodigene,
Inc.'s technology for the production of proteins in plants. We also fund
research and development activities in fields of interest and have taken an
equity position in Prodigene, Inc. This alliance is designed to develop unique
transgenic plant production capabilities.

Our alliance with Prodigene, Inc. is evidenced by a funded research
collaboration agreement dated December 22, 1998 pursuant to which we have
committed funding and payments to Prodigene, Inc. for a total of $3.5 million.
The term of the agreement is three years but we may elect to extend the
agreement for two additional years upon payment of an additional $2 million.
Under the agreement, Prodigene, Inc. granted us exclusive licenses to
commercialize products and processes developed during the term of the agreement
which are in the agreement field, subject to compensation or a royalty to
Prodigene, Inc. for commercialized products. We granted Prodigene, Inc.
exclusive licenses to genetically modified plants and related genetic materials
developed during the agreement, subject to compensation or a royalty to us.

Xgene Corporation. In 1999, we began developing human skin models for
pharmaceutical and personal care applications with Xgene Corporation. We have
access to their proprietary human skin models and are developing in vitro-based
assays for screening applications.

Our alliance with Xgene Corporation is evidenced by a collaboration
agreement dated December 9, 1999. The agreement expired on May 14, 2000, but we
retained the right to elect additional research until August 14, 2000. We paid
Xgene Corporation $0.1 million under the expired agreement. We are currently
negotiating to extend and enlarge the scope of the agreement to include
additional research programs.

Energy Biosystems Corporation (now doing business as Enchira). On May 17,
2000, we entered into a license agreement with Enchira to acquire a license to
know-how and intellectual property rights relating to Enchira's "chimeragenesis"
technology for fields of interest. This technology is a form of gene shuffling
which makes it possible to combine fragments of genes to produce chimeric genes
which can be screened for improved capabilities. Under this agreement, we have
committed technology access fees and milestone payments up to $1.4 million and
research and development funding of $1.0 million. Commercial terms such as
royalties and commercialization milestones are contingent on the successful
development and commercialization of products. The alliance is designed to
develop industrial proteins having enhanced performance. The agreement continues
until the later of 20 years or expiration of the licensed patent rights.

National Renewable Energy Laboratory. In April 2000, the National
Renewable Energy Laboratory awarded us a $17 million grant to develop a process
for the enzymatic conversion of biomass into fuel ethanol. We executed a letter
agreement with the laboratory on April 18, 2000 which expires on October 31,
2000. Upon its expiration, we expect to enter into a definitive subcontract. Any
definitive contract will be subject to termination each year subject to the
laboratory's budgetary considerations. The laboratory's total payment
commitments for the proposed three year period of the contract are up to $13.5
million.

RESEARCH AND DEVELOPMENT

A major portion of our operating expenses to date has been related to the
research and development of products. During 1997, 1998 and 1999, our total
research and development expenses were $37.3 million, $40.2 million and $44.0
million, respectively, of which an estimated $9.5 million, $10.9 million and
$15.8 million, respectively, represent total expenses incurred in conjunction
with research collaborations partially funded by various customers. During the
three months ended March 31, 2000, our total research and development expenses
were $11.8 million, of which an estimated $3.8 million relate to funded research
collaborations.

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<PAGE> 46

Our research and development efforts have been the primary source of our
products. We intend to accelerate our investment in research and development as
an essential component of our business strategy. As of March 31, 2000, we had
168 full time employees in technology, 60 of whom hold Ph.D. degrees.

COMPETITION

We face significant competition in the industrial chemicals and
agriculture markets in which we currently compete. As we develop products for
our newly identified markets in health care, agriculture and industrial
chemicals, we face a host of new competitors, including, for example,
biotechnology and pharmaceutical companies.

In the industrial chemicals market, some competitors may have a stronger
market position and greater financial resources than we do. Specifically, in
cleaning enzymes, Novo Nordisk A/S, our largest competitor, has more product
offerings and a greater market share than we do. In specialty enzymes, DSM N.V.
and Novo Nordisk A/S, have greater market shares and more product offerings than
we do. Specialty enzymes have a variety of applications, including baking,
protein processing and leather processing.

We face significant competition in each of our target markets and within
our technology platforms. There are a number of competitors who compete with us
in one or a subset of our processes, including genomics and molecular evolution
and design. For example, several genomics companies have DNA screening and
selection expertise. In the field of molecular evolution and design, companies
such as Energy BioSystems Corporation, Diversa Corporation and Maxygen, Inc. are
developing tools in the directed evolution area. The competitive landscape for
human immunology and transgenics is diverse and includes pharmaceutically
focused companies such as AbGenix, Inc., Immunex Corporation, Immunologic Inc.
and Systemix, Inc.

In agriculture and health care, we have significant competition from
larger more established companies such as Cargill Inc., Novartis AG, Hoffman-La
Roche Inc. and Pfizer Inc., among others.

Competition in our current and target markets is primarily driven by:

- The ability to establish and maintain long-term customer relationships
in our target markets;

- Ability to develop, maintain and protect proprietary products and
technologies;

- Technology advances that lead to better products;

- Product performance, price, features and reliability;

- Timing of product introductions;

- Manufacturing, sales and distribution capabilities;

- Technical support and service; and

- Breadth of product line.

Many of our competitors in our target markets, particularly health care,
are more established, have strong brand name recognition and have greater
financial, operational and sales and marketing resources than we do. In
addition, competitors in all of our markets may have developed or could in the
future develop products that could render our products obsolete or
noncompetitive. Our competitors have in the past and may in the future compete
by lowering prices. We may respond by lowering prices, which could reduce
revenues and profits.

PROPRIETARY RIGHTS

We consider the protection of our proprietary technologies and products
to be important to the success of our business. We rely on a combination of
patents, licenses, trade secrets and trademarks to establish and protect our
proprietary rights in our technologies and products. As of March 31, 2000, our
intellectual property portfolio included nearly 3,000 worldwide owned and
licensed patents and patent applications. Our intellectual property portfolio
includes rights in technologies ranging from specific

42
<PAGE> 47

products to host production organisms and technology covering research tools
such as high throughput gene discovery, molecular evolution, immunological
screens and metabolic pathway engineering.

We may not be able to obtain the patents or licenses to technologies that
we will need to develop products for our target markets. For example, we have
licensed technologies related to our transgenic mouse model that limit the use
of this model to the development of nontherapeutic products. Patents may be
issued that would block our ability to obtain patents or to operate our
business. Generally, patents issued in the United States have a term of 17 years
from the date of issue for patents issued from applications submitted prior to
June 8, 1995. Patents issued in the United States from applications submitted on
or after June 8, 1995 have a term of 20 years from the date of filing of the
application. Patents in most other countries have a term of 20 years from the
date of filing the patent application. Most patent applications in the United
States are maintained in secrecy until the patents are issued. Patent
applications in foreign countries are usually not published until 18 months
after they are filed. The publication of discoveries in scientific or patent
literature tends to lag behind actual discoveries by at least several months. As
a result, there may be patent applications or scientific discoveries we are not
currently aware of.

MANUFACTURING AND SUPPLY CAPABILITIES

We have a global supply chain consisting of eight manufacturing
facilities with over three million liters of fermentation capacity on four
continents and 14 distribution locations covering the globe. Our supply effort
has a proven capability to meet customer demands. This involves quality
certification, such as ISO 9002, multi-site product qualification, delivery
capabilities and special custom supply requirements. We produce materials in
locations and with processes that allow us to minimize manufacturing and
distribution costs, inventory and capital investment.

An element of our strategy is to link our technology platforms and
large-scale processing. This strong link has allowed us to increase the capacity
of our existing facilities through continuous improvement of processes and host
production systems. We believe this focus is unique and will continue to enable
our facilities to deliver larger production yields while reducing our production
costs.

REGULATORY ENVIRONMENT

Product regulation

Regulatory agencies regulate our products according to their intended
use. The Food and Drug Administration regulates food, feed, cosmetic and
pharmaceutical products based on their application. The Food and Drug
Administration and the Environmental Protection Agency regulate non-drug
biologically derived products and, in the case of plants, plant pests and
animals, the U.S. Department of Agriculture regulates such products. The
Environmental Protection Agency regulates biologically derived chemicals not
within the Food and Drug Administration's jurisdiction or the jurisdiction of
other regulatory agencies. Although the food and industrial regulatory process
can vary significantly in time and expense from application to application, the
timelines generally are shorter in duration than the drug regulatory process and
range from three months to three years.

The European regulatory process for biologically derived products has
undergone significant change in the recent past, as the European Union attempts
to replace national regulatory procedures with a consistent European Union
regulatory standard. Some national regulatory oversight remains although most
countries generally accept either a United States or a European clearance
together with associated data and information for a new biologically derived
product.

Regulatory approval of our products in Asian countries having
registration processes ranges from three months to three years. Some Asian
countries rely on United States and European product registrations.

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<PAGE> 48

Environmental regulation

We also are subject to federal, state, local and foreign environmental
laws and regulations, including those governing the handling and disposal of
hazardous wastes and other environmental matters. Our research, development and
manufacturing activities involve the controlled use of hazardous materials,
including chemical, radioactive and biological materials. Although we believe
that our safety procedures for handling and disposing of these materials comply
with applicable regulations, we cannot completely eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident, we could be held liable for resulting damages. We do not expect that
compliance with the governmental regulations to which we are subject will have a
material effect on our capital expenditures, earnings or competitive position.

Genetically modified microorganisms

Genetically modified microorganisms and products derived from these
organisms are regulated in many countries around the world. In the United
States, we voluntarily comply with the National Institutes of Health Guidelines
for Research Involving Recombinant DNA Molecules at all of our facilities. We
also comply with the EPA's regulation of intergeneric microorganisms under the
Toxic Substances Control Act. We design our production organisms and processes
to ensure full compliance with regulatory principles and practices in both
manufacturing and commercial venues regardless of the location. By using
production organisms that are classified as Good Industrial Large Scale Practice
or Biosafety Class I organisms we are able to maximize environmental safety
while minimizing regulatory concerns. Through this strategy, we have been
successful in gaining regulatory clearance to use our genetically modified
microorganisms in our factories in the United States, Belgium and Finland and in
our research facilities in the United States and the Netherlands.

Animal Welfare Act

The Animal Welfare Act governs the humane handling, care, treatment and
transportation of some animals used in United States research activities. Mice,
including the mice used in connection with our i-mune transgenic mouse model,
are currently not subject to regulation under the Animal Welfare Act. However,
the U.S. Department of Agriculture, which enforces the Animal Welfare Act, is
presently considering changing the regulations issued under the Animal Welfare
Act to include mice within its coverage. The Animal Welfare Act imposes a wide
variety of specific regulations on producers and users of animal subjects, most
notably personnel, facilities and statistical standards, cage size, feeding,
watering and shipping conditions and environmental enrichment methods.
Currently, we house no mice at our facilities. We believe that our housing
facility vendors and external toxicology laboratories are in compliance with the
Animal Welfare Act.

Compliance

To be able to commercialize our products around the world, we need to
ensure that they are safe and suitable for their intended use and meet
applicable regulatory requirements. Their manufacture also must comply with all
existing regulations at our manufacturing sites. In order to meet this need, we
have an experienced internal regulatory and safety department which is involved
in projects from the earliest stage.

EMPLOYEES

As of March 31, 2000 we had 1,021 regular employees of our wholly owned
entities, plus 552 employees in our joint venture in Wuxi, China. We plan to
expand our research and development and business operations and hire additional
staff as we expand our technology and market opportunities and establish new
strategic alliances and customer relationships. We continue to search for
qualified individuals with interdisciplinary training and flexibility to address
the various aspects and applications of our technologies. In the United States,
35 of our employees are represented by a labor union. Several of our non-United
States locations are also covered by collective labor agreements, including
employees in

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<PAGE> 49

Argentina, Belgium, Finland, France, Germany and the Netherlands. We strive to
maintain strong working relationships with all the employee representatives.

FACILITIES

We lease and own 21 facilities throughout the world, including eight
manufacturing facilities located in Cedar Rapids, Iowa; Rochester, New York;
Elkhart, Indiana; Hanko and Jamsankoski, Finland; Brugge, Belgium; Jiangsu
Province, China and Province De Cordoba, Argentina, and 13 other administrative
offices around the world. We lease our corporate offices located in 124,000 and
43,944 square feet of space in Palo Alto, California, and Rochester, New York,
respectively. The leases for these facilities expire in 2017 and 2009,
respectively.

Information concerning each of our manufacturing facilities is as
follows:

<TABLE>
<CAPTION>
SITE OWNERSHIP SQUARE FOOTAGE
---- --------- --------------
<S> <C> <C>
CEDAR RAPIDS Owned 82.0 acres; 135,000 sq. ft.
Genencor International, Inc.
Cedar Rapids, Iowa
ELKHART Owned 6.0 acres leased; 90,000 sq. ft.
Genencor International Indiana, Inc.
Elkhart, Indiana
HANKO Owned 30.0 acres leased; 170,000 sq.
Genencor International Ltd. ft.
Hanko, Finland
BRUGGE Owned 8.3 acres; 275,556 sq. ft.
Genencor International BVBA
Brugge, Belgium
JAMSANKOSKI Owned 5.8 acres; 85,000 sq. ft.
Genencor International Ltd.
Jamsankoski, Finland
ARROYITO Owned 7.4 acres; 76,571 sq. ft.
Genencor International Argentina, S.A.
Prv. De Cordoba, Argentina
RCDC Leased, 50 year term, 22.6 acres; 70,000 sq. ft.
Genencor International, Inc. Rochester, New expiring 2040, with
York right to purchase for
$1.00
WUXI Governmental land use 9.0 acres; 324,000 sq. ft.
Genencor (Wuxi) Bio-Products Co., Ltd. rights to use land
Jiangsu Province, P.R. of China
</TABLE>

LEGAL PROCEEDINGS

On March 6, 2000 we received an access letter from the Federal Trade
Commission's Bureau of Competition requesting that we provide information and
documents in connection with a non-public investigation. On July 20, 2000, we
were advised verbally by the Federal Trade Commission staff that it has closed
its investigation of us and no further action is contemplated.

As of the date of this prospectus, we are not engaged in any legal
proceeding that we expect to have a material adverse effect on our financial
condition.

CORPORATE BACKGROUND

Genencor Inc. was founded in 1982. Genentech, Inc. and Corning Inc.
formed Genencor Inc. as a joint venture to develop and commercialize genetically
engineered enzymes for industrial uses. Eastman Kodak Company acquired a 25%
interest in Genencor Inc. in 1987. Genencor International, Inc. commenced in
1990 when Cultor Ltd. and Eastman Kodak formed a joint venture in the industrial
biotechnology area and acquired Genencor Inc. In 1993, Eastman Kodak transferred
its 50% interest in

45
<PAGE> 50

Genencor to Eastman Chemical Company. In 1999, Danisco A/S acquired Cultor Ltd.,
now known as Danisco Finland OY.

In 1995, Genencor International, Inc. acquired the outstanding shares of
common stock of Gist-Brocades Bio-Specialties, N.V. as well as other tangible
and intangible assets relating to or necessary for us to assume the acquired
industrial enzyme business for the cleaning, starch processing, textile
processing, leather processing and pulp and paper markets. In 1996, Genencor
International, Inc. acquired from Solvay S.A. the outstanding shares of common
stock of Solvay Enzymes Inc., Solvay Enzymes Verwaltungs GmbH, Solvay Enzimas
S.A., and 50% of the outstanding shares of Kyowa Solzyme K.K. In 1999, Genencor
International, Inc. acquired an 80% ownership interest in Genencor (Wuxi)
Bio-Products Company, Ltd.

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<PAGE> 51

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our current directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
W. Thomas Mitchell........................ 54 President, Chief Executive Officer and
Director
Michael V. Arbige......................... 45 Senior Vice President, Technology
Debby Jo Blank............................ 48 Chief Business Officer, Health Care and
Agriculture Products
Carole Beth Cobb.......................... 42 Senior Vice President, Global Supply
Raymond J. Land........................... 55 Senior Vice President and Chief Financial
Officer
Stuart L. Melton.......................... 53 Senior Vice President, Commercial and
Legal Affairs
Thomas J. Pekich.......................... 51 Senior Vice President, Global Business
Groups
Richard J. Ranieri........................ 48 Senior Vice President, Human Resources
Soren Bjerre-Nielsen...................... 47 Director
James L. Chitwood......................... 57 Director
Bjorn Mattsson............................ 59 Director
Robert H. Mayer........................... 56 Director
David M. Pond............................. 57 Director
James P. Rogers........................... 49 Director
</TABLE>

W. THOMAS MITCHELL is our President and Chief Executive Officer, a
position he has held since 1991. Prior to 1991, he served as our Executive Vice
President, Operations. He has also served as a director since March 2000. Mr.
Mitchell was a key member of the management team that formed Genencor in 1990.
From 1969 until 1990, Mr. Mitchell worked at Eastman Kodak Company in a variety
of management positions in engineering and manufacturing functions. Mr. Mitchell
received his B.S. degree in chemical engineering from Drexel University and has
completed the Executive Development Program at the University of Michigan.

DR. MICHAEL V. ARBIGE is our Senior Vice President, Technology, a
position he has held since 1999. Since joining us in 1990, he has served
variously as Vice President of Research, Vice President of Development, Senior
Scientist and Director of Fermentation and Recovery. During his early tenure
with our predecessor company, Dr. Arbige was the fermentation leader in the
development of the first series of recombinant and protein engineered protease
processes for The Procter & Gamble Company. Dr. Arbige received his B.S. degree
in microbiology from the University of Rhode Island and his Ph.D. degree in
microbial physiology from the University of New Hampshire.

DR. DEBBY JO BLANK joined us in May 2000 as our Chief Business Officer,
Health Care and Agriculture Products. Prior to joining us, Dr. Blank was
Executive Vice President at Isis Pharmaceuticals, Inc. from March 1999 until May
2000. Dr. Blank served as President and Chief Operating Officer of Cypress
Bioscience, Inc. from 1996 until 1999. From 1994 until 1996, Dr. Blank was
Senior Vice President, Marketing, for Advanced Technology Laboratories (ATL
Ultrasound). At DuPont Merck Pharmaceutical Company, Dr. Blank was Vice
President, Worldwide Marketing from 1992 until 1993, and Vice President, New
Product Planning & Business Development from 1991 until 1992. Dr. Blank received
her B.A. degree from Stanford University and her M.D. degree from Tufts
University School of Medicine.

CAROLE BETH COBB is our Senior Vice President, Global Supply, a position
she has held since 1999. Ms. Cobb joined us in 1990 and has served in various
capacities, including Vice President of Global Manufacturing from 1997 until
1999, Plant Manager of our Cedar Rapids facility from 1995 until 1997, and
Director, Business Development from 1990 until 1995. Before joining us, Ms. Cobb
spent over nine years at Eastman Kodak Company, where she was a research
engineer and product manager in the

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<PAGE> 52

biotechnology area. Ms. Cobb has undergraduate degrees in cell and molecular
biology, chemical engineering and biochemistry from the State University of New
York at Buffalo, and an M.B.A. in finance from the University of Rochester.

RAYMOND J. LAND is our Senior Vice President and Chief Financial Officer,
a position he has held since joining us in 1997. Mr. Land has over 28 years of
experience in financial and general management positions. From 1991 until 1997,
he was Senior Vice President and Chief Financial Officer of The West
Pharmaceutical Services Company. Prior to that, he was General Manager of a food
division and held various financial positions at Campbell Soup Company. Mr. Land
is a certified public accountant and has a B.B.A. degree in accounting and
finance from Temple University.

STUART L. MELTON is our Senior Vice President, Commercial and Legal
Affairs, and Secretary, positions he has held since joining us in 1990. From
1986 until 1990, he served as Director, Business Development, Corporate
Commercial Affairs for Eastman Kodak Company. Mr. Melton has over 25 years of
experience in private and corporate law practice. He holds a B.S. degree from
St. Louis College of Pharmacy and a law degree from Georgetown University. He is
also a graduate of the Pennsylvania State University Executive Program.

THOMAS J. PEKICH is our Senior Vice President, Global Business Groups, a
position he has held since 1999. Mr. Pekich served as our Vice President of
Grain Processing and Specialties from 1995 until 1999, and our Vice President
for North American Manufacturing and Plant Manager of our Cedar Rapids facility
from 1992 until 1995. Before joining us in 1990, Mr. Pekich spent over 15 years
at Eastman Kodak Company in a variety of assignments, and played a major role in
establishing Kodak's bio-products site in Cedar Rapids, which opened in 1991 as
a Genencor facility. Mr. Pekich holds a B.S. degree in mathematics from the
State University of New York at Albany and an M.S. degree in industrial and
systems engineering from Pennsylvania State University.

RICHARD J. RANIERI is our Senior Vice President, Human Resources, a
position he has held since 1993. Prior to joining us, Mr. Ranieri spent over 15
years with SmithKline Beecham, a worldwide healthcare company, in various human
resource positions at the corporate and divisional level. Mr. Ranieri holds a
B.S. degree from Villanova University and an M.B.A. from Rider University.

SOREN BJERRE-NIELSEN has served as a director since 1999. He is currently
Executive Vice President and Chief Financial Officer of Danisco A/S, a position
he has held since 1995, and has been a member of the Danisco A/S Executive Board
since 1995. Mr. Bjerre-Nielsen holds a M.Sc. in accounting and is a
state-authorized public accountant. Prior to joining Danisco A/S, Mr.
Bjerre-Nielsen was employed by Deloitte & Touche.

DR. JAMES L. CHITWOOD has served as a director since 1999. He is
currently Senior Vice President and Chief Technology Officer of Eastman Chemical
Company, a position he has held since 1994. Dr. Chitwood has been with Eastman
Chemical Company since 1968 and has held various management positions since
1984. He has a Ph.D. in organic chemistry from University of California at
Berkeley and attended Harvard University's Advanced Management Program in 1988.

BJORN MATTSSON has served as a director since 1990. He is currently
Deputy-Chief Executive Officer of Danisco A/S, a position he has held since
1999. Prior to the merger of Cultor Ltd. with Danisco A/S in 1999, Mr. Mattsson
held various positions with Cultor Ltd., including President and Chief Executive
Officer since 1989.

DR. ROBERT H. MAYER has served as a director since 1999. He is currently
Executive Vice President, Ingredients Sector of Danisco A/S, a position he has
held since 1999. Dr. Mayer joined Danisco A/S in 1981 and has been a member of
its Executive Board since 1999. He holds a Ph.D. in chemical engineering. Dr.
Mayer was the president of Danisco USA from 1981 until 1999.

DR. DAVID M. POND has served as a director since 1999. He is currently
Vice President, Chemical Technology at Eastman Chemical Company, a position he
has held since 1998. Dr. Pond has held various research and management positions
since joining Eastman Chemical Company in 1970, including Vice

48
<PAGE> 53

President, Technical Service and Development from 1996 to 1997 and Director,
Technical Service and Development from 1991 until 1995.

JAMES P. ROGERS has served as a director since 1999. He is currently
Senior Vice President and Chief Financial Officer of Eastman Chemical Company,
which he joined in 1999. From 1992 until 1999, Mr. Rogers held various positions
at GAF Corporation and International Specialty Products, Inc., including
Treasurer of GAF Corporation in 1992, Executive Vice President and Chief
Financial Officer of GAF Corporation from 1993 to 1999, and Executive Vice
President, Finance of International Specialty Products, Inc. from 1993 to 1999.
He has an M.B.A. from the Wharton School of the University of Pennsylvania.

BOARD COMPOSITION AND COMMITTEES

We currently have seven directors. Our restated certificate of
incorporation provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms. As a result, only
a portion of our board of directors will be elected each year. The terms of
Messrs. Pond and Mayer will expire at the 2001 annual meeting of stockholders.
The terms of Messrs. Bjerre-Nielsen and Rogers will expire at the 2002 annual
meeting of stockholders. The terms of Messrs. Chitwood, Mattsson and Mitchell
will expire at the 2003 annual meeting of stockholders. In addition, our board
of directors intends to elect Mr. Mitchell to serve as chairman of the board
immediately upon completion of this offering. For additional discussion
regarding the effects of our classified board, see "Description of Capital
Stock -- Anti-Takeover Effects of Delaware Law and Our Certificate of
Incorporation and Bylaws." Our board of directors currently has four committees:
executive, compensation, audit, and technology.

The executive committee acts on behalf of the board of directors between
meetings of the board of directors, including taking board action on emergency
or other matters requiring prompt attention. The committee also advises the
Chief Executive Officer on policies and actions of our board of directors.

The compensation committee makes recommendations to the board of
directors regarding our stock and compensation plans, approves compensation of
certain officers and management, and grants stock options. Mr. Mitchell serves
as an advisor to the compensation committee but is not a voting committee
member.

The audit committee makes recommendations to the board of directors
regarding the selection of our independent auditors, reviews the scope of audit
and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits.

The technology committee makes recommendations to the board of directors
regarding the status and progress of key technology projects and strategies,
including research and development.

We anticipate that prior to the offering we, Eastman Chemical Company and
Danisco A/S, will enter into a new stockholders agreement to increase the number
of directors from seven to ten, effective upon the completion of this offering.
The board of directors will continue to have three classes of directors. We
expect that, within 90 days from the consummation of the offering, our board of
directors will consist of three director nominees of Eastman Chemical Company,
three director nominees of Danisco A/S, the Chief Executive Officer of our
company and three independent directors. If Eastman Chemical Company or Danisco
A/S reduces its ownership interest to less than 20% of our outstanding common
stock, then such stockholder's nomination rights will be reduced to two
directors and its nomination rights will terminate when it owns equal to or less
than 10% of our outstanding common stock. In addition, each of the stockholders
will agree to take such actions as are necessary to effectuate the nomination
rights of the other and to ensure that the composition of the board of
directors, including the election of three independent directors within 90 days
from the completion of this offering, complies with the requirements of the
Nasdaq National Market.

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<PAGE> 54

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1999, Mr. Mitchell, our President and Chief Executive Officer,
served on the compensation committee. He participated in discussions of the
compensation committee and made recommendations to it, but he did not vote or
otherwise participate in the deliberations of the compensation committee with
respect to his own compensation and benefits. Mr. Mitchell no longer serves on
the compensation committee. None of the members of the compensation committee
has served as a member of the board of directors or compensation committee of
any entity that has one or more officers serving as a member of our board of
directors or compensation committee.

DIRECTOR COMPENSATION

Prior to the completion of this offering, our directors did not receive
compensation for service as members of the board of directors. Following the
completion of this offering, however, we will make available to all non-employee
directors, including employees of our majority stockholders: annual
discretionary grants of options to purchase up to 25,000 shares of our common
stock, $1,000 for each board meeting attended or $1,500 if that director also
participates on a committee, and $25,000 per year. In addition, all directors
will receive travel expense reimbursement and director's liability insurance.
Currently, directors who are employees of our majority stockholders, Eastman
Chemical Company and affiliates of Danisco A/S, may not be permitted to accept
any compensation, including grants of options to purchase shares of our common
stock, due to their internal policies.

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<PAGE> 55

EXECUTIVE COMPENSATION

The following table sets forth the compensation, for all services
rendered, that we paid to the following "named executives" for the years ended
December 31, 1999, 1998 and 1997:

- our Chief Executive Officer;

- those persons who were, at December 31, 1999, our four most highly
compensated executive officers other than the Chief Executive Officer;
and

- two of our former executive officers who would have been among our four
most highly compensated executive officers if they had remained
executive officers until December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------- SECURITIES
OTHER ANNUAL LONG TERM ALL OTHER UNDERLYING
NAME & PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) COMPENSATION COMPENSATION($)(2) OPTIONS/SARS(#)
------------------------- ---- --------- -------- ------------------ ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Thomas Mitchell........ 1999 $383,850 $248,586 $274,143(3) $800,300(6) $26,087 251,500
President & CEO 1998 352,561 209,950 -- 80,135(7) 25,406 --
1997 324,244 209,950 -- 217,386(8) 12,400 --
Stuart L. Melton.......... 1999 251,983 114,835 164,205(4) 626,250(6) 17,577 192,500
Senior Vice President, 1998 239,686 103,500 -- 67,210(7) 18,356 --
Commercial & Legal 1997 227,250 77, 875 -- 149,832(8) 10,379 --
Affairs
Raymond J. Land........... 1999 235,232 105,510 -- 246,300(6) 17,082 192,500
Senior Vice President, 1998 222,409 87,447 -- 19,620(7) 17,082 --
Finance & CFO 1997 143,058 30,389 106,808(5) -- 10,066 --
Richard J. Ranieri........ 1999 198,426 89,045 -- 464,350(6) 14,238 192,500
Senior Vice President, 1998 190,448 82,800 -- 54,285(7) 14,068 --
Human Resources 1997 182,527 67,825 -- -- 9,841 --
Michael V. Arbige......... 1999 190,705 66,361 -- 317,070(6) 9,600 192,500
Senior Vice President, 1998 164,437 37,008 -- 34,381(7) 9,600 --
Technology 1997 150,437 35,784 -- 54,563(8) 9,600 --
Wayne H. Pitcher, Jr...... 1999 230,885 103,719 -- 589,080(6) 22,021 --
Senior Vice President, 1998 228,738 99,450 -- 59,455(7) 21,011 --
Technology(9) 1997 220,154 76,125 -- 156,240(8) 10,637 --
Carl D. Copeland.......... 1999 204,484 91,859 -- 516,050(6) 16,069 --
Senior Vice President, 1998 202,170 87,300 -- 56,870(7) 16,069 --
Global Manufacturing(9) 1997 192,565 66,325 -- 83,144(8) 10,033 --
</TABLE>

------------
(1) Includes taxable relocation expenses and housing cost supplements pursuant
to our senior executive relocation policy.

(2) In 1999, includes (a) contributions to MetLife Group Universal Life
supplemental fund (Mr. Mitchell $13,687, Mr. Melton $7,198, Mr. Land $6,684,
Mr. Ranieri $4,397, Dr. Pitcher $11,385, and Mr. Copeland $6,036); (b) long
term disability premiums (Mr. Mitchell $2,800, Mr. Melton $779, Mr. Land
$798, Mr. Ranieri $241, Dr. Pitcher $1,037, and Mr. Copeland $433); (c)
year-end defined contributions under our 401(k) plan ($4,800 for each named
executive); and (d) employer match contributions under our 401(k) plan
($4,800 for each named executive).

(3) Includes $237,559 for reimbursement of relocation costs.

(4) Includes $148,513 for reimbursement of relocation costs.

(5) Consists of reimbursement of relocation costs.

(6) Final payout under our equity value plan with a closing value of $17.50 per
unit. This plan was terminated in June 1999.

(7) Repurchase of 10% of each employee's outstanding equity value plan units.

(8) Final payout under our employees' profit plan, the predecessor plan to the
equity value plan.

(9) Dr. Pitcher and Mr. Copeland ceased holding such offices on June 26, 1999.

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<PAGE> 56

PENSION PLAN TABLE

Our income replacement plan is a defined benefit plan intended to be tax
qualified and designed to provide employees with a source of income after
retirement. The retirement benefit is determined by a formula based on the
employee's age, years of service and compensation. Benefits are payable at
termination or may be deferred until normal retirement age.

The following table sets forth the estimated annual benefits payable to
participating employees on a single-life annuity basis assuming retirement at
age 65, including officers, in specified years of service classifications. The
named executives are each currently credited with two years of service. We
determine benefits based upon average total salary for the five consecutive
years of highest compensation during the ten years preceding retirement.

<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35
--------------------------------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000....................... $3,904 $ 7,612 $11,320 $14,736 $18,249 $21,372 $24,690
125,000....................... 4,879 9,515 14,150 18,420 22,812 26,715 30,863
150,000....................... 5,855 11,418 16,981 22,104 27,374 32,058 37,035
>160,000........................ 6,246 12,179 18,113 23,578 29,199 34,195 39,504
</TABLE>

Under the terms of the plan, we will pay estimated annual benefits on a
single-life annuity basis on retirement at age 65 as follows: Mr.
Mitchell -- $25,991, Mr. Melton -- $22,591, Mr. Land -- $18,974, Mr.
Ranieri -- $26,858, Dr. Arbige -- $30,935, Dr. Pitcher -- $18,035, and Mr.
Copeland -- $18,933.

OPTION GRANTS

The following table sets forth information regarding grants of stock
options to each of the named executive officers during the year ended December
31, 1999. We based the percentage of total options set forth below on 5.5
million options granted during the year ended December 31, 1999. These options
have an exercise price equal to the fair market value of our common stock, as
determined by the board of directors on the date of grant. The board of
directors' determination of fair market value was based upon a number of
factors, including forecasted cash flows for 14 years discounted at the weighted
average cost of capital, current revenue and product earnings, the absence of a
public market for our common stock, and a consideration of the appropriate
external market sector for our business. Potential realizable values are net of
exercise price, but before taxes associated with exercise. Amounts represent
hypothetical gains that could be achieved for the options if exercised at the
end of the option term. We have calculated the assumed 5% and 10% rates of stock
price appreciation in accordance with rules of the SEC and these calculations do
not represent our estimate or projection of the future common stock price.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE AT ASSUMED ANNUAL RATES
SHARES OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERMS($)(1)
OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------------
NAME GRANTED EMPLOYEES SHARE($) DATE 5% 10%
---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Mitchell.......... 251,500 4.6% $9.70 2/18/10 $1,534,220 $3,888,014
Stuart L. Melton............ 192,500 3.5 9.70 2/18/10 1,174,303 2,975,916
Raymond J. Land............. 192,500 3.5 9.70 2/18/10 1,174,303 2,975,916
Richard J. Ranieri.......... 192,500 3.5 9.70 2/18/10 1,174,303 2,975,916
Michael V. Arbige........... 192,500 3.5 9.70 2/18/10 1,174,303 2,975,916
</TABLE>

------------
(1) If we were to use the mid-point of the proposed offering price range as the
base to compute the potential realizable values, such amounts would equal,
at 5% and 10% rates, respectively, the following: Mr. Mitchell: $4,524,789
and $8,649,996; Mr. Melton: $3,463,308 and $6,620,772; Mr. Land: $3,463,308
and $6,620,772; Mr. Ranieri: $3,463,308 and $6,620,772; Mr. Arbige:
$3,463,308 and $6,620,772.

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<PAGE> 57

STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN

On December 9, 1999 our board of directors adopted and our stockholders
approved our stock option and stock appreciation right plan. This plan provides
for the grant of incentive stock options to our employees and nonstatutory stock
options and stock appreciation rights to our employees, consultants and
advisors. The plan authorizes the granting of options to issue, or stock
appreciation rights measured by, up to 9,000,000 shares of common stock. As of
July 21, 2000, 4,453,500 shares were subject to outstanding options. The
weighted average per share exercise price of these options is $9.97. As of July
21, 2000, we had stock appreciation rights outstanding measured by 465,875
shares.

The board of directors administers this plan. Subject to the limitations
set forth in the plan, the board of directors has the authority to:

- select the eligible persons to whom we may grant options;

- determine the number of shares subject to options or stock appreciation
rights;

- decide whether an option is an incentive stock option or a nonstatutory
option;

- determine the type of consideration to be paid by a participant when
exercising an option; and

- establish the vesting schedule of options and stock appreciation
rights.

The exercise price of nonstatutory options must generally be at least 85%
of the fair market value of the common stock on the date of grant. The exercise
price of incentive stock options cannot be lower than 100% of the fair market
value of the common stock on the date of the grant and, in the case of incentive
stock options granted to holders of more than 10% of our voting power, not less
than 110% of the fair market value. The term of an option cannot exceed ten
years, or five years in the case of an incentive stock option granted to a
holder of more than 10% of our voting power. Stock appreciation rights may, at
the discretion of the board of directors, be subject to a fixed or discretionary
maturity date, provided that their term cannot exceed ten years. Stock
appreciation rights at their maturity entitle a holder to cash equal to the
difference between the base value and the maturity value of a share, as defined
by our board of directors.

A participant may not transfer rights to incentive stock options.
Nonstatutory options and stock appreciation rights are also generally
non-transferable, although the stock option or stock appreciation right
agreement may provide for some transfers in limited circumstances. Incentive
stock options are generally exercisable for three months after termination of
employment, while nonstatutory options and stock appreciation rights are subject
to termination as determined by the board of directors, but not less than 60
days after termination of employment. However, options and stock appreciation
rights generally fully vest and remain exercisable for one year in the event of
the death of a participant, and fully vest and remain exercisable for a period
ranging from six to nine months in the event a participant's employment
terminates due to disability. All options and stock appreciation rights
terminate immediately if we terminate a participant's employment for cause as
defined in the plan.

All options and stock appreciation rights will accelerate and become
fully exercisable in the event of a tender offer for 40% of our voting stock, a
merger or consolidation, a sale of substantially all of our assets, or a
liquidation. However, all options and stock appreciation rights will be subject
to the terms of any agreement for a merger, reorganization, or sale of assets.
These provisions do not apply if the merger or other transaction is with Eastman
Chemical Company or affiliates of Danisco A/S.

The board of directors may amend, suspend, or terminate the plan at any
time, except that existing rights of holders of options or stock appreciation
rights cannot be adversely affected. Amendments will be submitted for
stockholder approval as required by law or by the plan.

On April 28, 2000, our board of directors authorized the immediate
acceleration of the exercise of options granted to our executive officers. The
board of directors also authorized us to accept promissory notes in payment of
the exercise price of these stock options. The promissory notes are secured by a
pledge of the stock purchased and are recourse to the extent of 50% of the
outstanding principal balance. The notes
53
<PAGE> 58

receivable are due and payable over four years. We charge interest on the notes
at a fixed rate of 6.71 percent per year. In addition, the purchased stock is
subject to a restricted stock purchase agreement that provides for our
repurchase of the stock upon the occurrence of specified events, including if
the owner of the stock ceases to be an officer or terminates employment with us.
Options to purchase 1,856,500 shares have been exercised under the terms of this
program, including the following: Mr. Mitchell: 351,500 shares; Mr. Melton:
217,500 shares; Mr. Land: 217,500 shares; Mr. Ranieri: 217,500 shares; Dr.
Arbige: 217,500 shares; Ms. Cobb: 217,500 shares; Mr. Pekich: 217,500 shares and
Dr. Blank: 200,000 shares.

We intend promptly after the completion of this offering to register on
Form S-8 all shares of common stock issuable under our stock option plan.

VARIABLE PAY PLAN

The variable pay plan, adopted by our board of directors on December 8,
1999, is an incentive plan that ties employee bonuses with financial measures
established by our senior management and board of directors. The variable pay
plan covers our regular employees in the United States and certain foreign
locations. Before 1999, we based the amounts paid under the variable pay plan
upon our return on invested capital, which we measured on a rolling four quarter
basis. We terminated this incentive plan in early 1999. The summary compensation
table above summarizes payouts under this plan. The board of directors adopted
and implemented a transition year bonus plan for 1999 based on annual net income
and product revenue. On March 27, 2000, our board of directors declared the 1999
bonus amounts, which we have reported in the summary compensation table above.

Under the current variable pay plan, early each year, our board of
directors will assess our performance for the prior year against goals set
previously for that year and make an award determination. The target award for
plan participants will range from approximately 4% to 65% of eligible earnings,
depending on salary grade levels. For any variable pay plan participant, the
actual amount of any such award will be contingent upon the level of achievement
by us and by the employee relative to pre-established goals.

The total variable pay plan award pool will be set by the achievement of
product revenue and cash flow with the targets recommended annually by our
management and approved by the compensation committee. Generally, awards vary
from zero if financial goals are not met to one and a half times the target if
all financial goals are exceeded. For certain salary grade levels, individual
performance may also modify the actual amounts paid under the variable pay plan.

EMPLOYEE RETIREMENT INVESTMENT PLAN

In February 1990, our board of directors adopted the employee retirement
investment plan or 401(k) plan covering our eligible employees located in the
United States. We intend for this plan to qualify under Section 401(a) of the
Internal Revenue Code of 1986, as amended, so that contributions to this plan,
and the investment earnings thereon, are not taxable to employees until
withdrawn. Pursuant to this plan, employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutory prescribed annual limit ($10,000 in 1999; $10,500 in 2000) and to have
the amount of the reduction contributed to their accounts in the plan. We
contribute to the plan by making a limited quarterly matching contribution to
the accounts of those employees who are contributing to the plan. On an annual
basis we also make an additional employer profit sharing contribution on behalf
of all employees who are eligible to participate. Employees do not have to
contribute to the plan in order to be eligible for the employer profit sharing
contribution each year.

EXECUTIVE METLIFE GROUP UNIVERSAL LIFE INSURANCE PROGRAM

Participation in the MetLife group universal life insurance program is an
optional benefit we offer to all our employees. The MetLife group universal life
insurance program provides employees with the opportunity to purchase up to four
times his or her salary in life insurance which contains a provision for cash
value accumulation. The program also accepts lump sum contributions to the
MetLife accumulation
54
<PAGE> 59

fund. Employees can use these contributions for a variety of reasons, one of
which is to save a sufficient amount to cover paid-up life insurance in
retirement. If a senior executive employee chooses to participate in the MetLife
group universal life insurance program, including carrying at his or her own
expense life insurance of at least one times his or her salary and contributes
to the accumulation fund an annual amount sufficient to pay for continued life
insurance coverage in retirement, we will reimburse the executive for his or her
lump sum contribution to the accumulation fund.

EXECUTIVE LONG TERM DISABILITY

We maintain an insured long-term disability plan for all eligible
employees. The terms of that plan cap eligible compensation at $180,000. We
designed the executive long term disability plan to replace the long-term
disability benefit for that portion of the executive employee's income that is
above the maximum level of the insured plan.

SENIOR EXECUTIVE RELOCATION POLICY

The senior executive relocation policy provides that we will pay or
reimburse executives for certain costs of relocation. We have included in this
policy provisions for items such as travel and moving expenses, temporary living
expenses, bridge loans and tax consultation. In addition, for permanent
relocation of senior executives to our Palo Alto facility, we have included
provisions for home down payment assistance in the form of repayable loans, home
price guarantee, repayable loans and a housing mortgage cost supplement.

EMPLOYMENT AGREEMENTS

In 1995, we entered into an employment agreement with W. Thomas Mitchell,
our President and Chief Executive Officer, for a two year term with automatic
two year renewals unless otherwise agreed. Mr. Mitchell is entitled to
participate in our retirement, stock option, pension, insurance, profit-sharing,
bonus and similar plans as in effect from time to time. In the event that we
terminate Mr. Mitchell's employment without cause, including in connection with
a change in our ownership or control, he will receive severance in the form of
continued compensation for 24 months at the highest salary rate paid during the
last 24 months, continuation of company paid benefits for 24 months, and
outplacement services of $12,000. Finally, we will compensate Mr. Mitchell for
24 months if Mr. Mitchell's employment is terminated by reason of his permanent
disability.

We have entered into similar employment agreements with the following
officers: Michael V. Arbige, Debby Jo Blank, Carole Beth Cobb, Raymond J. Land,
Stuart L. Melton, Thomas J. Pekich, and Richard J. Ranieri. These employment
agreements each have a one year term with automatic one year renewals unless
otherwise agreed, with bonus compensation to be determined by our board of
directors or the compensation committee. Each individual's salary has increased
from time to time by action of the compensation committee, and such increases
constitute amendments to their respective employment agreements. Each individual
is entitled to participate in our retirement, stock option, pension, insurance,
profit-sharing, bonus and similar plans as in effect from time to time. In the
event that we terminate the individual's employment without cause, including in
connection with a change in our ownership or control, he or she will receive
severance in the form of continued compensation for 18 months at the highest
salary rate paid during the last 18 months, continuation of company-paid
benefits for 18 months, and outplacement services of $12,000. Finally, we will
continue to compensate these individuals for 18 months if that person's
employment is terminated by reason of his or her permanent disability.

In July 1999 we entered into employment agreements with Carl D. Copeland
and Wayne H. Pitcher, Jr., pursuant to which each became a Senior Advisor to the
President. These contracts both expire on December 31, 2000. Both contracts
provide for a 1999 and 2000 bonus under the variable pay plan. In addition, Mr.
Copeland and Dr. Pitcher may receive a percentage of the value of stock options
granted to senior vice presidents. Finally, Mr. Copeland and Dr. Pitcher are
each entitled to continue participation in

55
<PAGE> 60

our employee retirement investment plan and income replacement plan, and welfare
plans generally available to our other employees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our restated certificate of incorporation limits the liability of
directors, officers, employees and other agents to the fullest extent permitted
by Delaware law. Our bylaws provide that we indemnify any such person in
connection with a proceeding initiated by such person only if such proceeding
was authorized by our board of directors. Delaware law authorizes a charter
provision which we have adopted that provides that directors of a corporation
will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for liability for: (1) breach of their duty of
loyalty to the corporation or its stockholders; (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (3) unlawful payments of dividends or unlawful stock repurchases or
redemptions; or (4) any transaction from which the director derived an improper
personal benefit. This limitation of liability does not apply to liabilities
arising under the federal or state securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.

Before the completion of this offering, we expect to enter into
agreements to indemnify our directors and officers, in addition to the
indemnification provided for in our bylaws. These agreements, among other
things, will provide for indemnification of our directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred in any action or proceeding in which he or she is involved by
reason of the fact that he or she is or was a director or officer.

We have no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.

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<PAGE> 61

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common
stock as of July 21, 2000, as adjusted to reflect the sale of the shares offered
by this prospectus, by:

- each person who is known to us to own beneficially more than 5% of our
common stock;

- each of the named executives and each of our directors who own shares
of common stock; and

- all of our executive officers and directors as a group.

Percentage of ownership of our common stock is based on 51,856,500 shares
outstanding as of July 21, 2000, and 58,856,500 shares outstanding after this
offering, assuming no exercise of the underwriters' over-allotment option. We
have calculated beneficial ownership based on SEC requirements. Unless otherwise
indicated below, each stockholder named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Unless otherwise indicated in the table, the address of each individual listed
in the table is Genencor International, Inc., 925 Page Mill Road, Palo Alto,
California 94304.

<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------
NUMBER PERCENTAGE PERCENTAGE
BEFORE AND AFTER BEFORE AFTER
BENEFICIAL OWNER OFFERING OFFERING OFFERING
---------------- ---------------- ---------- ----------
<S> <C> <C> <C>
Eastman Chemical Company(1).......................... 25,000,000 48.2% 42.5%
Danisco A/S(2)....................................... 25,000,000 48.2% 42.5%
W. Thomas Mitchell................................... 351,500 * *
Stuart L. Melton..................................... 217,500 * *
Raymond J. Land...................................... 217,500 * *
Richard J. Ranieri................................... 217,500 * *
Michael V. Arbige.................................... 217,500 * *
All executive officers and directors as a group (14
persons)........................................... 1,856,500 3.6% 3.2%
</TABLE>

------------
* Less than 1%.

(1) Eastman Chemical Company's address is 100 N. Eastman Road, Kingsport,
Tennessee 37660.

(2) An affiliate of Danisco A/S, Danisco Finland OY, beneficially owns
12,500,000 shares of our common stock. Danisco Finland OY's address is
Keilaranta a, Espoo Finland. Another Danisco affiliate, Cultor, U.S., Inc.,
beneficially owns 12,500,000 shares of our common stock. Cultor U.S., Inc.'s
address is 430 Saw Mill Road, Ardsley, New York 10502.

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<PAGE> 62

CERTAIN TRANSACTIONS

AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS

In order to facilitate the relocation of certain of our key executives,
we have made interest-free loans to W. Thomas Mitchell, Stuart L. Melton,
Raymond J. Land, Thomas J. Pekich and Richard J. Ranieri. Upon termination of
employment under certain circumstances, we may forgive some or all of the
amounts due under these loans in connection with the executive's sale of his
home at a loss. The principal balances reported in this paragraph are as of July
21, 2000. Mr. Mitchell is indebted to us under a promissory note dated July
1999, with an outstanding principal balance of $750,000. Mr. Melton is indebted
to us under a promissory note dated October 1999, with an outstanding principal
balance of $650,000. Mr. Land is indebted to us under a promissory note dated
April 2000, with an outstanding principal balance of $1,350,000. Mr. Ranieri is
indebted to us under a promissory note dated March 2000, with an outstanding
principal balance of $1,200,000.

We have also made interest-bearing loans to some of our employees,
including executives, to accommodate relocation. Mr. Pekich was indebted to us
under a promissory note dated August 1999. The largest amount of principal and
unpaid interest outstanding since inception was $230,000. Mr. Pekich fully
repaid this loan in December 1999. Mr. Land is indebted to us under a promissory
note dated April 2000 which will bear interest beginning in November 2000 at 2%
above prime. The largest amount of principal and unpaid interest outstanding
since inception was $5,600, which Mr. Land has fully repaid. Mr. Ranieri is
indebted to us under a promissory note dated March 2000 which will bear interest
beginning in October 2000 at 2% above prime. The largest amount of principal and
unpaid interest outstanding since inception and as of July 21, 2000 was
$300,000.

From time to time, we have also made short-term bridge loans to certain
of our executives in connection with their costs of relocation. These loans bear
interest at the prime rate, and include loans of $500,000 to W. Thomas Mitchell
in July 1999, which he has fully repaid, and $123,880 to Raymond J. Land in
April 2000, which he has fully repaid.

In connection with her relocation first to Cedar Rapids, Iowa, and then
to Rochester, New York, we have made three separate loans to Carole Beth Cobb in
the amounts of $20,000, $25,000 and $44,500. The loan of $20,000 does not bear
interest and will be forgiven on July 14, 2000 if Ms. Cobb remains our full-time
employee on that date. The loan of $25,000 will bear interest at the lowest rate
allowed to avoid imputed interest income, beginning in July 2000, and the
largest amount of principal and unpaid interest outstanding since inception and
as of July 21, 2000 under this loan was $25,000. The loan of $44,500 does not
bear interest and will be forgiven in increments of 25% each year beginning on
January 29, 2001, provided that Ms. Cobb remains our full-time employee on those
dates.

As described in "Management -- Stock Option and Stock Appreciation Right
Plan", our board of directors authorized us to accept promissory notes as
payment of the exercise price of certain of the options granted under that plan.
As of July 21, 2000, the following executive officers have exercised options to
purchase shares, and have elected to make payment by delivery of promissory
notes in the amounts indicated: Mr. Mitchell -- $3,409,550; Mr.
Melton -- $2,109,750; Mr. Land -- $2,109,750; Mr. Ranieri -- $2,109,750; Dr.
Arbige -- $2,109,750; Dr. Blank -- $1,940,000; Ms. Cobb -- $2,109,750 and Mr.
Pekich -- $2,109,750. Each of the promissory notes bears interest at the rate of
6.71% per year and is non-recourse to the extent of 50% of the outstanding
principal balance. The largest amount of principal and unpaid interest
outstanding since inception and as of July 21, 2000 under each promissory note
is the amount indicated above.

In May 2000, we entered into a restricted stock purchase agreement and
pledge agreement with each of the executives who exercised options to purchase
shares, as described in the paragraph above. Under the terms of the restricted
stock purchase agreements, we have an option to repurchase each executive's
stock under certain circumstances at the $9.70 price per share that the
executive paid to us for the shares. We also have a right of first refusal to
purchase the executive's stock at the bona fide price offered by a third party
purchaser. Under the pledge agreements, which secure the promissory notes, we
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have the right to vote the executive's shares if the executive is in default
under the promissory note or pledge agreement.

See "Management -- Employment Agreements" for descriptions of other
agreements we have with our executive officers.

AGREEMENTS WITH SIGNIFICANT STOCKHOLDERS

We have entered into commercial partnerships with two of our
stockholders, Eastman Chemical Company and Danisco A/S. We describe our alliance
with Eastman Chemical Company in the section "Business -- Strategic Alliances".
In addition, we have collaborated with Danisco A/S, through its Finn Feeds
division, for the development and commercialization of enzymes for the animal
feed market. We have also entered into a commercial agreement under which we
sell certain of our products to Finn Feeds. Under this agreement, Finn Feeds
purchased $12 million, $15 million and $9.4 million of products from us during
1997, 1998 and 1999, respectively. In 1997, we purchased approximately $6
million in products from and/or through Danisco A/S and its affiliates and
approximately $9 million in each of 1998 and 1999.

In May 2000, we signed a non-binding letter of intent with Danisco A/S
setting forth our mutual intent to establish a collaboration for the development
of biotechnology-derived food ingredients. In addition, we have an agreement in
principle to evaluate an expanded alliance for the development and
commercialization of biotechnology-derived feed ingredient products. While we
intend to execute definitive agreements regarding these proposed transactions,
the contemplated transactions may not be consummated.

In 1993, our majority stockholders entered into a stockholders agreement
that restricts the sale or transfer of less than 100% of our stock owned by
either of them, and restricts the sale or transfer to more than one purchaser of
the stock. We also entered into an additional rights agreement in 1993 with our
majority stockholders under which we granted these stockholders specified rights
of first refusal to purchase products offered for sale by us. Also, we granted
the two stockholders certain priority rights to engage us to perform research
and development for so long as the stockholder owns at least 30% of our capital
stock. The 1993 stockholders agreement and additional rights agreement will be
terminated and replaced entirely by the stockholders agreement described in the
next paragraph, effective upon the completion of this offering.

We anticipate that we will enter into a new stockholders agreement with
Eastman Chemical Company and Danisco A/S, our majority stockholders, that will
become effective upon the completion of this offering. We believe the agreement
will provide for, among other things:

- Board nomination rights. The majority stockholders will each initially
have the right to nominate three directors. If one of the majority
stockholders reduces its ownership interest to less than 20% of our
outstanding common stock, then such stockholder's nomination rights
will be reduced to two directors and its nomination rights will
terminate when it owns equal to or less than 10% of our outstanding
common stock. In addition, the majority stockholders will agree to take
such actions as are necessary to effectuate the nomination rights of
the other and to ensure that the composition of our board of directors,
including the election of three independent directors within 90 days
from the completion of this offering, complies with the requirements of
the Nasdaq National Market.

- Limitations on activities of majority stockholders. For a period of two
years from the completion of this offering, each majority stockholder
and its affiliates will not, without the prior approval of all of the
members of our board of directors not designated by that majority
stockholder make or support a proposal, directly or indirectly, to
cause: (a) any acquisition of our securities or our assets or those of
our subsidiaries; (b) any tender or exchange offer, or merger or
similar business combination; (c) any proxy contest to obtain consents
to vote any of our voting securities; or (d) any action alone or with
others to seek control or influence over our management, board of
directors or otherwise.

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- Demand registration rights. After the expiration of the 180-day lockup
period, each of the majority stockholders may demand that we register
their shares on the appropriate form under the Securities Act.

- Piggyback registration rights. If we register any securities for sale
on a form that would be appropriate for sale of the majority
stockholders shares, the majority stockholders can request to have
their shares included in the registration statement. These registration
rights are unlimited but the managing underwriter for the registration
can reduce the number of shares held by the majority stockholders that
are included in the offering to no more than 25% of the relevant
offering.

- Related party transactions. We will negotiate and conduct on an arm's
length basis all commercial transactions and agreements between the
majority stockholders and us.

We will pay all expenses incurred in connection with the piggyback
registration rights described above. In the case of demand registration rights,
the majority stockholders making the demand will pay all expenses pro rata on
the basis of the number of shares registered.

These registration rights will expire ten years after this offering is
completed.

Eastman Chemical Company and an affiliate of Danisco A/S had
unconditionally guaranteed our indebtedness under our previously existing $40
million revolving credit facility.

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DESCRIPTION OF CAPITAL STOCK

The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our restated certificate of incorporation, a form of which we have filed as an
exhibit to the registration statement of which this prospectus is a part, and
other agreements referenced below.

Upon the completion of this offering, our authorized capital stock will
consist of 200,000,000 shares of common stock, $.01 par value, 1,000,000 shares
of preferred stock, $.01 par value, and 1,000 shares of series A preferred
stock, no par value. As of July 21, 2000, we had ten holders of record of our
common stock and two holders of record of our Series A preferred stock. After
this offering, we will have outstanding 58,856,500 shares of common stock and
970 shares of Series A preferred stock. As of July 21, 2000, we had options
outstanding to purchase 4,453,500 shares of common stock.

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 they do not have cumulative
voting rights. Accordingly, holders of a majority of the 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
dividends, if any, as may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of any
outstanding preferred stock. Upon our liquidation, dissolution or winding up the
holders of common stock are entitled to receive ratably our net assets available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future. There will be no
redemption or sinking fund provisions available to the common stock. All
outstanding shares of common stock will be fully paid and non-assessable.

PREFERRED STOCK

As of the closing of this offering, 970 shares of series A preferred
stock will be outstanding. For a description of this preferred stock, please see
note 9 to our consolidated financial statements included elsewhere in this
prospectus. Upon the closing of this offering, our board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 1,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of any series thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption including sinking fund provisions, redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of any series. The number of authorized shares of preferred stock
may be increased or decreased, but not below the number of shares then
outstanding, by the affirmative vote of the holders of a majority of the common
stock, without a vote of the holders of the preferred stock, or of any series of
preferred stock, unless a vote of any such holders is required pursuant to the
terms of any preferred stock designation. We have no present plans to issue any
shares of preferred stock. See "-- Anti-Takeover Effects of Delaware Law and our
Certificate of Incorporation and Bylaws."

REGISTRATION RIGHTS

Pursuant to the terms of the new stockholders agreement that we intend to
enter into, after the closing of this offering Eastman Chemical Company and
affiliates of Danisco A/S will be entitled to demand and piggyback registration
rights with respect to the registration of their shares under the Securities
Act. See "Certain Transactions -- Agreements with Significant Stockholders" and
"Shares Eligible for Future Sale."

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ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS

Our restated certificate of incorporation and bylaws will contain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by our board of directors. In addition, provisions of Delaware law
may hinder or delay an attempted takeover of us other than through negotiation
with our board of directors. These provisions could have the effect of
discouraging attempts to acquire us or remove incumbent management even if some
or a majority of our stockholders believe this action to be in their best
interest, including attempts that might result in the stockholders receiving a
premium over the market price for their shares of common stock.

Removal and replacement of directors

Under our restated certificate of incorporation, directors may only be
removed with cause. In addition, under our restated certificate of incorporation
and bylaws only a majority of the directors then in office can fill board
vacancies and newly-created directorships resulting from any increase in the
size of the board of directors, even if those directors do not constitute a
quorum. These provisions could prevent stockholders, including parties who want
to take over or acquire us, from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.

Classified board

Our restated certificate of incorporation provides that the board of
directors will be divided into three classes of directors, with each class
serving a staggered three-year term. See "Management -- Board Composition and
Committees." The classification system of electing directors may discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of the board of directors, because the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors.

Advance notice provisions for stockholder proposals and stockholder
nominations of directors

Our bylaws establish an advance notice procedure regarding stockholder
proposals and nominations for directors. The advance notice procedure will not
apply to proposals by our board of directors or management. Any stockholder that
wishes to make a proposal or nominate a director for election at an annual
meeting must deliver to us notice of the proposal or the nomination not less
than 45 days nor more than 75 days before the first anniversary of the mailing
of the proxy statement for the preceding year's annual meeting. For a special
meeting, the notice must generally be delivered not less than the later of 90
days before a special meeting or ten days following the day on which public
announcement of the meeting is first made. This advance notice proposal could
prevent someone interested in acquiring us from proposing actions that could
facilitate the takeover.

Special meetings of stockholders and actions in lieu of a meeting

Our restated certificate of incorporation and bylaws permit special
meetings of the stockholders to be called only by the board of directors, the
chairman of the board or the chief executive officer. This provision may make it
more difficult for stockholders to take actions opposed by the board of
directors.

Authorized but unissued shares

Without further stockholder approval, we can issue shares of common stock
and preferred stock up to the number of shares authorized for issuance in our
restated certificate of incorporation, except as limited by Nasdaq National
Market rules. We could use these additional shares for a variety of corporate
purposes. These purposes include future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. Our ability to issue
these shares of common stock and preferred stock could make it more difficult,
or discourage an attempt, to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
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Section 203 of Delaware law

In addition to the foregoing provisions of our restated certificate of
incorporation and bylaws, we will be subject to the provisions of Section 203 of
the Delaware General Corporation Law. In general, the statute 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 that
the person became an interested stockholder unless the business combination or
the transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to the
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior, did own, 15% or
more of the corporation's outstanding voting stock. This provision may have the
effect of delaying, deferring or preventing a change in control of us without
further action by our stockholders.

Neither Eastman Chemical Company nor Danisco A/S is subject to the
restrictions imposed by this statute.

Limitation of liability and indemnification matters

Our restated certificate of incorporation includes provisions to
eliminate the personal liability of our directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
General Corporation Law. Our bylaws provide for indemnification of our directors
and officers to the fullest extent permitted by the Delaware General Corporation
Law, including circumstances in which indemnification is otherwise
discretionary.

Our bylaws permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions, regardless of whether the Delaware General Corporation Law would permit
indemnification.

TRANSFER AGENT AND REGISTRAR

Upon the closing of this offering, the transfer agent and registrar for
the common stock will be The Bank of New York.

LISTING

We have applied to have our common stock approved for listing on the
Nasdaq National Market under the trading symbol "GCOR".

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has been no public market for our common
stock. A significant public market for our common stock may not develop or be
sustained after this offering. Future sales of substantial amounts of our common
stock in the public market, or the possibility of these sales occurring, could
adversely affect prevailing market prices for our common stock or our future
ability to raise capital through an offering of equity securities.

Upon completion of this offering, we will have outstanding 58,856,500
shares of common stock. Of these shares, the 7,000,000 shares to be sold in this
offering, 8,050,000 shares if the underwriters' over-allotment option is
exercised in full, will be freely tradable in the public market without
restriction under the Securities Act, unless the shares are held by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. All
of the remaining shares of common stock outstanding upon completion of this
offering may be sold in the public market only if they are registered or if they
qualify for an exemption from registration under Rule 144 under the Securities
Act, as summarized below.

Pursuant to "lock-up" agreements, all executive officers and directors,
as well as Eastman Chemical Company and affiliates of Danisco A/S, have agreed
with the underwriters not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any of their shares for a period of 180 days
from the date of this prospectus. A total of 51,856,500 outstanding shares of
common stock are subject to these lock-up agreements. We also have entered into
an agreement with the underwriters that we will not offer, sell or otherwise
dispose of common stock for a period of 180 days from the date of this
prospectus, subject to limited exceptions. However, Merrill Lynch may in its
sole discretion, at any time without notice, consent to the release of all or
any portion of the shares subject to lock-up agreements. Merrill Lynch does not
have any current intention to release shares of common stock subject to the
lock-up. Any determination to release any shares subject to the lock-up would be
based on a number of factors at the time of any such determination, including
the market price of the common stock, the liquidity of the trading market for
the common stock, general market conditions, the number of shares proposed to be
sold, and the timing of the proposed sale.

Taking into account the lock-up agreements, and assuming Merrill Lynch
does not release stockholders from these agreements, Eastman Chemical Company
and affiliates of Danisco A/S will be able to sell their shares of common stock
beginning 180 days after the date of this prospectus under Rule 144, subject to
the limitations of Rule 144.

In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares not to exceed the
greater of (1) one percent of the then outstanding shares of common stock or (2)
the average weekly trading volume of our common stock during the four calendar
weeks preceding the filing of a Form 144 with respect to the sale. Sales under
Rule 144 are also subject to manner of sale and notice requirements, as well as
to the availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been an affiliate at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years is entitled to sell the shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.

We intend to file, after the effective date of this offering, a
registration statement on Form S-8 to register approximately 9,000,000 shares of
common stock reserved for issuance under our stock option plan. The registration
statement will become effective automatically upon filing. Shares issued under
our stock option plan after the filing of the registration statement may be sold
in the open market, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates and vesting restrictions imposed by us. In
addition, approximately 1.3 million shares of common stock underlying stock
options granted to employees will vest in January 2001 and will not be subject
to lock-up agreements.

In addition, following this offering, Eastman Chemical Company and
affiliates of Danisco A/S will have rights to require us to register their
shares for future sale. See "Description of Capital Stock -- Registration
Rights" and "Certain Transactions -- Agreements with Significant Stockholders."

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UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS

The following is a summary of certain United States federal income and
estate tax consequences of the ownership and disposition of our common stock by
non-U.S. holders. As used herein, "non-U.S. holder" means any person or entity
that holds our common stock, other than:

- an individual citizen or resident of the U.S.;

- a corporation or partnership created or organized in or under the laws
of the U.S., or of any state of the U.S. or the District of Columbia,
other than any partnership treated as foreign under U.S. Treasury
Regulations.

- an estate the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source; or

- in general, a trust if a court within the U.S. may exercise primary
supervision over the administration of the trust and if one or more
U.S. persons have the authority to control all substantial decisions of
the trust.

This summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, existing, temporary and proposed U.S. Treasury Regulations
promulgated thereunder and administrative and judicial interpretations of each,
all as of the date hereof and all of which are subject to change, possibly on a
retroactive basis.

This summary is for general information only. It does not address aspects
of U.S. federal taxation other than income and estate taxation, and does not
address all aspects of U.S. federal income and estate taxation. This summary
does not discuss all the tax consequences that may be relevant to a non-U.S.
holder in light of the holder's particular circumstances, for instance,
insurance companies, tax-exempt organizations, broker-dealers, and financial
institutions. In addition, this summary does not address any state, local, or
foreign tax considerations that may be relevant to a non-U.S. holder's decision
to purchase shares of our common stock.

PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING
THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES, AS WELL AS OTHER
U.S. FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES, AND THE NON-U.S. TAX
CONSEQUENCES, TO THEM OF OWNING AND DISPOSING OF SHARES OF OUR COMMON STOCK.

INCOME TAX

Dividends

Subject to the discussion below, dividends paid to a non-U.S. holder
generally will be subject to withholding of U.S. income tax at the rate of 30%
of the amount of the dividend, or such lower rate as may be prescribed by an
applicable income tax treaty.

However, if dividends we pay are effectively connected with a non-U.S.
holder's conduct of a trade or business in the U.S. and, if a tax treaty
applies, are attributable to a U.S. permanent establishment, or, if the holder
is an individual, a "fixed base" of the non-U.S. holder, the 30% withholding tax
generally will not apply, and the non-U.S. holder generally will be subject to
tax on such dividends on a net basis in the same manner as holders that are U.S.
persons, provided the non-U.S. holder files appropriate IRS forms with us. An
additional branch profits tax of 30%, or such lower rate as may be prescribed by
an applicable income tax treaty, may apply if the non-U.S. holder is a
corporation.

Under current U.S. Treasury Regulations, in determining whether a holder
is eligible for the benefits of an income tax treaty, dividends paid to an
address in a foreign country are presumed to be paid to a resident of such
country, absent knowledge to the contrary. However, under new U.S. Treasury
Regulations generally effective for dividend payments made after December 31,
2000, a non-U.S. holder desiring to claim the benefits of an applicable tax
treaty must satisfy certification and other requirements and must provide us
with a taxpayer identification number unless an exception applies. In addition,
under

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these new Treasury Regulations, in the case of common stock held by a foreign
partnership, this certification requirement may be applied to the partners, and
not the partnership, and the partnership must provide certain information,
including a U.S. taxpayer identification number. These new regulations also
provide look-through rules for tiered partnerships. A non-U.S. holder that is
eligible for a reduced rate of U.S. withholding tax pursuant to a tax treaty may
obtain a refund of any excess amounts withheld by filing an appropriate claim
for refund with the IRS.

Disposition of our common stock

Generally, non-U.S. holders will not be subject to U.S. federal income
tax, or withholding thereof, in respect of gain recognized on a disposition of
our common stock unless:

- the gain is effectively connected with the holder's conduct of a trade
or business within the U.S., or, if a tax treaty applies, is
attributable to a permanent establishment or fixed base of the holder
in the U.S.; in any such case such gain will be subject to regular
graduated U.S. income tax rates and the branch profits tax described
above may also apply if the non-U.S. holder is a corporation;

- in the case of a non-U.S. holder who is a non-resident alien individual
and holds our common stock as a capital asset, the holder is present in
the U.S. for 183 or more days in the taxable year of the sale and other
conditions are met;

- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes and certain other conditions are
met; we do not believe we are or have been a United States real
property holding corporation and do not expect to become one in the
future; or

- the holder is subject to tax pursuant to U.S. federal income tax
provisions applicable to certain U.S. expatriates.

Estate tax

If an individual non-U.S. holder owns, or is treated as owning, our
common stock at the time of his or her death, such stock would be includable in
the individual's gross estate for U.S. federal estate tax purposes and may be
subject to U.S. federal estate tax imposed on the estates of nonresident aliens,
in the absence of a contrary provision contained in an applicable tax treaty.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Dividends

Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the non-U.S. holder resides or is
established.

Under current law, dividends paid on our common stock to a non-U.S.
holder at an address outside the U.S. are generally exempt from backup
withholding tax, imposed at a 31% rate, and U.S. information reporting
requirements, but not from regular withholding tax as discussed above. Backup
withholding tax and information reporting generally will apply to dividends paid
to a non-U.S. holder at an address in the U.S. if the holder fails to establish
an exemption or to furnish other information. Under the Treasury Regulations
that are applicable to dividends paid after December 31, 2000, a non-U.S. person
must generally provide proper documentation establishing the person's non-U.S.
status to a withholding agent in order to avoid backup withholding tax.

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Broker sales

Payments of proceeds from the sale of our common stock by a non-U.S.
holder made to or through a U.S. office of a broker are generally subject to
both information reporting and backup withholding tax unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes entitlement to an exemption. Payments of proceeds from the sale of
our common stock by a non-U.S. holder made to or through a non-U.S. office of a
broker generally will not be subject to information reporting or backup
withholding. However, payments made to or through certain non-U.S. offices,
including the non-U.S. offices of a U.S. broker and foreign brokers with certain
types of relationships to the U.S., are generally subject to information
reporting, but not backup withholding, unless the holder certifies its non-U.S.
status under penalties of perjury or otherwise establishes entitlement to an
exemption.

Backup withholding is not an additional tax. A non-U.S. holder may obtain
a refund of any excess amounts withheld under the backup withholding rules by
filing an appropriate claim for refund with the IRS.

Non-U.S. holders should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situation, including the availability of an exemption from such requirements and
the procedures for obtaining such an exemption, as well as the effect of the new
Treasury Regulations generally effective for payments made after December 31,
2000.

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UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities
Inc., Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. are
acting as representatives of the underwriters named below. Subject to the terms
and conditions described in a purchase agreement among us and the underwriters,
we have agreed to sell to the underwriters, and the underwriters severally have
agreed to purchase from us the number of shares listed opposite their names
below.

<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Chase Securities Inc. ......................................
Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc. ..................................
---------
Total.......................................... 7,000,000
=========
</TABLE>

The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us that the underwriters propose
initially to offer the shares to the public at the initial public offering price
on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $ per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment option.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price........................ $ $ $
Underwriting discount........................ $ $ $
Proceeds, before expenses, to Genencor....... $ $ $
</TABLE>

We estimate the expenses of the offering, not including the underwriting
discount, to be $1.5 million and are payable by us.

68
<PAGE> 73

OVER-ALLOTMENT OPTION

We have granted options to the underwriters to purchase up to 1,050,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
these options, each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the above table.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 550,000 shares offered by this prospectus for sale
to some of our employees, directors and to some individuals designated by them.
If these persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors and all existing stockholders
have agreed not to sell or transfer any common stock for 180 days after the date
of this prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and those other persons have agreed not to directly or
indirectly

- offer, pledge, sell or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.

This lock-up provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the person
executing the agreement or for which the person executing the agreement later
acquires the power of disposition. We may continue to issue shares and options
under our stock option plan and file an S-8 registration statement relating to
our stock option plan. In addition, we have the right to transfer shares of
common stock in connection with an acquisition if specified recipients of shares
agree to be bound by provisions of the lock-up agreements.

QUOTATION ON THE NASDAQ NATIONAL MARKET

We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "GCOR."

Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
among us and the representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public offering price
are

- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
69
<PAGE> 74

- our financial information,

- the history of, and the prospects for, our company and the industry in
which we compete,

- an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,

- the present state of our development, and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price. The underwriters do not expect to
sell more than 5% of the shares in the aggregate to accounts over which they
exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the common stock is completed, the SEC rules
may limit the underwriters from bidding for or purchasing our common stock.
However, the representatives may engage in transactions that stabilize the price
of the common stock, such as bids or purchases that peg, fix or maintain that
price.

The underwriters may purchase and sell the common stock in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from us in
the offering. The underwriters may close out any covered short position by
either exercising their options to purchase additional shares or purchasing
shares in the open market. In determining the source of shares to close out the
covered short position, the underwriters will consider, among other things, the
price of shares available for purchase in the open market as compared to the
price at which they may purchase shares through the over-allotment option.
"Naked" short sales are any sales in excess of such option. The underwriter must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of various bids for
or purchases of common stock made by the underwriters in the open market prior
to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding a decline in the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that might otherwise exist in the open market.

Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the representatives make any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discounted without notice.

70
<PAGE> 75

UK SELLING RESTRICTIONS

Each underwriter has agreed that:

- It has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding managing, or
disposing of investments (as principal or agent) for the purposes of
their business or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom with the meaning of the
Public Offers of Securities Regulations 1995;

- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and

- It has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act of 1986 (Investment Advertisements) (Exemptions) Order
1997 or is a person to whom such document may otherwise lawfully be
issued or passed on.

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation, or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering materials or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction. Sales outside of the
United States by the underwriters will be made through their broker-dealer
affiliates in the relevant country or jurisdiction.

Purchasers or the shares offered by this prospectus may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price on the cover page of
this prospectus.

INTERNET DISTRIBUTION OF PROSPECTUS

Merrill Lynch will be facilitating internet distribution of the
prospectus for the offering to some of its internet subscription customers.
Merrill Lynch intends to allocate a limited number of shares for sale to its
online brokerage customers. An electronic prospectus is available on the website
maintained by Merrill Lynch. Other than the prospectus in electronic format, the
information on the Merrill Lynch website relating to the offering is not part of
this prospectus.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Latham & Watkins, Los Angeles, California. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Debevoise & Plimpton, New York, New York.

EXPERTS

The consolidated financial statements as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

71
<PAGE> 76

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including the exhibits, schedules and amendments thereto,
under the Securities Act with respect to the shares of common stock to be sold
in this offering. This prospectus does not contain all the information set forth
in the registration statement. For further information regarding our company and
the shares of common stock to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. Reference is made to the contracts, agreements and other
documents filed as exhibits to the registration statement. These statements are
qualified in all respects by these references.

You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-732-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the
Securities and Exchange Commission's Web site located at www.sec.gov.

As a result of this offering, we will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, reports, proxy and
information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.

72
<PAGE> 77

GENENCOR INTERNATIONAL, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 78

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Genencor International, Inc.

The one-for-two reverse stock split and the filing of a restated certificate of
incorporation described in note 18 to the consolidated financial statements have
not been consummated at July 21, 2000. When they have been consummated, we will
be in a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of changes in
shareholders' equity, and of cash flows present fairly, in all
material respects, the financial position of Genencor
International, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."

PRICEWATERHOUSECOOPERS LLP

Rochester, New York
January 28, 2000

F-2
<PAGE> 79

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31,
1998 1999 2000
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12,792 $ 39,331 $ 53,863
Trade accounts receivable (less allowance for doubtful
accounts of $976 in 1998, $1,814 in 1999, and $1,861
in 2000 (unaudited))................................. 41,509 48,081 44,982
Inventories............................................. 64,484 50,716 50,265
Prepaid expenses and other current assets............... 12,772 19,266 15,305
Deferred income taxes................................... 7,573 1,104 1,104
-------- -------- --------
Total current assets............................... 139,130 158,498 165,519
Property, plant and equipment, net........................ 225,237 215,218 209,264
Investments and other assets.............................. 39,849 37,340 36,974
Intangible assets, net.................................... 95,385 93,268 89,869
Deferred income taxes..................................... 8,415 7,796 7,796
-------- -------- --------
Total assets....................................... $508,016 $512,120 $509,422
======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS'
EQUITY
Current liabilities:
Notes payable........................................... $ -- $ 5,774 $ 4,567
Current maturities of long-term debt.................... -- 10,000 10,000
Accounts payable and accrued expenses................... 29,899 43,506 40,577
Interest payable on long-term debt...................... 2,388 2,392 --
Accrued employee benefits............................... 21,459 11,104 8,108
Deferred income taxes................................... 513 3,308 3,308
-------- -------- --------
Total current liabilities.......................... 54,259 76,084 66,560
Long-term debt............................................ 158,000 142,486 143,660
Capital lease obligation.................................. -- 3,594 3,400
Deferred income taxes..................................... 20,946 14,388 13,190
Other long-term liabilities............................... 10,310 8,596 8,396
Minority interest......................................... -- 1,091 1,091
-------- -------- --------
Total liabilities.................................. 243,515 246,239 236,297
-------- -------- --------
Redeemable preferred stock:
7 1/2% cumulative series A preferred stock, without par
value, authorized 1,000 shares, 970 shares issued and
outstanding.......................................... 140,650 147,925 149,744
Shareholders' equity:
Common stock, par value $0.01 per share, 200,000,000
shares authorized, 50,000,000 shares issued and
outstanding.......................................... 500 500 500
Additional paid-in capital.............................. 186,326 186,326 188,975
Deferred stock-based compensation....................... -- -- (2,649)
Accumulated deficit..................................... (45,912) (35,280) (20,235)
Accumulated other comprehensive loss.................... (17,063) (33,590) (43,210)
-------- -------- --------
Total shareholders' equity......................... 123,851 117,956 123,381
-------- -------- --------
Total liabilities, redeemable preferred stock and
shareholders' equity............................ $508,016 $512,120 $509,422
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE> 80

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1998 1999 1999 2000
----------- ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenue..................... $ 293,643 $ 279,492 $ 305,637 $ 72,602 $ 73,640
Fees and royalty revenues........... 16,699 9,619 10,965 2,264 6,059
----------- ----------- ----------- ----------- -----------
Total revenues................. 310,342 289,111 316,602 74,866 79,699
Operating expenses:
Cost of product sold................ 179,112 167,604 176,756 43,500 41,998
Research and development............ 37,306 40,205 43,955 10,022 11,824
Sales, marketing and business
development...................... 25,392 24,394 24,564 5,162 5,665
General and administrative.......... 17,995 22,940 22,984 4,900 5,542
Amortization of intangible assets... 7,773 8,272 8,750 2,071 2,351
Restructuring and related charges... -- -- 7,500 -- --
Other expense/(income).............. 938 (342) (845) (143) (299)
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 268,516 263,073 283,664 65,512 67,081
----------- ----------- ----------- ----------- -----------
Operating income...................... 41,826 26,038 32,938 9,354 12,618
Non operating expenses/(income):
Investment income................... -- (990) -- -- (15,046)
Interest expense.................... 11,633 10,727 10,487 2,503 2,660
Interest income..................... (446) (557) (750) (140) (560)
Other expense/(income).............. 1,100 (1,442) -- -- --
----------- ----------- ----------- ----------- -----------
Total non operating expenses/
(income).................... 12,287 7,738 9,737 2,363 (12,946)
Income before provision for income
taxes............................... 29,539 18,300 23,201 6,991 25,564
Provision for income taxes............ 5,106 3,279 5,294 1,595 8,700
----------- ----------- ----------- ----------- -----------
Net income............................ $ 24,433 $ 15,021 $ 17,907 $ 5,396 $ 16,864
=========== =========== =========== =========== ===========
Net income available to holders of
common stock..................... $ 17,158 $ 7,746 $ 10,632 $ 3,577 $ 15,045
=========== =========== =========== =========== ===========
Earnings per common share:
Basic............................ $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.30
=========== =========== =========== =========== ===========
Diluted.......................... $ 0.34 $ 0.15 $ 0.21 $ 0.07 $ 0.29
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding:
Basic............................ 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
=========== =========== =========== =========== ===========
Diluted.......................... 50,000,000 50,000,000 50,000,000 50,000,000 51,816,735
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE> 81

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFERRED OTHER TOTAL
COMMON PAID-IN STOCK-BASED ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL COMPENSATION DEFICIT LOSS EQUITY
------ ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996........... $ 500 $206,326 -- $(70,816) $ (8,140) $127,870
Comprehensive income:
Net income.......................... 24,433 24,433
Other comprehensive loss:
Foreign currency translation...... (17,540) (17,540)
Unrealized holding losses (($147)
pre-tax)........................ (147) (147)
--------
Other comprehensive loss.......... (17,687)
--------
Comprehensive income................ 6,746
Preferred stock dividend accrued...... (7,275) (7,275)
Common stock dividend paid............ (10,000) (10,000)
------ -------- ------- -------- -------- --------
Balances, December 31, 1997........... 500 196,326 -- (53,658) (25,827) 117,341
------ -------- ------- -------- -------- --------
Comprehensive income:
Net income.......................... 15,021 15,021
Other comprehensive income:
Foreign currency translation...... 9,129 9,129
Unrealized holding losses (($365)
pre-tax)........................ (365) (365)
--------
Other comprehensive income........ 8,764
--------
Comprehensive income................ 23,785
Preferred stock dividend accrued...... (7,275) (7,275)
Common stock dividend paid............ (10,000) (10,000)
------ -------- ------- -------- -------- --------
Balances, December 31, 1998........... 500 186,326 -- (45,912) (17,063) 123,851
------ -------- ------- -------- -------- --------
Comprehensive income:
Net Income.......................... 17,907 17,907
Other comprehensive loss:
Foreign currency translation...... (21,325) (21,325)
Unrealized holding gains ($7,610
pre-tax)........................ 4,798 4,798
--------
Other comprehensive loss.......... (16,527)
--------
Comprehensive income................ 1,380
Preferred stock dividend accrued...... (7,275) (7,275)
------ -------- ------- -------- -------- --------
Balances, December 31, 1999........... 500 186,326 -- (35,280) (33,590) 117,956
------ -------- ------- -------- -------- --------
(Unaudited)
Comprehensive income:
Net Income.......................... 16,864 16,864
Other comprehensive loss:
Foreign currency translation...... (7,247) (7,247)
Unrealized holding gains ($4,862
pre-tax)........................ 2,985 2,985
Adjustment for gains included in
earnings (($8,727) pre-tax)..... (5,358) (5,358)
--------
Other comprehensive loss.......... (9,620)
--------
Comprehensive income................ 7,244
Deferred stock-based compensation..... 2,649 (2,649) --
Preferred stock dividend accrued...... (1,819) (1,819)
------ -------- ------- -------- -------- --------
Balances, March 31, 2000.............. $ 500 $188,975 $(2,649) $(20,235) $(43,210) $123,381
====== ======== ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE> 82

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1998 1999 1999 2000
-------- -------- -------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 24,433 $ 15,021 $ 17,907 $ 5,396 $ 16,864
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............. 30,807 32,831 34,276 7,989 8,631
Loss (gain) on disposition of property,
plant and equipment..................... 1,113 (61) 1,927 348 --
Gain on sale of marketable securities...... -- -- -- -- (15,046)
Gain on sale of business................... (134) (399) -- -- --
(Increase) decrease in operating assets:
Trade accounts receivable............... 3,070 (1,174) (6,777) (3,650) 1,999
Inventories............................. (267) 1,083 9,999 2,873 (884)
Prepaid expenses and other current
assets................................ (2,825) (1,833) 1,352 (1,779) 369
Investments and other assets............ (5,718) (928) 1,693 773 (607)
Increase (decrease) in operating
liabilities:
Accounts payable and accrued expenses... (11,491) (9,624) 4,180 (103) (2,145)
Interest payable on long-term debt...... (299) (31) 4 (2,377) (2,392)
Accrued employee benefits............... 4,265 5,683 (8,980) (1,783) (2,870)
Other................................... 4,374 5,514 2,599 2,416 (478)
-------- -------- -------- ------- --------
Net cash provided by operating
activities............................ 47,328 46,082 58,180 10,103 3,441
-------- -------- -------- ------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment..... (23,910) (22,855) (21,274) (4,566) (3,639)
Proceeds from the sale of property, plant and
equipment.................................... 897 685 463 4,194 --
Proceeds from sale of business................. 6,207 984 -- -- --
Proceeds from the sale of marketable
securities................................... -- -- -- -- 15,928
Sale-leaseback of facility..................... -- -- 4,194 -- --
Reimbursement of purchase price................ -- -- 1,331 1,331 --
Acquisition of business, net of cash
acquired..................................... -- -- (3,293) -- --
Payment to acquire equity interest in
affiliate.................................... -- -- (1,500) -- --
-------- -------- -------- ------- --------
Net cash (used in) provided by investing
activities............................ (16,806) (21,186) (20,079) 959 12,289
-------- -------- -------- ------- --------
Cash flows from financing activities:
Net payments on revolving credit facilities.... (23,000) (13,000) (8,000) (1,000) --
Net payments on notes payable of Chinese
affiliate.................................... -- -- (1,708) -- --
Dividends paid................................. (10,000) (10,000) -- -- --
-------- -------- -------- ------- --------
Net cash used in financing activities... (33,000) (23,000) (9,708) (1,000) --
-------- -------- -------- ------- --------
Effect of exchange rate changes on cash.......... (809) 586 (1,854) (1,020) (1,198)
-------- -------- -------- ------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (3,287) 2,482 26,539 9,042 14,532
Cash and cash equivalents -- beginning of
period......................................... 13,597 10,310 12,792 12,792 39,331
-------- -------- -------- ------- --------
Cash and cash equivalents -- end of period....... $ 10,310 $ 12,792 $ 39,331 $21,834 $ 53,863
======== ======== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE> 83

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 -- DESCRIPTION OF THE COMPANY AND ACCOUNTING POLICIES

Genencor International, Inc. and subsidiaries (the Company) integrates
the tools of biotechnology in meeting the needs of its customers. The Company's
current products include novel enzymes used in the cleaning, grain processing
and textile industries. The principal geographical markets for these products
are North America, South America, Europe and Asia.

The Company is a joint venture between Eastman Chemical Company (Eastman
Chemical) and Danisco Finland OY, a wholly-owned subsidiary of Danisco A/S
(Danisco), with each company holding 50% of the common and preferred shares of
the Company.

Significant accounting policies are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of all
majority-owned subsidiaries. Investments in affiliates in which the Company has
the ability to exercise significant influence, but not control, are accounted
for by the equity method. All other investments in affiliates are carried at
cost. Intercompany transactions are eliminated.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Interim Financial Statements (unaudited)

The consolidated financial statements for the three month periods ended
March 31, 2000 and 1999 are unaudited and should be read in conjunction with the
Company's consolidated financial statements for the year ended December 31,
1999. Such interim financial statements have been prepared in conformity with
the rules and regulations of the Securities and Exchange Commission. Certain
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations pertaining to interim financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for fair presentation have been included. The
results of operations of any interim period are not necessarily indicative of
the results of operations for the full year.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market funds, commercial
paper and bank deposits with original maturity dates of three months or less
from the date of purchase.

Revenue Recognition

The Company's revenue recognition policies comply with the guidance
contained in the provisions of SEC Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." Revenues consist of product
revenues and fees and royalty revenues. Fees and royalty revenues consist
primarily of funded research, technology and license fees and royalties.

F-7
<PAGE> 84
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 -- DESCRIPTION OF THE COMPANY AND ACCOUNTING POLICIES (CONTINUED)

Product Revenue

Revenue from product sales is recognized upon shipment to customers.

Funded Research

Research funding revenues result from collaborative agreements with
various parties, including the U.S. Government, whereby the Company performs
research activities and receives revenues that partially reimburse expenses
incurred. Under such agreements the Company retains a proprietary interest in
the products and technology developed. These expense reimbursements primarily
consist of direct expense sharing arrangements and milestone payments. Revenues
related to expense sharing arrangements are recorded as the underlying expenses
are incurred. Milestone payments are contingent upon successful completion of
research activities and are recognized upon satisfaction of those contingencies.
Up front research funding payments are recognized as revenues on a straight-line
basis over the term of the underlying research agreement.

Technology and License Fees

Fees from the sale of technology are recognized upon completion of the
required technology transfer and substantial satisfaction of any performance
related responsibilities. License fees are recognized on a straight-line basis
over the term defined in the license agreement. In the event there is no defined
term, such as with permanent licenses, license fees are recognized upon
substantial satisfaction of any performance related responsibilities.

Royalty Revenue

Royalty revenue is recognized in accordance with the underlying contract
terms.

Research and Development

Research and development costs are expensed as incurred. Research and
development expenses include expenses for services rendered related to the
Company's funded research activities.

Inventories

Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out (FIFO) method.

Property, Plant and Equipment

All property, plant and equipment is stated at acquisition cost.
Depreciation for financial statement purposes is calculated using the
straight-line method over the estimated useful lives of the assets. Land
improvements and buildings are depreciated over 10 - 40 years, with a weighted
average estimated useful life of 21 years, and machinery and equipment over
3 - 15 years, with a weighted average estimated life of 12 years. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the length of the applicable lease term. Property under capital lease is
amortized over the lease term. Maintenance and repair expenditures are expensed
as incurred. Included in machinery and equipment is computer hardware and
software developed or obtained for internal use which is amortized over 3 - 5
years.

F-8
<PAGE> 85
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 -- DESCRIPTION OF THE COMPANY AND ACCOUNTING POLICIES (CONTINUED)
Intangible Assets

Intangible assets consist of patents, licenses, technology and the excess
of cost over the net assets of acquired businesses, which are amortized on a
straight-line basis over their remaining useful lives. Patents and trademarks
are amortized over 15 years, technology over 10 - 20 years, with a weighted
average estimated useful life of 12 years, the excess of cost over the net
assets of an acquired business over 10 - 40 years, with a weighted average
estimated useful life of 29 years, and other intangibles over 5 - 20 years, with
a weighted average estimated useful life of 15 years.

Impairment of Long-Lived Assets

The Company regularly assesses all of its long-lived assets for
impairment when events or circumstances indicate their carrying amounts may not
be recoverable. This is accomplished by comparing the expected undiscounted
future cash flows of the assets with the respective carrying amount as of the
date of assessment. Should aggregate future cash flows be less than the carrying
value, a write-down would be required, measured as the difference between the
carrying value and the fair value of the asset. Fair value is estimated either
through independent valuation or as the present value of expected discounted
future cash flows. If the expected undiscounted future cash flows exceed the
respective carrying amount as of the date of assessment, no impairment is
recognized.

Foreign Currency

All assets and liabilities of non-U.S. subsidiaries are translated at
exchange rates in effect at the balance sheet dates. Translation gains and
losses are included in determining comprehensive income. All income statement
amounts are translated at the average of the daily exchange rates in effect
during each month.

The Company, on occasion, uses forward exchange contracts and options to
hedge its exposure in foreign currencies. Option and forward exchange contracts
are used to minimize the impact of foreign currency fluctuations on the
Company's revenues and costs and are not used to engage in speculation. At
December 31, 1998 and 1999, the Company had no options or forward exchange
contracts outstanding.

Foreign currency transaction net (losses)/gains are included in other
operating income/expense. Total foreign currency transaction net (losses)/gains
were ($436) in 1997, $166 in 1998, and $824 in 1999.

Financial Instruments

The determination of fair value of financial instruments, consisting of
cash and cash equivalents, accounts receivable, obligations under accounts
payable, accrued expenses, and debt instruments is based on interest rates
available to the Company and comparisons to quoted market prices for the same or
similar issues. At December 31, 1998 and 1999, the fair value of these financial
instruments approximated carrying value.

Investments in Marketable Equity Securities

All of the Company's investments in marketable equity securities are
considered available-for-sale and are recorded at fair value within other
current assets, with unrealized gains and losses, calculated as the difference
between fair value and cost of the security on a specific identification basis,
recorded as a component of accumulated other comprehensive loss, net of tax.

F-9
<PAGE> 86
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 -- DESCRIPTION OF THE COMPANY AND ACCOUNTING POLICIES (CONTINUED)
Gross unrealized (losses)/gains on available-for-sale securities were
($327) at December 31, 1998 and $7,283 at December 31, 1999. The fair market
value of available-for-sale securities was $741 at December 31, 1998 and $8,351
at December 31, 1999. The deferred tax liability related to these unrealized
gains was $2,812 at December 31, 1999.

Investment Income (unaudited)

During the three months ended March 31, 2000, the Company realized a gain
on the sale of marketable securities in the amount of $15,046. This amount is
included in investment income as part of total non-operating income for the
period.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". This standard requires, among other things, recognition of
deferred tax assets and liabilities for future tax consequences, measured by
enacted rates attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities, and net operating loss
and tax credit carryforwards to the extent that realization of such benefits is
more likely than not.

Major Customers

In 1997, two customers accounted for 36% of sales and 28% of accounts
receivable. In 1998, two customers accounted for 39% of sales and 28% of
accounts receivable. In 1999, two customers accounted for 39% of sales and 36%
of accounts receivable.

Comprehensive Income

The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" as of January 1, 1998. This statement establishes
standards for reporting and presentation of comprehensive income and its
components. This statement requires reporting by major components and as a
single total, all changes in shareholders' equity from nonshareholder sources.
Adoption of this statement did not impact the Company's consolidated financial
position, results of operations or cash flows. The Company has chosen to display
comprehensive income in the Consolidated Statements of Changes in Shareholders'
Equity.

Earnings Per Share

In 1999, the Company adopted SFAS No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share. Basic earnings
per share is computed based on the weighted average number of common shares
outstanding during the period. In arriving at income available to common
shareholders, undeclared and unpaid cumulative preferred stock dividends of
$7,275 were deducted for each year presented.

Diluted earnings per share reflects the potential dilution that could
occur if dilutive securities and other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. As there were no dilutive
securities in 1997, 1998, and 1999, there is no effect on the numerator or
denominator between the computations of basic and diluted earnings per common
share in the years presented.

F-10
<PAGE> 87
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 -- DESCRIPTION OF THE COMPANY AND ACCOUNTING POLICIES (CONTINUED)
(unaudited)

As a result of stock options outstanding under the Company's Stock Option
and Stock Appreciation Right Plan, there were dilutive securities for the three
months ended March 31, 2000. The weighted-average impact of these has been
reflected in the calculation of diluted earnings per share for the quarter
ended.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires all derivatives to be recognized as assets or liabilities on the
balance sheet and measured at fair value. Changes in the fair value of
derivatives should be recognized in either net income or other comprehensive
income, depending on the designated purpose of the derivative. This statement is
effective for the Company on January 1, 2001. Based on its preliminary
assessment, the Company believes implementation of this statement will not have
a material affect on the consolidated financial statements.

2 -- ACQUISITION

During May 1999, the Company acquired an 80% ownership interest in
Genencor (Wuxi) Bio-Products Company, Ltd. located in Wuxi, China for a total
cash purchase price of $9.9 million. The acquisition has been accounted for
under the purchase method. Goodwill is being amortized on a straight-line basis
over ten years. The Company's share of the acquired entity's results of
operations has been consolidated with the Company's results of operations since
the acquisition date. Based on the Company's allocation of the purchase price
for the acquisition, the net assets acquired consist of the following as of May
1999:

<TABLE>
<S> <C>
Working capital............................................. $ 500
Property, plant and equipment............................... 7,700
Goodwill.................................................... 7,500
Long-term liabilities....................................... (4,700)
Minority interest........................................... (1,100)
-------
$ 9,900
=======
</TABLE>

Included in working capital acquired is a provision to restructure the
entity of approximately $3.2 million to improve the manufacturing efficiency of
the facility which will continue to operate as a manufacturing site in the
region. Based on our preliminary assessment, the provision includes estimated
employee-related costs of $2.2 million, demolishing costs of $0.3 million for
pre-existing structures on the site that the Company does not intend to use, and
costs to effect the restructuring of $0.1 million. The

F-11
<PAGE> 88
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2 -- ACQUISITION (CONTINUED)
provision further includes a reserve for incurred but unrecorded liabilities of
the acquired entity of $0.6 million. As of December 31, 1999, no costs had been
charged to this restructuring provision. During 2000, the Company will continue
to assess the cost of this restructuring. Any changes in the anticipated cost to
restructure the facility will be reallocated to goodwill.

3 -- RESTRUCTURING AND RELATED CHARGES

During July 1999, the Company engaged in a plan to restructure its
facility in Belgium. This decision was driven primarily by two factors:
developments leading to a production overcapacity in the enzyme market and
operating costs of the Belgian plant that were considerably higher than in any
of the Company's other plants. Approximately 58 positions were eliminated as a
result of this restructuring, with staggering termination dates of July 1999
through January 2001. All affected employees were notified immediately of the
restructuring plan. As of December 31, 1999, 23 employees had terminated their
employment with the Company. As a result of the plan, restructuring and related
charges of $7.5 million were recorded in the Company's operating earnings in
1999. These charges were primarily driven by employee severance and related
social costs of $4.9 million, a curtailment loss of $0.8 million under a related
defined benefit pension arrangement, and $1.8 million for manufacturing
equipment that was deemed impaired as it would no longer be utilized by the
Company after the restructuring. The impairment charge was determined based on
remaining book value as the Company believes there is no market in which to sell
the specific assets. At December 31, 1999, the Company had a remaining severance
liability of $2.9 million related to this restructuring.

4 -- FEES AND ROYALTY REVENUES

Fees and royalty revenues include the following:

<TABLE>
<CAPTION>
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Funded research.................................. $ 8,388 $9,035 $10,671
License fees..................................... 3,851 227 --
Royalties........................................ 1,023 157 95
Technology fees.................................. 3,437 -- --
Other............................................ -- 200 199
------- ------ -------
Fees and royalty revenues...................... $16,699 $9,619 $10,965
======= ====== =======
</TABLE>

5 -- INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................... $ 7,406 $ 5,730 $ 7,883
Work-in-progress............................ 9,153 8,024 8,126
Finished goods.............................. 47,925 36,962 34,256
------- ------- -------
Inventories............................... $64,484 $50,716 $50,265
======= ======= =======
</TABLE>

F-12
<PAGE> 89
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6 -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land and buildings..................................... $112,575 $116,448
Machinery and equipment................................ 239,598 243,533
Construction-in-progress............................... 13,549 13,598
-------- --------
365,722 373,579
Less: Accumulated depreciation......................... 140,485 158,361
-------- --------
Property, plant and equipment, net................... $225,237 $215,218
======== ========
</TABLE>

Depreciation expense was $23,034 in 1997, $24,559 in 1998, and $25,526 in
1999.

Construction-in-progress at December 31, 1999 includes primarily process
improvement projects at our manufacturing and research and development
facilities as well as information technology enhancements.

The Company sold its facility in Leiden, the Netherlands, for $4,194 in
January 1999. There was no gain recorded on the sale of these assets, which are
being leased back from the purchaser over a period of 20 years. The lease is
being accounted for as a capital lease, and is included in 1999 property, plant
and equipment as follows:

<TABLE>
<S> <C>
Land and buildings.......................................... $3,655
Less: Accumulated depreciation.............................. 152
------
Capital lease assets, net................................. $3,503
======
</TABLE>

Land and buildings also includes $7,160 for a 50-year capitalized lease
entered into with a prior shareholder on January 1, 1990 for the Company's
development facility in Rochester, New York. Accumulated depreciation on this
lease is $1,519 at December 31, 1998 and $1,687 at December 31, 1999.

The Company entered into a 10-year operating lease during 1999 for office
space in Rochester, New York. Under provisions of the lease agreement, lease
payments will commence in January 2000 and escalate 5.6% as of January 2003 and
another 5.3% as of January 2007. The Company is recording rent expense under
this lease on a straight-line basis over the lease term. The Company may elect
to terminate the lease effective as of January 2007, for which it must provide
written notice by December 2005.

The Company leases certain other facilities and equipment under operating
leases. Rent expense relating to all operating leases was $3,053 for 1997,
$3,722 for 1998, and $2,994 for 1999.

F-13
<PAGE> 90
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6 -- PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Non-cancelable future minimum rental payments under significant leases as
of December 31, are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000.................................................... $ 2,388 $ 276
2001.................................................... 2,415 276
2002.................................................... 2,407 276
2003.................................................... 2,463 276
2004.................................................... 2,540 276
Thereafter.............................................. 37,748 4,807
------- -------
Total minimum lease payments............................ $49,961 6,187
=======
Less: Amount representing interest...................... (2,593)
-------
Capital lease obligation................................ $ 3,594
=======
</TABLE>

7 -- INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Patents, licenses and other............................ $ 46,523 $ 46,978
Technology............................................. 43,168 41,928
Excess of cost over net assets of acquired
businesses........................................... 49,972 57,057
-------- --------
139,663 145,963
Less: Accumulated amortization......................... 44,278 52,695
-------- --------
Intangible assets, net............................... $ 95,385 $ 93,268
======== ========
</TABLE>

Amortization expense was $7,773 in 1997, $8,272 in 1998, and $8,750 in
1999.

F-14
<PAGE> 91
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8 -- NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
6.82% senior notes with payments of $28,000 due annually,
commencing in 2002........................................ $140,000 $140,000
$40,000 revolving credit facility due in 2000, with interest
rates ranging from 5.93% to 7.75% at December 31, 1998.... 8,000 --
Note payable to Gist-Brocades (G-b), as part of a 1995
acquisition, to finance the Company's purchase of a note
from G-b between a third party and G-b. Interest at 5% is
payable on the note only to the extent interest is paid to
the Company by the third party. Principal is due in a
balloon payment in June 2000.............................. 10,000 10,000
Notes payable of the Company's Chinese affiliate with
principal payments due in 2000 and 2001. Interest rates on
the notes range from 6.14% to 6.6%........................ -- 7,586
Other....................................................... -- 674
-------- --------
158,000 158,260
Less: Current maturities.................................... -- (15,774)
-------- --------
Long-term debt............................................ $158,000 $142,486
======== ========
</TABLE>

The senior note agreements contain various financial covenants which,
among other things, require the maintenance of certain financial ratios. The
most significant of these relate to: debt to total capital; total debt as a
multiple of earnings before interest, taxes, depreciation and amortization
(EBITDA); and minimum consolidated net worth. The Company is currently in
compliance with all of its financial covenants.

All debt outstanding under the $40,000 revolving credit facility and the
note to G-b is guaranteed 50% by Danisco and 50% by Eastman Chemical.

At December 31, 1999, principal obligations on notes payable and
long-term debt are as follows:

<TABLE>
<S> <C>
2000.............................................. $ 15,774
2001.............................................. 1,812
2002.............................................. 28,000
2003.............................................. 28,000
2004.............................................. 28,000
Thereafter........................................ 56,674
--------
Total........................................... $158,260
========
</TABLE>

9 -- REDEEMABLE PREFERRED STOCK

On December 1, 1991, the Company and its shareholders agreed to exchange
$97,000 of advances from shareholders (including interest payable of $12,604)
for 970 shares of no par value, 7 1/2% Cumulative Series A preferred stock
(Series A preferred stock). Dividends are cumulative from the date of issuance
and are subtracted from net income in 1997, 1998 and 1999 in determining net
income available to common shareholders. The Series A preferred stock was
authorized and issued on May 5, 1992 and has no voting rights except as required
by law or in respect to certain matters involving the Series A preferred stock.
The shares are redeemable at any time in whole or in part for $100,000 per share
plus accrued unpaid dividends to the date of redemption. The total redemption
value of the Series A preferred stock at December 31, 1998 and 1999 in the
amounts of $140,650 and $147,925, respectively, is classified on the

F-15
<PAGE> 92
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

9 -- REDEEMABLE PREFERRED STOCK (CONTINUED)
Company's balance sheet as Redeemable Cumulative Series A Preferred Stock and
includes $43,650 and $50,925 of accrued and unpaid dividends, respectively. The
liquidation value is $100,000 per share plus accrued dividends to be paid on a
pro rata basis from assets available after payment of debt and prior to any
distribution on common stock.

10 -- SHAREHOLDERS' EQUITY

In addition to the Series A preferred stock, the Company has the
authority to issue 1,000,000 shares of preferred stock having a par value of
$.01 per share. No shares have been issued as of December 31, 1999.

Certain covenants of the Company's 6.82% Senior Notes restrict the
payment of dividends or other distributions in cash or other property to the
extent the payment puts the Company in default of these covenants. Such
covenants include, but are not limited to, the maintenance of debt to total
capitalization of at least 55% and that the Company will maintain a maximum
ratio of debt to EBITDA of 3.5:1.

In December 1997 and 1998, the Company's Board of Directors declared and
the Company paid a dividend of $5 million to each of the Company's common
shareholders. No dividend was declared or paid in 1999.

Accumulated other comprehensive loss consists of the following:

<TABLE>
<CAPTION>
FOREIGN MARKETABLE ACCUMULATED
CURRENCY SECURITIES OTHER
TRANSLATION VALUATION COMPREHENSIVE
ADJUSTMENT ADJUSTMENT LOSS
----------- ---------- -------------
<S> <C> <C> <C>
Balances, December 31, 1996.............. $ (8,325) $ 185 $ (8,140)
Current period change.................. (17,540) (147) (17,687)
-------- ------- --------
Balances, December 31, 1997.............. (25,865) 38 (25,827)
Current period change.................. 9,129 (365) 8,764
-------- ------- --------
Balances, December 31, 1998.............. (16,736) (327) (17,063)
Current period change.................. (21,325) 4,798 (16,527)
-------- ------- --------
Balances, December 31, 1999.............. (38,061) 4,471 (33,590)
(unaudited)
Current period change.................. (7,247) (2,373) (9,620)
-------- ------- --------
Balances, March 31, 2000................. $(45,308) $ 2,098 $(43,210)
======== ======= ========
</TABLE>

Effective December 9, 1999, the Company's Board of Directors approved an
increase to the authorized number of shares of common stock to 150,000,000 with
a par value of $0.01 per share.

On December 9, 1999, the Board of Directors and shareholders approved a
25,000-for-1 stock split of the Company's common stock. All references to share
and per share amounts in these financial statements have been restated
retroactively to reflect the split.

(unaudited)

The change in the marketable securities valuation adjustment for the
period ended March 31, 2000 includes a $5,358 ($8,727 pre-tax) reduction of
accumulated other comprehensive loss related to realized gains from the sale of
marketable equity securities. The remaining $2,985 ($4,862 pre-tax) relates to
unrealized holding gains on the Company's available-for-sale securities.

F-16
<PAGE> 93
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11 -- EMPLOYEE BENEFIT PLANS

Stock Option and Stock Appreciation Right Plan

On December 9, 1999, the Company adopted the Genencor International, Inc.
Stock Option and Stock Appreciation Right Plan (the Plan). Substantially all of
the Company's employees are eligible to participate in the Plan. The Plan allows
for the grant, generally at estimated market value as of the date of grant, of
incentive or non-statutory stock options to purchase the Company's common stock
and stock appreciation rights (SARs), based on the underlying value of the
Company's common stock. Under the terms of the Plan, the Company has the ability
to grant stock options and SARs representing up to 9 million shares of common
stock. Options vest ratably over a three-year period and expire 10 years from
their grant date. SARs vest 50% after three years, the remaining 50% after four
years, and expire 10 years from their grant date.

On December 9, 1999, the Company granted 5,465,250 nonqualified stock
options and 452,625 SARs to employees of the Company at an exercise price of
$9.70 per share. All of the options granted on December 9, 1999 remained
outstanding at December 31, 1999. Additionally, there were no options or SARs
exercisable at December 31, 1999.

Under the provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation," the Company has elected to continue to account for stock options
in accordance with the provisions of APB Opinion No. 25 "Accounting for Stock
Issued to Employees". Had compensation cost for the Company's stock options been
determined consistent with the provisions of SFAS No. 123, there would be no
effect on the Company's 1999 net income available to holders of common stock as
the vesting period for the options granted commences on January 1, 2000.

For purposes of this disclosure, the fair value of each option grant was
estimated on the date of grant using the minimum value method. Under this
method, the Black-Scholes option-pricing model was used with a risk-free
interest rate of 6.48% and an average expected life of four years. The grant
date fair value of the stock options and SARs and restricted stock granted on
December 9, 1999 was $2.16 per share.

SARs are accounted for under the provisions of APB 25 as interpreted by
Financial Interpretation 28 "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans, an interpretation of APB Opinions No. 15
and 25". FIN 28 requires that compensation expense be recognized over the
vesting period for any increase in the estimated market value of the underlying
stock. Decreases in the estimated market value of the underlying stock in
subsequent periods would cause compensation expense to be reduced in that period
although never below zero.

(unaudited)

On March 28, 2000, the Company granted 274,200 options at an exercise
price of $9.70 per share. The Company determined that the estimated market value
of its common stock exceeded the exercise price at the time of the grant. As a
result, the Company recorded deferred stock-based compensation of approximately
$2,649 in connection with the option grants. Stock-compensation expense is being
recognized over the vesting periods of the related options of three years
beginning in April 2000.

The Company also recorded compensation expense of $254 during the three
months ended March 31, 2000 to accrue the liability for the increase in the
estimated market value of common stock in relation to the grant price of the
Company's outstanding stock appreciation rights.

F-17
<PAGE> 94
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Equity Value Plan

Effective July 15, 1994 the Company adopted the Equity Value Plan. Under
EVP, 4.15 million units out of a total 27.7 million units were reserved for
issuance. Units granted between July 15, 1994 and July 14, 1998 vested over a
two year period and expired five years from the date of grant. Effective July
15, 1998, units granted under the EVP vested over a three year period and
expired seven years from the date of grant. Grant and payout values under EVP
were based upon a valuation of the Company as determined annually by the Board
of Directors. In addition, the annual payout was subject to certain cash flow
requirements. Effective July 1, 1999, the Company terminated the plan. At that
time, units outstanding had exercise prices ranging from $11.50 to $16.67. All
units became fully vested and were paid out at $17.50 per unit. The Company
recognized EVP expense of $139 in 1997, $12,296 in 1998, and $3,571 in 1999.
These expenses are included in cost of product sold, research and development,
sales, marketing and business development and general and administrative
expenses for all periods presented.

Defined Contribution Pension Plans

The Company maintains employee benefit plans in the United States which
allow its eligible employees to make contributions, up to a certain limit, on a
tax deferred basis under Section 401(k) of the Internal Revenue Code.

The Company also contributes to the plans. Total employer contributions
to the plans for 1997, 1998 and 1999 amounted to approximately $1,850, $2,053,
and $2,222, respectively.

F-18
<PAGE> 95
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Defined Benefit Pension and Other Postretirement Benefits

The Company provides defined benefit pension and postretirement benefit
plans to employees. The following provides a reconciliation of benefit
obligations, plan assets, and funded status of all plans of the Company.

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- ---------------
1998 1999 1998 1999
-------------- -------------- ----- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year....... $ 34,817 $ 40,207 $ 623 $ 695
Service cost.................................. 2,622 2,820 26 108
Interest cost................................. 2,172 2,374 45 72
Plan participants' contributions.............. 109 110 -- --
Amendments.................................... (679) -- -- 383
Actuarial (gain)/loss......................... (177) (1,385) 18 (208)
Curtailment................................... -- 828 -- --
Benefits paid................................. (1,272) (2,786) (17) (18)
Translation................................... 2,615 (5,360) -- --
-------------- -------------- ----- -------
Benefit obligation at end of year............. $ 40,207 $ 36,808 $ 695 $ 1,032
============== ============== ===== =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year........................................ $ 60,493 $ 70,476 $ -- $ --
Actual return on plan assets.................. 6,125 7,393 -- --
Employer contributions........................ 355 3,085 -- --
Plan participants' contributions.............. 109 110 -- --
Benefits paid................................. (1,272) (2,786) -- --
Translation................................... 4,666 (10,031) -- --
-------------- -------------- ----- -------
Fair value of plan assets at end of year...... $ 70,476 $ 68,247 $ -- $ --
============== ============== ===== =======
FUNDED STATUS................................. $ 30,269 $ 31,439 $(695) $(1,032)
Unrecognized net actuarial (gain)/loss........ (15,568) (16,926) 43 (166)
Unrecognized prior service cost............... (653) (507) -- 328
-------------- -------------- ----- -------
Prepaid cost (accrued benefit)................ $ 14,048 $ 14,006 $(652) $ (870)
============== ============== ===== =======
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS CONSIST OF:
Prepaid benefit cost.......................... $ 18,338 $ 17,103 $ -- $ --
Accrued benefit cost.......................... (4,290) (3,097) (652) (870)
-------------- -------------- ----- -------
Net amount recognized......................... $ 14,048 $ 14,006 $(652) $ (870)
============== ============== ===== =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER
31:
Discount rate................................. 6.00% - 6.75% 6.00% - 8.00% 6.75% 8.00%
Expected return on plan assets................ 6.00% - 8.00% 6.00% - 8.00% N/A N/A
Rate of compensation increase................. 0.00% - 6.50% 0.00% - 6.50% N/A N/A
</TABLE>

F-19
<PAGE> 96
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------------------- --------------------
1997 1998 1999 1997 1998 1999
------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC COST
(BENEFIT):
Service cost............................ $ 1,254 $ 2,622 $ 2,820 $24 $27 $108
Interest cost........................... 2,183 2,172 2,374 41 44 72
Expected return on plan assets.......... (3,786) (4,215) (4,476) -- -- --
Amortization of prior service cost...... -- (59) (56) -- -- 55
Recognized net actuarial gain........... (287) (516) (622) -- -- --
------- ------- ------- --- --- ----
Net periodic cost (benefit)............. (636) 4 40 65 71 235
Curtailment............................. (441) -- 828 -- -- --
------- ------- ------- --- --- ----
Total net periodic cost
(benefit)................... $(1,077) $ 4 $ 868 $65 $71 $235
======= ======= ======= === === ====
</TABLE>

The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were as follows:

<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Projected benefit obligation............................. $11,620 $ 2,583
Accumulated benefit obligation........................... 9,633 2,374
Fair value of plan assets................................ 7,611 1,088
</TABLE>

Effective January 1, 1999, the Company established the Genencor
International, Inc. Retiree Medical Plan covering eligible non-union employees
in the United States. This plan resulted in an accrued liability of $157 and a
projected benefit obligation of $427 as of December 31, 1999.

As a result of the sizable reduction in the number of employees covered
by the restructuring plan in Belgium, a curtailment loss is reflected in the net
periodic pension cost for 1999.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The trend rates assumed for pre-65
claims graded to 5.00% in 2003, were 8.00% in 1998, and 7.00% in 1999. The trend
rates assumed for post-65 claims graded to 5.00% in 2003, were 6.50% in 1998,
and 6.00% in 1999. For both pre and post-65 claims, the trend rate was assumed
to remain at 5.00% after 2003. A one percentage point increase in assumed health
care cost trend rates would increase total service and interest cost by $15 and
increase the postretirement benefit obligation by $97. A one percentage point
decrease in assumed health care cost trend rates would decrease total service
and interest cost by $13 and decrease the postretirement benefit obligation by
$83.

12 -- NON OPERATING EXPENSES/(INCOME)

The components of other non-operating expenses/(income) are as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------ ------- ----
<S> <C> <C> <C>
Gain on sale of business............................ $ -- $ (442) $--
Litigation settlement............................... -- (1,000) --
Write-down of equity investment..................... 1,100 -- --
------ ------- ---
Total non-operating expenses/(income)..... $1,100 $(1,442) $--
====== ======= ===
</TABLE>

F-20
<PAGE> 97
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

13 -- INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Current:
Federal........................................ $ -- $ 570 $1,080
State.......................................... 885 -- 107
Foreign........................................ -- 2,433 2,603
------- ------- ------
885 3,003 3,790
------- ------- ------
Deferred:
Federal and State.............................. 2,081 (1,572) (146)
Foreign........................................ 5,279 1,848 1,811
------- ------- ------
7,360 276 1,665
------- ------- ------
Decrease in valuation allowances................. (3,139) -- (161)
------- ------- ------
$ 5,106 $ 3,279 $5,294
======= ======= ======
</TABLE>

The components of deferred tax assets and liabilities consist of the
following at December 31:

<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Current assets and liabilities:
Unrealized appreciation on marketable securities....... $ -- $(2,812)
Inventories............................................ 1,597 486
Accrued expenses....................................... 5,450 519
Other items, net....................................... 13 114
-------- -------
7,060 (1,693)
-------- -------
Non-current assets and liabilities:
Net operating loss and tax credit carryforwards........ 14,407 21,855
Employee costs......................................... (5,484) (5,499)
Depreciation and amortization.......................... (14,294) (14,464)
Other items, net....................................... 801 (1,195)
-------- -------
(4,570) 697
Valuation allowances..................................... (7,961) (7,800)
-------- -------
Net deferred tax liability............................. $ (5,471) $(8,796)
======== =======
</TABLE>

The Company's practice is to reinvest the earnings of its foreign
subsidiaries in these operations. Deferred income taxes have not been provided
on these earnings, as the Company does not plan to initiate any action that
would require the payment of related U.S. income taxes. It is not practicable to
estimate the amount of additional tax that might be payable on these
undistributed foreign earnings.

The Company has net operating loss carryforwards of $20.1 million for
U.S. federal income tax purposes, which expire in 2004 through 2019. The Company
also has research and experimentation tax credit carryforwards of $6.5 million
for U.S. federal income tax purposes which expire in 2001 through 2013.
Additionally, the Company has alternative minimum tax credit carryforwards of
$1.9 million, which may be used indefinitely to reduce U.S. federal income
taxes. Certain foreign carryforwards have no expiration date.

F-21
<PAGE> 98
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

13 -- INCOME TAXES (CONTINUED)
A valuation allowance is provided for deferred tax assets if management
believes it is more likely than not these items will either expire before the
Company is able to realize their benefit, or that future deductibility is
uncertain. Although realization is not assured, management believes it is more
likely than not that the recorded deferred tax assets, net of valuation
allowance provided, will be realized. The Company's valuation allowance of $8.0
million and $7.8 million at December 31, 1998 and 1999 respectively, includes
$5.9 million of potential future tax benefits which, if recognized, will be
allocated to reduce goodwill.

The reconciliation of income tax from continuing operations computed at
the U.S. federal statutory tax rate to the Company's effective income tax rate
is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory income tax rate................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. (0.4%) 0.5% 0.7%
Amortization of non-deductible intangible assets...... 4.2% 7.6% 6.3%
Foreign and U.S. tax effects attributable to foreign
operations.......................................... (14.5%) (11.1%) (15.2%)
Change in valuation allowances........................ (10.6%) -- (0.7%)
Tax credits........................................... -- (13.7%) (3.3%)
Other, net............................................ 3.6% (0.4%) --
----- ----- -----
17.3% 17.9% 22.8%
===== ===== =====
</TABLE>

The Company is subject to a tax ruling in The Netherlands, which reduces
the local effective income tax rate from 35% to 17.5%. This ruling will expire
at the end of 2005.

(unaudited)

The Company's effective income tax rate for the three months ended March
31, 2000 of 34% includes the effects of two one-time events totaling $18,456,
including a gain on sale of marketable equity securities and the settlement of
patent infringement claims, which were tax-effected at our U.S. effective income
tax rate.

14 -- SEGMENT AND PRODUCT DATA

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company maintains one industry segment,
which produces and distributes novel enzymes. Product revenues are attributed to
countries based on the geographic location of the customer. Intercompany
transactions between countries have been eliminated. Long-lived assets include
property, plant, and equipment, intangible assets, and investments and other
assets and are attributed to countries based on physical location. Included in
non-U.S. long-lived assets are $45 million in 1997,

F-22
<PAGE> 99
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

14 -- SEGMENT AND PRODUCT DATA (CONTINUED)

$48 million in 1998, and $40 million in 1999 in Belgium and $37 million in 1997,
$42 million 1998, and $34 million in 1999 in Finland. Geographical information
for 1997, 1998, and 1999 is as follows:

<TABLE>
<CAPTION>
U.S. NON-U.S. CONSOLIDATED
-------- ------------ ------------
<S> <C> <C> <C>
1997
Product revenue.............................. $129,938 $163,705 $293,643
Long-lived assets............................ 258,959 94,346 353,305
1998
Product revenue.............................. 120,385 159,107 279,492
Long-lived assets............................ 246,390 104,758 351,148
1999
Product revenue.............................. 125,442 180,195 305,637
Long-lived assets............................ 217,377 118,489 335,866
</TABLE>

Product revenue by similar product groupings is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Protein degrading enzyme products.......... $138,765 $139,726 $167,125
Starch degrading enzyme products........... 86,474 84,017 88,196
Cellulose degrading enzyme products........ 47,117 48,801 39,694
Other...................................... 21,287 6,948 10,622
-------- -------- --------
Total............................ $293,643 $279,492 $305,637
======== ======== ========
</TABLE>

15 -- RELATED PARTY TRANSACTIONS

Danisco and its affiliates purchased approximately $12 million, $15
million, and $9 million of products from the Company during 1997, 1998, and
1999, respectively. The Company purchased products from and/or through these
related parties for approximately $6 million in 1997, and approximately $9
million in both 1998 and 1999. At December 31, 1998 and 1999, the Company had
amounts due from Danisco of $1,105 and $685, respectively, and due to Danisco of
$332 and $371, respectively. At December 31, 1998 and 1999, the Company had no
amounts due to or from Eastman Chemical.

At December 31, 1999 the Company had outstanding notes receivable with
balances totaling $1,466 from officers of the Company, of which $1,425 were
initiated in 1999. The notes are non-interest bearing and are due at the
conclusion of five years from the date of issuance. Accordingly, interest income
is imputed on the notes, with an offset recorded as compensation expense.

F-23
<PAGE> 100
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

16 -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1998 1999 1999 2000
------- ------- ------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid.......................... $11,857 $10,758 $10,487 $4,883 $3,283
======= ======= ======= ====== ======
Taxes paid............................. $ 3,350 $ 1,279 $ 2,254 $ 269 $ 260
======= ======= ======= ====== ======
Schedule of non-cash investing and
financing activity:
Adjustments relating to purchase
accounting for acquisitions..... $ 7,600 $ -- $ -- $ -- $ --
======= ======= ======= ====== ======
Sale-leaseback of facility........... $ -- $ -- $ 4,194 $ -- $ --
======= ======= ======= ====== ======
Debt of acquired business............ $ -- $ -- $ 4,700 $ -- $ --
======= ======= ======= ====== ======
</TABLE>

17 -- COMMITMENTS AND CONTINGENCIES

The Company, from time to time, is involved in legal matters, which are
handled and defended in the ordinary course of business. There are no such
matters pending that the Company and its General Counsel expect to be material
in relation to the Company's business, financial position or results of
operations.

18 -- SUBSEQUENT EVENTS

Legal Settlement

As of December 31, 1999, the Company was continuing to pursue certain
patent infringement claims with one of its customers. In January 2000, the
Company, in settlement of these legal claims, received $3.5 million for payment
of back royalties. This settlement was recorded as part of fees and royalty
revenues for the three months ended March 31, 2000.

Additional Stock Options (unaudited)

On May 3, 2000, the Company issued an additional 273,500 options at an
exercise price of $9.70 per share. The Company determined that the estimated
market value of its common stock exceeded the exercise price at the time of
grant. As a result, the Company will record deferred stock-based compensation of
approximately $2,642 in connection with the option grants. Stock-compensation
expense will be recognized over the vesting period of three years beginning in
May 2000.

As of July 21, 2000, the Company issued an additional 297,050 stock
options at a weighted average exercise price of $13.77 per share. The Company
determined that the estimated market value of its common stock exceeded the
exercise price at the time of grant. As a result, the Company will record
deferred stock-based compensation of $1,661 in conjunction with the option
grants. Stock-compensation expense will be recognized over the vesting period of
three years beginning in July 2000.

Restricted Common Stock (unaudited)

On April 28, 2000, the Board of Directors of the Company allowed certain
key employees to accelerate the exercise of 1,856,500 stock options granted
under the Genencor International, Inc. Stock Option and Stock Appreciation Right
Plan and purchase restricted shares of common stock. The restricted

F-24
<PAGE> 101
GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

18 -- SUBSEQUENT EVENTS (CONTINUED)
shares were purchased through the use of notes receivable from the employees.
The vesting provisions of the restricted common stock agreements are the same as
those of stock options under the Plan. The shares purchased are held in escrow
by the Company until the note has been fully paid. The notes receivable are due
and payable over four years. Interest is charged on the note at a fixed rate of
6.71 percent. The notes receivable contain a provision that allows the Company
to repurchase the restricted common stock under certain conditions. The total
notes receivable for common stock was $18,008.

Related Party Transactions (unaudited)

Subsequent to March 31, 2000, the Company issued additional notes to
officers of the Company in accordance with the Senior Management Relocation
Policy for their permanent relocation to the Company's Palo Alto facility. The
increase to notes receivable was $2,856. The notes are non-interest bearing and
are due at the conclusion of five and one-half years from the date of this
offering. Accordingly, interest income is imputed at 6.71% - 6.80% per year on
the notes, with an offset recorded as compensation expense.

Restated Certificate of Incorporation (unaudited)

Prior to the effective date of its initial registration statement filed
with the U.S. Securities and Exchange Commission, the Company intends to
increase the authorized number of shares of common stock to 200,000,000 with a
par value of $0.01.

Stock Split (unaudited)

The Company also intends to effect a one-for-two reverse stock split
prior to the effectiveness of its initial registration statement filed with the
U.S. Securities and Exchange Commission. All references to share and per share
amounts in these financial statements have been restated retroactively to
reflect this split.

F-25
<PAGE> 102

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Through and including , 2000 (the 25th day after the
date of this prospectus), all dealers effecting transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriting and with respect to an unsold
allotment or subscription.

7,000,000 SHARES

GENENCOR INTERNATIONAL, INC. LOGO

COMMON STOCK
---------------------

PROSPECTUS
---------------------

MERRILL LYNCH & CO.
CHASE H&Q
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. THE EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be paid by Genencor in connection with the
distribution of the securities being registered are as set forth in the
following table:

<TABLE>
<S> <C>
Securities and Exchange Commission Fee...................... $ 39,600
NASD Filing Fee............................................. 15,500
Nasdaq National Market Listing Fee..........................
Legal Fees and Expenses.....................................
Accounting Fees and Expenses................................
Printing Expenses...........................................
Registrar and Transfer Agent Fees and Expenses..............
Miscellaneous...............................................
--------
Total..................................................... $
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify, subject to the standards set forth therein,
any person who is a party to any action in connection with any action, suit or
proceeding brought or threatened by reason of the fact that the person was a
director, officer, employee or agent of the corporation, or is or was serving as
such with respect to another entity at the request of the corporation. The DGCL
also provides that a corporation may purchase insurance on behalf of any such
director, officer, employee or agent. Section 8.1 of Genencor's Bylaws provides
that Genencor will indemnify its officers and directors, and persons serving at
its request as officers, directors, employees and agents, of other entities, to
the fullest extent, indemnification may be permitted under Delaware law.
Genencor provides directors' and officers' liability insurance coverage for its
directors and officers.

Section 102(b)(7) of the DGCL enables a Delaware corporation to provide
in its certificate of incorporation for the elimination or limitation of the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any such provision
cannot eliminate or limit a director's liability: (1) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the DGCL (which imposes
liability on directors for unlawful payment of dividends or unlawful stock
purchase or redemption); or (4) for any transaction from which the director
derived an improper personal benefit. Article 8 of Genencor's Restated
Certificate of Incorporation provides for the eliminations or limitations of
personal liability set forth in clauses (i) through (iv) of Section 102(b)(7) of
the DGCL.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since May 1997, Genencor has issued and sold unregistered securities as
follows:

(1) Genencor issued to W. Thomas Mitchell, through the exercise of
stock options at an exercise price of $9.70 per share, 351,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(2) Genencor issued to Stuart L. Melton, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

II-1
<PAGE> 104

(3) Genencor issued to Raymond J. Land, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(4) Genencor issued to Richard J. Ranieri, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(5) Genencor issued to Michael V. Arbige, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(6) Genencor issued to Carole Beth Cobb, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(7) Genencor issued to Thomas J. Pekich, through the exercise of
stock options at an exercise price of $9.70 per share, 217,500
shares of common stock on April 28, 2000 pursuant to a
restricted stock purchase agreement and pledge agreement.

(8) Genencor issued to Debby Jo Blank, through the exercise of
stock options at an exercise price of $9.70 per share, 200,000
shares of common stock on May 3, 2000 pursuant to a restricted
stock purchase agreement and pledge agreement.

These sales of securities were made in reliance upon Section 4(2) of the
Securities Act, which provides exemptions for transactions not involving a
public offering. Genencor did not retain underwriters in connection with the
issuance of any of Genencor's currently outstanding securities.

II-2
<PAGE> 105

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<S> <C>
1.1(1) Form of the Purchase Agreement.
3.1(3) Certificate of Incorporation, as amended, as currently in
effect.
3.2(3) Bylaws, as currently in effect.
3.3(1) Form of Restated Certificate of Incorporation, to be
effective upon the closing of this offering.
3.4(1) Form of Amended and Restated Bylaws, to be effective upon
the closing of this offering.
4.1(1) Form of Specimen Common Stock Certificate.
4.2(3) Note Agreement for the $140,000,000 6.82% Senior Notes due
2006, between the Company and the purchasers identified
therein, dated March 28, 1996.
4.3(3) Line of Credit Offering Letter for a $30,000,000 Line of
Credit between the Company and The Chase Manhattan Bank,
dated May 4, 2000.
4.4(3) $10 million Promissory Note by the Company in favor of
Gist-Brocades International B.V., dated June 2, 1995.
5.1(2) Opinion of Latham & Watkins.
10.1(1) Form of Indemnity Agreement between the Company and its
directors and executive officers.
10.2(3) Stock Option and Appreciation Right Plan.
10.3(3) Form of Nonstatutory Stock Option or Stock Appreciation
Right Agreement under the Stock Option and Appreciation
Right Plan.
10.4(3) Form of Stock Grant Notice.
10.5(2) Stockholders Agreement between the Company, Eastman Chemical
Company and Danisco A/S, dated , 2000.
10.6(3) Lease agreement by and between the Company and The Board of
Trustees of the Leland Stanford Junior University, dated May
22, 1995. (Palo Alto)
10.7(3) Lease Agreement between the Company and Meridian Centre
Associates, L.P., dated August 16, 1999, as amended
September 1, 1999. (Rochester)
10.8(3) Lease between Genencor B.V. and ABN AMRO Onroerend Goed
Lease en Financieringen B.V., dated January 6, 1999.
(Leiden, The Netherlands)
10.8.1(3) Deed of Economic Transfer between Genencor B.V. and ABN AMRO
Onroerend Goed Lease en Financieringen B.V., dated January
6, 1999. (Leiden, The Netherlands)
10.9(3) Lease agreement by and between the Company and Eastman Kodak
Company, dated August 28, 1991. (Rochester)
10.10(1)* Joint Research and Development Venture Agreement among the
Company and Eastman Chemical Company, ElectroSynthesis
Company, MicroGenomics, and Argonne National Laboratory,
dated September 14, 1995.
10.11(1)* Research Agreement between the Company and The Procter &
Gamble Company, dated June 30, 2000.
10.12(1)* Technology Transfer Agreement between the Company and The
Procter & Gamble Company, dated June 30, 2000.
10.13(1)* Commercialization Agreement between the Company and The
Procter & Gamble Company, dated April 25, 2000.
10.14(1)* Collaborative Research and Development Agreement between the
Company and E.I. du Pont de Nemours and Company, dated
September 1, 1995, as amended.
</TABLE>

II-3
<PAGE> 106

<TABLE>
<S> <C>
10.15(3) Amended and Restated Equity Joint Venture Contract between
Genencor Mauritius Ltd. and Wuxi Enzyme Factory, dated May
10, 1998.
10.16(3) Employee Retirement Investment Plan.
10.17(3) Income Replacement Plan.
10.18(3) Senior Executive Relocation Policy.
10.19(3) Form of executive officer Promissory Note.
10.20(3) Employment Agreement for W. Thomas Mitchell, dated June 21,
1995.
10.21(3) Form of executive officer Employment Agreement.
10.22(3) Employment Agreement for Carl D. Copeland, dated July 16,
1999.
10.23(3) Employment Agreement for Wayne H. Pitcher, dated July 27,
1999.
10.24(3) Form of Restricted Stock Purchase Agreement.
10.25(3) Form of executive officer Secured Promissory Note.
10.26(3) Form of executive officer Pledge Agreement.
10.27(3) National Renewable Energy Laboratory Letter Subcontract,
dated April 18, 2000, between Midwest Research Institute
acting through its National Renewable Energy Laboratory
Division and the Company.
10.28(1)* Funded Research Collaboration Agreement, dated December 22,
1998, between Prodigene, Inc. and the Company.
10.29(1)* Collaboration Agreement, dated May 14, 1999, as amended,
between Xgene Corporation and the Company.
10.30(1)* License Agreement, dated May 17, 2000, between Energy
Biosystems Corporation and the Company.
21.1(3) Subsidiaries of the Registrant.
23.1(1) Consent of independent accountants.
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1).
24.1(3) Power of Attorney.
27.1(3) Financial Data Schedule.
</TABLE>

------------
(1) Filed herewith.

(2) To be filed by amendment.

(3) Previously filed.

* The registrant is seeking confidential treatment with respect to portions of
this exhibit.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts

All other schedules are omitted because they are not required, are not
applicable, or the information is included in our financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore,

II-4
<PAGE> 107

unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the
Securities Act of 1933, 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 of 1933, 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 this offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-5
<PAGE> 108

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Palo Alto,
State of California, on July 21, 2000.

GENENCOR INTERNATIONAL, INC.

By: /s/ W. THOMAS MITCHELL
------------------------------------
W. Thomas Mitchell
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by each of the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ W. THOMAS MITCHELL President, Chief Executive Officer July 21, 2000
------------------------------------------ and Director (Principal Executive
W. Thomas Mitchell Officer)

* Senior Vice President and Chief July 21, 2000
------------------------------------------ Financial Officer (Principal
Raymond J. Land Financial and Accounting Officer)

* Director July 21, 2000
------------------------------------------
James L. Chitwood

* Director July 21, 2000
------------------------------------------
Robert H. Mayer

* Director July 21, 2000
------------------------------------------
Soren Bjerre-Nielsen

* Director July 21, 2000
------------------------------------------
James P. Rogers

* By: /s/ W. THOMAS MITCHELL
-----------------------------------
W. Thomas Mitchell
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 109

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders
of Genencor International, Inc.

"Our audits of the consolidated financial statements referred to in our
report dated January 28, 2000 appearing in the Registration Statement filed
on Form S-1 (which report and consolidated financial statements are
included in this Form S-1) also included an audit of the financial
statement schedule listed in Item 16(b) of this Form S-1. In our opinion,
this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with
the related consolidated financial statements."

PRICEWATERHOUSECOOPERS LLP

Rochester, New York
January 28, 2000

S-1
<PAGE> 110

SCHEDULE II

GENENCOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO ACQUIRED AMOUNTS END
OF PERIOD EARNINGS GOODWILL WRITTEN OFF OF PERIOD
---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Deducted in the Consolidated Balance
Sheet:
From current assets:
Trade accounts receivable, allowance
for doubtful accounts................ $ (1,396) $ (951) -- $ 1,169 $(1,178)
Reserve for obsolete and slow moving
inventory and lower of cost or market
adjustments.......................... (9,837) -- -- 6,995 (2,842)
-------- ------- ------- ------- -------
Total..................................... (11,233) (951) -- 8,164 (4,020)
======== ======= ======= ======= =======
Deferred tax valuation allowance.......... (24,486) -- -- 16,525 (7,961)
======== ======= ======= ======= =======
Year Ended December 31, 1998
Deducted in the Consolidated Balance
Sheet:
From current assets:
Trade accounts receivable, allowance
for doubtful accounts................ (1,178) (147) -- 349 (976)
Reserve for obsolete and slow moving
inventory and lower of cost or market
adjustments.......................... (2,842) -- -- 166 (2,676)
-------- ------- ------- ------- -------
Total..................................... (4,020) (147) -- 515 (3,652)
======== ======= ======= ======= =======
Deferred tax valuation allowance.......... (7,961) -- -- -- (7,961)
======== ======= ======= ======= =======
Year Ended December 31, 1999
Deducted in the Consolidated Balance
Sheet:
From current assets:
Trade accounts receivable, allowance
for doubtful accounts................ (976) (1,500) -- 662 (1,814)
Reserve for obsolete and slow moving
inventory and lower of cost or market
adjustments.......................... (2,676) -- -- 421 (2,255)
-------- ------- ------- ------- -------
Total..................................... (3,652) (1,500) -- 1,083 (4,069)
======== ======= ======= ======= =======
Deferred tax valuation allowance.......... (7,961) -- -- 161 (7,800)
======== ======= ======= ======= =======
From current liabilities:
Restructuring reserves................. $ -- $(7,500) $(3,200) $ 4,600 $(6,100)
======== ======= ======= ======= =======
</TABLE>

S-2
<PAGE> 111

EXHIBIT INDEX

<PAGE> 112

<TABLE>
<S> <C>
10.15(3) Amended and Restated Equity Joint Venture Contract between
Genencor Mauritius Ltd. and Wuxi Enzyme Factory, dated May
10, 1998.
10.16(3) Employee Retirement Investment Plan.
10.17(3) Income Replacement Plan.
10.18(3) Senior Executive Relocation Policy.
10.19(3) Form of executive officer Promissory Note.
10.20(3) Employment Agreement for W. Thomas Mitchell, dated June 21,
1995.
10.21(3) Form of executive officer Employment Agreement.
10.22(3) Employment Agreement for Carl D. Copeland, dated July 16,
1999.
10.23(3) Employment Agreement for Wayne H. Pitcher, dated July 27,
1999.
10.24(3) Form of Restricted Stock Purchase Agreement.
10.25(3) Form of executive officer Secured Promissory Note.
10.26(3) Form of executive officer Pledge Agreement.
10.27(3) National Renewable Energy Laboratory Letter Subcontract,
dated April 18, 2000, between Midwest Research Institute
acting through its National Renewable Energy Laboratory
Division and the Company.
10.28(1)* Funded Research Collaboration Agreement, dated December 22,
1998, between Prodigene, Inc. and the Company.
10.29(1)* Collaboration Agreement dated May 14, 1999, as amended,
between Xgene Corporation and the Company.
10.30(1)* License Agreement, dated May 17, 2000, between Energy
Biosystems Corporation and the Company.
21.1(3) Subsidiaries of the Registrant.
23.1(1) Consent of independent accountants.
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1).
24.1(3) Power of Attorney.
27.1(3) Financial Data Schedule.
</TABLE>

------------
(1) Filed herewith.

(2) To be filed by amendment.

(3) Previously filed.

* The registrant is seeking confidential treatment with respect to portions of
this exhibit.