<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
---------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-14680
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GENZYME CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 06-1047163
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Kendall Square, Cambridge, Massachusetts 02139
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(Address of principal executive offices) (Zip code)
(617) 252-7500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of July 31, 1996:
Class Outstanding at July 31, 1996:
----- -----------------------------
General Division Common Stock,
$0.01 par value ("General Division Stock") 69,338,870
Tissue Repair Division Common Stock,
$0.01 par value ("TR Stock") 12,705,906
Total number of pages in document - 67
Exhibit Index located on page - 35
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 1996
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Report on Form 10-Q for Genzyme Corporation ("Genzyme" or the "Company")
contains forward-looking statements concerning, among other things, the
Company's expected future revenues, operations and expenditures, estimates of
the potential markets for the Company's products and services, assessments of
competitors and potential competitors, projected timetables for the preclinical
and clinical development, regulatory approval and market introduction of the
Company's products and services and estimates of the capacity of manufacturing
and other facilities to support such products and services. All such
forward-looking statements are necessarily only estimates of future results and
the actual results achieved by the Company may differ materially from these
projections due to a number of factors, including (i) the Company's ability to
complete successfully preclinical and clinical development and obtain timely
regulatory approval and patent and other proprietary rights protection of its
products and services, (ii) the content and timing of decisions, made by the
U.S. Food and Drug Administration and other agencies regarding the indications
for which the Company's products may be approved, (iii) the accuracy of the
Company's estimates of the size and characteristics of markets to be addressed
by the Company's products and services, (iv) market acceptance of the Company's
products and services, (v) the Company's ability to obtain reimbursement for
its products from third-party payers, where appropriate, and (vi) the accuracy
of the Company's information concerning the products and resources of
competitors and potential competitors. See also "Factors Affecting Future
Operating Results" under Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1995.
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<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. Unaudited Condensed Financial Statements
GENZYME CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 1996 and 1995............. 4
Condensed Consolidated Balance Sheets as of June 30,
1996 and December 31, 1995........................................ 6
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 .......................... 7
Notes to Unaudited Condensed Consolidated Financial Statements.... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 11
GENZYME GENERAL DIVISION
Condensed Combined Statements of Operations for
the Three and Six Months Ended June 30, 1996 and 1995.............. 16
Condensed Combined Balance Sheets as of June 30,
1996 and December 31, 1995........................................ 18
Condensed Combined Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 .......................... 19
Notes to Unaudited Condensed Combined Financial Statements........ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 22
GENZYME TISSUE REPAIR DIVISION
Condensed Combined Statements of Operations for
the Three and Six Months Ended June 30, 1996 and 1995.............. 27
Condensed Combined Balance Sheets as of June 30,
1996 and December 31, 1995........................................ 28
Condensed Combined Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 .......................... 29
Notes to Unaudited Condensed Combined Financial Statements........ 30
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 31
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Exhibits and Reports on Form 8-K............................. 33
Signatures.............................................................. 34
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<PAGE> 4
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30, JUNE 30,
- --------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales ............................... $ 91,087 $74,054 $183,902 $142,325
Net service sales ............................... 18,408 13,048 33,029 26,542
Revenues from research and development contracts:
Related parties ............................... 5,956 6,497 11,999 12,823
Other ......................................... 184 6 202 104
-------- ------- -------- --------
115,635 93,605 229,132 181,794
Operating costs and expenses:
Cost of products sold ........................... 29,164 30,843 62,488 56,974
Cost of services sold ........................... 14,880 7,826 25,533 15,777
Selling, general and administrative ............. 39,997 25,902 78,569 51,893
Research and development (including research
and development related to contracts) .......... 18,565 17,263 36,255 33,726
Other ........................................... 1,465 - 1,465 -
-------- ------- -------- --------
104,071 81,834 204,310 158,370
-------- ------- -------- --------
Operating income ................................... 11,564 11,771 24,822 23,424
Other income and (expenses):
Minority interest in net loss of subsidiaries ... - 501 - 866
Equity in net loss of unconsolidated affiliate .. (1,121) (793) (2,058) (1,742)
Gain on investments ............................. 1,711 - 1,711 -
Investment income ............................... 4,615 1,297 9,103 3,062
Interest expense ................................ (186) (173) (395) (220)
-------- ------- -------- --------
5,019 832 8,361 1,966
-------- ------- -------- --------
Income before income taxes ......................... 16,583 12,603 33,183 25,390
Provision for income taxes ......................... (6,799) (4,663) (13,107) (9,394)
-------- ------- -------- --------
Net income ......................................... $ 9,784 $ 7,940 $ 20,076 $ 15,996
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
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<PAGE> 5
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
- -----------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
ATTRIBUTABLE TO GENZYME GENERAL DIVISION:
Net income ..................................... $ 15,979 $10,932 $ 31,516 $21,303
Allocated tax benefit generated by Genzyme
Tissue Repair Division ........................ 4,305 2,035 7,802 3,662
-------- ------- -------- -------
Net income attributable to General
Division Stock .............................. $ 20,284 $12,967 $ 39,318 $24,965
======== ======= ======== =======
Income per General Division common and
common equivalent share:
Net income(1).................................. $ 0.27 $ 0.23 $ 0.54 $ 0.44
======== ======= ======== =======
Average shares outstanding(1) ................. 73,908 56,636 72,880 56,210
======== ======= ======== =======
Income per General Division Common Share
assuming full dilution:
Net income(1).................................. $ 0.27 $ 0.21 $ 0.53 $ 0.41
======== ======= ======== =======
Average fully diluted shares outstanding(1) ... 73,934 60,646 74,300 60,470
======== ======= ======== =======
ATTRIBUTABLE TO GENZYME TISSUE REPAIR
DIVISION:
Net loss attributable to TR Stock .............. $(10,500) $(5,027) $(19,242) $(8,969)
======== ======= ======== =======
Per common share:
Net loss ...................................... $ (0.83) $ (0.57) $ (1.55) $ (1.03)
======== ======= ======== =======
Average shares outstanding ..................... 12,576 8,763 12,411 8,721
======== ======= ======== =======
<FN>
- -------------
(1) Reflects for July 25, 1996 2-for-1 stock split. (See Footnote 12 -- "Subsequent Events").
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
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<PAGE> 6
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
- -----------------------------------------------------------------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................... $ 119,331 $144,372
Short-term investments ........................ 163,063 112,303
Accounts receivable, less allowance
for doubtful accounts ........................ 97,935 88,959
Inventories ................................... 64,363 53,042
Prepaid expenses and other current assets ..... 13,433 12,531
Deferred tax assets - current ................. 7,729 7,729
---------- --------
Total current assets ........................ 465,854 418,936
Property, plant and equipment, net .............. 365,341 329,423
Other Assets:
Long-term investments ......................... 52,141 69,561
Note receivable - related party ............... 1,467 262
Intangibles, net of accumulated amortization .. 64,049 29,934
Deferred tax assets - noncurrent .............. 27,487 23,645
Other noncurrent assets ....................... 29,990 33,440
---------- --------
175,134 156,842
---------- --------
$1,006,329 $905,201
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 13,436 $ 21,980
Accrued expenses .............................. 49,065 39,418
Short-term borrowings ......................... 15,000 -
Income taxes payable .......................... 8,828 1,316
Deferred revenue .............................. 3,273 1,367
Current portion of long-term debt and
capital lease obligations .................... 2,761 2,445
---------- --------
Total current liabilities ................... 92,363 66,526
Noncurrent Liabilities:
Long-term debt and capital lease obligations .. 24,242 124,473
Other noncurrent liabilities .................. 8,679 8,995
---------- --------
32,921 133,468
Stockholders' Equity:
General Division Stock, $.01 par value ........ 347 312
TR Stock, $.01 par value ...................... 124 121
Treasury Stock - at cost ...................... (881) (882)
Additional paid-in capital .................... 879,513 724,342
Accumulated earnings (deficit) ................ 2,918 (17,158)
Other equity adjustments ...................... (976) (1,528)
---------- --------
881,045 705,207
---------- --------
$1,006,329 $905,201
========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
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<PAGE> 7
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ......................................... $ 20,076 $ 15,996
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization .................... 11,966 11,595
Provision for bad debts .......................... 3,797 3,699
(Gain)/loss on sale of investments ............... (1,711) 110
Loss on disposal of fixed assets ................. 41 32
Accrued interest/amortization on bonds ........... 176 514
Minority interest in net loss of subsidiaries .... - (866)
Equity in net loss of unconsolidated affiliate ... 1,719 1,742
Other ............................................ (136) 1,173
Decrease in cash from working capital:
Accounts receivable ............................ (9,849) (4,363)
Inventories .................................... (12,138) (4,183)
Prepaid expenses and other current assets ...... (361) (710)
Accounts payable, accrued expenses
and deferred revenue .......................... 4,432 (14,738)
-------- --------
Net cash provided by operating activities ...... 18,012 10,001
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate ............. (1,674) (4,000)
Loans to affiliate ................................. (1,468) (1,857)
Purchases of investments ........................... (75,935) (22,027)
Sales and maturities of investments ................ 46,934 45,918
Property, plant and equipment ...................... (41,140) (25,675)
Other noncurrent assets ............................ (2,758) (541)
-------- --------
Net cash used by investing activities .......... (76,041) (8,182)
FINANCING ACTIVITIES:
Issuance of common stock ........................... 17,311 6,846
Issuance of common stock by subsidiary ............. - 260
Short-term borrowings under bank credit agreement .. 23,000 -
Issuance of debt ................................... - 77
Payments of debt and capital lease obligations ..... (8,552) (39,341)
-------- --------
Net cash provided by (used by) financing
activities ................................... 31,759 (32,158)
Effect of exchange rate changes on cash ............... 1,229 (1,655)
-------- --------
Decrease in cash and cash equivalents ................. (25,041) (31,994)
Cash and cash equivalents, beginning of period ........ 144,372 63,542
-------- --------
Cash and cash equivalents, end of period .............. $119,331 $ 31,548
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest .......................................... $ 1,196 $ 5,197
Income taxes ...................................... 6,114 14,405
</TABLE>
Supplemental Disclosure of Non-Cash Transactions:
Additional investment in unconsolidated affiliate -- Note 6
Acquisition of Genetrix, Inc -- Note 9
Conversion of 6 3/4% convertible subordinaated
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-7-
<PAGE> 8
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
---------------------
These unaudited, condensed, consolidated financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1995 and the financial
statements and footnotes included therein. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. Certain items in the 1995 financial statements have
been reclassified to conform with the 1996 presentation.
The financial statements for the three and six months ended June 30,
1996 and 1995 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.
2. Accounting Policies:
-------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the financial statements included in the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1995.
3. Investments:
-----------
As of June 30, 1996, the Company's investment portfolio, consisting
primarily of debt securities classified as available for sale, was adjusted
to its market value. As a result, gross unrealized holding gains of
approximately $14,000 and gross unrealized holding losses totaling
approximately $1,300,000 were recorded in a separate component of
Stockholders' equity.
In April 1996, the Company recorded a realized gain of approximately
$1,711,000 on the sale of its investment in NABI.
As of June 30, 1996, the carrying values of the Company's investments
in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and Integramed America, Inc.
(formerly IVF America, Inc.), included in Other Noncurrent Assets in the
unaudited, condensed, consolidated balance sheets, were adjusted to their
respective market values. Gross unrealized holding gains of approximately
$4,788,000 were recorded in a separate component of Stockholders' Equity.
<TABLE>
4. Inventories:
-----------
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw Materials ............ $13,981,000 $12,634,000
Work-in-process .......... 31,884,000 14,821,000
Finished products ........ 18,498,000 25,587,000
----------- -----------
$64,363,000 $53,042,000
=========== ===========
</TABLE>
5. Provision for Income Taxes:
--------------------------
The tax provision for the three and six months ended June 30, 1996
varies from the U.S. statutory tax rate because of the provision for state
income taxes, the Company's share of losses of subsidiaries which
generate no current tax benefit, tax credits, taxes on foreign earnings
and differences in tax bases due to acquisitions. The effective tax rate
was 41% and 39.5%, respectively, for the three and six months ended
June 30, 1996, slight increases over the corresponding periods in 1995.
-8-
<PAGE> 9
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Additional Investments in Unconsolidated Affiliate:
--------------------------------------------------
Pursuant to the terms of the Convertible Debt and Development Funding
Agreement executed between Genzyme and Genzyme Transgenics Corporation
("GTC") in March 1996, GTC borrowed an additional $500,000 per month in
April, May and June 1996 from Genzyme. On June 28, 1996, at GTC's request
and in accordance with the Agreement, Genzyme converted $1.5 million plus
accrued interest of approximately $23,000 into 193,321 shares of GTC
Common Stock which increased Genzyme's interest in GTC to 48.1%.
On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the
public for $4.00 per share. Genzyme purchased 900,000 shares in the
offering after which Genzyme will own a 44.8% interest in GTC.
7. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------
In June 1996, pursuant to the terms of an option held by Genzyme to
allocate up to $30 million from Genzyme General Division (the General
Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors
voted to allocate $10 million of cash from the General Division to GTR in
June 1996 in exchange for an increase in the TR Designated Shares of
1,000,000 shares, which shares have been reserved for distribution at the
discretion of the Board of Directors.
8. Short-Term Borrowing Arrangements:
---------------------------------
Genzyme has an available line of credit with a commercial bank of $215
million, which may be used by either the General Division or GTR.
In March 1996, GTR utilized $8.0 million under this line of credit
as temporary financing for the acquisition of certain land and
buildings in Framingham, Massachusetts (the "Acquisition") that were
purchased for $6.8 million in cash in January 1996 as part of the planned
expansion of manufacturing capacity for the CARTICEL[Service Mark] Service
programs. In May 1996, GTR repaid the entire $8.0 million borrowed plus
accrued interest of approximately $65,000. In June 1996, GTR borrowed $15.0
million under the same credit line at an interest rate of approximately
6.06% to provide further interim financing for the Acquisition and related
required renovations until a suitable permanent financing arrangement can
be obtained.
9. Acquisition of Genetrix, Inc.:
------------------------------
On April 30, 1996, the Company acquired Genetrix Inc., a privately
held genetic testing laboratory based in Phoenix, Arizona, in a tax-free
exchange of General Division Stock. In the aggregate, approximately
690,000 shares of General Division Stock valued at approximately $36.5
million were issued. The acquisition was accounted for as a purchase. The
excess of the purchase price over the fair market value of the net assets
acquired, approximately $34.6 million, was allocated to Goodwill to be
amortized over 15 years.
10. Withdrawal of Offer to Acquire the Assets of Genzyme Development
-----------------------------------------------------------------
Partners, L.P.:
---------------
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of Genzyme Development Partners,
L.P. (the "Partnership") for shares of Genzyme General Division Common
Stock valued at $93 million at the time the offer was made. The withdrawal
of the offer by Genzyme does not affect the respective rights and
obligations of the Partnership and Genzyme under any of the existing
agreements between the parties.
11. Long-Term Debt:
---------------
In March 1996, holders of the Company's 6 3/4% percent convertible
subordinated notes in the principal amount of $100 million converted such
notes into General Division and TR Stock. Holders of the notes received
18.913 shares of General Division Stock and 2.553 shares of TR Stock in
conversion of each $1,000 note. As a result of the conversion, the holders
forfeited interest which would have been payable by the Company on April 1,
1996. The carrying amount of the debt, net of unamortized discount, plus
accrued interest of approximately $2,914,000 was credited to Stockholders'
Equity.
12. Subsequent Event:
----------------
On July 1, 1996, Genzyme completed the acquisition of Deknatel Snowden
Pencer, Inc. ("DSP"), a privately held surgical products company, for
approximately $250.0 million. The purchase price consisted of cash of
approximately $190.0 million. Genzyme also assumed and subsequently repaid
debt of DSP of approximately $56.5 million, and Genzyme paid acquisition
costs of approximately $3.5 million. Funds for the acquisition, the
repayment of the debt and the payment of the acquisition costs were
provided by borrowings of $200.0 million under a revolving credit facility
from Fleet National Bank, due September 1, 1997, with interest payable at
LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was
provided from the Company's cash balances.
-9-
<PAGE> 10
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Subsequent Event (continued):
----------------------------
DSP designs, manufactures and markets cardiovascular devices,
precision instruments and specialty surgical products. DSP had net sales of
$95.3 million in the fiscal year ending September 30, 1995. Its 70-person
sales force calls directly on cardiovascular, general and gynecological
surgeons throughout the U.S. and Europe and has a strong presence in the
operating rooms of major hospitals. Genzyme will retain DSP personnel and
facilities and continue to pursue DSP's growth strategy.
Genzyme plans to use DSP's sales force to accelerate the introduction
of its Seprafilm[Trademark] bioresorbable membrane to the U.S.
surgical market once Seprafilm[Trademark] is approved by the U.S. Food and
Drug Administration.
In June 1996, the Board of Directors declared a 2-for-1 stock split of
shares of General Division Stock to be effected by means of a 100% stock
dividend payable on July 25, 1996 to stockholders of record on July 11,
1996, subject to increasing the authorized shares of General Division Stock
from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was
approved by holders of a majority in interest of the outstanding General
Division and TR Stock, voting together as a single class, at a special
meeting of the stockholders held on July 24, 1996. On July 25, 1996, a
total of 34,669,435 shares of General Division Stock were distributed to
stockholders in connection with the dividend. All share and per share
amounts have been re-stated to reflect this split.
In July 1996, the Company agreed to make a final payment of
approximately $7.6 million for a company acquired in 1994.
On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to
the public for $4.00 per share. Genzyme purchased 900,000 shares in the
offering after which Genzyme will own a 44.8% interest in GTC.
On August 13, 1996, the FDA granted approval to market Seprafilm
[Registered Trademark] for use in any open abdominal or pelvic surgery.
There are estimated to be approximately 3.1 million such surgeries
performed annually in the United States. Genzyme, on behalf of the Joint
Venture formed between Genzyme and the Partnership, expects to launch
Seprafilm[Registered Trademark] broadly in the United States in October,
using the DSP sales force. Under the terms of the agreements between
Genzyme and the Partnership, the Joint Venture will manufacture and market
Seprafilm[Registered Trademark] in North America under contract with
Genzyme. Genzyme and the Partnership expect to conclude negotiations
during the third quarter to establish definitive terms for the Joint
Venture, including the allocation between the parties of profits and
losses from the Joint Venture.
-10-
<PAGE> 11
GENZYME CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following discussion is a summary of the key factors management
considers necessary in reviewing the Company's results of operations, liquidity
and capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes of
the General Division and GTR. See also "Factors Affecting Future Operating
Results" under Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Genzyme's Annual Report on Form
10-K/A for the year ended December 31, 1995.
RESULTS OF OPERATIONS
Revenue
- -------
Total revenues for the three and six months ended June 30, 1996 were $115.6
million and $229.1 million, respectively, increases of 24% and 26% over the
corresponding periods in 1995. Product and service revenues were $109.5 million
and $216.9 million, respectively, increases of 26% and 28% over the same periods
in 1995.
Product revenues for the three months ended June 30, 1996 increased 23% to
$91.1 million from $74.1 million for the corresponding period in 1995, and
product revenues for the six months ended June 30, 1996 increased 29% to $183.9
million from $142.3 million for the corresponding period in 1995. Sales of
Therapeutic, Diagnostic Product and Pharmaceutical products increased 20%, 14%
and 74%, respectively, during the second quarter of 1996 and 19%, 19% and 147%,
respectively during the six months ended June 30, 1996 as compared to the
comparable periods in 1995. The increase in sales of Therapeutic products
resulted primarily from increased shipments of Ceredase[Registered Trademark]
and Cerezyme[Registered Trademark] due to an increase in the number of patients
treated, primarily outside of the U.S. The General Division's results of
operations are highly dependent on these products. Combined Ceredase[Registered
Trademark] and Cerezyme[Registered Trademark] sales were 71% and 67% of product
sales during the second quarter and during the six months ended June 30, 1996,
respectively, and were 73% of product sales during each the comparable periods
in 1995. The increase in Diagnostic Product sales resulted from growth in each
of its businesses, most notably in the Cardiovascular Direct LDL[Trademark] test
sales. The substantial increase in Pharmaceutical sales resulted primarily from
sales of Melatonin which commenced in the third quarter of 1995 and Cosmetic
Grade HA Powder which were classified as Therapeutics revenue until the fourth
quarter of 1995. The Company believes sales of Melatonin products may decrease
in the second half of 1996.
Service revenues for the three months ended June 30, 1996 increased 41% to
$18.4 million from $13.0 million for the corresponding period in 1995 and
service revenues for the six months ended June 30 1996 increased 24% to $33.0
million from $26.5 million for the corresponding period in 1995. The increases
were due primarily to the acquisition of Genetrix, Inc. ("Genetrix") completed
May 1, 1996 and, to a lesser degree, to higher genetic testing unit volume and
pricing changes. See "Liquidity and Capital Resources". Service revenue for the
three months ended June 30, 1996 included $0.8 million sales of
Epicel[Trademark] skin grafts as compared to $1.2 million in the corresponding
period in 1995, and $0.9 million sales of CARTICEL[Service Mark] cartilage
repair service as compared to minimal sales in the corresponding period in 1995.
CARTICEL[Service Mark] service commenced in the first quarter of 1995. Epicel
service was $2.0 million in the first six months of 1996, compared to $2.2
million in the same period of 1995. Had the Genetrix acquisition occurred
January 1, 1996, service revenues for the three and six months ended June 30,
1996 would have been $20.2 million and $40.3 million.
International sales represented approximately 43% and 40% of product sales
in the second quarter and first six months of 1996,respectively, compared with
approximately 41% and
-11-
<PAGE> 12
42% of second quarter and first six months of 1995 product sales, respectively.
The increases occurred due to increased international sales of
Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] offset
slightly by weakening of the exchange rate of the U.S. Dollar to the Netherlands
Guilder during the three and six months ended June 30, 1996.
Revenues from research and development contracts for the three and six
months ended June 30, 1996 were $6.1 million and $12.2 million, respectively, as
compared to $6.5 million and $12.9 million for the corresponding periods in
1995. The decreases were due primarily to decreased revenues from Neozyme II
Corporation ("Neozyme II") which resulted from a reduction in the external
contract expenses incurred by the Company on behalf of the Neozyme II
development programs.
Margins and Operating Expenses
- ------------------------------
Total gross margin for the quarters ended June 30, 1996 and 1995 were 60%
and 56%, respectively, and total gross margin for the six months ended June 30,
1996 and 1995 were 59% and 57%, respectively. The Company 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 quarter and six months ended June 30, 1996 increased to
68% from 58% and to 66% from 60%, respectively, for the same periods in 1995 due
primarily to the higher volume of Melatonin and Ceredase[Registered
Trademark]/Cerezyme[Registered Trademark] sales in 1996 and improved product
mix.
Service margins were 19% and 40% for the three months ended June 30, 1996
and 1995, respectively, and 23% and 41% for the six months ended June 30, 1996
and 1995, respectively. Service margins declined during the three and six months
ended June 30, 1996 due to increased GTR spending for the expansion of
manufacturing capacity and due to the effect of the Genetrix acquisition.
Genetrix margins have been minimal since the acquisition. The Company expects
these margins will improve over the next several months as laboratory facilities
are consolidated. Had the Genetrix acquisition occurred January 1, 1996, service
margins for the three and six months ended June 30, 1996 would have been, 20%
and 23%, respectively.
Selling, general and administrative expenses for the three months ended
June 30, 1996 were $40.0 million, an increase of 54% over the same period in
1995, and selling, general, and administrative expenses for the six months ended
June 30, 1996 were $78.6 million, an increase of 51% over the same period in
1995. The increases were due to increased expenses and staffing to support
growth in product lines, and significantly increased staffing in connection with
the launch of Seprafilm[Trademark] in Europe and in anticipation of domestic
introduction.
GTR selling, general and administrative expenses have increased due to
increased surgeon training costs, additional staffing related to
CARTICEL[Service Mark] Service, and increased CARTICEL[Service Mark] marketing
costs. Selling, general, administrative and other expenses related to services
also increased due to the Genetrix acquisition. Had the Genetrix acquisition
occurred January 1, 1996, selling, general and administrative expenses would
have been $0.8 million and $1.9 million higher for the three and six months
ended June 30, 1996.
As a percentage of total revenues, selling, general and administrative
expenses were 35% and 34%, respectively, for the three and six months ended June
30, 1996 compared to 28% and 29%, respectively, for the corresponding periods in
1995. Excluding the effects of the Genetrix acquisition and the above described
charge, selling, general and administrative expenses were, respectively, 34% for
the three and six months ended June 30, 1996.
Research and development expenses for the three and six months ended June
30, 1996 were $18.6 and $36.3 million, increases of 8%, respectively, over the
same periods in 1995 due to increased spending on internal programs.
-12-
<PAGE> 13
Other operating expenses were $1.5 million in the respective three and six
months ended June 30, 1996, primarily the result of a $1.3 million charge
incurred in the second quarter of 1996 to eliminate redundant service
operations.
Other Income and Expenses
- -------------------------
Investment income for the three and six months ended June 30, 1996
increased to $4.6 million and $9.1 million, respectively, from $1.3 and $3.1
million for the same periods in 1995, due primarily to higher average cash and
investment balances which resulted from the General Division and GTR public
offerings in October 1995 and September 1995, respectively, the exercise of
stock options and warrants and cash generated from operations.
Interest expense for the three and six months ended June 30, 1996 was $0.2
million and $0.4 million, respectively, net of capitalized interest on
construction in progress of $0.5 million and $2.2 million, respectively. In
March 1996, holders of the Company's 6 3/4% percent convertible subordinated
notes (the "Notes") in the principal amount of $100 million converted the Notes
into General Division and TR Stock. Holders of the Notes received 18.913 shares
of General Division Stock and 2.553 shares of TR Stock in conversion of each
$1,000 Note. As a result of the conversion, the holders forfeited interest which
would have been payable by the Company on April 1, 1996. Accordingly, in the
three months ending June 30, 1996, interest expense relating to the Notes
declined $1.7 million as compared to second quarter of 1995, and in the six
months ending June 30, 1996, interest relating to the Notes declined 62% to $1.3
million from $3.4 million in corresponding period in 1995. The Company also
incurred interest expense in the three and six months ended June 30, 1996 of
$0.4 million and $0.8 million, respectively, related to a $21.5 million
mortgage note issued in the second quarter of 1994, $0.1 million and $0.2
million, respectively, 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 three and six months ended June 30, 1996 varies
from the U.S. statutory tax rate because of the provision for state income
taxes, the General Division's share of losses of subsidiaries which generate no
current tax benefit, tax credits, taxes on foreign earnings and differences in
tax bases due to acquisitions. The effective tax rate was 41% and 39.5%,
respectively, for the three and six months ended June 30, 1996, slight increases
over the corresponding periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash, cash equivalents and investments
in marketable securities totaling $334.5 million, an increase of $8.3 million
from December 31, 1995. In the first six months of 1996, the Company spent $41.1
million on increased manufacturing capacity and invested an additional $1.7
million in an unconsolidated affiliate. These expenditures were financed
primarily by operations, $18.0 million, net short-term borrowings under a credit
line with a commercial bank, $15.0 million and by the issuance of common stock
through exercises of stock options and warrants, $17.3 million.
As of June 30, 1996, the Company had accounts receivable of $97.9 million,
an increase of $9 million from December 31, 1995, due to increased
Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] and Melatonin
sales. Inventories increased $11.3 million to $64.4 million as of June 30, 1996
as compared to December 31, 1995. The increase was due primarily to support of
increased business operations in Therapeutics and Surgical Products business
lines and, in part, to exchange rate fluctuations.
Genzyme has an available line of credit with a commercial bank of $215
million, which may be used by either the General Division or GTR. As of July 1,
1996, the General Division utilized $200 million under this credit line for the
purchase of DSP (See "Subsequent Events") and GTR utilized $15 million for
capital expansion.
In March 1996, GTR utilized $8.0 million under this credit line as
temporary financing for the acquisition of certain land and buildings in
Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8
million in cash in January 1996 as part of the planned expansion of
manufacturing capacity for the
-13-
<PAGE> 14
CARTICEL[Service Mark] Service programs. In May 1996, GTR repaid the entire $8.0
million borrowed plus accrued interest of approximately $65,000. In June 1996,
GTR borrowed $15.0 million under the same credit line at an interest rate of
approximately 6.06% to provide further interim financing for the Acquisition and
related required renovations until a suitable permanent financing arrangement
can be obtained.
Pursuant to the terms of the Convertible Debt and Development Funding
Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an
additional $500,000 per month in April, May and June 1996 from Genzyme. On June
28, 1996, at GTC's request and in accordance with the Agreement, Genzyme
converted $1.5 million plus accrued interest of approximately $23,000 into
193,321 shares of GTC Common Stock which increased Genzyme's interest in GTC to
48.1%.
On April 30, 1996, the General Division acquired Genetrix Inc., a privately
held genetic testing laboratory based in Phoenix, Arizona, in a tax-free
exchange of General Division Stock. In the aggregate, approximately 690,000
shares of General Division Stock valued at approximately $36.5 million were
issued. The acquisition was accounted for as a purchase. The excess of the
purchase price over the fair market value of the net assets acquired,
approximately $34.6 million, was allocated to Goodwill to be amortized over 15
years.
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of Genzyme Development Partners, L.P.
(the "Partnership") for shares of Genzyme General Division Common Stock valued
at $93 million at the time the offer was made. The withdrawal of the offer by
Genzyme does not affect the respective rights and obligations of the Partnership
and Genzyme under any of the existing agreements between the parties.
The Company expects that 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
completing validation of the manufacturing facility in Boston, Massachusetts,
completing its commitment to develop manufacturing capacity sufficient to meet
the requirements for commercialization of the Partnership's products, the market
introduction of the Surgical Products, making certain payments to third parties
in connection with strategic collaborations and making a final payment for a
company acquired in 1994. Genzyme's commitment to allocate up to $30 million
from the General Division to fund the operations of GTR was eliminated when GTR
sold new TR Stock to the public in September 1995; however, Genzyme retained the
right to make voluntary allocations of up to $30 million from the General
Division to the GTR. In June 1996, the Board of Directors voted to allocate $10
million of cash from the General Division to GTR in exchange for an increase in
the TR Designated Shares of 1,000,000 shares which shares have been reserved for
issuance at the discretion of the Board of Directors. Subsequent to this
allocation of $10 million in cash from the General Division to GTR, the General
Division retains the right, exercised in the discretion of the Board of
Directors, to make additional allocations of up to $20 million from the General
Division to GTR. 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. As a result, Genzyme may have to obtain
additional financing. There can be no assurance that such financing will be
available on acceptable terms.
SUBSEQUENT EVENTS
On July 1, 1996, Genzyme completed the acquisition of DSP, a privately
held surgical products company, for approximately $250.0 million. The purchase
price
-14-
<PAGE> 15
consisted of cash of approximately $190.0 million. Genzyme also assumed and
subsequently repaid debt of DSP of approximately $56.5 million, and Genzyme
paid acquisition costs of approximately $3.5 million. Funds for the
acquisition, the repayment of the debt and the payment of the acquisition costs
were provided by borrowings of $200.0 million under a revolving credit facility
from Fleet National Bank, due September 1, 1997, with interest payable at LIBOR
plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was provided
from Genzyme's General Division cash balances.
DSP designs, manufactures and markets cardiovascular devices, precision
instruments and specialty surgical products. DSP had net sales of $95.3 million
in the fiscal year ending September 30, 1995. Its 70-person sales force calls
directly on cardiovascular, general and gynecological surgeons throughout the
U.S. and Europe and has a strong presence in the operating rooms of major
hospitals. Genzyme will retain DSP personnel and facilities and continue to
pursue DSP's growth strategy.
Genzyme plans to use DSP's sales force to accelerate the introduction of
its Seprafilm[Registered Trademark] bioresorbable membrane to the U.S. surgical
market once it is approved by the U.S. Food and Drug Administration.
In June 1996, the Board of Directors declared a 2-for-1 stock split of
shares of General Division Stock to be effected by means of a 100% stock
dividend payable on July 25, 1996 to stockholders of record on July 11, 1996,
subject to increasing the authorized shares of General Division Stock from
100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved
by holders of a majority in interest of the outstanding General Division and TR
Stock, voting together as a single class, at a special meeting of the
stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435
shares of General Division Stock were distributed to stockholders in connection
with the dividend. All share and per share amounts have been re-stated to
reflect this split.
In July 1996, the Company agreed to make a final payment of approximately
$7.6 million for a company acquired in 1994.
On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the
public for $4.00 per share. Genzyme purchased 900,000 shares in the offering
after which Genzyme will own a 44.8% interest in GTC.
On August 13, 1996, the FDA granted approval to market Seprafilm
[Registered Trademark] for use in any open abdominal or pelvic surgery. There
are estimated to be approximately 3.1 million such surgeries performed annually
in the United States. Genzyme, on behalf of the Joint Venture formed between
Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark]
broadly in the United States in October, using the DSP sales force. Under the
terms of the agreements between Genzyme and the Partnership, the Joint Venture
will manufacture and market Seprafilm[Registered Trademark] in North America
under contract with Genzyme. Genzyme and the Partnership expect to conclude
negotiations during the third quarter to establish definitive terms for the
Joint Venture, including the allocation between the parties of profits and
losses from the Joint Venture.
-15-
<PAGE> 16
GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30, JUNE 30,
- ----------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales ................................. $ 91,087 $74,054 $183,902 $142,325
Net service sales ................................. 16,761 11,801 29,668 24,265
Revenues from research and development contracts:
Related parties ................................. 5,956 6,497 11,999 12,823
Other ........................................... 184 6 202 104
-------- ------- -------- --------
113,988 92,358 225,771 179,517
Operating costs and expenses:
Cost of products sold ............................. 29,164 29,963 62,488 55,369
Cost of services sold ............................. 11,424 7,826 19,651 15,777
Selling, general and administrative ............... 33,267 23,361 65,593 47,600
Research and development (including research
and development related to contracts) ........... 16,215 14,148 31,551 27,797
Other ............................................. 1,465 - 1,465 -
-------- ------- -------- --------
91,535 75,298 180,748 146,543
-------- ------- -------- --------
Operating income ..................................... 22,453 17,060 45,023 32,974
Other income and (expenses)
Minority interest in net loss of subsidiaries ..... - 501 - 866
Equity in net loss of unconsolidated affiliate .... (1,121) (793) (2,058) (1,742)
Gain on investments ............................... 1,711 - 1,711 -
Investment income ................................. 4,226 1,035 8,144 2,481
Interest expense .................................. (186) (173) (395) (220)
-------- ------- -------- --------
4,630 570 7,402 1,385
-------- ------- -------- --------
Income before income taxes ........................... 27,083 17,630 52,425 34,359
Provision for income taxes ........................... (11,104) (6,698) (20,909) (13,056)
-------- ------- -------- --------
Net income ........................................... 15,979 10,932 31,516 21,303
Allocated tax benefit generated by Genzyme
Tissue Repair Division .............................. 4,305 2,035 7,802 3,662
-------- ------- -------- --------
Net income attributable to Genzyme
General Division Stock .............................. $ 20,284 $12,967 $ 39,318 $ 24,965
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-16-
<PAGE> 17
GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
- -----------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income attributable to Genzyme
General Division Stock .......................... $20,284 $12,967 $39,318 $24,965
======= ======= ======= =======
Income per General Division common and
common equivalent share:
Net income(1) ................................. $ 0.27 $ 0.23 $ 0.54 $ 0.44
======= ======= ======= =======
Average shares outstanding(1) ................. 73,908 56,636 72,880 56,210
======= ======= ======= =======
Income per General Division Common Share
assuming full dilution:
Net income(1) ................................. $ 0.27 $ 0.21 $ 0.53 $ 0.41
======= ======= ======= =======
Average fully diluted shares outstanding(1) ... 73,934 60,646 74,300 60,470
======= ======= ======= =======
<FN>
(1) Reflects for July 25, 1996 2-for-1 stock split. (See Footnote 11 - "Subsequent Events".)
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-17-
<PAGE> 18
GENZYME GENERAL DIVISION
<TABLE>
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
- ---------------------------------------------------------------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 85,354 $103,631
Short-term investments ....................... 161,060 105,471
Accounts receivable, less allowance
for doubtful accounts........................ 96,719 87,121
Inventories .................................. 62,989 52,281
Prepaid expenses and other current assets .... 13,002 12,345
Due from Genzyme Tissue Repair Division ...... 2,308 2,034
Deferred tax assets - current ................ 7,729 7,729
-------- --------
Total current assets ....................... 429,161 370,612
Property, plant and equipment, net ............. 344,658 327,461
Other Assets:
Long-term investments ........................ 52,141 69,561
Note receivable - affiliate .................. 1,467 262
Intangibles, net of accumulated amortization.. 64,049 29,934
Deferred tax assets - noncurrent ............. 27,487 23,645
Other noncurrent assets ...................... 29,878 33,111
-------- --------
175,022 156,513
-------- --------
$948,841 $854,586
======== ========
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable ............................. $ 12,063 $ 19,548
Accrued expenses ............................. 46,847 38,069
Income taxes payable ......................... 8,828 1,316
Deferred revenue ............................. 3,273 1,367
Current portion of long-term debt and
capital lease obligations ................... 2,724 2,276
-------- --------
Total current liabilities .................. 73,735 62,576
Noncurrent Liabilities:
Long-term debt and capital lease obligations.. 24,242 124,473
Other noncurrent liabilities ................. 7,928 8,256
-------- --------
32,170 132,729
Division equity ................................ 842,936 659,281
-------- --------
$948,841 $854,586
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-18-
<PAGE> 19
GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30,
- -------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................ $ 39,318 $ 24,965
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization ................... 11,708 11,282
Provision for bad debts ......................... 3,641 3,699
(Gain)/loss on sale of investments .............. (1,711) 110
Loss on disposal of fixed assets ................ 41 32
Accrued interest/amortization on bonds .......... 102 613
Minority interest in net loss of subsidiaries ... - (866)
Equity in net loss of unconsolidated affiliate .. 1,719 1,742
Other ........................................... (110) 1,173
Decrease in cash from working capital:
Accounts receivable ........................... (10,315) (4,854)
Inventories ................................... (11,525) (4,149)
Prepaid expenses and other current assets ..... (116) (806)
Accounts payable, accrued expenses
and deferred revenue ......................... 4,623 (13,350)
Due from Genzyme Tissue Repair Division ....... (185) (655)
-------- --------
Net cash provided by operating activities ..... 37,190 18,936
INVESTING ACTIVITIES:
Cash allocated to Genzyme Tissue Repair Division .. (10,000) -
Investment in unconsolidated affiliate ............ (1,674) (4,000)
Loans to affiliate ................................ (1,468) (1,857)
Purchases of investments .......................... (70,931) (11,070)
Sales and maturities of investments ............... 37,172 37,831
Property, plant and equipment ..................... (22,161) (25,516)
Other noncurrent assets ........................... (2,987) (549)
-------- --------
Net cash provided by investing activities ..... (72,049) (5,161)
-------- --------
FINANCING ACTIVITIES:
Issuance of General Division Common Stock ......... 15,773 6,461
Issuance of common stock by subsidiary ............ - 260
Issuance of debt - 77
Payments of debt and capital lease obligations .... (420) (39,181)
-------- --------
Net cash provided by financing activities ...... 15,353 (32,383)
Effect of exchange rate changes on cash .............. 1,229 (1,655)
-------- --------
Decrease in cash and cash equivalents ................ (18,277) (20,263)
Cash and cash equivalents, beginning of period ....... 103,631 46,549
-------- --------
Cash and cash equivalents, end of period ............. $ 85,354 $ 26,286
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest ......................................... $ 1,125 $ 5,173
Income taxes ..................................... 5,543 14,405
</TABLE>
Supplemental Disclosure of Non-Cash Transactions:
Additional investment in unconsolidated affiliate -- Note 6
Acquisition of Genetrix, Inc. -- Note 8
Conversion of 6 3/4% convertible subordinated notes in the principal amount
of $100 million -- Note 10
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-19-
<PAGE> 20
GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation:
---------------------
These unaudited, condensed, combined financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1995 and the financial statements and
footnotes for Genzyme General Division included therein. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. The financial statements for the
three and six months ended June 30, 1996 and 1995 are unaudited but
include, in the Division's opinion, all adjustments (consisting only of
normally recurring accruals) necessary for a fair presentation of the
results for the periods presented.
2. Accounting Policies:
-------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the General Division's financial
statements included in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1995.
3. Investments:
-----------
As of June 30, 1996, the General Division's investment portfolio,
consisting primarily of debt securities classified as available for sale,
was adjusted to its market value. As a result, gross unrealized holding
gains of approximately $14,000 and gross unrealized holding losses totaling
approximately $1,293,000 were recorded in a separate component of Division
equity.
In April 1996, the General Division recorded a realized gain of
approximately $1,711,000 on the sale of its investment in NABI.
As of June 30, 1996, the carrying values of the General Division's
investments in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and Integramed
America, Inc. (formerly IVF America, Inc.), included in Other Noncurrent
Assets in the unaudited, condensed, combined balance sheets, were adjusted
to their respective market values. Gross unrealized holding gains of
approximately $4,788,000 were recorded in a separate component of Division
equity.
<TABLE>
4. Inventories:
-----------
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw Materials.............. $13,855,000 $12,527,000
Work-in-process............ 30,636,000 14,167,000
Finished products.......... 18,498,000 25,587,000
----------- -----------
$62,989,000 $52,281,000
=========== ===========
</TABLE>
5. Provision for Income Taxes:
--------------------------
The tax provision for the three and six months ended June 30, 1996
varies from the U.S. statutory tax rate because of the provision for state
income taxes, the General Division's share of losses of subsidiaries which
generate no current tax benefit, tax credits, taxes on foreign earnings
and differences in tax bases due to acquisitions. The effective tax rate
was 41% and 39.9% for the three and six months ended June 30, 1996, slight
increases over the corresponding periods in 1995. The allocated tax
benefit generated by GTR of $4.3 million and $2.0 million in the second
quarter of 1996 and 1995, respectively, reduced the General Division's tax
rate for those periods to 25.1% and 26.4%, respectively. For the six
months ended June 30, 1996 and 1995, the allocated tax benefit generated
by GTR of $7.8 million
-20-
<PAGE> 21
GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
5. Provision for Income Taxes (continued):
--------------------------------------
and $3.7 million, respectively, reduced the General Division's tax rate for
the respective six month periods to 25% and 27.3%.
6. Additional Investments in Unconsolidated Affiliate:
--------------------------------------------------
Pursuant to the terms of the Convertible Debt and Development Funding
Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an
additional $500,000 per month in April, May and June 1996 from the General
Division. On June 28, 1996, at GTC's request, the General Division
converted $1.5 million plus accrued interest of approximately $23,000 into
193,321 shares of GTC Common Stock which increased the General Division's
interest in GTC to 48.1%.
On July 31, 1996, GTC sold 3,000,000 shares of its common stock to
the public for $4.00 per share. Genzyme purchased 900,000 shares in the
offering after which Genzyme will own a 44.8% interest in GTC.
7. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------
In June 1996, pursuant to the terms of an option held by Genzyme to
allocate up to $30 million from the General Division to GTR, the Board of
Directors voted to allocate $10 million of cash from the General Division
to GTR in exvchange for an increase in the TR Designated Shares of
1,000,000 shares, which shares have been reserved for distribution at the
discretion of the Board of Directors.
8. Acquisition of Genetrix, Inc.
-----------------------------
On April 30, 1996, the General Division acquired Genetrix, Inc., a
privately held genetic testing laboratory based in Phoenix, Arizona, in a
tax-free exchange of General Division Stock. In the aggregate,
approximately 690,000 shares of General Division Stock valued at
approxmiately $36.5 million were issued. The acquisition was accounted for
as a purchase. The excess of the purchase price over the fair market value
of the net assets acquired, approximately $34.6 million, was allocated to
Goodwill to be amortized over 15 years.
9. Withdrawal of Offer to Acquire the Assets of
Genzyme Development Partners, L.P.:
--------------------------------------------
On May 3, 1996, Genzyme announced that it was withdrawing its offer
to acquire substantially all of the assets of Genzyme Development
Partners, L.P. (the "Partnership") for shares of Genzyme General Division
Common Stock valued at $93 million at the time the offer was made. The
withdrawal of the offer by Genzyme does not affect the respective rights
and obligations of the Partnership and Genzyme under any of the existing
agreements between the parties.
10. Long-Term Debt:
--------------
In March 1996, holders of the Company's 6 3/4% percent convertible
subordinated notes in the principal amount of $100 million converted such
notes into General Division and TR Stock. Holders of the notes received
18.913 shares of General Division Stock and 2.553 shares of TR Stock in
conversion of each $1,000 note. As a result of the conversion, the holders
forfeited interest which would have been payable by the Company on
April 1, 1996. The carrying amount of the debt, net of unamortized
discount, plus accrued interest of approximately $2,914,000 was credited
to Stockholders' Equity.
11. Subsequent Events:
-----------------
On July 1, 1996, the General Division completed the acquisition of
DSP, a privately held surgical products company, for approximately
$250.0 million. The purchase price consisted of cash of approximately
$190.0 million. The General Division also assumed and subsequently repaid
debt of DSP of approximately $56.5 million, and the General Division paid
acquisition costs of approximately $3.5 million. Funds for the
acquisition, the repayment of the debt and the payment of the acquisition
costs were provided by borrowings of $200.0 million under a revolving
credit facility from Fleet National Bank, due September 1, 1997, with
interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and
approximately $50.0 million was provided from General Division cash
balances.
DSP designs, manufactures and markets cardiovascular devices,
precision instruments and specialty surgical products. DSP had net sales
of $95.3 million in the fiscal year ending September 30, 1995. Its
70-person sales force calls directly on cardiovascular, general and
gynecological surgeons throughout the U.S. and Europe and has a strong
presence in the operating rooms of major hospitals. The General Division
will retain DSP personnel and facilities and continue to pursue DSP's
growth strategy.
The General Division plans to use DSP's sales force to accelerate the
introduction of its Seprafilm[Registered Trademark] bioresorbable membrane
to the U.S. surgical market once Seprafilm[Trademark] is approved by the
U.S. Food and Drug Administration.
In June 1996, the Board of Directors declared a 2-for-1 stock split
of shares of General Division Stock to be effected by means of a 100%
stock dividend payable on July 25, 1996 to stockholders of record on
July 11, 1996, subject to increasing the authorized shares of General
Division Stock from 100,000,000 to 200,000,000 shares (the "Amendment").
The Amendment was approved by holders of a majority in interest of the
outstanding General Division and TR Stock, voting together as a single
class, at a special meeting of the stockholders held on July 24, 1996.
On July 25, 1996, a total 34,669,435 shares of General Division Stock were
distributed to stockholders in connection with the dividend. All share and
per share amounts have been re-stated to reflect this split.
In July 1996, the General Division agreed to make a final payment of
approximately $7.6 million for a company acquired in 1994.
On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to
the public for $4.00 per share. Genzyme purchased 900,000 shares in the
offering after which Genzyme will own a 44.8% interest in GTC.
On August 13, 1996, the FDA granted approval to market Seprafilm
[Registered Trademark] for use in any open abdominal or pelvic surgery.
There are estimated to be approximately 3.1 million such surgeries
performed annually in the United States. Genzyme, on behalf of the Joint
Venture formed between Genzyme and the Partnership, expects to launch
Seprafilm[Registered Trademark] broadly in the United States in October,
using the DSP sales force. Under the terms of the agreements between
Genzyme and the Partnership, the Joint Venture will manufacture and market
Seprafilm[Registered Trademark] in North America under contract with
Genzyme. Genzyme and the Partnership expect to conclude negotiations
during the third quarter to establish definitive terms for the Joint
Venture, including the allocation between the parties of profits and
losses from the Joint Venture.
-21-
<PAGE> 22
GENZYME GENERAL DIVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following discussion is a summary of the key factors management
considers necessary in reviewing the General Division's results of operations,
liquidity and capital resources. Forward-looking statements contained in the
following discussion are expectations only and there can be no assurance that
actual results will not materially differ from these expectations. This
discussion should be read in conjunction with the financial statements and
related notes of the General Division. See also "Factors Affecting Future
Operating Results" under Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Genzyme's Annual Report
on Form 10-K/A for the year ended December 31, 1995.
RESULTS OF OPERATIONS
Revenue
- -------
Total revenues for the three and six months ended June 30, 1996 were $114.0
million and $225.8 million, respectively, increases of 23% and 26% over the
corresponding periods in 1995. Product and service revenues were $107.8 million
and $213.6 million, respectively, increases of 26% and 28% over the same periods
in 1995.
Product revenues for the three months ended June 30, 1996 increased 23% to
$91.1 million from $74.1 million for the corresponding period in 1995, and
product revenues for the six months ended June 30, 1996 increased 29% to $183.9
million from $142.3 million for the corresponding period in 1995. Sales of
Therapeutic, Diagnostic Product and Pharmaceutical products increased 20%, 14%
and 74%, respectively, during the second quarter of 1996 and 19%, 19% and 147%,
respectively, during the six months ended June 30, 1996 as compared to the
comparable periods in 1995. The increase in sales of Therapeutic products
resulted primarily from increased shipments of Ceredase[Registered Trademark]
and Cerezyme[Registered Trademark] due to an increase in the number of patients
treated, primarily outside of the U.S. The General Division's results of
operations are highly dependent on these products. Combined Ceredase[Registered
Trademark] and Cerezyme[Registered Trademark] sales were 71% and 67% of product
sales during the second quarter and during the six months ended June 30, 1996
respectively, and were 73% of product sales during each the comparable periods
in 1995. The increase in Diagnostic Product sales resulted from growth in each
of its businesses, most notably in the Cardiovascular Direct LDL[Registered
Trademark] test sales. The substantial increase in Pharmaceutical sales
resulted primarily from sales of Melatonin which commenced in the third quarter
of 1995 and Cosmetic Grade HA Powder which were classified as Therapeutics
revenue until the fourth quarter of 1995. The General Division believes sales
of Melatonin products may decrease in the second half of 1996.
Service revenues from genetic testing for the three months ended June 30,
1996 increased 42% to $16.8 million from $11.8 million for the corresponding
period in 1995 and service revenues for the six months ended June 30 1996
increased 22% to $29.7 million from $24.3 million for the corresponding period
in 1995. The increases were due primarily to the Genetrix acquisition completed
May 1, 1996 and to a lesser degree to higher unit volume and pricing changes.
Had the Genetrix acquisition occurred January 1, 1996, service revenues for the
three and six months ended June 30, 1996 would have been $18.6 million and
$36.9 million.
International sales represented approximately 43% and 40% of product sales
in the second quarter and first six months of 1996 compared with approximately
41% and 42% of second quarter and first six months of 1995 product sales. The
increases occurred due to increased international sales of Ceredase[Registered
Trademark] and Cerezyme[Registered Trademark] offset slightly by weakening of
the exchange rate of the U.S. Dollar to the Netherlands Guilder during the
three and six months ended June 30, 1996.
-22-
<PAGE> 23
Revenues from research and development contracts for the three and six
months ended June 30, 1996 were $6.1 million and $12.2 million, respectively,
as compared to $6.5 million and $12.9 million for the corresponding periods in
1995. The decreases were due primarily to decreased Neozyme II revenues which
resulted from a reduction in the external contract expenses incurred by the
General Division on behalf of the Neozyme II development programs.
Margins and Operating Expenses
- ------------------------------
Total gross margin for the quarters ended June 30, 1996 and 1995 were 62%
and 56%, respectively, and total gross margin for the six months ended June 30,
1996 and 1995 were 62% and 57%, respectively. 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 quarter and six months ended June 30, 1996
increased to 68% from 60% and to 66% from 61%, respectively, for the same
periods in 1995 due primarily to the higher volume of Melatonin and
Ceredase[Registered Trademark]/Cerezyme[Registered Trademark] sales in 1996,
and improved product mix.
Service margins were 32% and 34% for the three months ended June 30, 1996
and 1995, respectively and 34% and 35% for the six months ended June 30, 1996.
Service margins declined during the three and six months ended June 30, 1996 due
to the effect of the Genetrix acquisition. The Company expects these margins
will improve over the next several months as laboratory facilities are
consolidated. Had the Genetrix acquisition occurred January 1, 1996, service
margins for the three and six months ended June 30, 1996 would have been,
respectively, 31%.
Selling, general and administrative expenses for the three months ended
June 30, 1996 were $33.3 million, an increase of 42% over the same period in
1995, and selling, general and administrative expenses for the six months ended
June 30, 1996 were $65.6 million, an increase of 38% over the same period in
1995. The increases were due to increased expenses and staffing to support
growth in product lines, significantly increased staffing in connection with
the launch of Seprafilm[Trademark] in Europe and anticipation of domestic
introduction.
Selling, general and administrative expenses related to services increased
due to the Genetrix acquisition. Had the Genetrix acquisition occurred January
1, 1996, selling, general and administrative expenses would have been $0.8
million and $1.9 million higher for the three and six months ended June 30,
1996.
As a percentage of total revenues, selling, general and administrative
expenses were, respectively, 29% for the three and six months ended June 30,
1996 compared to 25% and 27%, respectively, for the corresponding periods in
1995. Excluding the effects of the Genetrix acquisition and the above described
charge, selling, general and administrative expenses were, respectively, 29%
for the three and six months ended June 30, 1996.
Research and development expenses for the three and six months ended June
30, 1996 were $16.2 million and $31.6 million, respectively, increases of 15%
and 14%, over the same periods in 1995 due to increased spending on internal
programs.
Other operating expenses were $1.5 million in the three and six months
ended June 30, 1996, primarily the result of a $1.3 million charge incurred in
the second quarter of 1996 to eliminate redundant service operations.
Other Income and Expenses
- -------------------------
Investment income for the three and six months ended June 30, 1996
increased to $4.2 million and $8.1 million, respectively, from $1.0 million and
$2.5 million for the same periods in 1995, due primarily to higher average cash
and investment balances which resulted from the General Division's public
offering in October 1995, the exercise of stock options and warrants and cash
generated form operations.
-23-
<PAGE> 24
Interest expense for the three and six months ended June 30, 1996 was
$0.2 million and $.4 million, respectively, net of capitalized interest on
construction in progress of $0.5 million and $2.2 million, respectively. In
March 1996, holders of the Company's 6 3/4% percent convertible subordinated
notes (the "Notes") in the principal amount of $100 million converted the notes
into General Division and TR Stock. Holders of the Notes received 18,913 shares
of General Division Stock and 2,553 shares of TR Stock in conversion of each
$1,000 Note. As a result of the conversion, the holders forfeited interest
which would have been payable by the Company on April 1, 1996. Accordingly, in
the three months ending June 30, 1996, interest expense relating to the Notes
declined $1.7 million as compared to second quarter of 1995, and in the six
months ending June 30, 1996, interest relating to the Notes declined 62% to
$1.3 million from $3.4 million in corresponding period in 1995. The General
Division also incurred interest expense in the three and six months ended June
30, 1996 of $0.4 million and $0.8 million, respectively, related to a $21.5
million mortgage note issued in the second quarter of 1994, $0.1 million and
$0.2 million, respectively, 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 three and six months ended June 30, 1996 varies
from the U.S. statutory tax rate because of the provision for state income
taxes, the General Division's share of losses of subsidiaries which generate no
current tax benefit, tax credits, taxes on foreign earnings and differences in
tax bases due to acquisitions. The effective tax rate was 41% and 39.9% for the
three and six months ended June 30, 1996, slight increases over the
corresponding periods in 1995. The allocated tax benefit generated by GTR of
$4.3 million and $2.0 million in the second quarter of 1996 and 1995,
respectively, reduced the General Division's tax rate for those periods to
25.1% and 26.4%, respectively. For the six months ended June 30, 1996 and 1995,
the allocated tax benefit generated by GTR was $7.8 million and $3.7 million,
respectively, reduced the General Division's tax rate for the respective six
month periods to 25% and 27.3%.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the General Division had cash, cash equivalents and
investments in marketable securities totaling $298.6 million, an increase of
$19.9 million from December 31, 1995. In the first six months of 1996, the
General Division spent $22.2 million on increased manufacturing capacity,
$3.5 million on acquisition costs and invested an additional $1.7 million in an
unconsolidated affiliate. In June 1996, the Board of Directors voted to
allocate $10 million of cash from the General Division to GTR pursuant to its
option to allocate to up to $30 million to GTR, at $10 per TR Designated
Share in exchange for an increase in the TR Designated Shares of 1,000,000
shares which have been reserved for issuance at the discretion of the Board of
Directors. These expenditures were financed by operations, $37.2 million, and
by the issuance of common stock through exercises of stock options and
warrants, $15.8 million.
Pursuant to the terms of the Convertible Debt and Development Funding
Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an
additional $500,000 per month in April, May and June 1996 from the General
Division. On June 28, 1996, at GTC's request and in accordance with the terms
of the Agreement, the General Division converted $1.5 million plus accrued
interest of approximately $23,000 into 193,321 shares of GTC Common Stock which
increased the General Division's interest in GTC to 48.1%.
As of June 30, 1996, the General Division had accounts receivable of $96.7
million, an increase of $9.6 million from December 31, 1995, due to increased
Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] and Melatonin
sales. Inventories increased $10.7 million to $63.0 million as of June 30, 1996
as compared to December 31, 1995. The increase was due primarily to support of
increased business operations in Therapeutics and Surgical Products business
lines and, in part, to exchange rate fluctuations.
Genzyme has an available line of credit with a commercial bank of
$215 million which may be used by either the General Division of GTR. As of
July 1, 1996, the General Division utilized $200 million under this credit line
for the purchase of DSP (See "Subsequent Events") and GTR utilized $15 million
for capital expansion.
On April 30, 1996, the General Division acquired Genetrix Inc., a privately
held genetic testing laboratory based in Phoenix, Arizona, in a tax-free
exchange of General Division Stock. In the aggregate, approximately 690,000
shares of General Division Stock valued at approximately $36.5 million were
issued. The acquisition was accounted for as a purchase. The excess of the
purchase price over the fair
-24-
<PAGE> 25
market value of the net assets acquired, approximately $34.6 million, will be
allocated to Goodwill to be amortized over 15 years.
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of Genzyme Development Partners, L.P.
(the "Partnership") for shares of Genzyme General Division Common Stock valued
at $93 million at the time the offer was made. The withdrawal of the offer by
Genzyme does not affect the respective rights and obligations of the Partnership
and Genzyme under any of the existing agreements between the parties.
The General Division expects that 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 completing validation of the
manufacturing facility in Boston, Massachusetts, completing its commitment to
develop manufacturing capacity sufficient to meet the requirements for
commercialization of the Partnership's products, the market introduction of
the Surgical Products, making certain payments to third parties in connection
with strategic collaborations and making a final payment for a company acquired
in 1994. Genzyme's commitment to allocate up to $30 million from the General
Division to fund the operations of GTR was eliminated when GTR sold new TR
Stock to the public in September 1995; however, Genzyme retained the right to
make voluntary allocations of up to $30 million from the General Division to
the GTR. In June 1996, the Board of Directors voted to allocate $10 million of
cash from the General Division to GTR in exchange for an increase in the TR
Designated Share of 1,000,000 which shares have been reserved for issuance at
the discretion of the Board of Directors. Subsequent to this allocation of $10
million in cash from the General Division to GTR, the General Division retains
the right, exercised in the discretion of the Board of Directors, to make
additional allocations of up to $20 million from the General Division to GTR.
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. As a result, the General Division may have to
obtain additional financing. There can be no assurance that such financing will
be available on acceptable terms.
SUBSEQUENT EVENTS
On July 1, 1996, the General Division completed the acquisition of DSP,
a privately held surgical products company, for approximately $250.0 million.
The purchase price consisted of cash of approximately $190.0 million. The
General Division also assumed and subsequently repaid debt of DSP of
approximately $56.5 million, and the General Division paid acquisition costs of
approximately $3.5 million. Funds for the acquisition, the repayment of the
debt and the payment of the acquisition costs were provided by borrowings of
$200.0 million under a revolving credit facility from Fleet National Bank, due
September 1, 1997, with interest payable at LIBOR plus 5/8% (6.16% at July 1,
1996) and approximately $50.0 million was provided from General Division cash
balances.
-25-
<PAGE> 26
DSP designs, manufactures and markets cardiovascular devices, precision
instruments and specialty surgical products. DSP had net sales of $95.3 million
in the fiscal year-ending September 30, 1995. Its 70-person sales force calls
directly on cardiovascular, general and gynecological surgeons throughout the
U.S. and Europe and has a strong presence in the operating rooms of major
hospitals. Genzyme will retain DSP personnel and facilities and continue to
pursue DSP's growth strategy.
Genzyme plans to use DSP's sales force to accelerate the introduction of
its Seprafilm[Trademark] bioresorbable membrane to the U.S. surgical market once
it is approved by the U.S. Food and Drug Administration.
In June 1996, the Board of Directors declared a 2-for-1 stock split of
shares of General Division Stock to be effected by means of a 100% stock
dividend payable on July 25, 1996 to stockholders of record on July 11, 1996,
subject to increasing the authorized shares of General Division Stock from
100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved
by holders of a majority interest of the outstanding General Division and TR
Stock, voting together as a single class, at a special meeting of the
stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435
shares of General Division Stock were distributed to stockholders in connection
with the dividend. All share and share amounts have been re-stated to reflect
this split.
In July 1996, the General Division agreed to make a final payment of
approximately $7.6 million for a company acquired in 1994.
On July 31, 1996 GTC sold 3,000,000 shares of its Common Stock to the
public for $4.00 per share. Genzyme purchased 900,000 shares in the offering
after which Genzyme will own a 44.8% interest in GTC.
On August 13, 1996, the FDA granted approval to market Seprafilm
[Registered Trademark] for use in any open abdominal or pelvic surgery. There
are estimated to be approximately 3.1 million such surgeries performed annually
in the United States. Genzyme, on behalf of the Joint Venture formed between
Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark]
broadly in the United States in October, using the DSP sales force. Under the
terms of the agreements between Genzyme and the Partnership, the Joint Venture
will manufacture and market Seprafilm[Registered Trademark] in North America
under contract with Genzyme. Genzyme and the Partnership expect to conclude
negotiations during the third quarter to establish definitive terms for the
Joint Venture, including the allocation between the parties of profits and
losses from the Joint Venture.
-26-
<PAGE> 27
GENZYME TISSUE REPAIR DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
- ---------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net service sales .................... $ 1,647 $ 1,247 $ 3,361 $ 2,277
Operating costs and expenses:
Cost of services sold ................ 3,456 880 5,882 1,605
Selling, general and administrative .. 6,730 2,541 12,976 4,293
Research and development ............. 2,350 3,115 4,704 5,929
-------- ------- -------- -------
12,536 6,536 23,562 11,827
-------- ------- -------- -------
Operating loss .......................... (10,889) (5,289) (20,201) (9,550)
======== ======= ======== =======
Investment income ....................... 389 262 959 581
======== ======= ======== =======
Net loss ................................ $(10,500) $(5,027) $(19,242) $(8,969)
======== ======= ======== =======
Per Tissue Repair Division Common share:
Net loss ............................. $ (0.83) $ (0.57) $ (1.55) $ (1.03)
======== ======= ======== =======
Average shares outstanding ........... 12,576 8,763 12,411 8,721
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-27-
<PAGE> 28
GENZYME TISSUE REPAIR DIVISION
<TABLE>
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
- -------------------------------------------------------------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $33,977 $40,741
Short-term investments ....................... 2,003 6,832
Accounts receivable, less allowance
for doubtful accounts ....................... 1,216 1,838
Inventories .................................. 1,374 761
Prepaid expenses and other current assets .... 431 186
------- -------
Total current assets ....................... 39,001 50,358
Property, plant and equipment, net ............. 20,683 1,962
Other Assets:
Other noncurrent assets ...................... 112 329
------- -------
112 329
------- -------
$59,796 $52,649
======= =======
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable ............................. $ 1,373 $ 2,432
Accrued expenses ............................. 2,218 1,349
Payable to Genzyme General Division .......... 2,308 2,034
Short-term borrowings ........................ 15,000 -
Current portion of capital lease obligations . 37 169
------- -------
Total current liabilities .................. 20,936 5,984
Noncurrent Liabilities:
Other noncurrent liabilities ................. 751 739
------- -------
751 739
Division equity ................................ 38,109 45,926
------- -------
$59,796 $52,649
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-28-
<PAGE> 29
GENZYME TISSUE REPAIR DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30,
- ----------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................. $(19,242) $ (8,969)
Reconciliation of net loss to net cash used by
operating activities:
Depreciation and amortization ...................... 258 313
Provision for bad debts ............................ 156
Accrued interest/amortization on bonds ............. 74 (99)
Other .............................................. (26) -
Increase (decrease) in cash from working capital:
Accounts receivable .............................. 466 491
Inventories ...................................... (613) (34)
Prepaid expenses and other current assets ........ (245) 96
Accounts payable, accrued expenses
and deferred revenue ............................ (191) (1,388)
Due to Genzyme General Division .................. 185 655
-------- --------
Net cash used by operating activities ............ (19,178) (8,935)
INVESTING ACTIVITIES:
Purchases of investments ............................. (5,004) (10,957)
Sales and maturities of investments .................. 9,762 8,087
Property, plant and equipment ........................ (18,979) (159)
Other noncurrent assets .............................. 217 8
-------- --------
Net cash used by investing activities ............ (14,004) (3,021)
FINANCING ACTIVITIES:
Proceeds from issuance of TR Stock .................... 1,538 385
Short-term borrowings under bank credit agreement ..... 23,000 -
Payments of debt and capital lease obligations ........ (8,132) (139)
Cash allocated from Genzyme General Division .......... 10,000 -
Other ................................................. 12 (21)
-------- --------
Net cash provided by financing activities ........ 26,418 225
-------- --------
Decrease in cash and cash equivalents ................... (6,764) (11,731)
Cash and cash equivalents, beginning of period .......... 40,741 16,993
-------- --------
Cash and cash equivalents, end of period ................ $ 33,977 $ 5,262
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for interest ............. $ 71 $ 24
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-29-
<PAGE> 30
GENZYME TISSUE REPAIR DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation:
---------------------
These unaudited, condensed, combined financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1995 and the financial statements and
footnotes for GTR included therein. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations.
The financial statements for the three and six months ended June 30,
1996 and 1995 are unaudited but include, in GTR's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. Accounting Policies:
-------------------
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of GTR's financial statements included in the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1995.
3. Investments:
-----------
As of June 30, 1996, GTR's investment portfolio, consisting primarily
of debt securities classified as available for sale, was adjusted to its
market value. As a result, gross unrealized holding losses totaling
approximately $7,000 were recorded in a separate component of Division
equity.
<TABLE>
4. Inventories:
-----------
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw Materials.............. $ 126,000 $107,000
Work-in-process............ 1,248,000 654,000
---------- --------
$1,374,000 $761,000
========== ========
</TABLE>
5. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------
In June 1996, pursuant to the terms of an option held by Genzyme to
allocate up to $30 million from Genzyme General Divisison (the General
Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors
voted to allocate $10 million of cash from the General Division to GTR in
June 1996 in exchange for an increase in the TR Designated Shares of
1,000,000 shares, which shares have been reserved for distribution at
the discretion of the Board of Directors.
6. Short-Term Borrowing Arrangements:
---------------------------------
Genzyme has an available line of credit with a commercial bank of $215
million, which may be used by either the General or Tissue Repair Division.
In March 1996, GTR utilized $8.0 million under this credit line as
temporary financing for the acquisition of certain land and buildings in
Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8
million in cash in January 1996 as part of the planned expansion of
manufacturing capacity for the CARTICEL[Service Mark] Service programs. In
May 1996, GTR repaid the entire $8.0 million borrowed plus accrued
interest of approximately $65,000. In June 1996, GTR borrowed $15.0
million under the same credit line at an interest rate of approximately
6.06% to provide further interim financing for the Acquisition and related
required renovations until a suitable permanent financing arrangement can
be obtained.
-30-
<PAGE> 31
GENZYME TISSUE REPAIR DIVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996
The following discussion is a summary of the key factors management
considers necessary in reviewing the GTR's results of operations, liquidity
and capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes of
GTR. See also "Factors Affecting Future Operating Results" under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Genzyme's Annual Report on Form 10-K/A for the year ended
December 31, 1995.
RESULTS OF OPERATIONS
Revenue
- -------
Service revenues for the three months ended June 30, 1996 increased 33% to
$1.6 million compared to $1.2 million for the same period ended in 1995.
Service revenues for the six months ended June 30, 1996 increased 48% to $3.4
million compared to $2.3 million for the same period ended in 1995. Service
revenue for the three months ended June 30, 1996 included $0.8 million sales of
Epicel[Trademark] skin grafts as compared to $1.2 million in the corresponding
period in 1995, and $0.9 million sales of CARTICEL[Service Mark] cartilage
repair service as compared to minimal sales in the corresponding period in
1995. CARTICEL[Service Mark] service commenced in the first quarter of 1995.
Epicel service was $2.0 million in the first six months of 1996, compared to
$2.2 million in the same period of 1995.
Margins and Operating Expenses
- ------------------------------
Gross margins for the three and six months ended June 30, 1996 declined
$2.2 million and $3.2 million, respectively, as compared to the corresponding
periods in 1995 due to increased spending for the expansion of manufacturing
capacity.
Selling, general and administrative expenses for the three months ended
June 30, 1996 were $6.7 million, an increase of $4.2 million compared to the
same period ended in 1995. Selling, general and administrative expenses for the
six months ended June 30, 1996 were $13.0 million, an increase of $8.7 million
compared to the same period ended in 1995. Increases in selling, general and
administrative costs during the quarters and six months ended June 30, 1996 and
1995 are due to increased surgeon training costs, additional staffing related
to the CARTICEL[Service Mark] Service, and increased CARTICEL[Service Mark]
marketing costs. GTR's selling, general and administrative expenses consist of
direct expenses and expenses charged by the General Division for work performed
by the General Division on behalf of GTR. General Division expenses charged to
GTR were $1.7 million in the second quarter of 1996 compared to $0.9 million in
the same period in 1995 and were $4.3 million in the first six months of 1996
compared to $1.9 million in the same period of 1995.
Research and development expenses were $2.4 million in the second
quarter of 1996, a $0.8 million decrease compared to the same period ended in
1995. Research and development expenses were $4.7 million in the first six
months of 1996, a $1.2 million decrease compared to the same period ended in
1995. GTR's research and development expenses consist of direct expenses and
expenses charged by the General Division for work performed by the General
Division on behalf of GTR. General Division research and development expenses
charged to GTR
-31-
<PAGE> 32
were $2.3 million in the second quarter of 1996 compared to $1.4 million in the
same period in 1995 and were $3.3 million in the first six months of 1996
compared to $2.4 million in the same period of 1995.
OTHER INCOME
Investment income for the three and six months ended June 30, 1996
increased to $0.4 million and $1.0 million, respectively, from $0.3 million and
$0.6 million for the same periods in 1995, due primarily to higher average cash
and investment balances which resulted from GTR's public offering in September
1995 and the exercise of stock options and warrants.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, GTR had cash, cash equivalents and investments in
marketable securities totaling $36.0 million, a decrease of $11.6 million from
December 31, 1995. The decrease was due to GTR's net loss from operations,
working capital requirements and capital spending, net of cash from the issuance
of common stock through exercises of stock options and warrants of $1.5 million.
As of June 30, 1996, GTR had accounts receivable of $1.2 million, a decrease of
$0.6 million from December 31, 1995, due to prompt collections. Inventories
increased $0.6 million, to $1.4 million as of June 30, 1996 as compared to
December 31, 1995 due primarily to an increase in the number of in-process
biopsies.
Genzyme has an available line of credit with a commercial bank of $215
million which may be used by either the General Division or GTR. As of July 1,
1996, the General Division utilized $200 million under this credit line for the
purchase of DSP (See "Subsequent Events") and GTR utilized $15 million for
capital expansion.
In March 1996, GTR utilized $8.0 million under this credit line as
temporary financing for the acquisition of certain land and buildings in
Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8
million in cash in January 1996 as part of the planned expansion of
manufacturing capacity for the CARTICEL[Service Mark] Service programs. In May
1996, GTR repaid the entire $8.0 million borrowed plus accrued interest of
approximately $65,000. In June 1996, GTR borrowed $15.0 million under the same
credit line at an interest rate of approximately 6.06% to provide further
interim financing for the Acquisition and related required renovations until a
suitable permanent financing arrangement can be obtained.
In June 1996, pursuant to the terms of an option held by Genzyme to
allocate up to $30 million from Genzyme General Division (the General
Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors
voted to allocate $10 million of cash from the General Division to GTR in June
1996 in exchange for an increase in the TR Designated Shares of 1,000,000
shares, which shares have been reserved for distribution at the discretion of
the Board of Directors.
GTR expects that its available cash and investments will be sufficient to
finance its planned operations and capital requirements for at least one year.
Significant additional funds will be required to complete the commercialization
and clinical testing of GTR's products and services and to complete the
expansion of manufacturing capacity for its CARTICEL[Service Mark] Service.
There can be no assurance that such funds will be available on attractive
terms, if at all.
-32-
<PAGE> 33
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for Genzyme, the General Division and GTR
on the pages listed in the Index on Page 2 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on Thursday,
May 16, 1996. The following represents the results of the voting on
proposals submitted to a vote of stockholders at such meeting:
a. Proposal to elect directors: Constantine E. Anagnostopoulos,
by a vote of 28,966,003 in favor and 434,941 votes withheld,
Robert J. Carpenter, by a vote of 28,966,967 in favor and
433,978 votes withheld, and Charles L. Cooney, by a vote of
28,966,726 in favor and 434,219 withheld, were re-elected as
directors of the Company for a term of office expirint in 1999.
There were no abstentions or broker non-votes.
b. Proposal to amend the Company's 1990 Equity Incentive Plan
to increase the number of shares of General Division Common
Stock covered by the Plan to 9,000,000.
Number of Number of Number of Votes Number of
Votes for Votes Against Abstaining Broker Non-Votes
--------- ------------- --------------- ----------------
16,344,564 6,894,344 79,796 6,082,242
c. Proposal to amend the Company's 1990 Equity Incentive Plan
to increase the number of shares of Tisue Repair Division Common
Stock covered by the Plan to 3,300,000.
Number of Number of Number of Votes Number of
Votes for Votes Against Abstaining Broker Non-Votes
--------- ------------- --------------- ----------------
19,892,368 3,418,707 79,163 6,010,708
d. Proposal to amend the Company's 1990 Director Stock Option
Plan to increase the size of the annual option grants to
directors under the Plan.
Number of Number of Number of Votes Number of
Votes for Votes Against Abstaining Broker Non-Votes
--------- ------------- --------------- ----------------
21,677,588 1,621,130 91,374 6,010,854
e. Proposal to approve the Genzyme Corporation Directors'
Referral Compensation Plan.
Number of Number of Number of Votes Number of
Votes for Votes Against Abstaining Broker Non-Votes
--------- ------------- --------------- ----------------
22,256,799 1,145,521 106,856 5,891,770
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Orgaization of Genzyme Corporation.
Filed herewith.
10.1 1990 Equity Incentive Plan. Filed as Exhibit 99 to the
Company's Registration Statement on Form S-8 (Commission
File No. 333-10003) and incorporated herein by reference.
10.2 Genzyme Corporation Directors' Deferred compensation Plan.
Filed as Exhibit 99 to the Company's Resistration
Statement on Form S-8 (Commission File No. 333-10005) and
incorporated herein by reference.
11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith.
27 Financial Data Schedules for Genzyme General Division and
Genzyme Tissue Repair Division (for EDGAR filing purposes
only). Filed herewith.
-33-
<PAGE> 34
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 1996
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENZYME CORPORATION
DATE: August 14, 1996 By: /s/David J. McLachlan
----------------------
David J. McLachlan
Duly Authorized Officer and
Chief Financial Officer
-34-
<PAGE> 35
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1995
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
3.1 Restated Articles of Orgaization of Genzyme Corporation. 37
Filed herewith.
10.1 1990 Equity Incentive Plan. Filed as Exhibit 99 to the
Company's Registration Statement on Form S-8 (Commission
File No. 333-10003) and incorporated herein by reference.
10.2 Genzyme Corporation Directors' Deferred Compensation Plan.
Filed as Exhibit 99 to the Company's Resistration
Statement on Form S-8 (Commission File No. 333-10005) and
incorporated herein by reference.
11 Computation of weighted average shares used in
computing earnings per share amounts. Filed herewith. 62-63
27 Financial Data Schedules for Genzyme General Division
Genzyme Tissue Repair Division (for EDGAR filing
purposes only). Filed herewith. 64
-35-
<PAGE> 1
EXHIBIT 3.1
-36-
<PAGE> 2
Federal Identification
Number: 06-1047163
----------
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
We, Henri A. Termeer, *President and Peter Wirth, *Clerk of Genzyme Corporation
located at One Kendall Square, Cambridge, MA 02139 do hereby certify that the
following Restatement of the Articles of Organization was duly adopted at a
meeting held on June 6, 1996 by a vote of the directors
_____ shares of _________________ of _________ shares outstanding
_____ shares of _________________ of _________ shares outstanding, and
_____ shares of _________________ of _________ shares outstanding,
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby:
ARTICLE I
The name of the corporation is:
GENZYME CORPORATION
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
TO DEVELOP, MANUFACTURE AND SELL HUMAN HEALTH CARE PRODUCTS AND TO ENGAGE
GENERALLY IN ANY BUSINESS THAT MAY LAWFULLY BE CARRIED ON BY A CORPORATION
FORMED UNDER CHAPTER 156B OF THE GENERAL LAWS OF MASSACHUSETTS.
*Delete the inapplicable words. **Delete the inapplicable clause.
1For amendments adopted pursuant to Chapter 156B, Section 70.
2For amendments adopted pursuant to Chapter 156B, Section 71.
<PAGE> 3
ARTICLE III
<TABLE>
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
<CAPTION>
================================================================================
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common: Common: 240,000,000* $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 10,000,000** $.01
- --------------------------------------------------------------------------------
================================================================================
<FN>
*of which 200,000,000 shares shall have been designated as General Division
Common Stock and 40,000,000 shares have been designated as Tissue Repair
Division Common Stock
**of which 1,000,000 shares have been designated as Series A Junior
Participating Preferred Stock and 400,000 shares have been designated as Series
B Junior Participating Preferred Stock.
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other of which shares
are outstanding and of each series then established within any class.
SEE CONTINUATION PAGES
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
NONE
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
SEE CONTINUATION PAGES
**If there are no provisions state "None".
<PAGE> 4
NOTE: The preceding six (6) articles are considered to be permanent and may
ONLY be changed by filing appropriate Articles of Amendment.
ARTICLE VII
The effective dat of the Restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
LATER effective date is desired, specify such date which shall nor be more than
THIRTY DAYS after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VII IS NOT A PERMANENT PART OF THE ARTICLES
OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the
principal office of the Corporation in MASSACHUSETTS is:
One Kendall Square, Cambridge, MA 02139
<TABLE>
b. The name, residential address and post office address of each director
and officer is as follows:
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President:
Henri A. Termeer 65-3 Commercial Wharf c/o Genzyme Corporation
Boston, MA 02110 One Kendall Square
Cambridge, MA 02139
Treasurer:
Evan M. Lebson 5 Arbetter Drive same as above
Framnigham, MA 01701
Clerk:
Peter Wirth 37 Hancock Street same as above
Boston, MA 02114
Directors:
Henri A. Termeer same as above same as above
Douglas A. Berthiaume 114 Cara Drive same as above
N. Andover, MA 01845
Robert J. Carpenter 9 Lowell Road same as above
Wellesley, MA 02181
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Henry R. Lewis 35 Clover Street same as above
Belmont, MA 02178
Constantine Anagstopoulos 29 Portland Drive same as above
St. Louis, MO 63131
Henry E. Blair 2580 Main Street same as above
Barnstable, MA 02630
Charles L. Cooney 35 Chestnut Street same as above
Brookline, MA 02139
<FN>
c. The fiscal year (i.e. tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: NONE
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following article. Briefly describe
amendments below: NONE
</TABLE>
SIGNED UNDER THE PENALTIES OF PERJURY, this 25th day of July, 1996,
/s/ Henri A. Termeer President
--------------------------------
/s/ Peter Wirth Clerk
--------------------------------
<PAGE> 6
ARTICLE IV
DESCRIPTION OF CAPITAL STOCK
----------------------------
A. AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall be authorized to issue is two hundred fifty million
(250,000,000) shares, consisting of two hundred million (200,000,000) shares of
General Division Common Stock, $.01 par value per share (the "General Stock"),
forty million (40,000,000) shares of Tissue Repair Division Common Stock, $.01
par value per share (the "TR Stock"), and ten million (10,000,000) shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock").
On December 16, 1994, the effective date of the amendment to these
Articles that created the Tissue Repair Division Common Stock, and without any
further action on the part of the Corporation or its stockholders, each share of
the Corporation's Common Stock then issued and outstanding was redesignated as
one fully paid and nonassessable share of General Stock.
B. DESCRIPTION OF THE GENERAL STOCK AND THE TR STOCK
A description of the General Stock and the TR Stock and a statement of
their respective preferences, voting powers, qualifications and special or
relative rights or privileges is as follows:
1. DIVIDENDS AND DISTRIBUTIONS
Subject to the express terms of any outstanding series of Preferred
Stock, dividends may be declared and paid upon the General Stock or the TR Stock
upon the terms provided for below with respect to each such class, in such
amounts and at such times as the Board of Directors may determine.
A. DIVIDENDS ON GENERAL STOCK. Dividends on General Stock may
be declared and paid only out of the lesser of (a) funds of the Corporation
legally available therefor and (b) the Available General Dividend Amount.
B. DIVIDENDS ON TR STOCK. Dividends on TR Stock may be
declared and paid only out of the lesser of (a) funds of the Corporation legally
available therefor and (b) the Available Tissue Repair Dividend Amount.
<PAGE> 7
C. DISCRIMINATION BETWEEN CLASSES OF GENERAL STOCK. Subject to
the provisions of paragraphs IV.B.1.a. and IV.B.1.b., the Board of Directors
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.
2. EXCHANGE OF TR STOCK. Shares of TR Stock are subject to
exchange upon the terms and conditions set forth below:
A. OPTIONAL EXCHANGE OF TR STOCK. At any time after the later
of (i) December 31, 1995 and (ii) equity investments in TR Stock by investors
(other than purchasers of TR Stock pursuant to the Corporation's stock option,
stock purchase or other employee benefit plans), the proceeds of which are
allocated to the Tissue Repair Division, or the allocation of cash or cash
equivalents from the General Division to the Tissue Repair Division, or any
combination of such equity investments and allocations, aggregating not less
than ten million dollars ($10,000,000), the Board of Directors may declare that
each of the outstanding shares of TR Stock shall be exchanged, on an Exchange
Date set forth in a notice to holders of TR Stock pursuant to paragraph
IV.B.2.c.(1), for (a) a number of fully paid and nonassessable shares of General
Stock (calculated to the nearest five decimal places) equal to (1) 130% of the
Fair Market Value of one share of the TR Stock (the "Exchange Amount") as of the
date of the first public announcement by the Corporation (the "Announcement
Date") of such exchange divided by (2) the Fair Market Value of one share of
General Stock as of such Announcement Date or (b) cash equal to the Exchange
Amount, or (c) any combination of General Stock and cash equal to the Exchange
Amount as determined by the Board of Directors.
B. MANDATORY EXCHANGE OF TR STOCK. In the event of the
Disposition, in one transaction or a series of related transactions, by the
Corporation of all or substantially all of the properties and assets allocated
to the Tissue Repair Division (other than in connection with the Disposition by
the Corporation 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 (x) any entity in which the Corporation, directly or indirectly,
owns all of the equity interest or (y) any entity formed at the direction of the
Corporation in connection with obtaining financing for the programs or products
of the Tissue Repair Division under an arrangement which provides the
Corporation with an option to reacquire such properties and assets or retain or
obtain substantial manufacturing or marketing rights with respect to any
products developed by such entity, in each case for the benefit of the Tissue
Repair Division), the Corporation shall, on or prior to the first Business Day
after the 90th day following the consummation of such Disposition, exchange each
outstanding share of TR Stock for (a) a number of fully paid and nonassessable
shares of General Stock (calculated to the nearest five decimal places) equal to
(1) the Exchange Amount as of the Announcement Date of such Disposition divided
by (2) the Fair Market Value of one share of General Stock as of such
Announcement Date or (b) cash equal to the Exchange Amount, or (c) any
combination of General Stock and cash equal to the Exchange Amount as determined
by the Board of Directors. For purposes of this paragraph:
<PAGE> 8
(1) "substantially all of the properties and assets
allocated to the Tissue Repair Division" shall mean a portion of the properties
and assets allocated to the Tissue Repair Division (A) that represents at least
80% of the then-current fair value (as determined by the Board of Directors) of,
or (B) to which is attributable at least 80% of the aggregate revenues for the
immediately preceding twelve fiscal quarterly periods of the Corporation derived
from, the properties and assets allocated to the Tissue Repair Division; and
(2) in the case of a Disposition of properties and
assets in a series of related transactions, such Disposition shall not be deemed
to have been consummated until the consummation of the last of such
transactions.
C. GENERAL EXCHANGE PROVISIONS. In the event of any
exchange of TR Stock for shares of General Stock pursuant to paragraph IV.B.2.a.
or IV.B.2.b., the following provisions shall apply:
(1) The Corporation shall cause to be given to each
record holder of shares of the TR Stock a notice stating (a) that shares of
TR Stock shall be exchanged for shares of General Stock or for cash or a
combination thereof, (b) the date on which the exchange shall become effective
(the "Exchange Date"), (c) the number of shares of General Stock or cash or
combination thereof to be received by such holder with respect to each share of
the TR Stock held by such holder, including details as to the calculation
thereof and (d) the place or places where certificates for shares of TR Stock,
properly endorsed or assigned for transfer are to be surrendered for delivery of
certificates for shares of General Stock or cash or a combination thereof
(unless the Corporation shall waive such requirement). Such notice shall be sent
by first-class mail, postage prepaid, not less than 30 nor more than 60 days
prior to the Exchange Date to each holder of shares of TR Stock at such holder's
address as the same appears on the stock transfer books of the Corporation.
Neither the failure to mail such notice to any particular holder of shares TR
Stock nor any defect therein shall affect the sufficiency thereof with respect
to any other holder of shares of TR Stock.
(2) The Corporation shall not be required to issue or
deliver fractional shares of General Stock to any holder of shares of TR
Stock upon any such exchange. If more than one share of TR Stock shall be held
by the same holder of record, the Corporation shall aggregate the number of
shares of General Stock that shall be issuable to such holder upon any such
exchange. If the total number of shares of General Stock to be so issued to any
holder of record of shares of TR Stock includes a fraction, the Corporation
shall, if such fraction is not issued or delivered to such holder, either
arrange for the disposition of such fraction by or on behalf of such holder or
pay the fair value of such fraction, based upon the Fair Market Value of the
General Stock on the Exchange Date.
(3) No adjustments in respect of dividends shall be
made upon the exchange of any shares of TR Stock; provided, however, that
if the Exchange Date shall be subsequent to the record date for determining
holders of TR Stock entitled to the payment of a dividend or other distribution
thereon or with respect thereto, the holders of shares of TR
<PAGE> 9
Stock at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on or with respect to such shares on
the date set for payment of such dividend or other distribution, notwithstanding
the exchange of such shares.
(4) Before any holder of shares of TR Stock shall be
entitled to receive certificates representing shares of General Stock or
cash or a combination thereof to be received by such holder with respect to the
exchange of such shares of TR Stock, such holder shall surrender at such place
as the Corporation shall specify certificates for such shares of TR Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement). The Corporation will as soon as practicable after such
surrender of certificates representing such shares of TR Stock deliver to the
person for whose account such shares of TR Stock were so surrendered, or to the
nominee or nominees of such person, certificates representing the number of
shares of General Stock or cash or a combination thereof to which such person
shall be entitled as aforesaid, together with any fractional share payment
contemplated by paragraph IV.B.2.c.(2).
(5) From and after the Exchange Date, all rights of
a holder of shares of TR Stock shall cease except for the right, upon
surrender of the certificates representing such shares of TR Stock, to receive
certificates representing shares of General Stock or cash or a combination
thereof, together with any fractional share payment contemplated by paragraph
IV.B.2.c.(2), and rights to dividends as provided in paragraph IV.B.2.c.(3). No
holder of a certificate that immediately prior to the Exchange Date represented
shares of TR Stock shall be entitled to receive any dividend or other
distribution with respect to the General Stock to be issued in exchange until
surrender of such holder's certificate for a certificate or certificates
representing shares of General Stock (unless the Corporation shall waive such
requirement). Upon such surrender, there shall be paid to the holder the amount
of any dividends or other distributions (without interest) which theretofore
became payable with respect to a record date after the Exchange Date, but that
were not paid by reason of the foregoing, with respect to the number of shares
of General Stock represented by the certificate or certificates issued upon such
surrender. From and after the Exchange Date, the Corporation shall, however, be
entitled to treat the certificates for TR Stock that have not yet been
surrendered for exchange as evidencing the ownership of the number of shares of
General Stock for which the shares of TR Stock represented by such certificates
shall have been exchanged, notwithstanding the failure to surrender such
certificates.
(6) The Corporation will pay any and all documentary,
stamp or similar issue or transfer taxes that may be payable in respect of the
issue or delivery of any shares of General Stock in exchange for shares of TR
Stock pursuant hereto. The Corporation shall not, however, be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of any shares of General Stock issued in exchange in a name other than
that in which the shares of TR Stock so exchanged were registered and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has established
to the satisfaction of the Corporation that such tax has been paid.
<PAGE> 10
(7) After the Exchange Date, any share of TR Stock
issued upon conversion or exercise of any Convertible Security shall,
immediately upon issuance pursuant to such conversion or exercise and without
any notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of TR Stock, be exchanged for the number
of shares of General Stock or cash or combination thereof (together with any
payments in lieu of fractional shares or dividends, if any) that a holder of
such Convertible Security would have been entitled to receive pursuant to the
terms of such Convertible Security had such terms provided that the conversion
privilege in effect immediately prior to any exchange by the Corporation of any
shares of TR Stock for shares of any other capital stock of the Corporation
would be adjusted so that the holder of any such Convertible Security thereafter
surrendered for conversion would be entitled to receive the number of shares of
capital stock of the Corporation he or she would have owned immediately
following such action had such Convertible Security been converted immediately
prior to such exchange. The foregoing provisions shall not apply to the extent
that equivalent adjustments are otherwise made pursuant to the provisions of
such Convertible Security.
3. VOTING RIGHTS
A. GENERAL STOCK. The holders of General Stock, voting
together with the holders of TR Stock as a single class of stock, shall have the
exclusive right to vote for the election of directors and on all other matters
requiring action by the stockholders or submitted to the stockholders for
action, except as may be determined by the Board of Directors in establishing
any series of Preferred Stock or as may otherwise be required by law. Each share
of the General Stock shall entitle the holder thereof to one vote.
B. TR STOCK. The holders of TR Stock, voting together with the
holders of General Stock as a single class of stock, shall have the exclusive
right to vote for the election of directors and on all other matters requiring
action by the stockholders or submitted to the stockholders for action, except
as may be determined by the Board of Directors in establishing any series of
Preferred Stock or as may otherwise be required by law. Each share of TR Stock
shall entitle the holder thereof to .29 votes from the Effective Date through
December 31, 1996. On January 1, 1997 and on each January 1 every two years
thereafter, the number of votes to which the holder of each share of TR Stock
shall be entitled shall be adjusted and fixed for two-year periods to equal the
quotient (expressed as a decimal and rounded to the nearest two decimal places)
obtained by dividing (i) the Fair Market Value of one share of TR Stock by (ii)
Fair Market Value of one share of General Stock as of such date. If no shares of
General Stock are outstanding on such date, or if shares of TR Stock are
entitled to vote separately as a class, each share of TR Stock shall have one
vote.
C. VOTING OF CONTROLLED SHARES. Shares of any class of common
stock held by a corporation or other entity controlled by the Corporation (other
than an employee benefit plan) shall be voted on any proposal requiring a vote
of the holders of such class in the same proportion as votes are cast for or
against such proposal by all other holders of such class.
<PAGE> 11
D. SPECIAL VOTING RIGHTS. The Corporation shall 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 proposal exceed
those cast against:
(1) allow any proceeds from the Disposition of the
properties or assets allocated to any Division represented by such class of
common stock to be used in the business of any other Division not represented by
such class of common stock without fair compensation being allocated to the
Division whose properties or assets are disposed of as determined by the Board
of Directors;
(2) allow any properties or assets allocated to any
Division represented by a class of common stock to be used in the business
of any other Division not represented by such class of common stock or for the
declaration or payment of any dividend or distribution on any such other class
of common stock without fair compensation being allocated to the Division to
which such properties or assets were allocated as determined by the Board of
Directors;
(3) issue, sell or otherwise distribute shares of
either class of common stock without allocating the proceeds or other
benefits of such issuance, sale or distribution to the Division represented by
such class of common stock; PROVIDED, HOWEVER, that the Corporation may without
such approval issue General Designated Shares and TR 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 the Corporation as a result of which (a) the holders of all
classes of common stock of the Corporation 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 the
Corporation 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.
4. LIQUIDATION, DISSOLUTION OR WINDING UP
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the rights of the holders of General Stock and TR Stock
shall be as follows:
a. After the Corporation has satisfied or made provision for
its debts and obligations and for the payment to the holders of shares of any
class or series of capital stock having preferential rights to receive
distributions of the net assets of the Corporation (including any accumulated
and unpaid dividends), the holders of General Stock and TR Stock shall be
entitled to receive the net assets of the Corporation remaining for
distribution, on a per share basis in proportion to the respective liquidation
units per share of such class. Each share of General Stock shall have one
liquidation unit and each share of TR Stock
<PAGE> 12
shall, subject to paragraph b. below, have the number of liquidation units
equal to the number of votes to which one share of TR Stock is entitled on the
Effective Date.
b. For the purposes of paragraph IV.B.4.a., any merger or
business combination involving the Corporation or any sale of all or
substantially all of the assets of the Corporation shall not be treated as a
liquidation.
5. ADJUSTMENTS RELATIVE TO VOTING RIGHTS AND LIQUIDATION
If after the Effective Date, the Corporation shall in any manner
subdivide (by stock split, reclassification or otherwise) or combine (by reverse
stock split, reclassification or otherwise) the outstanding shares of General
Stock or TR Stock, or pay a dividend or make a distribution in shares of any
class of common stock to holders of such class, the per share voting rights and
the liquidation units of TR Stock shall be appropriately adjusted so as to avoid
dilution in the aggregate voting and liquidation rights of either class. The
issuance by the Corporation of shares of any class of common stock (whether by a
dividend or otherwise) to the holders of any other class of common stock shall
not require adjustment pursuant to this paragraph.
6. RANK
The General Stock and TR Stock shall rank junior with respect to the
payment of dividends and the distribution of assets to all series of the
Corporation's Preferred Stock that specifically provide that they shall rank
prior to the General Stock and TR Stock. Nothing herein shall preclude the Board
from creating any series of Preferred Stock ranking on a parity with or prior to
the General Stock and TR Stock as to the payment of dividends or the
distribution of assets.
7. FRACTIONAL SHARES
The General Stock and the TR Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of the
General Stock and the TR Stock, respectively.
8. DEFINITIONS
As used in these Articles of Organization, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless another
definition is provided or the context otherwise requires:
a. "Available General Dividend Amount," on any date, shall
mean the greater of:
(a) the excess of
<PAGE> 13
(i) the greater of (x) the fair value on such date of
the net assets of the General Division and (y) an amount equal to
$335,378,000 (stockholders' equity allocated to the General Division at June 30,
1994), such dollar amount to be increased or decreased, as appropriate, to
reflect, after June 30, 1994, (A) the Earnings Attributable to the General
Division, (B) any dividends or other distributions (including by
reclassification or exchange) declared or paid with respect to, or repurchases
or issuances of, any shares of General Stock or any other class of capital stock
attributed to the General Division, but excluding dividends or other
distributions paid in shares of General Stock to the holders thereof or in
shares of any other class of capital stock attributed to the General Division to
the holders thereof, and (C) any other adjustments to the stockholders' equity
of the General Division made in accordance with generally accepted accounting
principles, over
(ii) the sum of (x) the aggregate par value of all
outstanding shares of General Stock and any other class of capital stock
attributed to the General Division and (y) unless these Articles of Organization
permit otherwise, the aggregate amount that would be needed to satisfy any
preferential rights to which holders of all outstanding Preferred Stock
attributed to the General Division are entitled upon dissolution of the
Corporation in excess of the aggregate par value of such Preferred Stock,
provided that such excess shall be reduced by any amount necessary to enable the
General Division to pay its debts as they become due, and
(b) the amount legally available for the payment of dividends
determined in accordance with Massachusetts law applied as if the General
Division were a separate corporation.
b. "Available Tissue Repair Dividend Amount," on any date,
shall mean the greater of:
(a) the excess of
(i) the greater of (x) the fair value on such date of
the net assets of the Tissue Repair Division and (y) an amount equal to
$28,712,000 (stockholders' equity allocated to the Tissue Repair Division at
June 30, 1994), such dollar amount to be increased or decreased, as appropriate,
to reflect, after June 30, 1994, (A) the Earnings Attributable to the Tissue
Repair Division, (B) any dividends or other distributions (including by
reclassification or exchange) declared or paid with respect to, or repurchases
or issuances of, any shares of TR Stock or any other class of capital stock
attributed to the Tissue Repair Division, but excluding dividends or other
distributions paid in shares of TR Stock to the holders thereof or in shares of
any other class of capital stock attributed to the Tissue Repair Division to the
holders thereof, and (C) any other adjustments to the stockholders' equity of
the Tissue Repair Division made in accordance with generally accepted accounting
principles, over
<PAGE> 14
(ii) the sum of (x) the aggregate par value of all
outstanding shares of TR Stock and any other class of capital stock
attributed to the Tissue Repair Division and (y) unless these Articles of
Organization permit otherwise, the aggregate amount that would be needed to
satisfy any preferential rights to which holders of all outstanding Preferred
Stock attributed to the Tissue Repair Division are entitled upon dissolution of
the Corporation in excess of the aggregate par value of such Preferred Stock,
provided that such excess shall be reduced by any amount necessary to enable the
Tissue Repair Division to pay its debts as they become due, and
(b) the amount legally available for the payment of dividends
determined in accordance with Massachusetts law applied as if the Tissue Repair
Division were a separate corporation.
c. "Business Day" shall mean each weekday other than any day
on which any relevant class of common stock is not traded on any national
securities exchange or the National Association of Securities Dealers Automated
Quotations National Market System or in the over-the-counter market.
d. "Convertible Securities" shall mean any securities
(including employee stock options) of the Corporation that are convertible
into or evidence the right to purchase any shares of any class of common stock.
e. "Disposition" shall mean the sale, transfer, assignment or
other disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of any properties or assets, other than by pledge,
hypothecation or grant of any security interest in such properties or assets.
f. "Earnings Attributable" to a particular Division for any
period, shall mean the net income or loss of such Division for such period (or
for the fiscal periods of the Corporation commencing prior to the Effective Date
and after June 30, 1994, pro forma net income or loss of such Division as if the
Effective Date were June 30, 1994) determined in accordance with generally
accepted accounting principles, with all income and expenses of the Corporation
being allocated between Divisions in a reasonable and consistent manner in
accordance with policies adopted by the Board of Directors; PROVIDED, HOWEVER,
that as of the end of any fiscal quarter of the Corporation, any projected
annual tax benefit attributable to any Division that cannot be utilized by such
Division to offset or reduce its allocated tax liability may be allocated to any
other Division without any compensating payment or allocation.
g. "Effective Date" shall mean the date on which this
Amendment to the Articles of Organization shall become effective.
h. "Exchange Date" shall mean the date, if any, fixed for the
exchange of shares of TR Stock, as set forth in a notice to holders of TR
Stock pursuant to paragraph IV.B.2.c.(1).
<PAGE> 15
i. "Fair Market Value" as to shares of any class of stock
shall as of any date mean the average of the daily closing prices for the 20
consecutive trading days commencing on the 30th trading day prior to such date.
The closing price for each day shall be (x) if the shares of such class of stock
are listed or admitted to trading on a national securities exchange, the closing
price on the New York Stock Exchange Composite Tape (or any successor composite
tape reporting transactions on national securities exchanges) or, if such
composite tape shall not be in use or shall not report transactions in such
shares, the last reported sales price regular way on the principal national
securities exchange on which such shares are listed or admitted to trading
(which shall be the national securities exchange on which the greatest number of
shares of such class of stock has been traded during such consecutive trading
days), or, if there is no such sale on any such day, the mean of the bid and
asked prices on such day, or (y) if such shares are not listed or admitted to
trading on any such exchange, the closing price, if reported, or, if the closing
price is not reported, the mean of the closing bid and asked prices as reported
by the National Association of Securities Dealers Automated Quotations National
Market System or a similar source selected from time to time by the Corporation
for the purpose. In the event such closing prices are unavailable, Fair Market
Value shall be determined by the Board of Directors.
j. "General Division" shall mean, at any time, the
Corporation's interest in (i) all of the businesses, products, development
programs or research projects in which the Corporation or any of its
subsidiaries (or any of their predecessors or successors) is or has been
engaged, directly or indirectly, other than those allocated to the Tissue Repair
Division; and (ii) all assets and liabilities of the Corporation to the extent
allocated to any such businesses, products, development programs or research
projects in accordance with generally accepted accounting principles
consistently applied for all of the Corporation's business units. From and after
the date on which all of the outstanding shares of TR Stock are exchanged for
shares of General Stock, cash or a combination thereof, all of the businesses,
products, development programs, research projects, assets and liabilities of the
Tissue Repair Division shall be included in the General Division. The General
Division shall be represented by the General Stock.
k. "General Designated Shares" as of any date shall mean a
number of shares of General Stock that shall initially be zero, which
number shall be subject to adjustment as provided in the next sentence. The
number of General Designated Shares shall from time to time be
(i) adjusted as appropriate to reflect subdivisions
(by stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the General Stock and dividends or distributions of shares of
General Stock to holders of General Stock and other reclassifications of General
Stock,
(ii) decreased by (A) the number of any shares of
General Stock issued by the Corporation, the proceeds of which are
allocated to the Tissue Repair Division, (B) the number of any shares of General
Stock issued upon the exercise or conversion of Convertible Securities
attributed to the Tissue Repair Division, (C) the number of any shares of
General Stock issued by the Corporation as a dividend or distribution or by
<PAGE> 16
reclassification, exchange or otherwise to holders of TR Stock, and (D) the
number equal to the fair value (as determined by the Board of Directors) of
assets or properties allocated to the General Division that are reallocated to
the Tissue Repair Division (other than reallocations that represent sales at
fair value between such Divisions) divided by the Fair Market Value of one share
of General Stock as of such date, and
(iii) increased by (A) the number of any outstanding
shares of General Stock repurchased by the Corporation, the consideration
for which was allocated to the Tissue Repair Division, and (B) the number equal
to the fair value (as determined by the Board of Directors) of assets or
properties allocated to the Tissue Repair Division that are reallocated to the
General Division (other than reallocations that represent sales at fair value
between such Divisions) divided by the Fair Market Value of one share of General
Stock as of the date of such reallocation;
PROVIDED that no adjustment shall be made pursuant to clause (ii)(D) if the
Board of Directors elects instead to make the adjustment set forth in clause
(iii)(B) or (C) of the definition of TR Designated Shares and PROVIDED, FURTHER
that the Corporation shall take no action which would have the effect of
reducing the General Designated Shares to a number which is less than zero.
Within 45 days after the end of each fiscal quarter of the Corporation, the
Corporation shall prepare and file a statement of such change with the transfer
agent for the General Stock and with the Clerk of the Corporation.
l. "Market Capitalization" of any class of common stock on any
date shall mean the product of (i) the Fair Market Value of one share of such
class of common stock on such date and (ii) the number of shares of such class
of common stock outstanding on such date.
m. "Tissue Repair Division" shall mean, at any time, the
Corporation's interest in (i) the following businesses, products, development
programs or research projects: (A) Vianain[Registered Trademark] for
debridement of necrotic or damaged tissue; (B) TGF-(beta)2 for all indications
licensed from Celtrix Pharmaceuticals, Inc. on the Effective Date; (C)
Epicel[Trademark] cultured epithelial cell autografts for tissue replacement or
repair, including but not limited to skin, ocular or oral tissue; (D)
Acticel[Trademark] cultured epithelial cell allografts for tissue replacement
or repair, including but not limited to skin, ocular or oral tissue; (E)
Chondrograft cultured chondrocyte auto- and allografts; (F) tissue-type
plasminogen activator ("tPA") for all tissue repair indications licensed by the
Corporation from Genentech, Inc. on the Effective Date; (G) the
leukocyte-derived growth factor ("LDGF") research program; (H) the dermal
replacement research program; (I) the cultured fibroblast dermal replacement
research program and (J) the research program on cultured keratinocyte or
fibroblast cell extracts or derivatives, each as being conducted by the
Corporation on the Effective Date; (ii) all assets and liabilities of the
Corporation to the extent allocated to any such businesses, products,
development programs or research projects in accordance with generally accepted
accounting principles consistently applied for all of the Corporation's
business units; and (iii) such businesses, products, development programs or
research projects developed in, or acquired by the Corporation for, the Tissue
Repair Division after the Effective Date, in each case as determined by the
Board of Directors; PROVIDED, HOWEVER, that, from and after any
<PAGE> 17
Disposition or transfer to the General Division of any business, product,
development program, research project, assets or properties, the Tissue Repair
Division shall no longer include the business, product, development program,
research project, assets or properties so disposed of or transferred. The Tissue
Repair Division shall be represented by the TR Stock.
n. "TR Designated Shares" as of any date shall mean a
number of shares of TR Stock that shall initially be 5,000,000, which
number shall be subject to adjustment as provided in the next sentence. The
number of TR Designated Shares shall from time to time be
(i) adjusted as appropriate to reflect subdivisions
(by stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the TR Stock and dividends or distributions of shares of TR Stock
to holders of TR Stock and other reclassifications of TR Stock,
(ii) decreased by (A) the number of any shares of TR
Stock issued by the Corporation, the proceeds of which are allocated to the
General Division, (B) the number of any shares of TR Stock issued upon the
exercise or conversion of Convertible Securities attributed to the General
Division, and (C) the number of any shares of TR Stock issued by the Corporation
as a dividend or distribution or by reclassification, exchange or otherwise to
holders of General Stock, and
(iii) increased by (A) the number of any outstanding
shares of TR Stock repurchased by the Corporation, the consideration for
which was allocated to the General Division, (B) one for each $10.00 reallocated
from the General Division to the Tissue Repair Division from time to time in
satisfaction of the funding commitment or the purchase option of the General
Division set forth in sections 4.17 and 4.18 of the Agreement and Plan of
Reorganization among the Corporation, Phoenix Acquisition Corporation and
BioSurface Technology, Inc. dated as of July 25, 1994, up to a maximum
$30,000,000, and (C) the number equal to the fair value (as determined by the
Board of Directors) of assets or properties allocated to the General Division
that are reallocated to the Tissue Repair Division (other than reallocations
that represent sales at fair value between such Divisions or reallocations
described in the foregoing clause (B)) divided by the Fair Market Value of one
share of TR Stock as of the date of such reallocation;
PROVIDED, that the Corporation shall take no action which would have the effect
of reducing the TR Designated Shares to a number which is less than zero. Within
45 days after the end of each fiscal quarter of the Corporation, the Corporation
shall prepare and file a statement of such change with the transfer agent for
the TR Stock and with the Clerk of the Corporation.
9. DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations with respect to any Division or the rights of
holders of any series of common stock made by the Board of Directors of the
Corporation in good faith pursuant
<PAGE> 18
to or in furtherance of any provision of this paragraph B. shall be final
and binding on all stockholders of the Corporation.
C. DESCRIPTION OF THE PREFERRED STOCK
1. UNDESIGNATED PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors may determine, in whole or in part, the
preferences, voting powers, qualifications and special or relative rights or
privileges of any such series before the issuance of any shares of that series.
The Board of Directors shall determine the number of shares constituting each
series of Preferred Stock and each series shall have a distinguishing
designation.
2. SERIES A AND SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
By vote adopted October 13, 1994 pursuant to paragraph IV(C)(1) of this
Corporation's Articles of Organization, the Board of Directors established two
series of Preferred Stock of the Corporation with the following designations,
powers, preferences and rights:
1. AUTHORIZED AMOUNTS AND DESIGNATIONS. One million shares of Preferred
Stock of the Corporation are designated as Series A Junior Participating
Preferred Stock (the "Series A Preferred Stock") and 400,000 shares of Preferred
Stock are designated as Series B Junior Participating Preferred Stock (the
"Series B Preferred Stock," and together with the Series A Preferred Stock, the
"Junior Preferred Stock"). To the extent legally permitted, such numbers of
shares may be increased or decreased by vote of the Board of Directors, provided
that no decrease shall reduce the number of shares of Junior Preferred Stock of
either series to a number less than the number of shares of such series then
outstanding plus the number of shares of such series reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into such
series of Junior Preferred Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of General Division Common Stock
(the "General Stock") and Tissue Repair Division Common Stock (the "TR Stock"
and together with the General Stock, the "Common Shares") of the Corporation,
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share
<PAGE> 19
or fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend on Common Shares payable in Common Shares of the same class or a
subdivision of the outstanding Common Shares (by reclassification or otherwise),
declared on the General Stock in the case of the Series A Preferred Stock and on
the TR Stock in the case of the Series B Preferred Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on any class of Common Shares
payable in Common Shares of the same class, or effect a subdivision or
combination or consolidation of the outstanding Common Shares of any class (by
reclassification or otherwise than by payment of a dividend in the same class of
Common Shares) into a greater or lesser number of Common Shares of such class,
then in each such case the amount to which holders of shares of Junior Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
(i) the numerator of which is the number of shares of General Stock outstanding
immediately after such event and the denominator of which is the number of
shares of General Stock that were outstanding immediately prior to such event in
the case of the Series A Preferred Stock, and (ii) the numerator of which is the
number of shares of TR Stock outstanding immediately after such event and the
denominator of which is the number of shares of TR Stock that were outstanding
immediately prior to such event in the case of the Series B Preferred Stock.
(B) The Corporation shall declare a dividend or distribution on the
Junior Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on any class of Common
Shares (other than a dividend payable in Common Shares of such class), provided
that, in the event no dividend or distribution shall have been declared on the
General Stock or the TR Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1.00 per share on the Series A Preferred Stock or the Series B Stock, as the
case may be, shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on
<PAGE> 20
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation and
each share of Series B Preferred Stock shall entitle the holder thereof to 100
times the number of votes to which the holder of each outstanding share of TR
Stock is then entitled on all such matters. In the event the Corporation shall
at any time declare or pay any dividend on any class of Common Shares payable in
Common Shares of such class, or effect a subdivision or combination or
consolidation of the outstanding Common Shares of any class (by reclassification
or otherwise than by payment of a dividend in Common Shares of such class) into
a greater or lesser number of Common Shares of such class, then in each such
case the number of votes per share to which holders of shares of Junior
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, (i) the numerator of which is the
number of shares of General Stock outstanding immediately after such event and
the denominator of which is the number of shares of General Stock that were
outstanding immediately prior to such event in the case of the Series A
Preferred Shares, and (ii) the numerator of which is the number of shares of TR
Stock outstanding immediately after such event and the denominator of which is
the number of shares of TR Stock that were outstanding immediately prior to such
event in the case of the Series B Preferred Stock.
(B) Except as otherwise provided herein, in the Articles of
Organization, in any other vote of the Board of Directors of the Corporation
creating a series of Preferred Stock, or by law, the holders of shares of Junior
Preferred Stock and the holders of Common Shares and any other capital stock of
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein or as otherwise provided by law, holders
of Junior Preferred Stock shall have no voting rights.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
<PAGE> 21
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
dividends paid ratably on the Junior Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Junior Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a parity
with the Junior Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this section 4
purchase or otherwise acquire such shares at such time and in such manner.
5. REACQUIRED SHARES. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock, subject to the
conditions and restrictions on issuance set forth herein, in the Articles of
Organization, in any other vote of the Board of Directors of the Corporation
creating a series of Preferred Stock, or as otherwise required by law.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Junior Preferred Stock shall be entitled
to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth,
<PAGE> 22
equal to 100 times the aggregate amount to be distributed per share to holders
of shares of General Stock in the case of the Series A Preferred Stock and 100
times the aggregate amount to be distributed per share to the holders of shares
of TR Stock in the case of the Series B Preferred Stock, or (2) to the holders
of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on any class
of Common Shares payable in Common Shares of such class, or effect a subdivision
or combination or consolidation of the outstanding Common Shares of any class
(by reclassification or otherwise than by payment of a dividend in Common Shares
of such class) into a greater or lesser number of Common Shares of such class,
then in each such case the aggregate amount to which holders of shares of Junior
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, (i) the numerator of which is the number of shares of
General Stock outstanding immediately after such event and the denominator of
which is the number of shares of General Stock that were outstanding immediately
prior to such event in the case of the Series A Preferred Stock, and (ii) the
numerator of which is the number of shares of TR Stock outstanding immediately
after such event and the denominator of which is the number of shares of TR
Stock that were outstanding immediately prior to such event in the case of the
Series B Preferred Stock.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which Common
Shares are exchanged for or changed into other stock or securities, cash and/or
any other property, then in any such case each share of Series A Preferred Stock
and Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of General Stock and TR Stock,
respectively, is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on any class of Common Shares payable in Common
Shares of such class, or effect a subdivision or combination or consolidation of
the outstanding shares of any class of Common Shares (by reclassification or
otherwise than by payment of a dividend in shares of Common Shares of such
class) into a greater or lesser number of Common Shares of such class, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction, (i) the numerator of which is the number
of shares of General Stock outstanding immediately after such event and the
denominator of which is the number of shares of General Stock that were
outstanding immediately prior to such event in the case of the Series A
Preferred Stock, and (ii) the numerator of which is the number of shares of TR
Stock outstanding immediately after such event and the denominator of which is
the number of shares of TR Stock that were outstanding immediately prior to such
event in the case of the Series B Preferred Stock.
<PAGE> 23
8. REDEMPTION. The shares of Junior Preferred Stock shall not be
redeemable.
9. RANK. The Series A Preferred Stock and the Series B Preferred Stock
shall rank equally with respect to the payment of dividends and the distribution
of assets. The Junior Preferred Stock shall rank junior with respect to the
payment of dividends and the distribution of assets to all series of the
Corporation's Preferred Stock that specifically provide that they shall rank
prior to the Junior Preferred Stock. Nothing herein shall preclude the Board
from creating any series of Preferred Stock ranking on a parity with or prior to
the Junior Preferred Stock as to the payment of dividends or the distribution of
assets.
10. AMENDMENT. The Articles of Organization of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock or the Series B
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding Series A Preferred Stock
or Series B Preferred Stock, respectively, voting together as a single series.
11. FRACTIONAL SHARES. The Junior Preferred Stock may be issued in fractions
of a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of the
Junior Preferred Stock.
<PAGE> 24
ARTICLE VI
OTHER LAWFUL PROVISIONS
-----------------------
A. BOARD OF DIRECTORS
------------------
1. CLASSIFICATION. The directors shall be divided into three classes,
as nearly equal in number as the then total number of directors constituting the
entire Board permits, with the term of office of one class expiring each year.
The initial directors of all classes shall be elected by the incorporator and
shall serve until their respective successors shall be elected and shall
qualify. Thereafter, the directors of the first class shall be elected to hold
office for a term expiring at the first annual meeting of stockholders, the
directors of the second class shall be elected to hold office for a term
expiring at the second annual meeting of stockholders and the directors of the
third class shall be elected to hold office for a term expiring at the third
annual meeting of stockholders. At each annual meeting of stockholders,
successors to the class of directors whose term expires at that meeting shall be
elected for a term expiring at the third annual meeting following their election
and until their successors shall be elected and qualified, subject to prior
death, resignation, retirement or removal. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
but in no event will a decrease in the number of directors shorten the term of
any incumbent director. Notwithstanding the foregoing, and except as otherwise
required by law, whenever the holders of any one or more series of Preferred
Stock shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the election, terms of office and other features
of such directorships shall be governed by the terms of the vote establishing
such series, and such directors so elected shall not be divided into classes
pursuant to this Article VI unless expressly provided by such terms.
2. VACANCIES. Except as otherwise determined by the Board of Directors
in establishing a series of Preferred Stock as to directors elected by holders
of such series, any vacancies in the Board of Directors, including a vacancy
resulting from the enlargement of the Board, may be filled by the directors then
in office, though less than a quorum. Each director so chosen to fill a vacancy
shall be elected to complete the term of office of the director who is being
succeeded. In the case of any election of a new director to fill a directorship
created by an enlargement of the Board, the Board shall in such election assign
the class of directors to which such additional director is being elected, and
each director so elected shall hold office for the same term as the other
members of the class to which the director is assigned.
3. REMOVAL. Except as otherwise determined by the Board of Directors in
establishing a series of Preferred Stock as to directors elected by holders of
such series, at any special meeting of the stockholders called at least in part
for the purpose, any director or directors may, by the affirmative vote of the
holders of at least a majority of the stock entitled to vote for the election of
directors, be removed from office for cause. The provisions of this subsection
shall be the exclusive method for the removal of directors.
<PAGE> 25
B. STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS
---------------------------------------------
The Corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon may (i) authorize any amendment to these Articles of
Organization, (ii) authorize the sale, lease or exchange of all or substantially
all of the Corporation's property and assets, including its goodwill and (iii)
approve a merger or consolidation of the Corporation with or into any other
corporation; so long as such amendment, sale, lease, exchange, merger or
consolidation shall have been approved by the Board of Directors.
C. ADDITIONAL PROVISIONS
---------------------
1. Meetings of the stockholders may be held anywhere within the United
State.
2. No contract or other transaction of this corporation with any other
person, corporation, association, or partnership shall be affected or
invalidated by the fact that (i) this corporation is a stockholder or partner in
such other corporation, association, or partnership, or (ii) any one or more of
the officers or directors of this corporation is an officer, director or partner
of such other corporation, association or partnership, or (iii) any officer or
director of this corporation, individually or jointly with others, is a party to
or is interested in such contract or transaction. Any director of this
corporation may be counted in determining the existence of a quorum at any
meeting of the board of directors for the purpose of authorizing or ratifying
any such contract or transaction, and may vote thereon, with like force and
effect as if he were not so interested or were not an officer, director, or
partner of such other corporation, association, or partnership.
3. The corporation may be a partner in any business enterprise which it
would have power to conduct itself.
4. The by-laws may provide that the directors may make, amend, or
repeal the by-laws in whole or in part, except with respect to any provision
thereof which by law, these Articles of Organization, or the by-laws requires
action by the stockholders.
5. A director shall not be liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except to the extent that the elimination or limitation of liability
is not permitted under the Massachusetts Business Corporation Law as in effect
when such liability is determined. No amendment or repeal of this provision
shall deprive a director of the benefits hereof with respect to any act or
omission occurring prior to such amendment or repeal.
6. Except as otherwise required by law, any action required or
permitted to be taken by the stockholders of the Corporation must be taken at a
duly called annual or special meeting of such holders and may not be taken by
any consent in writing by such holders.
<PAGE> 1
EXHIBIT 11
-62-
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING INCOME PER SHARE AMOUNTS
(Unaudited, in thousands)
<CAPTION>
POST-SPLIT BASIS
------------------------------------------------
THREE MONTHS ENDED
------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
---------------------- ---------------------
COMMON COMMON
AND COMMON ASSUMING AND COMMON ASSUMING
EQUIVALENT FULL EQUIVALENT FULL
SHARE DILUTION SHARE DILUTION
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
APPLICABLE TO GENERAL DIVISION STOCK(A)
Common stock outstanding, beginning of period......... 67,719 67,719 53,192 53,192
Weighted average common stock issued during the period 1,016 1,016 124 253
Weighted average common stock assuming
exercise of options.................................. 2,979 2,980 2,064 2,111
Weighted average common stock assuming
exercise of warrants................................. 2,194 2,220 1,257 1,308
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes................ 0 0 (B) 3,783
------ ------ ------ ------
Weighted average number of shares outstanding......... 73,908 73,935 56,637 60,647
====== ====== ====== ======
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
---------------------- ---------------------
COMMON COMMON
AND COMMON ASSUMING AND COMMON ASSUMING
EQUIVALENT FULL EQUIVALENT FULL
SHARE DILUTION SHARE DILUTION
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
APPLICABLE TO GENERAL DIVISION STOCK(A)
Common stock outstanding, beginning of period......... 62,372 62,372 52,893 52,893
Weighted average common stock issued during the period 4,248 4,248 253 515
Weighted average common stock assuming
exercise of options.................................. 3,609 3,612 1,152 2,068
Weighted average common stock assuming
exercise of warrants................................. 2,652 2,729 1,911 1,212
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes................ 0 1,339 (B) 3,783
------ ------ ------ ------
Weighted average number of shares outstanding......... 72,881 74,300 56,209 60,471
====== ====== ====== ======
<FN>
(A) Reflects for July 25, 1996 2-for-1 stock split.
(B) These securities are "other potentially dilutive" securities which effect
is included, to the extent such effect is dilutive, in the determination of
weighted average shares assuming full dilution.
</TABLE>
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING INCOME PER SHARE AMOUNTS (CONTINUED)
(Unaudited, in thousands)
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
------------------------------------------------
COMMON COMMON
AND COMMON ASSUMING AND COMMON ASSUMING
EQUIVALENT FULL EQUIVALENT FULL
SHARE DILUTION SHARE DILUTION
---------- -------- ---------- --------
<S> <C> <C>
Common stock outstanding, beginning of period......... 12,569 8,753
Weighted average common stock issued during the period 7 10
Weighted average common stock assuming
exercise of options.................................. (B) (B)
Weighted average common stock assuming
exercise of warrants................................. (B) (B)
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes................ (A) (A)
------ -----
Weighted average number of shares outstanding......... 12,576 8,763
====== =====
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------
JUNE 30, 1996 JUNE 30, 1995
------------------------------------------------
COMMON COMMON
AND COMMON ASSUMING AND COMMON ASSUMING
EQUIVALENT FULL EQUIVALENT FULL
SHARE DILUTION SHARE DILUTION
---------- -------- ---------- --------
<S> <C> <C>
Common stock outstanding, beginning of period......... 12,113 8,675
Weighted average common stock issued during the period 298 46
Weighted average common stock assuming
exercise of options.................................. (B) (B)
Weighted average common stock assuming
exercise of warrants................................. (B) (B)
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes................ (A) (A)
------ -----
Weighted average number of shares outstanding......... 12,411 8,721
====== =====
<FN>
(A) These securities are "other potentially dilutive" securities which effect
is included, to the extent such effect is dilutive, in the determination of
weighted average shares assuming full dilution.
(B) The effect of assumed conversion is antidilutive.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GENZYME CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND IS QUALIIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. GENZYME CORPORATION REPORTS EARNINGS BASED ON ITS TWO
TYPES OF TRACKING STOCK-GENERAL DIVISION AND TISSUE REPAIR DIVISION AND
THEREFORE, CONSOLIDATED EARNINGS PER SHARE DATA IS NOT APPLICABLE.
FOR THE SIX MONTHS ENDED JUNE 30, 1996, GENZYME GENERAL DIVISION HAD A NET
INCOME OF $39,318 OR EPS-PRIMARY OF $0.54 AND EPS-DILUTED OF $0.53 (PRO FORMA
FOR JULY 25, 1996 2-FOR-1 STOCK SPLIT).
FOR THE SIX MONTHS ENDED JUNE 30, 1996, GENZYME TISSUE REPAIR DIVISION HAD A
NET LOSS OF $19,242 OR EPS-PRIMARY $(1.55).
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 119,331
<SECURITIES> 163,063
<RECEIVABLES> 107,382
<ALLOWANCES> 9,447
<INVENTORY> 64,363
<CURRENT-ASSETS> 485,854
<PP&E> 407,025
<DEPRECIATION> 41,684
<TOTAL-ASSETS> 1,006,329
<CURRENT-LIABILITIES> 92,363
<BONDS> 32,922
<COMMON> 471
0
0
<OTHER-SE> 880,574
<TOTAL-LIABILITY-AND-EQUITY> 1,006,329
<SALES> 216,931
<TOTAL-REVENUES> 229,132
<CGS> 88,021
<TOTAL-COSTS> 204,310
<OTHER-EXPENSES> 1,121
<LOSS-PROVISION> 3,797
<INTEREST-EXPENSE> 395
<INCOME-PRETAX> 33,183
<INCOME-TAX> 13,107
<INCOME-CONTINUING> 20,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,076
<EPS-PRIMARY> N/A
<EPS-DILUTED> N/A
</TABLE>
