<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed pursuant to Rule 424(a)
Registration No. 33-62651
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1995
2,500,000 Shares
[LOGO OF GENZYME APPEARS HERE]
General Division Common Stock
($.01 par value)
--------
All of the shares of Genzyme General Division Common Stock ("General Division
Stock") offered hereby are being sold by Genzyme Corporation (the "Company" or
"Genzyme"). The General Division Stock is listed on the Nasdaq National Market
under the symbol "GENZ." On September 13, 1995, the reported last sale price of
the General Division Stock on the Nasdaq National Market was $60.00 per share.
The General Division Stock is common stock of the Company and is intended to
reflect the value and track the performance of the Genzyme General Division (the
"General Division"), which operates in four major business areas: therapeutics,
diagnostic services, diagnostic products and pharmaceuticals. The General
Division Stock is one of two classes of the Company's common stock, the other
being Genzyme Tissue Repair Division Common Stock ("TR Stock"). The relative
voting power of one share of General Division Stock and one share of TR Stock
will fluctuate based upon the relative Fair Market Values (as defined herein) of
one share of General Division Stock and one share of TR Stock as set forth
herein. Dividends on the General Division Stock will be payable when, as and if
declared by the Board of Directors of the Company out of the lesser of funds of
the Company legally available therefor and specified funds available to the
General Division. Genzyme has never paid a cash dividend on any class of its
capital stock and currently intends to retain all earnings for use in its
business. Upon a liquidation of Genzyme (other than in connection with a merger,
business combination or sale of substantially all assets), holders of
outstanding General Division Stock and TR Stock are entitled to receive the
assets, if any, remaining for distribution to common stockholders on a per share
basis in proportion to the respective per share liquidation units of such class,
which are presently one liquidation unit for each share of General Division
Stock and .29 liquidation units for each share of TR Stock. The liquidation unit
amounts will not be adjusted except to avoid dilution in the aggregate
liquidation rights of either class in the event of a stock split or combination,
stock dividend or the like. See "Description of Genzyme Capital Stock."
-----------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE GENERAL DIVISION STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 6 HEREIN.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-RITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and to
Public Commissions Company(1)
---------- ------------- ----------
<S> <C> <C> <C>
Per Share..................................
Total (2)..................................
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $350,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 375,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ and Proceeds to Company will be
$ .
--------
The Shares are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that the Shares will
be ready for delivery on or about , 1995.
CS First Boston
Cowen & Company
Lehman Brothers
PaineWebber Incorporated
The date of this Prospectus is , 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE GENERAL
DIVISION STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN
CONNECTION WITH THIS OFFERING CERTAIN UNDERWRITERS AND THEIR AFFILIATES MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE GENERAL DIVISION STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. (SEE "UNDERWRITING.")
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company has
filed a registration statement on Form S-3 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Commission with respect to the General Division Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and
reference is made to the Registration Statement and the exhibits thereto for
further information with respect to the Company and the General Division
Stock. Such reports, proxy statements, Registration Statement and exhibits and
other information omitted from this Prospectus can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington D.C. 20549 and at the Commission's
Regional Offices located at Seven World Trade Center, Suite 1300, New York, NY
10048 and 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Amendment Nos. 1 and 2 thereto on Form 10-K/A
filed with the Commission on June 15, 1995 and September 13, 1995,
respectively; (ii) the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995, each as amended by Amendment
No. 1 thereto on Form 10-Q/A filed with the Commission on September 13, 1995;
(iii) the description of General Division Stock contained in the Company's
Registration Statement on Form 8-B filed with the Commission on February 28,
1992, as amended by Form 8-B/A, filed with Commission on March 31, 1995; (iv)
the description of General Division Common Stock Purchase Rights contained in
the Company's Registration Statement on Form 8-A, filed with the Commission on
March 23, 1989, as amended by Form 8-A/A, filed with the Commission on
November 28, 1994; (v) the financial statements appearing at pages III-19 to
III-42 of Annex III, pages IV-38 to IV-41 of Annex IV, pages V-37 to V-41 of
Annex V and pages VI-2 to VI-6 of Annex VI to the Prospectus/Joint Proxy
Statement included in Genzyme's Registration Statement on Form S-4 (File No.
33-83346), which became effective on November 9, 1994; and (vi) the Quarterly
Report of BioSurface Technology, Inc. ("BioSurface") on Form 10-Q for the
quarter ended September 30, 1994 filed with the Commission on November 12,
1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to termination of the offering made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is, or is deemed to be, incorporated by reference herein, modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents which are not specifically incorporated
by reference into such documents. Requests for such copies should be directed
to the executive offices of the Company, One Kendall Square, Cambridge,
Massachusetts 02139, Attention: Shareholder Services, telephone (617) 252-
7526.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements appearing elsewhere in this Prospectus
and in the documents incorporated into this Prospectus by reference. Unless
otherwise indicated or the context otherwise requires, (i) information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised and (ii) all references herein to shares of Genzyme General Division
Common Stock ("General Division Stock") and Genzyme Tissue Repair Division
Common Stock ("TR Stock") also include the associated Preferred Stock Purchase
Rights represented by the same certificates. See "Description of Genzyme
Capital Stock." The shares of General Division Stock offered hereby involve a
high degree of risk. Investors should carefully consider the information set
forth under the heading "Risk Factors."
GENZYME CORPORATION
Genzyme is a diversified, integrated human health care company which operates
in five major business areas. The Company's business activities with respect to
therapeutics, diagnostic services, diagnostic products and pharmaceuticals are
organized as the Genzyme General Division (the "General Division"). Genzyme's
activities to develop, produce and market technologically advanced products and
services for the treatment and prevention of serious tissue damage are conducted
through the Genzyme Tissue Repair Division ("GTR").
Genzyme currently has two classes of common stock outstanding, General
Division Stock and TR Stock, which are intended to reflect the value and track
the performance of the General Division and GTR, respectively. Holders of both
classes of common stock are stockholders of Genzyme, which owns all of the
assets and is responsible for all liabilities of the Company. The Company is
currently offering 3,000,000 shares of TR Stock to the public in an underwritten
offering (the "TR Stock Offering"), all of the proceeds of which will be
allocated to GTR. The TR Stock Offering is being made pursuant to a separate
prospectus, and neither the TR Stock Offering nor this offering is conditioned
upon consummation of the other.
Genzyme's principal executive offices are located at One Kendall Square,
Cambridge, Massachusetts 02139. Its telephone number is (617) 252-7500.
THE GENERAL DIVISION
The General Division operates in four major business areas: therapeutics,
diagnostic services, diagnostic products and pharmaceuticals.
The General Division's Therapeutics business markets Ceredase(R) enzyme and
Cerezyme(TM) enzyme, products for the treatment of Gaucher disease. The General
Division's results of operations are highly dependent on sales of these products
which, for 1994, totaled $172.0 million. Other therapeutic products under
development include a line of biomaterial products based on hyaluronic acid
("HA") to limit the formation of postoperative adhesions (which include
Seprafilm(TM), Sepracoat(TM) and Sepragel(TM)) and to replace synovial fluid
(collectively, the "Surgical Products"), Thyrogen(R) hormone for use in the
diagnosis and treatment of thyroid cancer, and products for the treatment of
cystic fibrosis ("CF"). The Surgical Products are being developed on behalf of
Genzyme Development Partners, L.P. ("Genzyme Development Partners"), a research
and development limited partnership, and the CF products are being developed on
behalf of Neozyme II Corporation ("Neozyme II"), a special purpose accelerated
research corporation.
The General Division's Diagnostic Services business, which operates under the
name Integrated Genetics, provides a broad range of classical and molecular
cytogenetic and biochemical testing services to physicians, hospitals, clinical
laboratories, genetic centers and health maintenance organizations in the United
States and internationally. Integrated Genetics also provides identity testing
services to state and local government agencies, attorneys and various courts in
the United States, and tissue matching services to bone marrow registries. The
General Division is also developing fetal
3
<PAGE>
cell separation technology intended to be used by laboratories that conduct
prenatal genetic testing to isolate fetal cells in maternal blood samples.
The General Division's Diagnostic Products business is a supplier of
diagnostic enzymes and substrates for the manufacture of reagents and clinical
diagnostic kits, such as those used for amylase and cholesterol testing. It
also sells a line of immunobiologicals to laboratories for research use, and a
broad range of antibody and antigen based ELISA test kits. This business also
supplies the only in vitro diagnostic test kit commercially available for the
direct measurement of low density lipoprotein (LDL) cholesterol from blood
samples.
The General Division's Pharmaceuticals business develops, manufactures and
sells a range of active drug substances, pharmaceutical intermediates, synthetic
phospholipids and peptides to pharmaceutical, biotechnology and other companies
in the health care industry.
RECENT DEVELOPMENTS
In January 1995, Genzyme announced the results of a clinical trial of
Seprafilm(TM) (formerly referred to as HAL-F(TM) Bioresorbable Membrane) in
patients undergoing abdominal surgery. In September 1995, Genzyme announced the
results of a similar trial in patients undergoing gynecological surgery. The
results of both studies indicated that use of Seprafilm(TM) significantly
reduced the incidence, extent and severity of adhesions following surgery. The
results of the Seprafilm(TM) trial in abdominal surgery will be presented at the
October 24, 1995 meeting of the American College of Surgeons.
In August 1995, the U.S. Food and Drug Administration ("FDA") notified Genzyme
that the agency would expedite its review of a Pre-Market Approval application
("PMA") for approval to market Seprafilm(TM) in the United States for abdominal
and gynecological surgery applications. Genzyme intends to file the
Seprafilm(TM) PMA later this year. Genzyme has also been notified by regulatory
agencies in the Netherlands, Sweden, Denmark and Ireland that such agencies have
no objection to Genzyme marketing Seprafilm(TM) in those countries at this time.
Authorization from the FDA for export of the product to these four countries has
already been obtained, and the General Division plans to begin test marketing in
the Netherlands by year end.
Seprafilm(TM) is one of four proprietary products based on natural and
modified forms of HA being developed by the General Division on behalf of
Genzyme Development Partners. The Surgical Products are intended to be used
during surgical procedures to limit formation of postoperative adhesions and, in
arthroscopic procedures, as a synovial fluid replacement. Adhesions are fibrous
structures that connect tissues or organ surfaces that are not normally joined.
They are an undesirable side effect of the body's normal healing process
following damage to tissue. Adhesions can cause significant complications such
as bowel obstruction following abdominal surgery, infertility and pain following
gynecological surgery and restricted limb motion following musculoskeletal
surgery. A clinical trial of another of the Surgical Products, Sepracoat(TM)
(formerly referred to as HAL-C(TM) Coating Solution), in patients undergoing
gynecological surgery was also completed recently. The results from that trial
are not yet available.
In 1993, approximately 7.5 million abdominal surgical procedures and 2.2
million gynecological surgical procedures were performed in the United States.
In addition, approximately 450,000 adhesiolysis procedures were performed in the
United States in the period from October 1992 through September 1993 to correct
damage associated with postoperative adhesion formation. The General Division
believes that an estimated 3.1 million open surgical procedures (1.8 million
abdominal and 1.3 million gynecological) performed annually in the United States
pose the greatest risk for the formation of postoperative adhesions and
represent the initial market opportunity for the use of Seprafilm(TM) in the
United States. Comprehensive information regarding the number of abdominal and
gynecological surgical procedures in Europe is not readily available. However,
the General Division believes that the European market for Seprafilm(TM) is
significant, but is likely to be smaller than the U.S. market.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
General Division Stock offered by the Company......................... 2,500,000 shares
General Division Stock to be outstanding after the offering........... 29,254,922
shares(1)
Use of proceeds....................................................... For general corporate
purposes of the General
Division
Nasdaq National Market symbol......................................... GENZ
</TABLE>
- -----------------------------
(1) Based on shares outstanding on June 30, 1995. Excludes 5,987,558 shares of
General Division Stock reserved for issuance upon exercise of outstanding
options with a weighted average exercise price of $30.736 per share.
5
<PAGE>
RISK FACTORS
RISKS RELATED TO TWO CLASSES OF COMMON STOCK:
Genzyme currently has two classes of common stock outstanding: General
Division Stock and TR Stock. General Division Stock and the TR Stock are
intended to reflect the value and track the performance of the General Division
and GTR, respectively. Prospective investors in General Division Stock should
carefully consider the following factors in evaluating such an investment.
STOCKHOLDERS OF ONE COMPANY; FINANCIAL IMPACTS ON ONE DIVISION COULD AFFECT THE
OTHER. Genzyme continues to hold title to all of its assets and is responsible
for all of its liabilities, and the holders of General Division Stock and the TR
Stock have no specific claim against the assets attributed for financial
statement presentation purposes to the division whose performance is associated
with the class of stock they hold. Liabilities or contingencies of either
division that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of both divisions. Prospective
investors in General Division Stock should, therefore, read Genzyme's
consolidated financial statements in conjunction with the financial statements
of the General Division, which have each been incorporated herein by reference.
See also "Genzyme General Division Summary Financial Data" and "Additional
Financial Data -Genzyme Corporation Consolidated."
NO RIGHTS OR ADDITIONAL DUTIES WITH RESPECT TO THE DIVISIONS; POTENTIAL
CONFLICTS. Holders of General Division Stock and TR Stock have only the rights
of stockholders of Genzyme, and, except in limited circumstances, do not have
any rights specifically related to the General Division or GTR, respectively.
The existence of separate classes of common stock may give rise to occasions
when the interests of holders of General Division Stock and holders of TR Stock
may diverge or appear to diverge. Although Genzyme is aware of no precedent
concerning the manner in which Massachusetts law would be applied to the duties
of a board of directors in the context of two classes of common stock with
divergent interests, Genzyme believes that a Massachusetts court would hold that
a board of directors owes an equal duty to all stockholders regardless of class
and does not have separate or additional duties to any group of stockholders.
That duty is the fiduciary duty to act in good faith and in a manner it
reasonably believes to be in the best interests of the corporation. Genzyme
believes that, under Massachusetts law, a good faith determination by a
disinterested and adequately informed board of directors that an action is in
the best interests of the corporation should represent an appropriate defense to
any challenge by or on behalf of the holders of any class of stock that such
action could have a disparate effect on different classes of common stock.
Disproportionate ownership interests of members of the Board of Directors of
Genzyme (the "Board") in either class of common stock or disparities in the
value of such stock could create or appear to create potential conflicts of
interest when directors are faced with decisions that could have different
implications for each class of stock. Nevertheless, Genzyme believes that a
director would be able to discharge his or her fiduciary responsibilities even
if his or her interests in shares of such classes were disproportionate or had
disparate values. The Board may also from time to time establish one or more
committees to review matters presented to it that raise conflict issues, which
committee(s) would report to the full Board on such matters.
NO ADDITIONAL SEPARATE VOTING RIGHTS. Holders of General Division Stock and
holders of TR Stock vote together as a single class on all matters as to which
common stockholders generally are entitled to vote. Except in certain limited
circumstances provided under Massachusetts law, in Genzyme's Articles of
Organization, as amended, and in the management and accounting policies adopted
by the Board, holders of each class of common stock have no rights to vote on
matters as a separate class. Accordingly, except in limited circumstances,
holders of shares of one class of common stock could not bring a proposal to a
vote of the holders of that class of common stock only, but would be required to
bring any proposal to a vote of both classes of common stock.
6
<PAGE>
On all matters as to which common stockholders generally are entitled to vote,
each share of General Division Stock has one vote, and each share of TR Stock
will, through December 31, 1996, have .29 votes. On January 1, 1997 and on
January 1 every two years thereafter, the number of votes to which each share of
TR Stock is entitled will be adjusted to equal the ratio of the Fair Market
Value of one share of TR Stock to the Fair Market Value of one share of General
Division Stock as of such date. The term "Fair Market Value" is defined in
Genzyme's Articles of Organization and under the heading "Description of Genzyme
Capital Stock - Exchange of TR Stock" herein.
Certain matters as to which the holders of common stock are entitled to vote
may involve a divergence or the appearance of a divergence in the interests of
holders of General Division Stock and holders of TR Stock. If, when a
stockholder vote is taken on any matter as to which a separate vote by either
class is not required and the holders of either class of common stock would have
more than the number of votes required to approve any such matter, the holders
of that class would control the outcome of the vote on such matter. Holders of
General Division Stock and holders of TR Stock currently have approximately 91%
and 9%, respectively, of the total voting power of Genzyme. The percentages of
the total voting power of Genzyme held by the holders of General Division Stock
and TR Stock, upon completion of this offering, will be approximately 92% and
8%, respectively, and, after consummation of both this offering and the TR Stock
Offering (assuming that the underwriters' over-allotment option is not
exercised), will be approximately 89.5% and 10.5%, respectively. As a result,
on matters which are submitted to a vote of the holders of both classes of
common stock, the preferences of the holders of General Division Stock are
likely to dominate and determine the outcome of such vote unless and until the
relative number of shares outstanding and/or the market value of General
Division Stock and TR Stock materially changes.
EXCHANGE OF TR STOCK. The Board can, in its sole discretion, determine to
exchange shares of TR Stock for cash or shares of General Division Stock (or any
combination thereof) at a 30% premium over Fair Market Value of the TR Stock at
any time after the later of (i) December 31, 1995 and (ii) the date on which
equity investments in TR Stock by third-party investors or the allocation of
cash or cash equivalents from the General Division to GTR, or any combination of
the two, equal an aggregate of at least $10 million. Thus, upon successful
completion of the TR Stock Offering, the Board could elect to make such an
exchange after December 31, 1995. In addition, following a disposition of all
or substantially all assets of GTR, the shares of TR Stock are subject to
mandatory exchange by Genzyme for cash and/or shares of General Division Stock
at a 30% premium over Fair Market Value of the TR Stock as determined by the
trading prices during a specified period prior to public announcement of the
disposition. Consequently, holders of TR Stock may receive a greater or lesser
premium for their shares than any premium paid by a third party buyer of all or
substantially all of the assets of GTR. In addition, any such exchange of
shares of General Division Stock could be made at a time when General Division
Stock may be considered to be undervalued and would dilute the interests of the
holders of General Division Stock. See "Description of Genzyme Capital Stock -
Exchange of TR Stock" and "Management and Accounting Policies Governing the
Relationship of Genzyme Divisions -Open Market Purchases of Shares of any
Class."
NO ADJUSTMENT TO LIQUIDATING DISTRIBUTIONS. In the event of a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of Genzyme
(other than pursuant to a merger, business combination or sale of substantially
all assets), holders of outstanding shares of General Division Stock and TR
Stock would receive the assets, if any, remaining for distribution to common
stockholders on a per share basis in proportion to the respective per share
liquidation units of such class. Currently, each share of General Division
Stock has one liquidation unit and each share of TR Stock has .29 liquidation
units. Because the liquidation units will not be adjusted to reflect changes in
the relative market value or performance of the General Division and GTR, the
per share liquidating distribution to a holder of General Division Stock or TR
Stock is not likely to correspond to the value of the assets of the General
Division or GTR, respectively, at the time of a dissolution, liquidation or
winding up of Genzyme.
7
<PAGE>
MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE. The Board has adopted
certain management and accounting policies applicable to the preparation of the
financial statements of both divisions, the allocation of corporate expenses,
assets and liabilities and other accounting matters, the reallocation of assets
between divisions and other matters. These policies may, except as stated
therein, be modified or rescinded in the sole discretion of the Board without
the approval of Genzyme's stockholders, subject to the Board's fiduciary duty to
all holders of Genzyme's capital stock, although there is no present intention
to do so. The Board may also adopt additional policies depending upon the
circumstances. See "Management and Accounting Policies Governing the
Relationship of Genzyme Divisions."
LIMITED TRADING HISTORY. As discussed above, the General Division Stock and the
TR Stock are intended to reflect the value and track the performance of the
General Division and GTR, respectively. Since the General Division Stock and
the TR Stock have only a limited trading history, there can be no assurance as
to the degree to which the market price of such classes of common stock will
reflect the value and track the performance of the General Division and GTR as
reflected in their respective financial statements. In addition, Genzyme cannot
predict the impact that certain terms of the securities, such as the ability of
Genzyme to exchange each share of TR Stock for cash and/or shares of General
Division Stock, will have on the market prices of each class of common stock.
RISKS RELATING TO THE GENERAL DIVISION:
An investment in General Division Stock involves a high degree of risk.
Accordingly, the following risk factors should be considered carefully in
contemplating such an investment.
DEPENDENCE ON CEREDASE(R) AND CEREZYME(TM) ENZYME SALES. The General Division's
results of operations and cash flows are highly dependent upon sales of its
Ceredase(R) enzyme, a biotherapeutic product for the treatment of Gaucher
disease, and Cerezyme(TM) enzyme, a recombinant form of the enzyme. Commercial
sales of Ceredase(R) and Cerezyme(TM) began in April 1991 and June 1994,
respectively, following receipt of FDA marketing approval. During 1994, sales
from these two products totaled $172.0 million, or 72% of the General Division's
product sales.
The Ceredase(R) and Cerezyme(TM) products have each been given orphan drug
status by the FDA, which entitles Genzyme to market exclusivity for these
products until April 1998 and May 2001, respectively. Legislation has been
periodically introduced in recent years to amend the Orphan Drug Act to limit
market exclusivity in certain situations. See "Risk Factors - Risks Relating to
the General Division - Regulation by Government Agencies."
LIMITED SUPPLY OF KEY RAW MATERIAL; NECESSITY OF APPROVALS FOR PRODUCTION OF
CEREZYME(TM). Genzyme produces Ceredase(R) enzyme from raw material extracted
from human placental tissue. Pasteur Merieux, located in France, is the only
significant source of this material. Under its agreement with Genzyme, Pasteur
Merieux is obligated to process at least 50% of its placental tissue and supply
all of its output to Genzyme. Currently, it is processing all of its available
material and supplying the output to Genzyme. If this agreement were terminated
prior to the scheduled expiration in 2001 due to Pasteur Merieux's inability or
failure to perform its obligations thereunder, or if Pasteur Merieux were to
reduce the amount of material it processes, Genzyme might not be able to obtain
alternative sources of such raw material at a commercially reasonable cost, if
at all.
The supply of starting material available for the production of Ceredase(R)
enzyme effectively limits the amount of product that can be produced. During
1994, Genzyme and its supplier were successful in improving the yield of enzyme
obtained from the starting material, thereby increasing the amount of product
that could be produced. However, there can be no assurance that further
improvements in yield will occur. Any disruption in the supply or manufacturing
process of Ceredase(R) enzyme may have a material adverse effect on revenue in
any period. To address supply constraints, Genzyme has developed Cerezyme(TM)
enzyme, a recombinant form of the enzyme that is not derived from human
placental tissue. In 1994, Genzyme received approval to market this product in
the United States and Israel and currently is working to expedite the foreign
approvals needed to market Cerezyme(TM) enzyme elsewhere abroad. Manufacturing
constraints on Cerezyme(TM) enzyme, presently produced in Genzyme's small scale
cell culture plant, will
8
<PAGE>
limit the availability of the product for new patients until receipt of
regulatory approval to use Genzyme's large scale mammalian cell culture
manufacturing plant in Allston, Massachusetts for production of Cerezyme(TM)
enzyme.
NO ASSURANCE OF COMMERCIAL SUCCESS OF THE SURGICAL PRODUCTS. The successful
commercialization of the Surgical Products will depend on many factors,
including the breadth of labeling claims allowed by the FDA, the response of
surgeons to the data from clinical trials, the General Division's ability to
create or access a sales force able to market the Surgical Products, the General
Division's ability to supply sufficient product to meet market demand, the
degree to which third-party reimbursement for use of the Surgical Products is
available, and the number and relative efficacy of competitive products that may
subsequently enter the market. There can be no assurance that the General
Division will be successful in its efforts to develop and implement a
commercialization strategy for the Surgical Products.
The Surgical Products will require FDA approval prior to marketing
Seprafilm(TM) in the United States, and the General Division anticipates filing
by the end of 1995 a PMA for the marketing of the product for abdominal and
gynecological surgery applications. There can be no assurance that the FDA will
allow the General Division's labeling claims and permit the marketing of
Seprafilm for a broad range of applications, if at all. In addition, the
successful commercialization of the Surgical Products will require that surgeons
become convinced of the efficacy of the products in preventing the formation of
postoperative adhesions and incorporate the products as standard surgical
practice in procedures where adhesions are a potential postoperative
complication. There can be no assurance that the Surgical Products will be
widely accepted by surgeons and used to the extent anticipated by the General
Division.
The General Division may require a specialized, hospital-based sales force to
market the Surgical Products. Genzyme does not currently have such a sales
force. Accordingly, Genzyme will need to hire and train additional sales
personnel, enter into marketing and distribution agreements with one or more
companies with an established presence in the hospital supply industry or
acquire a company with such a presence. No discussions with potential
distribution partners have taken place and there is no assurance that, if the
General Division desires such a partnering opportunity, it will be available on
acceptable terms. The General Division may encounter difficulty or unforeseen
delays in hiring and training or acquiring such a sales force, which may have an
adverse effect on the commercialization of the Surgical Products.
The General Division has developed manufacturing facilities in the United
Kingdom for bulk production of HA powder, from which Seprafilm(TM) and
Sepracoat(TM) are produced. Seprafilm(TM) production facilities have been built
in Framingham, Massachusetts with a capacity sufficient for the market
introduction and initial commercialization of the product. The General Division
will need to expand its manufacturing capacity for Seprafilm(TM) in order to
meet any additional market demand over and above its present capacity, and
initial planning for that expansion is underway. Although the General Division
has successfully produced finished product in its existing manufacturing
facilities, the General Division has not operated these facilities at a capacity
anticipated to be required for commercial production of the Surgical Products.
There can be no assurance that the General Division will be successful in
producing material at such capacity that conforms to established product
specifications while maintaining production efficiency.
Third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. The General Division has not yet formulated a pricing policy with
respect to the Surgical Products. The successful commercialization of the
Surgical Products is dependent on obtaining coverage and reimbursement from
these third-party payors for the use of these products. See "Risk Factors -
Risks Relating to the General Division - Third Party Reimbursement and Health
Care Cost Containment Initiatives."
The Surgical Products will also face significant competition both from other
HA-based products and from non-HA-based products intended to reduce adhesions
resulting from surgical trauma. See "Risk Factors - Risks Relating to the
General Division - Intense Competition."
UNCERTAINTY OF PRODUCT DEVELOPMENT. Genzyme's future success is largely
dependent upon its ability to develop, manufacture and sell technologically
advanced new products. Such products must be developed, tested and, in most
9
<PAGE>
cases, approved for use by appropriate government agencies. Once approved, they
must be manufactured in commercial quantities and marketed successfully. Each
of these steps, as well as the process taken as a whole, involves significant
time and expense. There can be no assurance that any of Genzyme's products
under development, if and when fully developed and tested, will perform in
accordance with Genzyme's expectations, that necessary regulatory approvals will
be obtained in a timely manner, if at all, or that these products can be
successfully and profitably manufactured and sold.
TECHNOLOGY TRANSFERRED TO GENZYME DEVELOPMENT PARTNERS AND NEOZYME II. Genzyme
organized two special purpose research and development entities, Genzyme
Development Partners and Neozyme II, to which it transferred technology and
commercial rights to certain products that Genzyme previously had under
development. Genzyme has options to purchase the limited partnership interests
in Genzyme Development Partners under certain circumstances and to acquire all
of the outstanding shares of the callable common stock of Neozyme II. It is
uncertain at this time whether Genzyme will exercise either or both of these
options. If Genzyme does not exercise these options, it will have no rights to
the related products of Neozyme II and limited rights in revenues generated from
the sale of the Genzyme Development Partners' products. If Genzyme does
exercise these options, it will be required to make substantial cash payments or
to issue shares of General Division Stock, or both. Cash payments will diminish
Genzyme's capital resources. Payments in General Division Stock could result in
dilution to holders of General Division Stock and could negatively affect the
market price of such stock.
FUTURE CAPITAL NEEDS. Although Genzyme currently has substantial cash
resources, it has committed to utilize a portion of such funds for certain
purposes, such as making certain payments to third parties in connection with
strategic collaborations and acquisitions. In addition, should Genzyme exercise
its option to acquire Neozyme II callable common stock or its option to acquire
the partnership interests in Genzyme Development Partners using cash to pay some
or all the exercise price, its cash resources will be diminished. As a result,
Genzyme may have to obtain additional financing. There can be no assurance that
such financing will be available on acceptable terms.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.
Genzyme's success depends, to a large extent, on its ability to maintain a
competitive technological position in its product areas. Proprietary rights
relating to Genzyme's products are protected from unauthorized use by third
parties only to the extent that they are covered by patents or are maintained in
confidence as trade secrets. Genzyme has filed for patents and has rights to
numerous patents and patent applications worldwide. While certain of Genzyme's
patents have been allowed or issued, there can be no assurance that any
additional patents will be allowed or will issue or that, to the extent issued,
such patents will effectively protect the proprietary technology of Genzyme.
Genzyme has also relied upon trade secrets, proprietary know-how and continuing
technological innovation to develop and maintain its competitive position.
There can be no assurance that others will not independently develop such know-
how or otherwise obtain access to Genzyme's technology. While Genzyme's
employees, consultants and corporate partners with access to proprietary
information are generally required to enter into confidentiality agreements,
there can be no assurance that these agreements will be honored. Certain of
Genzyme's consultants have developed portions of Genzyme's proprietary
technology at their respective universities or in government laboratories.
There can be no assurance that such universities or governmental authorities
will not assert rights to intellectual property arising out of university or
government based research conducted by such consultants. In addition, patent
litigation is widespread in the biotechnology industry and it is not possible to
predict how any such litigation will affect Genzyme.
Parties not affiliated with Genzyme may hold pending or issued patents
relating to the technology utilized by Genzyme in its products presently
available or under development. Genzyme may, depending on the final formulation
of such products, need to acquire licenses to, or contest the validity of, such
patents or any other similar patents that may be issued. The extent to which
Genzyme may need to license such rights or contest the validity of such patents
depends on the scope and validity of such patents and ultimately on the final
design or formulation of its products under development. The cost and ability
to license any such rights and the likelihood of successfully contesting the
validity of such patents are uncertain.
10
<PAGE>
INTENSE COMPETITION. Genzyme is engaged in a segment of the human health care
products industry that is extremely competitive. Competitors in the United
States and elsewhere are numerous and include major pharmaceutical, chemical and
biotechnology companies, many of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than Genzyme. These companies may succeed in developing products that are more
effective than any that have been or may be developed by Genzyme and may also be
more successful than Genzyme in producing and marketing these products.
RAPID TECHNOLOGICAL CHANGE. The field of biotechnology is expected to continue
to undergo significant and rapid technological change. Although Genzyme will
seek to expand its technological capabilities in order to remain competitive,
there can be no assurance that research and discoveries by others will not
render Genzyme's products or processes obsolete.
REGULATION BY GOVERNMENT AGENCIES. Most of the products Genzyme plans to
manufacture and sell will require approval by governmental agencies in the
United States and elsewhere. In particular, human therapeutic and diagnostic
products are subject to pre-marketing approval by the FDA and comparable
agencies in foreign countries. The process of obtaining these approvals varies
according to the nature and use of the product and can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time consuming procedures. There can be no assurance that any of the
required approvals will be granted on a timely basis, if at all.
Certain of Genzyme's products, including its Ceredase(R) and Cerezyme(TM)
enzymes, have been designated as orphan drugs under the Orphan Drug Act, which
provides incentives to manufacturers to develop and market drugs for rare
diseases. The Orphan Drug Act generally entitles the first developer to
receive FDA marketing approval for an orphan drug to a seven-year exclusive
marketing period in the United States for that product. However, legislation
has been periodically introduced in recent years to amend the Orphan Drug Act.
Such legislation has generally been directed to shortening the period of
automatic market exclusivity and granting certain marketing rights to
simultaneous developers of a drug. The effect on Genzyme of any amendments
ultimately adopted cannot be assessed at this time.
Although Genzyme has filed for or received orphan drug designation for various
other products, Genzyme believes that the commercial success of these products
will depend more significantly on the associated safety and efficacy profile and
on the price and other characteristics of each product relative to competitive
or alternative treatments than on any exclusivity afforded by the Orphan Drug
Act. Additionally, these products may be protected by patents and other means.
Nonetheless, it is not possible to predict precisely what effect a lessening of
the market exclusivity protection afforded by the Orphan Drug Act would have on
Genzyme's results of operations.
FOREIGN SALES ACTIVITIES. Foreign sales accounted for 37% of the General
Division's total revenues in 1994, and Genzyme anticipates that foreign sales
will continue to represent a significant percentage of Genzyme's revenues.
Accordingly, a substantial portion of Genzyme's revenues may be subject to
currency fluctuations and other risks associated with foreign operations. In
addition, the strength of the United States dollar in relation to certain
foreign currencies may adversely affect Genzyme's sales to foreign customers.
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES. A
majority of Genzyme's revenues are attributable directly or indirectly to
payments received from third-party payors. Genzyme's revenues and profitability
may be affected by ongoing efforts of third-party payors to contain such costs.
In addition, during 1994, the Clinton administration and Congress proposed the
implementation of broad based health care cost containment measures. While
these proposals were not implemented, it is likely that health care measures
will again be proposed in the present or future Congressional sessions.
Accordingly, the effects on Genzyme of any such measures that are ultimately
adopted cannot be assessed at this time.
PRODUCT LIABILITY AND LIMITATIONS OF INSURANCE. Genzyme may be subject to
product liability claims in connection with the use or misuse of its products
during testing or after commercialization. While Genzyme has taken, and
continues to take, what it believes are appropriate precautions, there can be no
assurance that Genzyme will avoid significant
11
<PAGE>
liability exposure. Genzyme has only limited amounts of product liability
insurance. If Genzyme attempts to obtain additional insurance in the future,
there can be no assurance that it will be able to do so on acceptable terms, if
at all, or that such insurance will provide adequate coverage against claims
asserted.
POTENTIAL CONFLICTS OF INTEREST OF DIRECTORS. Certain directors of Genzyme are
also directors of other companies in the biotechnology and pharmaceutical
industries or provide consulting or similar services to other companies doing
business in such industries. As such, those directors may be subject to
conflicts of interest with respect to business opportunities that may be of
interest to two or more of the entities with which they have fiduciary or
contractual relationships. In addition, the scope of research and development
being conducted by Genzyme is very broad, and such other entities may be engaged
in research and development activities with respect to products that may compete
directly with products marketed by Genzyme in the future. Each director of
Genzyme has been advised that he has an obligation to disclose any competitive
relationship and any interest that he or a company with which he is affiliated
may have in any transaction involving Genzyme. Should the Board be presented
with any matters in which a director has such a conflicting interest, the
decision would be made by the Board or a committee thereof without participation
by the interested director. Notwithstanding this policy, it is possible that a
conflict of interest may affect the actions of a director in performing his
duties on the Board.
POSSIBLE VOLATILITY OF SHARE PRICE AND ABSENCE OF DIVIDENDS. The market prices
for securities of biotechnology companies have been volatile. Factors such as
announcements of technological innovations or new commercial products by Genzyme
or its competitors, governmental regulation, patent or proprietary rights
developments, public concern as to the safety or other implications of
biotechnology products and market conditions in general may have a significant
impact on the market price of General Division Stock. No cash dividends have
been paid on General Division Stock to date and Genzyme does not anticipate
paying cash dividends on either class of its common stock in the foreseeable
future.
CHANGE IN CONTROL. Certain provisions of Genzyme's Articles of Organization and
By-Laws and the terms of Genzyme's Stockholder Rights Plan may have the effect
of delaying, deferring or preventing a change in control of Genzyme, thereby
possibly having the effect of depriving stockholders of the opportunity to
receive a premium for their shares. Certain provisions of Massachusetts law may
have a similar effect. See "Description of Genzyme Capital Stock - "Anti-
Takeover" Provisions."
USE OF PROCEEDS
The net proceeds to be received from the sale of the Shares offered hereby are
estimated to be $140,650,000 ($161,800,000 if the Underwriters' over-allotment
option is exercised in full) and will be allocated in full to the General
Division. While the General Division currently has no commitments for use of
the net proceeds of the offering, its management anticipates that the net
proceeds, including interest thereon, will be used for general corporate
purposes, including possible future acquisitions or reacquisitions of
technology, product rights and distribution rights. Until applied to any of the
foregoing uses, the net proceeds of this offering will be invested in high
quality interest bearing investments or deposit accounts.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the General Division as
of June 30, 1995 and as adjusted to reflect the issuance of the shares of
General Division Stock offered hereby:
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------
(DOLLARS IN THOUSANDS)
AS
ACTUAL ADJUSTED(1)
--------- ------------
<S> <C> <C>
Convertible subordinated notes.. $100,000 $100,000
Other long-term debt............ 28,302 28,302
Division equity (2)............. 436,386 577,036
-------- --------
Total capitalization............ $564,688 $705,338
======== ========
</TABLE>
- ------------------------------
(1) As adjusted to reflect the application of the net proceeds of the offering,
approximately $140,650,000, assuming 2,500,000 shares are issued at a price
to the public of $60.00, the closing sale price on September 13, 1995.
(2) Excludes 5,987,558 shares of General Division Stock reserved for issuance
upon exercise of outstanding options with a weighted average exercise price
of $30.736 per share.
13
<PAGE>
PRICE RANGE OF GENERAL DIVISION STOCK
AND DIVIDEND POLICY
The General Division Stock commenced trading on December 16, 1994 following
the redesignation of the then-existing common stock of Genzyme ("Genzyme Common
Stock") and the creation of the TR Stock. The General Division Stock is traded
in the over-the-counter market and prices are quoted on the Nasdaq National
Market under the symbol GENZ. The following tables set forth, for the periods
indicated, the high and low sale prices for Genzyme Common Stock and General
Division Stock as reported by Nasdaq.
GENZYME COMMON STOCK
--------------------
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1993:
First Quarter............................... $46 1/4 $27 1/2
Second Quarter.............................. 41 1/4 30 1/2
Third Quarter............................... 39 1/4 29
Fourth Quarter.............................. 38 3/4 25 1/4
1994:
First Quarter............................... 34 1/2 25 3/4
Second Quarter.............................. 31 24
Third Quarter............................... 38 1/2 25 1/4
Fourth Quarter (through December 15, 1994).. 34 1/2 26 1/4
</TABLE>
GENERAL DIVISION STOCK
----------------------
<TABLE>
<CAPTION>
1994:
<S> <C> <C>
Fourth Quarter (commencing December 16, 1994).. $31 3/4 $26 3/4
1995:
First Quarter.................................. 41 1/2 27 1/4
Second Quarter................................. 44 36
Third Quarter (through September 13, 1995)..... 64 1/4 39 1/2
</TABLE>
On September 13, 1995, the closing sale price of General Division Stock as
reported by Nasdaq was $60.00 per share. There were approximately 2,671 holders
of record of General Division Stock as of August 31, 1995.
Genzyme has never paid a cash dividend on any class of its capital stock and
currently intends to retain all earnings for use in its business.
14
<PAGE>
GENZYME GENERAL DIVISION
SUMMARY FINANCIAL DATA
The following table represents summary historical Combined Statement of
Operations Data of the General Division as derived from the General Division's
financial statements. The General Division operating results for the six months
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the entire fiscal year. The data should be read in conjunction
with the historical financial statements and notes thereto incorporated herein
by reference and the related Management's Discussion and Analysis of Financial
Condition and Results of Operations of the General Division presented in this
Prospectus. See "Incorporation of Certain Documents by Reference." Amounts are
in thousands, except for per share amounts.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- ---------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA (1):
Revenues:
Net product sales................................ $ 32,057 $ 72,019 $139,568 $183,366 $238,645 $110,985 $142,325
Net service sales................................ 13,941 21,503 40,400 50,511 49,686 27,007 24,265
Revenues from research and development........... 14,690 26,102 36,445 31,810 22,396 10,668 12,927
-------- -------- -------- -------- -------- -------- --------
60,688 119,624 216,413 265,687 310,727 148,660 179,517
-------- -------- -------- -------- -------- -------- --------
Operating costs and expenses:
Cost of products sold............................ 18,239 33,164 52,514 64,704 92,226 40,825 55,369
Cost of services sold............................ 8,439 14,169 27,254 34,558 32,116 17,017 15,777
Selling, general and administrative.............. 23,521 38,296 58,881 78,015 84,767 42,533 47,600
Research and development (including research and
development related to contracts)............... 18,238 25,501 37,324 45,526 51,696 24,461 27,797
Purchase of in-process research and development.. 20,783 - 51,100 24,000 - - -
Goodwill impairment and restructuring costs (2).. - - - 26,517 - - -
Charge for purchase options and financing
expenses (3).................................... 9,050 - 16,905 - - - -
-------- -------- -------- -------- -------- -------- --------
98,270 111,130 243,978 273,320 260,805 124,836 146,543
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)........................... (37,582) 8,494 (27,565) (7,633) 49,922 23,824 32,974
Other income and (expenses)....................... 11,930 16,710 16,560 18,901 (3,387) 5,550 1,385
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary credit............................. (25,652) 25,204 (11,005) 11,268 46,535 29,374 34,359
Provision for income taxes........................ (730) (12,589) (19,007) (2,812) (16,341) (10,672) (13,056)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary credit......... (26,382) 12,615 (30,012) 8,456 30,194 18,702 21,303
Extraordinary credit resulting from utilization of
operating loss carryforwards..................... - 8,323 - - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................................. (26,382) 20,938 (30,012) 8,456 30,194 18,702 21,303
Allocated tax benefit generated by Tissue Repair
Division (pro forma)............................. - 169 203 9,564 1,860 797 3,662
-------- -------- -------- -------- -------- -------- --------
Net income (loss) attributable to General
Division Stock................................... $(26,382) $ 21,107 $(29,809) $ 18,020 $ 32,054 $ 19,499 $ 24,965
======== ======== ======== ======== ======== ======== ========
Per General Division common and common equivalent
share:
Income (loss) before extraordinary credit........ $(1.56) $0.54 $(1.33) $0.69 $1.22 $0.75 $0.89
Extraordinary credit............................. - 0.36 - - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $(1.56) $0.90 $(1.33) $0.69 $1.22 $0.75 $0.89
======== ======== ======== ======== ======== ======== ========
Average shares outstanding....................... 16,910 23,554 22,370 26,250 26,169 25,988 28,105
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------------
(1) In October 1992, the General Division acquired all the outstanding common
shares of Vivigen, Inc. ("Vivigen") in a transaction accounted for as a
pooling of interests. Accordingly, the General Division's financial data
have been restated to include Vivigen for all periods presented.
(2) In December 1993, the Company incurred restructuring charges of $2.8 million
related to the consolidation of laboratory operations in its Diagnostic
Services business. Also in December 1993, the Company expensed $23.7
million for the value of impaired goodwill associated primarily with an
acquisition in 1992.
(3) In 1990 and 1992, respectively, the General Division sponsored formation of
two special purpose accelerated research corporations, Neozyme Corporation
("Neozyme I") and Neozyme II. In connection with these transactions, the
General Division obtained options to acquire all of the equity of such
entities under certain circumstances in exchange for the issuance of
warrants to acquire General Division Stock. The value assigned to each
option ($8.2 million for Neozyme I and $16.9 million for Neozyme II) was
charged to operations in the period each option was obtained due to
uncertainty as to the General Division's future exercise of these options.
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<PAGE>
GENZYME GENERAL DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In December 1994, Genzyme organized its operations into the General Division,
which conducts the Company's Therapeutics, Diagnostic Services, Diagnostic
Products and Pharmaceuticals businesses, and GTR, which conducts the Company's
activities to develop, produce and market technologically advanced products for
the treatment and prevention of serious tissue damage. Simultaneously, the
stockholders of Genzyme approved a reclassification of Genzyme's common stock in
which the authorized shares of Genzyme common stock were redesignated as General
Division Stock on a share-for-share basis and a second class of common stock, TR
Stock, was created. General Division Stock and TR Stock are intended to reflect
the value and track the performance of the General Division and GTR,
respectively, without diminishing the benefits of remaining a single corporation
or precluding future transactions affecting either division.
Genzyme continues to hold title to all of its assets and be responsible for
all of its liabilities and the holders of the General Division Stock and the TR
Stock have no specific claim against the assets attributed for financial
statement presentation purposes to the division whose performance is associated
with the class of stock they hold. Liabilities or contingencies of either
division that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of both divisions. Accordingly,
Genzyme's consolidated financial statements, which are incorporated herein by
reference, should be read in conjunction with the financial statements of the
General Division or GTR, as appropriate.
RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1995 AS COMPARED TO THE FIRST SIX MONTHS OF 1994
Total revenues for the six months ended June 30, 1995 were $179.5 million
compared to $148.7 million for the corresponding period in 1994. Product and
service revenues were $166.6 million, an increase of 21% over the same period in
1994. Product revenues increased 28% to $142.3 million for the six months ended
June 30, 1995, reflecting sales increases in the Therapeutics, Diagnostic
Products and Pharmaceuticals businesses of 28%, 20% and 53%, respectively, for
the six months ended June 30, 1995. The increase in sales of Therapeutics
products resulted primarily from increased shipments of Ceredase(R) enzyme, for
which the rate of new patient accruals more than offset dosage reductions, and
the market introduction, in the second quarter of 1994, of Cerezyme(TM) enzyme,
the recombinant form of Ceredase(R) enzyme. The increase in Diagnostic Products
sales resulted from sales increases across most product lines including a
doubling in revenues from sales of Direct LDL cholesterol tests. The increase in
Pharmaceuticals sales resulted from the operations of a Swiss company acquired
in July 1994. Diagnostic Services revenues for the six months ended June 30,
1995 declined 10% to $24.3 million, resulting primarily from the divestiture of
two small genetic diagnostic laboratories and a decline in identity testing
revenues.
International sales represented approximately 42% of product sales for the six
months ended June 30, 1995 compared with approximately 34% for the six months
ended June 30, 1994. The increase was due primarily to an increase of 62% for
the six months ended June 30, 1995 in the combined international sales of
Ceredase(R)/Cerezyme(TM) enzyme as well as favorable exchange rates.
Revenues from research and development contracts for the six months ended June
30, 1995 were $12.9 million, an increase of 21% from the corresponding period in
1994. For the six months ended June 30, 1995 revenues from Neozyme II increased
40% to $11.7 million. In the first quarter of 1994, Genzyme Development
Partners provided revenues to the General Division of $0.9 million, thereby
exhausting the funds it had available for the funding of the Surgical Products.
In the first six months of 1994, consolidation of the operations of Genzyme
Transgenics Corporation ("GTC") provided $1.3 million of reported revenues from
research and development contracts. Beginning in the fourth
16
<PAGE>
quarter of 1994, the division accounts for GTC using the equity method of
accounting and, accordingly, no longer reports GTC's revenue from research and
development contracts.
Total gross margin for the six months ended June 30, 1995 was 57%, compared to
58% for the corresponding period in 1994. The General Division provides a broad
range of health care products and services, resulting in a range of gross
margins depending on the particular market conditions of each product or
service. Product margins for the six months ended June 30, 1995 declined to 61%
from 63% for the same period in 1994 due primarily to a provision for obsolete
fine chemicals inventory as the Company concentrates on its Pharmaceuticals
business. Service margins for the six months ended June 30, 1995 decreased to
35% from 37% due to high fixed costs associated with identity testing which
experienced a decline in revenues relative to the same period in 1994.
Selling, general and administrative expenses for the six months ended June 30,
1995 were $47.6 million compared to $42.5 million for the same period in 1994.
The increase was due primarily to increased staffing in support of the growth in
several product lines and to the ongoing expenses associated with operations
acquired or established in 1994. As a percentage of total revenues, selling,
general and administrative expenses for the six months ended June 30, 1995 were
27% compared to 29% for the same period in 1994.
Research and development expenses for the six months ended June 30, 1995 were
$27.8 million compared to $24.5 million for the same period in 1994 due to
increased efforts on behalf of Neozyme II and increased spending on internal
programs.
Investment income for the six months ended June 30, 1995 totaled $2.5 million
compared with $5.8 million for the same period in 1994. Investment income for
the six months ended June 30, 1995 includes losses on the sales of securities of
approximately $24,000 as compared to gains of $1.6 million on the sales of
securities for the corresponding period in 1994. Excluding the effect of these
realized gains and losses, investment income for the six months ended June 30,
1995 decreased 40% due to lower average cash and investment balances.
Interest expense for the six months ended June 30, 1995 was $220,000, net of
capitalized interest on construction in progress of $4.8 million. Interest
relating to Genzyme's 6 3/4% convertible subordinated notes was $3.4 million,
equal to the amount incurred in the same period in 1994. The General Division
also incurred interest expense for the six months ended June 30, 1995 of $0.8
million related to a $21.5 million mortgage note issued in the second quarter of
1994, $0.2 million related to a deferred liability established to acquire the
remaining shares of a Swiss company acquired, in part, in July 1994 and the
remainder related to interest on capitalized leases.
The tax provision for the six months ended June 30, 1995 varies from the U.S.
statutory tax rate because of the provision for state income taxes, losses of
subsidiaries which generate no current tax benefit, tax credits and taxes on
foreign earnings. The effective tax rate was 38% for the six months ended June
30, 1995 as compared to 36% for the corresponding period in 1994. The increase
was due primarily to the expiration of the Orphan Drug tax credit effective
December 31, 1994. The allocated tax benefit of $2.0 million generated by GTR
reduced the General Division's tax rate to 27% for the six months ended June 30,
1995.
1994 AS COMPARED TO 1993
Total revenues for 1994 were $310.7 million, an increase of 17% over 1993.
Product and service revenues were $288.3 million, an increase of 23% over 1993.
Product revenues increased 30% to $238.6 million reflecting sales increases of
39%, 10% and 17%, respectively, in the Therapeutics, Diagnostic Products and
Pharmaceuticals product lines. The increase in sales of Therapeutics products
resulted primarily from increased shipments of Ceredase(R) enzyme, for which the
rate of new patient accruals more than offset dosage reductions, and the market
introduction, in 1994, of Cerezyme(TM) enzyme, the recombinant form of
Ceredase(R) enzyme. The General Division's results of operations are highly
dependent on these products. Related sales increased 39% to $172.0 million and
represented 72% of consolidated product sales in 1994 compared to 68% in 1993.
The increase in Diagnostic Products sales resulted from
17
<PAGE>
increases in sales of immunobiological products, 1994 revenues associated with a
European company acquired in April 1993, and a more than doubling in revenues
from sales of Direct LDL cholesterol tests. The increase in Pharmaceuticals
sales resulted from the operations of a Swiss company acquired in July 1994.
Diagnostic Services revenues for 1994 declined 2% to $49.7 million from $50.5
million for 1993. The drop in service revenue resulted from declines in
identity testing revenues due primarily to the loss of four state paternity
contracts in mid-1993 and the impact of increasing price pressures on public
paternity testing. Medical testing also experienced increased price competition
due to increases in the number of HMO contracts, although year-to-year revenues
remained steady.
International sales represented approximately 37% of product sales in 1994
compared with 29% in 1993. This increase was due primarily to a 90% increase in
the combined international sales of Ceredase(R)/Cerezyme(TM) enzyme.
International sales are expected to account for a higher proportion of sales in
the future due to increased international marketing efforts in all areas of the
General Division's business, as well as the impact of expansion through
acquisitions of European operations such as those in 1993 and 1994. As the
Company's presence in foreign markets increases, the General Division will
experience increasing exposure to currency fluctuations which it will attempt to
minimize through asset and cash management strategies.
Revenue from research and development contracts for 1994 was $22.4 million, a
decrease of 30% from 1993. In 1993, Neozyme I and Genzyme Development Partners
provided revenues to the General Division of $6.3 million and $8.4 million,
respectively. Neozyme I, an independent company formed in 1990 to fund
accelerated research on products at Genzyme, wound up its business and
terminated this funding at the end of 1993 when the General Division purchased
the technology associated with its remaining products. Genzyme Development
Partners, which funds development of the Surgical Products, exhausted the funds
it had available for this purpose during the first quarter of 1994. Revenues
from Neozyme II, an independent public company formed in 1992 to fund the
development at Genzyme of treatments for cystic fibrosis, increased 42% to $17.8
million for 1994 due primarily to increased activity relating to collaborations
with third parties that began in 1993 along with increased efforts internally.
Gross margins for 1994 were 57%, as compared to 58% for 1993. The General
Division provides a broad range of health care products and services, resulting
in a range of gross margins depending on the particular market conditions of
each product or service. Product margins for 1994 declined to 61% from 65% in
1993 due primarily to lower margins on Ceredase(R) enzyme as a result of the
higher cost of purchased material beginning in the second quarter of 1994.
Diagnostic Services margins for 1994 increased to 35% from 32% on slightly lower
sales volumes due primarily to economies achieved in the consolidation of
testing activities.
Selling, general and administrative expenses for 1994 were $84.8 million, an
increase of 9% over 1993. The increase was due primarily to increased staffing
in support of the growth in several product lines and to the ongoing operating
expenses associated with various operations acquired in 1993 and 1994.
Research and development expenses for 1994 were $51.7 million, an increase of
14% over 1993 due to increased efforts on behalf of Neozyme II and increased
spending on internal programs, including the Surgical Products after the
exhaustion of Genzyme Development Partners' funding and a Neozyme I program
acquired at the end of 1993.
In 1994, two transactions resulted in the General Division recording unusual
charges totaling $11.4 million before taxes. In December, the General Division
charged $9.4 million for the write-off of impaired value of certain equity
investments and settled a lawsuit for $2.0 million.
Investment income for 1994 totaled $9.1 million, compared with $12.2 million
for 1993. The decrease resulted from lower average cash and investment
balances. Investment income for 1994 and 1993 included gains of $1.4 million
and $1.6 million, respectively, on the sales of securities, the majority of
which occurred in the first quarter of each period.
18
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Interest expense for 1994 was $1.4 million, net of capitalized interest of
$9.2 million. Interest relating to the General Division's 6 3/4% convertible
subordinated notes was $6.7 million in each period. Interest on a December 1993
$39.0 million secured loan, which was outstanding throughout 1994 and repaid in
January 1995, was $1.8 million for 1994. The General Division also incurred
interest expense in 1994 of $0.9 million related to a $21.5 million mortgage
loan used to acquire real property in the second quarter of 1994.
The tax provision for 1994 varies from the U.S. statutory tax rate because of
the provision for state income taxes, losses of majority-owned subsidiaries
which generate no current tax benefit, tax credits and taxes on foreign
earnings. The effective tax rate was 35% for 1994 as compared to 25% for 1993.
The increase was due to changes in U.S. versus foreign taxable income, to the
lower proportion of tax exempt securities in the investment portfolio and to
certain charges recorded in 1994 for which the General Division received no tax
benefit. The allocated tax benefit of $1.9 million generated by GTR reduced the
General Division's tax rate to 31%.
1993 AS COMPARED TO 1992
The General Division's total revenue for 1993 was $265.7 million, an increase
of 23% from 1992.
Revenues from product sales in 1993 increased $43.8 million or 31% to $183.4
million. Therapeutics revenues were $125.7 million, up 34% from 1992 primarily
due to increased sales of Ceredase(R) enzyme. For 1993, these sales totaled
$123.9 million (68% of consolidated product sales in 1993 and 1992). Diagnostic
Products revenues were $42.8 million in 1993, an increase of 28% over 1992 due
primarily to the revenues from two companies acquired in 1993 and a full year of
revenues from a company acquired in 1992. The General Division's Pharmaceuticals
revenues were $14.8 million in 1993, an increase of 21% from 1992 due to
increased sales of existing products and continued development of custom
products for new customers. Revenues from Diagnostic Services were $50.5
million in 1993, an increase of $10.1 million, or 25%, over 1992. The increase
was due to a full year of revenues from a paternity testing business acquired in
mid 1992 and the addition of new accounts and the application of new technology
to prenatal genetic testing.
International sales represented approximately 29% of product sales in 1993
compared with 17% in 1992 due primarily to a 278% increase in international
sales of Ceredase(R) enzyme.
Combined research and development revenues decreased 13% to $31.8 million in
1993. The decrease resulted primarily from the inclusion in 1992 of a $5.0
million one-time license fee from Neozyme II.
Total operating expenses in 1993 were $222.8 million (net of certain charges
of $50.5 million, described below) as compared to $176.0 million (net of certain
charges of $68.0 million, described below) in 1992, an increase of 27%. The
cost of products sold increased 23% to $64.7 million on a sales increase of 31%.
The cost of services increased 27% to $34.6 million on a revenue increase of
25%. Consequently, combined gross margin improved during 1993 to 58% versus 56%
in 1992. Gross margin increased in 1993 due to a higher proportion of sales of
higher margin products, most notably Ceredase(R) enzyme. Selling, general and
administrative expenses increased 32% to $78.0 million in 1993. This increase
funded expanded efforts to support the increasing sales and business activity
for each of the General Division's product lines, including Ceredase(R) enzyme,
and ongoing costs associated with the operations of the two diagnostic products
companies acquired during 1993. A portion of the increase also represented a
full year of costs associated with the operations of two 1992 acquisitions.
Research and development expenses increased 22% to $45.5 million due to the
increased efforts by the General Division on behalf of Neozyme II and Genzyme
Development Partners and expanded clinical testing activities.
Investment income for 1993 decreased 44% from 1992 to $12.2 million, which
included $1.6 million of realized gains from the sale of securities. The
decrease resulted from lower average cash balances due to increased capital
spending, and a 1992 realized gain of approximately $4.6 million from the sale
of securities. Interest expense, net of amounts capitalized into manufacturing
construction projects, decreased 65% to $2.5 million.
19
<PAGE>
In 1993, several transactions resulted in the General Division recording
certain charges totaling $50.5 million before taxes. In December, the General
Division completed the purchase of the fetal cell separation technology from
Neozyme I for $24.0 million in cash. Also in December, the General Division
incurred restructuring charges of $2.8 million and wrote off $23.7 million to
reduce the carrying value of intangibles in the Diagnostic Services business.
The majority of the write-off ($21.9 million) related to the goodwill recorded
in connection with the acquisition of a paternity testing business in mid 1992.
The write-off was based on an analysis of that business which indicated that the
environment for public paternity testing had changed significantly since the
acquisition, and therefore called into question the carrying value of the
acquisition-related goodwill. The remaining $1.8 million of write-offs
consisted of patent rights and other intangible assets related to earlier
acquisitions. In the fourth quarter of 1993, the General Division incurred
restructuring charges of $2.8 million related to the consolidation of laboratory
operations in its Diagnostic Services business. The expenses were related to
severance of $1.2 million for an estimated 45 employees; lease costs of $0.8
million; equipment movement and disposal costs of $0.2 million; costs incurred
to restructure the General Division's paternity product line of $0.2 million;
and other costs of $0.4 million. All costs were cash expenditures in 1994. The
restructuring plan was undertaken to consolidate lab testing services into the
General Division's most cost-effective testing locations, transfer accounting
functions to the Diagnostic Services headquarters and streamline the paternity
product.
In 1992, the General Division recorded certain charges totaling $68.0 million.
In May, in connection with the unit offering by the General Division and Neozyme
II, the General Division wrote off $16.9 million, the value of its option to
purchase all of Neozyme II's callable common stock due to the uncertainty as to
the General Division's future exercise of the option. In December, the General
Division completed the purchase of four of the Neozyme I development programs.
The purchase price of the Neozyme I programs, $49.0 million, and $2.1 million of
purchased technology in connection with a 1993 acquisition were charged to
operations as in-process research and development.
The General Division's effective tax rate was 25% in 1993 compared to 173% in
1992. The rate reduction resulted primarily from the effects of the certain
charges described above. Excluding these charges, the General Division would
have had an effective tax rate of 28% and 33% in 1993 and 1992, respectively.
In January 1993, the General Division adopted Statement of Financial Accounting
Standard No. 109 ("FAS 109") which requires the use of the asset and liability
approach for accounting for income taxes. The General Division elected to apply
the provisions of FAS 109 retroactively to January 1, 1992 and the adoption had
no significant impact on the previously reported results of operations. The
effective tax rates for 1993 and 1992, after the allocated tax benefit (pro
forma) generated by GTR of $9.6 million and $0.2 million, respectively, were a
60% benefit and a 171% expense.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the General Division had cash, cash equivalents and
investments in marketable securities totaling $86.4 million, a decrease of $42.3
from December 31, 1994. The General Division repaid a $39.0 million term loan
in January 1995. In the six months ended June 30, 1995, the General Division
spent $25.5 million on increased manufacturing capacity and invested an
additional $4.0 million in GTC, an unconsolidated affiliate. These expenditures
were financed primarily by operations, $18.9 million, and by the issuance of
common stock through exercises of stock options and warrants, $6.7 million.
The General Division expects that, excluding the proceeds from this offering,
its available cash, investments and cash flow from research contracts and
product and service sales will be sufficient to finance its planned operations
and capital requirements for at least the next two years. Although the General
Division currently has substantial cash resources, it has committed to utilize a
portion of its resources for certain purposes, such as making certain payments
to third parties in connection with strategic collaborations. In addition,
working capital and other capital requirements may change because of
unanticipated changes in business conditions, and such other considerations as
expansion of operations, results of research and development activities,
competitive and technological developments, the timing and costs of obtaining
required regulatory approvals for new products, and future acquisitions of
technology and/or product rights.
20
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As of June 30, 1995, the General Division had accounts receivable of $80.2
million, an increase of $3.6 million from December 31, 1994, due primarily to
increased sales. Inventories increased $5.1 million, or 14%, to $41.9 million
as of June 30, 1995 as compared to December 31, 1994. The increase was due
primarily to improved Ceredase(R) yields and management's efforts to build
Ceredase(R) inventories, support of increased business operations and, in part,
to exchange rate fluctuations.
In January 1995, the General Division renewed its commitment to continue
funding, until March 1, 1996, the development of the Surgical Products on behalf
of Genzyme Development Partners, whose available funds were fully expended in
the first quarter of 1994.
21
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ADDITIONAL FINANCIAL DATA
GENZYME CORPORATION CONSOLIDATED
Genzyme Corporation holds title to all of its assets and is responsible for all
of its liabilities, and the holders of General Division Stock have no specific
claim against the assets attributed for financial statement purposes to the
General Division. Liabilities or contingencies of either division that affect
the Company's resources or financial condition could affect the financial
condition or results of operations of both divisions. Therefore, the following
consolidated statement of operations and balance sheet data of the Company are
presented as additional information due to the nature of the Company's financial
reporting structure.
The following table represents summary historical statement of operations and
balance sheet data of the Company as derived from the its consolidated financial
statements. The operating results for the six months ended June 30, 1995 are
not necessarily indicative of the results that may be expected for the entire
fiscal year. The data should be read in conjunction with the historical
financial statements and notes thereto, and related Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company,
incorporated by reference in this Prospectus. See "Incorporation of Certain
Documents by Reference." Amounts are in thousands.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
--------- -------- ---------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (1):
Revenues........................................ $ 61,549 $121,916 $219,079 $270,371 $311,051 $148,660 $181,794
Net income (loss) (2)........................... (25,988) 20,846 (30,317) (6,095) 16,303 17,555 15,996
AT DECEMBER 31, AT JUNE 30,
-------------------------------------------------------------
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments (3)........................ $ 47,059 $283,473 $248,325 $168,953 $153,460 $102,608
Working capital................................. 62,252 147,007 166,324 99,605 103,871 134,896
Total assets.................................... 129,625 403,643 481,896 542,052 658,408 638,880
Long-term debt and capital lease obligations
excluding current portion (4).................. 5,694 104,609 105,369 144,674 126,729 128,321
Stockholders' equity (5)........................ 103,300 268,333 322,613 334,072 418,964 451,308
</TABLE>
There were no cash dividends paid.
______________
(1) In October 1992, the Company acquired all the outstanding common shares of
Vivigen in a transaction accounted for as a pooling of interests.
Accordingly, the Company's financial data have been restated to include
Vivigen for all periods presented.
(2) Net income (loss) includes the purchase of in-process research and
development totaling $20.8 million, $51.1 million, $49.0 million and $11.2
million, respectively, for the years ended December 31, 1990, 1992, 1993 and
1994; goodwill impairment and restructuring costs totaling $26.5 million for
the year ended December 31, 1993; and charges for purchase options and
financing expenses totaling $9.0 million and $16.9 million, respectively,
for the years ended December 31, 1990 and 1992.
(3) Cash and investments includes cash, cash equivalents, and short- and long-
term investments.
(4) In October 1991, Genzyme issued $100.0 million of its 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million.
(5) In April 1991, Genzyme completed the sale to the public of 4,025,000 shares
of Genzyme Common Stock for net proceeds of $136.4 million. In December
1994, Genzyme issued 5,000,000 shares of TR Stock valued at $25.3 million
in connection with the acquisition of BioSurface Technology, Inc.
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DESCRIPTION OF GENZYME CAPITAL STOCK
The following descriptions are qualified in their entirety by reference to the
Articles of Organization of Genzyme Corporation.
GENERAL
Genzyme is authorized to issue 150 million shares of capital stock, consisting
of 100 million shares of General Division Stock, 40 million shares of TR Stock
and 10 million shares of Preferred Stock. Each class of common stock has the
voting powers, qualifications and rights described below.
DIVIDENDS
Genzyme's Articles of Organization provide that dividends on the General
Division Stock may be declared and paid only out of the lesser of (a) funds of
Genzyme legally available therefor and (b) the Available General Dividend
Amount, as defined below, and that dividends on the TR Stock may be paid out of
the lesser of (a) funds of Genzyme legally available therefor and (b) the
Available Tissue Repair Dividend Amount, as defined below. Under the
Massachusetts Business Corporations Law (the "MBCL"), the payment of dividends
is permitted if the corporation is not insolvent, the dividend payment does not
render the corporation insolvent, and the dividend payment does not violate the
corporation's Articles of Organization. Subject to such limitations, the Board
may, in its sole discretion, declare and pay dividends exclusively on either
class of common stock, or both, in equal or unequal amounts, notwithstanding the
amounts available for the payment of dividends on each class, the respective
voting and liquidation rights of each class, the amounts of prior dividends
declared on each class or any other factor. Genzyme has never paid a cash
dividend on any class of its capital stock and currently intends to retain all
earnings for use in its business.
As stated above, in addition to the statutory limitations under the MBCL,
dividends on the General Division Stock and TR Stock would be limited to an
amount not in excess of the Available General Dividend Amount or the Available
Tissue Repair Dividend Amount, respectively. The "available dividend amount"
for each of the General Division Stock and the TR Stock is defined to mean
generally the greater of (A) the excess of (1) the greater of (a) the fair value
of the net assets allocated to the division represented by such class of common
stock and (b) an amount equal to stockholders' equity allocated to such division
as of June 30, 1994, increased or decreased, as appropriate, to reflect, after
June 30, 1994, (i) the net income or loss of such division, (ii) any dividends
or other distributions (including by reclassification or exchange) declared or
paid with respect to, or repurchases or issuances of, any shares of capital
stock attributed to such division, but excluding dividends or other
distributions paid in shares of capital stock attributed to such division to the
holders thereof, and (iii) any other adjustments to the stockholders' equity of
such division made in accordance with generally accepted accounting principles,
over (2) the aggregate par value of all outstanding shares of capital stock
attributed to such division or (B) the amount legally available for the payment
of dividends determined in accordance with the MBCL applied as if such division
were a separate corporation.
EXCHANGE OF TR STOCK
Genzyme's Articles of Organization do not provide for either mandatory or
optional exchange or redemption of the General Division Stock, but do provide
that TR Stock may be exchanged for any combination of cash and/or General
Division Stock upon the terms described below. Genzyme cannot predict the
impact of its ability to effect such exchanges on the market prices of the
General Division Stock and TR Stock.
OPTIONAL EXCHANGE. At any time after the later of (A) December 31, 1995 or (B)
the date on which equity investments in TR Stock by third-party investors or the
allocation of cash or cash equivalents from the General Division to GTR, or any
combination of such equity investments and allocations, equals an aggregate of
at least $10 million, the Board may determine to exchange all outstanding shares
of TR Stock for any combination of cash and/or General Division Stock having a
Fair Market Value equal to 130% of the Fair Market Value of TR Stock as
determined by the trading
23
<PAGE>
prices during a specified period prior to the first public announcement by
Genzyme of such exchange. Thus, upon successful completion of the TR Stock
Offering, the Board could elect to make such an exchange after December 31,
1995.
The foregoing provision allows Genzyme the flexibility to redeem all
outstanding shares of TR Stock and leave outstanding one class of common stock
that would represent the residual equity interest in all of Genzyme's
businesses. Subject to the limitations described above, the optional exchange
could be exercised at any future time if the Board determined that, under the
facts and circumstances then existing, an equity structure consisting of two
classes of common stock was no longer in the best interests of all of Genzyme's
stockholders (including holders of General Division Stock and holders of TR
Stock).
MANDATORY EXCHANGE. In the event of the Disposition, in one transaction or a
series of related transactions, by Genzyme of all or substantially all of the
properties and assets allocated to GTR (other than in connection with the
Disposition by Genzyme of all or substantially all of its properties and assets
in one transaction or a series of related transactions) to any person, entity or
group (other than (A) any entity in which Genzyme, directly or indirectly, owns
all of the equity interest or (B) certain entities formed in connection with
obtaining financing for the programs or products of GTR), Genzyme is required,
on or prior to the first business day following the 90th day following the
consummation of such Disposition, to exchange each outstanding share of TR Stock
for any combination of cash and/or General Division Stock having a Fair Market
Value equal to 130% of the Fair Market Value of TR Stock as determined by the
trading prices during a specified period prior to the first public announcement
by Genzyme of such disposition. Consequently, holders of TR Stock may receive a
greater or lesser premium for their shares than any premium paid by a third-
party buyer of the assets of GTR. In addition, any such exchange for shares of
General Division Stock could be made at a time that is disadvantageous to the
holders of either General Division Stock or the holders of TR Stock.
CERTAIN OTHER EXCHANGE TERMS. "Fair Market Value" as of any date means the
average of the daily closing prices as reported by the Nasdaq National Market
(or the appropriate exchange on which such shares are then traded) for the 20
consecutive days commencing on the 30th trading day prior to such date. In the
event such closing prices are unavailable, Fair Market Value will be determined
by the Board. Genzyme's Articles of Organization contain the definitions of
"Disposition" and "Substantially all of the properties and assets of GTR," as
well as certain provisions with regard to required notices of exchanges of TR
Stock, treatment of fractional shares, rights to dividends, surrender and
exchange of stock certificates, payment of issue and transfer taxes and the
treatment of Convertible Securities.
VOTING RIGHTS
Genzyme's Articles of Organization provide that holders of shares of General
Division Stock and TR Stock vote together as a single class on all matters as to
which common stockholders generally are entitled to vote. On all such matters,
each share of General Division Stock has one vote, and through December 31, 1996
each share of TR Stock has .29 votes. Holders of outstanding General Division
Stock and TR Stock currently have approximately 91% and 9%, respectively, of the
total voting power of Genzyme. The percentages of the total voting power of
Genzyme held by the holders of General Division Stock and TR Stock, upon
completion of this offering, will be 92% and 8%, respectively, and, after
consummation of both this offering and the TR Stock Offering (assuming that the
underwriters' over-allotment option is not exercised), will be approximately
89.5% and 10.5%, respectively. On January 1, 1997 and on January 1 every two
years thereafter, the number of votes to which each share of TR Stock is
entitled would be adjusted to equal the ratio of the Fair Market Value of one
share of TR Stock to the Fair Market Value of one share of General Division
Stock as of such date. The voting rights of TR Stock will also be appropriately
adjusted so as to avoid dilution in the aggregate voting rights of either class
in the event the outstanding shares of either class are subdivided (by stock
split, reclassification or otherwise) or combined (by reverse stock split,
reclassification or otherwise), or in the event of the issuance of shares of
either class as a dividend or a distribution to holders of shares of that class.
If shares of only one class of common stock are outstanding, or if shares of any
class of common stock are entitled to vote separately as a class, each share of
that class would have one vote.
24
<PAGE>
The relative voting rights of General Division Stock and TR Stock are adjusted
from time to time as described above so that a holder's voting rights may more
closely reflect the market value of such holder's equity investment in Genzyme.
Adjustments in the relative voting rights of General Division Stock and TR Stock
may influence an investor interested in acquiring and maintaining a fixed
percentage of Genzyme's voting power to acquire such percentage of both classes
of common stock, and will limit the ability of investors in one class to acquire
for the same consideration relatively greater or lesser voting power per share
than investors in the other class. To the extent the relative market values of
General Division Stock and TR Stock change prior to the first scheduled
adjustment or in between any scheduled adjustments, however, an investor in one
class of common stock may acquire relatively more or less voting power for the
same consideration when compared with investors in the other class of common
stock.
In addition to matters on which the holders of the General Division Stock and
the TR Stock vote together as a single class of stock, Genzyme's Articles of
Organization require the approval by the holders of the affected class of common
stock at a meeting at which a quorum is present and the votes cast in favor of
the proposal exceed those cast against to:
(1) allow any proceeds from the disposition of the properties or assets
allocated to either division to be used in the business of the other division
without fair compensation;
(2) allow any properties or assets allocated to either division to be
used in the business of the other division or for the declaration or payment
of any dividend or distribution on any class of common stock not attributed to
such division without fair compensation;
(3) issue shares of either class of common stock without allocating the
proceeds of such issuance to the division represented by such class of common
stock (provided, however, that Genzyme may without such approval issue General
Designated Shares and TR Designated Shares, as each such term is defined below
under the heading "TR Designated Shares and General Designated Shares");
(4) change the rights or preferences of any class of common stock so as
to affect the class adversely; or
(5) effect any merger or business combination involving Genzyme as a
result of which (a) the holders of all classes of common stock of Genzyme
shall no longer own, directly or indirectly, at least fifty percent (50%) of
the voting power of the surviving corporation and (b) the holders of all
classes of common stock of Genzyme do not receive the same form of
consideration, distributed among such holders in proportion to the market
capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
In addition to the voting rights provided in Genzyme's Articles of
Organization, the approval of the holders of a majority of the outstanding
shares of each class of common stock, voting separately as a class, is required
under the current MBCL to approve any amendment to the Articles of Organization
that would alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The MBCL does not
currently provide for any other separate voting rights for a class of common
stock. Consequently, because most matters brought to a stockholder vote will
only require the approval of a majority of all of Genzyme's outstanding capital
stock entitled to vote on such matters (including both classes of common stock)
voting together as a single class and because the holders of General Division
Stock currently have more than the number of votes required to approve any such
matter, such holders would be in a position to control the outcome of the vote
on such a matter. See "Risk Factors - Risks Related to Two Classes of Common
Stock - No Additional Separate Voting Rights."
25
<PAGE>
LIQUIDATION RIGHTS
Genzyme's Articles of Organization provide that holders of outstanding shares
of General Division Stock and TR Stock will receive the assets, if any,
remaining for distribution to common stockholders on a per share basis in
proportion to the respective per share liquidation units of each class and such
holders will have no direct claim against any particular assets of Genzyme or
any of its subsidiaries. Each share of General Division Stock will have one
liquidation unit and each share of TR Stock will have .29 liquidation units
(equal to the number of votes to which each share of TR Stock was entitled on
December 16, 1994). The liquidation units of TR Stock will be appropriately
adjusted so as to avoid dilution in the aggregate liquidation rights of either
class in the event the outstanding shares of either class are subdivided (by
stock split, reclassification or otherwise) or combined (by reverse stock split,
reclassification or otherwise), or in the event of the issuance of shares of
either class as a dividend or a distribution to holders of shares of that class,
but will not otherwise be adjusted.
A merger or business combination involving Genzyme or a sale of all or
substantially all of the assets of Genzyme will not be treated as a liquidation.
However, Genzyme may not, without approval by the holders of the affected class
of Common Stock at a meeting at which a quorum is present and the votes cast in
favor of the action exceed those cast against, effect any merger or business
combination involving Genzyme as a result of which (a) the holders of all
classes of common stock of Genzyme shall no longer own, directly or indirectly,
at least fifty percent of the voting power of the surviving corporation, and (b)
the holders of all classes of common stock of Genzyme do not receive the same
form of consideration, distributed among such holders in proportion to the
market capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
TR DESIGNATED SHARES AND GENERAL DESIGNATED SHARES
Prior to the formation of GTR in December 1994, the Board determined that the
initial pro forma equity interest in GTR would be represented by 10 million
shares of TR Stock. This number of shares of TR Stock was established based on
the desired initial trading range of TR Stock, prevailing market conditions,
financial and operating information of GTR and the price-earnings ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of GTR. 5.0 million shares of
TR Stock, representing 50% of the initial pro forma equity interest in GTR, were
issued in connection with Genzyme's acquisition of BioSurface Technology, Inc.
("BioSurface") to holders of BioSurface Common Stock. The other 50% of the
initial pro forma equity interest in GTR was represented by 5.0 million "TR
Designated Shares." TR Designated Shares are authorized shares of TR Stock
which are not issued and outstanding, but which the Board may from time to time
issue, sell or otherwise distribute without allocating the proceeds or other
benefits of such issuance, sale or distribution to GTR. Genzyme issued
approximately 3,400,000 of such TR Designated Shares as a stock dividend to
holders of General Division Stock of record on December 16, 1994, the date of
the acquisition of BioSurface. The remaining initial TR Designated Shares were
reserved for issuance upon the exercise of General Division stock options and
warrants and the conversion of convertible notes outstanding on December 16,
1994. As of August 1, 1995, there were 1,290,465 TR Designated Shares,
1,280,616 of which were reserved for issuance upon the exercise or conversion of
outstanding stock options, warrants and notes that are exercisable or
convertible into General Division Stock. The shares of TR Stock that are
issuable with respect to the TR Designated Shares are not outstanding shares of
TR Stock, are not eligible to receive dividends, and cannot be voted by Genzyme.
The number of TR Designated Shares is subject to adjustment. The number will
be (A) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of TR Stock
and dividends or distributions of shares of TR Stock to holders of TR Stock and
other reclassifications of TR Stock, (B) decreased by (1) the number of shares
of TR Stock issued by Genzyme, the proceeds of which are allocated to the
General Division, (2) the number of shares of TR Stock issued upon the exercise
or conversion of options, warrants and other securities attributed to the
General Division, and (3) the number of any shares of TR Stock issued by Genzyme
as a dividend or distribution or by reclassification, exchange or otherwise to
holders of General Division Stock (including the 3,400,000 shares of TR Stock
distributed to holders of General Division Stock in December 1994 as
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<PAGE>
described above), and (C) increased by (1) the number of any outstanding shares
of TR Stock repurchased by Genzyme, the consideration for which was allocated to
the General Division, (2) one for each $10.00 reallocated from the General
Division to GTR from time to time in satisfaction of the Funding Commitment or
the Purchase Option of the General Division, up to a maximum $30 million, and
(3) the number equal to the fair value (as determined by the Board) of assets or
properties allocated to the General Division that are reallocated to GTR (other
than reallocations that represent sales at fair value between such divisions or
reallocations described in the foregoing clause (C)(2)) divided by the Fair
Market Value of one share of TR Stock as of the date of the reallocation;
Genzyme is prohibited by the Articles of Organization from taking any action
which would have the effect of reducing the number of TR Designated Shares to a
number which is less than zero.
Genzyme's Articles of Organization also contain provisions for "General
Designated Shares," which are authorized shares of General Division Stock that
Genzyme may issue without allocating any consideration to the General Division.
Currently, there are no General Designated Shares. However, General Designated
Shares may be created if, for example, the Board determines that programs or
other assets reallocated from GTR to the General Division will be accounted for
as an increase in General Designated Shares rather than as a transfer of cash or
other assets of the General Division having a fair value equal to GTR assets
reallocated. Notwithstanding the foregoing, by agreement with BioSurface,
Genzyme adopted a policy that no Key TR Program (as defined in "Management and
Accounting Policies Covering the Relationship of Genzyme Divisions - Inter-
Division Asset Transfers") may be transferred out of GTR without a class vote of
the holders of TR Stock except in certain limited circumstances, and no
reallocation of other programs or assets of GTR may be accounted for as an
increase in General Designated Shares without a class vote of the holders of TR
Stock. Genzyme has also agreed that this policy will not be changed without a
class vote of the holders of TR Stock. Consequently, any decision by the Board
to account for a reallocation of any programs or assets of GTR as an increase in
General Designated Shares would require a class vote of the holders of TR Stock.
The number of General Designated Shares will be subject to adjustment in a
manner substantially similar to adjustments to the number of TR Designated
Shares.
Whenever additional shares of any class of common stock are issued and sold by
Genzyme, Genzyme will identify (i) the number of such shares issued and sold for
the account of the division to which they relate, the proceeds of which will be
allocated to and reflected in the financial statements of such division and (ii)
the number of such shares issued and sold from the TR Designated Shares or the
General Designated Shares, which shall reduce the number of TR Designated Shares
or General Designated Shares, as the case may be, and the proceeds of which may
be used for any proper corporate purpose. In the event Genzyme repurchases
outstanding shares of any class of common stock, it will identify the number of
shares that are repurchased for consideration that was allocated to the General
Division and the number of shares that are repurchased for consideration that
was allocated to GTR and the number of TR Designated Shares or General
Designated Shares may increase accordingly.
"ANTI-TAKEOVER" PROVISIONS
CONTRACTUAL MEASURES. The Articles of Organization and By-Laws of Genzyme
contain provisions that could discourage potential takeover attempts and prevent
stockholders from changing the Genzyme's management, including authorization of
the Board to issue shares of preferred stock in series, enlarge the size of the
Board and fill any vacancies on the Board, and restrictions on the ability of
stockholders to call a special meeting of stockholders, bring business before an
annual meeting and nominate candidates for election as directors. Genzyme also
has agreements with certain officers containing change of control provisions.
In addition, Genzyme has a stockholder rights plan. Under this plan, each
outstanding share of General Division Stock and TR Stock also represents a right
that, under certain circumstances, may trade separately from the General
Division Stock and TR Stock, respectively. The rights, which are not currently
exercisable, under certain circumstances will permit their holders (other than
an acquiror) to purchase at a favorable price large amounts of General Division
Stock, TR Stock or securities of a successor to Genzyme with the result that an
acquiror's interest in Genzyme would
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<PAGE>
be substantially diluted. The description and terms of the rights are set forth
in an Amended and Restated Rights Agreement between Genzyme and American Stock
Transfer and Trust Company as Rights Agent.
BUSINESS COMBINATION STATUTE. Massachusetts' "Business Combination" statute
provides that, if a person acquires 5% or more of the stock of a Massachusetts
corporation without the approval of its board of directors (an "interested
stockholder"), he may not engage in certain transactions with the corporation
for a period of three years. There are certain exceptions to this prohibition;
for example, if the board of directors approves the acquisition of stock or the
transaction prior to the time that the person became an interested stockholder,
or if the interested stockholder acquires 90% of the voting stock of the
corporation (excluding voting stock owned by directors who are also officers and
certain employee stock plans) in one transaction, or if the transaction is
approved by the board of directors and by the affirmative vote of two-thirds of
the outstanding voting stock which is not owned by the interested stockholder,
the prohibition does not apply.
Genzyme is subject to the Massachusetts Business Combination statute unless it
elects not to be governed by the statute in its Articles of Organization or By-
laws. Genzyme has not made such election and does not currently intend to make
such an election.
CONTROL SHARE ACQUISITION STATUTE. The Massachusetts Control Share Acquisition
statute provides that a person (hereinafter, the "acquiror") who makes a bona
fide offer to acquire, or acquires, shares of stock of a corporation that when
combined with shares already owned, would increase the acquiror's ownership to
at least 20%, 33 1/3%, or a majority of the voting stock of the corporation,
must obtain the approval of a majority in interest of the shares held by all
stockholders, excluding shares held by the acquiror and the officers and inside
directors of the corporation, in order to vote the shares acquired. The statute
does not require the acquiror to consummate the purchase before the stockholder
vote is taken.
The Control Share Acquisition statute permits a Massachusetts corporation to
elect not to be governed by these provisions by including such an election in
its articles of organization or by-laws. The Genzyme By-Laws contain a
provision pursuant to which Genzyme elected not to be governed by the
Massachusetts Control Share Acquisition statute. However, if at a future date
the Board determines that it is in the best interests of Genzyme and its
stockholders that Genzyme be governed by the statute, Genzyme's By-Laws may be
amended to permit it to be governed by such statute. Any such amendment,
however, would apply only to acquisitions crossing the thresholds which occur
after the effective date of such amendment.
MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
Genzyme has adopted the following policies to govern the management of GTR and
its relationship to the General Division. Except as otherwise stated below, the
policies may be modified or rescinded in the sole discretion of the Board
without approval of Genzyme stockholders, subject only to the Board's fiduciary
duty to Genzyme's stockholders. The Board may also adopt additional policies
depending upon the circumstances. Any determination of the Board to modify or
rescind such policies, or to adopt additional policies, including any such
decision that would have disparate impacts upon holders of the two classes of
common stock, would be governed by the principles of Massachusetts law discussed
under "Risk Factors - Risks Related to Two Classes of Common Stock - No Rights
or Additional Duties with Respect to the Divisions; Potential Conflicts." In
addition, generally accepted accounting principles require that any change in
policy be preferable (in accordance with such principles) to the previous
policy.
PURPOSE OF GTR. The purpose of GTR is to create a business with a comprehensive
approach to the field of tissue repair by developing and commercializing a
portfolio of novel products for the treatment and prevention of serious tissue
injury (excluding products developed on behalf of Genzyme Development Partners).
In addition to the programs initially assigned to GTR, it is expected that the
GTR portfolio will expand through the addition of complementary products and
programs developed either internally or externally to the division, including
acquiring or in-licensing from
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outside of Genzyme. Other than the method of financing, GTR is operated and
managed similarly to other Genzyme divisions.
REVENUE ALLOCATION. Revenues from the sale of a division's products are
credited to that division. The cost of research done by one division for the
benefit of another division is charged to the division for which the work is
done in the manner described in the following paragraph. The division
performing the research does not recognize revenue as a result of such research.
EXPENSE ALLOCATION. All direct expenses are charged to the division for the
benefit of which they are incurred. Corporate and general and administrative
expenses and other shared services or other indirect costs are allocated to each
division in a reasonable and consistent manner based on utilization by the
division of the services to which such costs relate. To the extent borrowings
are deemed to occur between divisions, inter-division accounts will be
established with interest imputed at the rate then available to Genzyme for
short-term borrowings.
TAX ALLOCATIONS. Income taxes are allocated to each division based upon the
financial statement income, taxable income, credits and other amounts properly
allocable to such division under generally accepted accounting principles as if
each division were a separate taxpayer; provided, however, that as of the end of
any fiscal quarter of Genzyme, any projected tax benefit attributable to any
division that cannot be utilized by such division to offset or reduce its
current or deferred income tax expense may be allocated to any other division
without any compensating payment or allocation.
ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme
from a third party of any additional programs, products or assets (whether by
acquisition of assets or stock, merger, consolidation or otherwise), the
aggregate cost of the acquisition and the programs, products or assets acquired
will be allocated among the divisions to which such programs, products or assets
are assigned. Such assignment and allocation will be made by the Board taking
into account such matters as the Board and its financial advisors, if any, deem
relevant. Any such determination by the Board will be final and binding on all
holders of all classes of common stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon any sale, transfer,
assignment or other disposition by Genzyme of any product, program or asset not
consisting of all or substantially all of the assets of a division, all proceeds
from such disposition will be allocated to the division to which the program,
product or asset had been allocated, and such proceeds will be used for the
benefit of such division. If a program, product or asset is allocated to more
than one division, the proceeds of the disposition will be allocated among such
divisions based on their respective interests in such program, product or asset.
Such allocation will be made by the Board taking into account such matters as
the Board and its financial advisors, if any, deem relevant. Any such
determination by the Board will be final and binding on all holders of all
classes of common stock.
INTER-DIVISION ASSET TRANSFERS. The Board may at any time and from time to time
reallocate any program, product or other asset from one division to any other
division. All such reallocations will be done at fair market value, determined
by the Board, taking into account, in the case of a program under development,
the commercial potential of such program, the phase of clinical development of
such program, the expenses associated with realizing any income from such
program, the likelihood and timing of any such realization and other matters
that the Board and its financial advisors deem relevant. The consideration for
such reallocation may be paid by one division to another in cash or, in lieu of
cash or other consideration, the Board may elect to account for a reallocation
of assets from GTR to the General Division as an increase in the number of
General Designated Shares and a reallocation of assets from the General Division
to GTR as either an increase in the number of TR Designated Shares or a
reduction in the General Designated Shares, if any, except that a reallocation
of assets from GTR to the General Division may not be accounted for as an
increase in General Designated Shares without a class vote of the holders of the
TR Stock.
Notwithstanding the foregoing, no Key TR Program, as defined below, may be
transferred out of GTR without a class vote of the holders of the TR Stock
unless the Board determines that such Key TR Program has application outside of
the field of tissue repair (in which case it may be transferred out only for the
non-tissue repair applications). A "Key
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TR Program" is any of the following: (i) Vianain(R) Debriding Product for
debridement of necrotic or damaged tissue; (ii) TGF-B\\2\\ for all indications
licensed from Celtrix Pharmaceuticals, Inc. as of December 16, 1994; (iii)
Epicel(SM) cultured epithelial cell autografts for tissue replacement or repair;
(iv) Acticel(SM) cultured epithelial cell allografts for tissue replacement or
repair; (v) CARTICEL(SM) Autologous Chondrocyte Service; and (vi) any additional
tissue repair program or product being developed from time to time in GTR which
(a) constituted 20% or more of the research and development budget of GTR in any
of three most recently completed fiscal years or (b) has had a cumulative
investment of $8 million or more in research and development expenses by GTR.
The foregoing policies regarding transfers of assets between divisions may not
be changed by the Board without a class vote of the holders of the TR Stock.
ACCESS TO TECHNOLOGY AND KNOW-HOW. GTR and the General Division each have free
access to all technology and know-how of Genzyme that may be useful in such
division's business, subject to any obligations or limitations applicable to
Genzyme.
DISPOSITION OF TR DESIGNATED SHARES. The TR Designated Shares may be (i) issued
upon the exercise of outstanding stock options and warrants and the conversion
of outstanding convertible notes allocated to the General Division, (ii) subject
to the restrictions set forth in the following paragraph, sold for any valid
business purpose, or (iii) distributed as a dividend to the holders of shares of
General Division Stock, all as determined from time to time by the Board in its
sole discretion. Genzyme distributed approximately 3.4 million of the initial
5.0 million TR Designated Shares as a stock dividend to holders of Genzyme
common stock of record on December 16, 1994, and reserved the remaining initial
TR Designated Shares for issuance upon the exercise or conversion of stock
options, warrants and convertible notes outstanding as of December 15, 1994. To
the extent that any such remaining initial TR Designated Shares are not used for
such purposes, the Board may issue them for any other valid business purposes
without crediting any proceeds to GTR.
ISSUANCE OF ADDITIONAL SHARES OF ANY CLASS OF GENERAL DIVISION STOCK. If
additional shares of any class of common stock are issued and sold by Genzyme,
Genzyme will identify (i) the number of such shares issued and sold for the
account of the division to which they relate, the proceeds of which will be
allocated to and reflected in the financial statements of such division and (ii)
the number of such shares issued and sold that will reduce the number of
Designated Shares from such division and the proceeds of which may be used for
any valid business purpose. Notwithstanding the foregoing, Genzyme will not
sell any shares of TR Stock without allocating the proceeds to GTR (except upon
exercise or conversion of options, warrants or convertible notes outstanding as
of December 16, 1994) unless (i) the Board determines that GTR has cash
sufficient to fund its operations for at least the next 12 months or (ii) shares
of TR Stock concurrently being sold for the account of GTR will produce proceeds
sufficient to fund GTR's cash needs for the next 12 months.
RESERVATION OF SHARES OF TR STOCK. Genzyme has reserved approximately 2,000,000
shares of TR Stock for issuance to Genzyme employees pursuant to grants made
after December 15, 1994 under one or more employee incentive plans.
OPEN MARKET PURCHASES OF SHARES OF ANY CLASS. Genzyme may make open market
purchases of any class of its common stock in accordance with applicable
securities law requirements; provided, however, that such purchases of TR Stock
may not be made if as an immediate result thereof the number of TR Designated
Shares would represent more than 60% of the number of TR Designated Shares plus
the number of outstanding shares of TR Stock. Such restriction is intended to
prevent Genzyme from using open market purchases to effect a redemption of the
TR Stock without paying the 30% premium required for a complete redemption of TR
Stock under the terms of Genzyme's Articles of Organization. In addition,
within 90 days of any open market purchase of any class of common stock, Genzyme
may not exchange shares of such class for cash or shares of any other class of
common stock.
CLASS VOTING. In addition to any shareholder approval required by Massachusetts
law, whenever the approval of the holders of a class of common stock is required
to take any action pursuant to these policies or Genzyme's Articles of
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Organization, such requirement will be satisfied if a meeting of the holders of
such class is held at which a quorum is present and the votes cast in favor of
the proposed action exceed the votes cast against.
NON-COMPETE. Genzyme will not develop products outside of GTR that compete or
would compete in the market with products being developed or sold by GTR.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1995 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation, Cowen & Company, Lehman Brothers Inc. and PaineWebber Incorporated
are acting as representatives (the "Representatives"), have severally but not
jointly agreed to purchase from the Company the following respective numbers of
shares of General Division Stock:
NUMBER OF
UNDERWRITER SHARES
----------- ------
CS First Boston Corporation..........................
Cowen & Company......................................
Lehman Brothers Inc. ................................
PaineWebber Incorporated.............................
=========
Total...................................... 2,500,000
=========
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of General Division Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up to
375,000 additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of General Division Stock. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of General Division Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of General Division Stock to the public initially at
the public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ per share, and the Underwriters and such dealers may allow a discount
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
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In connection with this offering, CS First Boston Corporation and certain of
the Underwriters and selling group members (if any) and their respective
affiliates may engage in passive market making transactions on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act during a
period before commencement of offers or sales of the shares of General Division
Stock offered hereby. The passive market making transactions must comply with
the applicable volume and price limits and be identified as such.
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any shares of General Division Stock or securities
convertible into or exchangeable or exercisable for any shares of General
Division Stock, other than pursuant to employee benefit plans and upon the
exercise or conversion of outstanding warrants and convertible notes, without
the prior written consent of CS First Boston Corporation for a period of 90 days
after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
CS First Boston Corporation and PaineWebber Incorporated provided financial
advisory services to Genzyme and BioSurface, respectively, in connection with
BioSurface's merger with and into a wholly-owned subsidiary of Genzyme in
December 1994. In addition, the Representatives and certain other Underwriters
have from time to time provided other investment banking services to the Company
for customary fees and may continue to do so in the future. It is anticipated
that the Representatives and certain other Underwriters will participate in the
TR Stock Offering.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the General Division Stock in Canada is being made only on
a private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of General Division Stock are effected. Accordingly, any
resale of the General Division Stock in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the General Division Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of General Division Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such General Division Stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
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All of the issuer's directors and officers as well as the experts named herein
may be located outside of Canada and, as a result, it may not be possible for
Ontario purchasers to effect service of process within Canada upon the issuer or
such persons. All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of General Division Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any General Division Stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #88/5, a copy of which may be obtained from the
Company. Only one such report must be filed in respect of the General Division
Stock acquired on the same date and under the same prospectus exemption.
LEGAL OPINIONS
The validity of the General Division Stock offered hereby will be passed upon
for the Company by Palmer & Dodge, Boston, Massachusetts. Peter Wirth, a
partner of Palmer & Dodge, is Clerk of the Company. Certain legal matters will
be passed upon for the Company by Mark A. Hofer, Senior Vice President and
General Counsel of the Company. As of August 1, 1995, Mr. Hofer beneficially
owned 2,345 and 1,531 shares of General Division Stock and TR Stock,
respectively (including 932 and 125 shares of General Division Stock and TR
Stock, respectively, acquired under the Genzyme Corporation Retirement Savings
Plan (the "Plan") as of December 31, 1994), and held options to purchase 73,393
shares and 13,937 shares of General Division Stock and TR Stock, respectively,
which are exercisable within the 60-day period following August 1, 1995. Shares
of General Division Stock and TR Stock beneficially owned by Mr. Hofer, other
than shares subject to stock options and shares acquired under the Plan, are
owned jointly with his wife. Mr. Hofer also beneficially owns 5,000 shares of
the Common Stock of IG Laboratories, Inc., a majority owned subsidiary of
Genzyme. Certain legal matters will be passed upon for the Underwriters by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
Genzyme Corporation, the combined financial statements of Genzyme General
Division and the combined financial statements of Genzyme Tissue Repair Division
as of December 31, 1993 and 1994 and for each of the three years in the period
ended December 31, 1994 included in Genzyme's Annual Report on Form 10-K, as
amended by Amendments No. 1 and 2 thereto on Form 10-K/A, that have been
incorporated by reference into this Prospectus, have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements and financial statement schedules of BioSurface
Technology, Inc. as of December 31, 1992 and 1993 and for each of the three
years in the period ended December 31, 1993 appearing at pages III-19 to III-42
of Annex III to the Company's Registration Statement on Form S-4 (File No. 33-
83346) that have been incorporated by reference into this Prospectus have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Capitalization........................................................... 13
Price Range of General Division Stock and Dividend Policy................ 14
Genzyme General Division
Summary Financial Data.................................................. 15
Genzyme General Division Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 16
Additional Financial Data
Genzyme Corporation Consolidated........................................ 22
Description of Genzyme Capital Stock..................................... 23
Management and Accounting Policies Governing the Relationship of
Genzyme Divisions....................................................... 28
Underwriting............................................................. 31
Notice to Canadian Residents............................................. 32
Legal Opinions........................................................... 33
Experts.................................................................. 33
</TABLE>
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[LOGO OF GENZYME APPEARS HERE]
2,500,000 Shares
General Division
Common Stock
($.01 par value)
PROSPECTUS
CS First Boston
Cowen & Company
Lehman Brothers
PaineWebber Incorporated
- -------------------------------------------------------------------------------
