<PAGE> 1
As filed with the Securities and Exchange Commission on March 14, 1996.
Registration No. 333-1105
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
GENZYME CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 2834 06-1047163
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
ONE KENDALL SQUARE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 252-7500
(Address, Including ZIP Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
HENRI A. TERMEER
GENZYME CORPORATION
ONE KENDALL SQUARE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 252-7500
(Name, Address, Including ZIP Code and Telephone Number, Including Area Code,
of Agent for Service)
with a copy to:
Peter Wirth, Esq.
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective and
all other conditions to the merger described in the enclosed Prospectus and
Proxy Statement have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
========================================================================================================
Proposed
Title of Each Proposed Maximum Amount of
Class of Securities Amount to Maximum Offering Aggregate Offering Registration
to be Registered be Registered (1) Price Per Share Price Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Division
Common Stock 625,000 shares $11.37 (2) $7,106,593 (2) $2,755.46 (3)
$0.01 par value
========================================================================================================
<FN>
(1) Based upon the Registrant's estimate of the maximum number of shares that may be issued in the
Merger described herein.
(2) Estimated solely for purposes of calculating the registration fee for the additional 77,770 shares
being registered by this Amendment No. 2, in accordance with Rule 457(f) under the Securities Act
of 1933, as amended. Pursuant to Rule 457(f), the maximum aggregate offering price is equal to the
book value of shares of Genetrix, Inc. stock to be exchanged in the Merger, computed as of
September 30, 1995.
(3) Of this amount, $2,450.55 was paid to register 547,230 shares of General Division Common Stock upon
the initial filing of this Registration Statement on February 21, 1996, and an additional registration
fee of $304.91 is being paid upon the filing of this Amendment No. 2.
</TABLE>
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
GENZYME CORPORATION
Cross-Reference Sheet Pursuant to Rule 404(a) of Regulation C and Item
501(b) of Regulation S-K Showing the Location in the Prospectus/Proxy Statement
of the Information Required by Part I of Form S-4.
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM OF S-4 PROSPECTUS/PROXY STATEMENT
----------- --------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . . Forepart of Registration Statement;
Outside Front Cover Page of
Prospectus/Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page of Prospectus/
Proxy Statement; Table of Contents;
Available Information; Incorporation
of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges,
and Other Information . . . . . . . . . . . . . . . . Prospectus/Proxy Statement Summary;
Risk Factors; The Merger
4. Terms of the Transaction . . . . . . . . . . . . . . . Incorporation of Certain Documents by
Reference; Prospectus/Proxy Statement
Summary; The Merger; Certain Federal
Income Tax Consequences; Comparison of
Rights of Holders of Genzyme General
Division Stock and Genetrix Common
Stock; Management and Accounting
Policies Governing the Relationship of
Genzyme Divisions
5. Pro Forma Financial Information . . . . . . . . . . . Prospectus/Proxy Statement Summary;
Index to Genzyme Unaudited Pro Forma
Consolidated Financial Statements
6. Material Contacts with the Company Being Acquired . . Related Party Arrangements
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters . . . . *
8. Interests of Named Experts and Counsel . . . . . . . . Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . *
</TABLE>
- --------------------
* Not applicable or the answer is negative.
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM OF S-4 PROSPECTUS/PROXY STATEMENT
----------- --------------------------
<S> <C>
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants . . . . . Incorporation of Certain Documents
by Reference; Prospectus/Proxy
Statement Summary; Description of
Genzyme; Recent Developments;
Related Party Arrangements
11. Incorporation of Certain Information by Reference . . Incorporation of Certain Documents
by Reference
12. Information with Respect to S-2 or S-3 Registrants . *
13. Incorporation of Certain Information by Reference . . *
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants . . . . . . . . . . . . . . . *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies . . . . . . *
16. Information with Respect to S-2 or S-3 Companies . . *
17. Information with Respect to Companies Other Than S-3
or S-2 Companies . . . . . . . . . . . . . . . . . . Prospectus/Proxy Statement Summary; The
Special Meeting; The Merger; Description of
Genetrix; Genetrix Management's Discussion &
Analysis of Financial Condition and Results
of Operations; Genetrix Share Ownership;
Index to Genetrix Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited . . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus/ Proxy
Statement; Incorporation of Certain Documents
by Reference; Prospectus/ Proxy Statement
Summary; The Special Meeting; The Merger;
Description of Genzyme; Description of
Genetrix; Genzyme Share Ownership; Genetrix
Share Ownership; Compensation of Genzyme's
Executive Officers; Related Party
Arrangements
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange Offer . . *
</TABLE>
______________________
* Not applicable or the answer is negative
<PAGE> 4
GENETRIX, INC.
6401 EAST THOMAS ROAD
SCOTTSDALE, ARIZONA 85251
March 19, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Genetrix, Inc. to be held at 9:00 a.m. on Tuesday, April 16, 1996 at the
offices of Genetrix at the address set forth above.
At this meeting, you will be asked to adopt the Agreement and Plan of
Merger dated as of January 11, 1996 (the "Merger Agreement"), which provides
for the merger of Genetrix with and into Genzyme Corporation. If the merger is
consummated, Genetrix will become part of a business unit within Genzyme's
General Division and Genetrix stockholders will receive shares of Genzyme
General Division Common Stock in exchange for their Genetrix shares.
Information about Genzyme and Genetrix and details about the proposed merger
are included in the attached Prospectus/Proxy Statement.
The Board of Directors believes that the merger is in the best interests of
the stockholders of Genetrix and has unanimously approved the Merger Agreement.
In arriving at its decision, the Board considered a number of factors,
including an opinion from its financial advisor, Alex. Brown & Sons
Incorporated, that the consideration to be received in the merger by Genetrix
stockholders is fair from a financial point of view. The Board recommends that
you vote FOR adoption of the Merger Agreement. In considering this
recommendation, you should review carefully all the information contained in
the attached Prospectus/Proxy Statement.
We appreciate the loyalty and support our stockholders have demonstrated
over the years. We hope that you will continue this support by voting FOR the
proposal now. It is important that your shares be represented and voted at the
special meeting regardless of the size of your holdings. ACCORDINGLY, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE IN ORDER TO MAKE
CERTAIN THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING.
Sincerely,
Paul R. Sohmer, M.D.
President and Chief Executive Officer
<PAGE> 5
GENETRIX, INC.
6401 EAST THOMAS ROAD
SCOTTSDALE, ARIZONA 85251
(602) 945-4363
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 16, 1996
A special meeting of stockholders of Genetrix, Inc. ("Genetrix"), will be
held on Tuesday, April 16, 1996, at 9:00 a.m., at the offices of Genetrix,
6401 East Thomas Road, Scottsdale, Arizona, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger dated as of January 11, 1996 between Genzyme Corporation
("Genzyme") and Genetrix (the "Merger Agreement"). Each share of the
capital stock of Genetrix outstanding at the effective time of the merger
will be converted into that number of shares of the General Division
Common Stock, $0.01 par value per share, of Genzyme, as provided in the
Merger Agreement. A copy of the Merger Agreement is attached as Exhibit
A to the accompanying Prospectus and Proxy Statement.
(2) To transact such other business as may properly come before the special
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
February 26, 1996 as the record date for determining the stockholders entitled
to notice of and to vote at the special meeting and any adjournment thereof;
only stockholders of record at the close of business on that date will be
entitled to attend the special meeting and vote.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE YOUR
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING AND WISH TO
VOTE IN PERSON, YOUR PROXY WILL NOT BE USED.
BY ORDER OF THE PRESIDENT
Paul R. Sohmer, M.D.
March 19, 1996
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS AND PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . 4
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 6
PROSPECTUS/PROXY STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . 8
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Genzyme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Genetrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Conversion of Genetrix Stock . . . . . . . . . . . . . . . . . . . 9
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . 11
Recommendation of the Board of Directors of Genetrix . . . . . . . 11
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 12
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Termination Fees . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conditions of Merger; Termination . . . . . . . . . . . . . . . . 12
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . 13
Management of Genetrix's Business after Merger . . . . . . . . . . 13
Certain Federal Income Tax Consequences . . . . . . . . . . . . . 13
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 13
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 14
Differences in Rights of Holders of Stock . . . . . . . . . . . . 14
Market for Genzyme General Division Stock and Dividend Policy . . 14
No Market for Genetrix Stock . . . . . . . . . . . . . . . . . . . 14
Genzyme General Division Selected Financial Data . . . . . . . . . . . 15
Genzyme Corporation and Subsidiaries Summary Financial Data . . . . . 17
Genetrix Selected Financial Data . . . . . . . . . . . . . . . . . . . 18
Unaudited Pro Forma Summary Financial Data. . . . . . . . . . . . . . . 19
Comparative Per Share Financial Information . . . . . . . . . . . . . 20
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Background of the Merger . . . . . . . . . . . . . . . . . . . . . 29
Genetrix's Reasons for the Merger . . . . . . . . . . . . . . . . 30
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 30
Genzyme's Reasons for the Merger . . . . . . . . . . . . . . . . . 34
Conversion of Genetrix Stock . . . . . . . . . . . . . . . . . . . 34
Treatment of Options and Warrants . . . . . . . . . . . . . . . . 36
Interests of Certain Persons in the Merger . . . . . . . . . . . . 37
Merger and Effective Time . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . 37
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . 37
Resales of Genzyme General Division Stock . . . . . . . . . . . . 38
Representations, Warranties and Covenants . . . . . . . . . . . . 38
Conditions of Merger . . . . . . . . . . . . . . . . . . . . . . . 39
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . 40
No Solicitation; Termination Fees . . . . . . . . . . . . . . . . 40
Escrow and Indemnity . . . . . . . . . . . . . . . . . . . . . . . 41
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . 41
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 42
Management of Genetrix's Business after Merger . . . . . . . . . . 42
Genetrix Stockholder Appraisal Rights . . . . . . . . . . . . . . 44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 45
DESCRIPTION OF GENZYME . . . . . . . . . . . . . . . . . . . . . . . . . . 46
DESCRIPTION OF GENETRIX . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Market for Capital Stock; Dividends . . . . . . . . . . . . . . . 47
GENETRIX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . 48
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
GENZYME SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . 50
GENETRIX SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . 53
COMPENSATION OF GENZYME'S EXECUTIVE OFFICERS . . . . . . . . . . . . . . . 56
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 56
Executive Employment Agreements . . . . . . . . . . . . . . . . . . . 59
Executive Severance Agreements . . . . . . . . . . . . . . . . . . . . 59
Compensation Committee Interlocks and Insider Participation . . . . . 59
RELATED PARTY ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 60
COMPARISON OF RIGHTS OF HOLDERS OF GENZYME GENERAL DIVISION STOCK
AND GENETRIX STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 61
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . 61
Exchange of Genzyme TR Division Stock . . . . . . . . . . . . . . 62
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . 65
TR Designated Shares and General Designated Shares . . . . . . . . 65
Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
2
<PAGE> 8
<TABLE>
<S> <C>
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . 67
Action by Consent of Stockholders . . . . . . . . . . . . . . . . 67
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . 67
Dividends and Repurchases of Stock . . . . . . . . . . . . . . . . 67
Classification of the Board of Directors . . . . . . . . . . . . . 68
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . 68
Vacancies on the Board of Directors . . . . . . . . . . . . . . . 68
Exculpation of Directors . . . . . . . . . . . . . . . . . . . . . 68
Indemnification of Directors, Officers and Others . . . . . . . . 69
Interested Director Transactions . . . . . . . . . . . . . . . . . 69
Sale, Lease or Exchange of Assets and Mergers . . . . . . . . . . 69
Amendments to Charter . . . . . . . . . . . . . . . . . . . . . . 70
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 70
"Anti-Takeover" Provisions . . . . . . . . . . . . . . . . . . . . 70
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
FINANCIAL ADVISORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SOLICITATION COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . 75
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
INDEX TO GENETRIX FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . F-1
INDEX TO GENZYME UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
EXHIBIT A - Agreement and Plan of Merger . . . . . . . . . . . . . . . A-1
EXHIBIT B - Opinion of Alex. Brown & Sons Incorporated on the Fairness
of the Merger Consideration . . . . . . . . . . . . . . . B-1
EXHIBIT C - Provisions of the Delaware General Corporation Law
Relating to Rights of Dissenting Stockholders . . . . . . C-1
</TABLE>
3
<PAGE> 9
PROSPECTUS AND PROXY STATEMENT
GENETRIX, INC. GENZYME CORPORATION
6401 EAST THOMAS ROAD ONE KENDALL SQUARE
SCOTTSDALE, ARIZONA 85251 CAMBRIDGE, MASSACHUSETTS 02139
(602) 945-4363 (617) 252-7500
PROXY STATEMENT PROSPECTUS
FOR SPECIAL MEETING OF STOCKHOLDERS GENERAL DIVISION
TO BE HELD ON APRIL 16, 1996 COMMON STOCK, $0.01 PAR VALUE
This Prospectus and Proxy Statement (the "Prospectus/Proxy Statement")
relates to the proposed merger of Genetrix, Inc. ("Genetrix"), a Delaware
corporation, into Genzyme Corporation ("Genzyme"), a Massachusetts corporation,
pursuant to the terms of an Agreement and Plan of Merger dated as of January
11, 1996 (the "Merger Agreement"). It is being furnished to stockholders of
Genetrix in connection with the solicitation of proxies by the Board of
Directors of Genetrix for the special meeting of stockholders of Genetrix to be
held on Tuesday, April 16, 1996 at 9:00 a.m., at the offices of Genetrix and
any adjournments or postponements thereof (the "Special Meeting"). Only
Genetrix stockholders of record at the close of business on February 26, 1996
(the "Record Date") will be entitled to vote at the Special Meeting.
At the Special Meeting, Genetrix will present a proposal to adopt the
Merger Agreement. If the Merger Agreement is adopted and the other conditions
set forth in the Merger Agreement are satisfied, Genetrix will be merged with
and into Genzyme (the "Merger"), with the result that Genetrix will become part
of a business unit within the General Division of Genzyme. All outstanding
shares of the Common Stock, $0.0025 par value ("Genetrix Common Stock"), and
Preferred Stock, $0.001 par value ("Genetrix Preferred Stock") of Genetrix
(together, "Genetrix Stock") will be converted into shares of General Division
Common Stock, $0.01 par value, of Genzyme ("Genzyme General Division Stock") as
provided in the Merger Agreement and described herein. See "The Merger -
Conversion of Genetrix Stock." Assuming the Closing Price (as defined herein)
is the same as the closing price of Genzyme General Division Stock on the Record
Date ($67.28), approximately 547,230 shares of Genzyme General Division Stock
will be issued in the Merger. Of these shares, the Sixth Amended and Restated
Certificate of Incorporation of Genetrix dated April 22, 1994 (the "Genetrix
Charter") provides that approximately 336,339 shares would be allocated to
holders of Genetrix Preferred Stock in satisfaction of the Merger Preference (as
herein defined) and that the remaining 210,891 shares would be allocated to
holders of Genetrix Common Stock and holders of Series A, B, E and F of Genetrix
Preferred Stock, with holders of such Series of Genetrix Preferred Stock
participating on the basis of the number of shares of Genetrix Common Stock into
which their shares of Genetrix Preferred Stock are convertible. Neither the
Genetrix Board, the holders of any class of Genetrix Stock nor the terms of the
Merger Agreement has altered the allocation of the Merger Consideration from
that which is otherwise specified in the Genetrix Charter. In addition, no
distribution to the holders of any class of Genetrix Stock has been made in
contemplation of the Merger. Under the Genetrix Charter, each share of Series
A, E and F of Genetrix Preferred Stock is convertible into one share of Genetrix
Common Stock and each share of Series B of Genetrix Preferred Stock is
convertible into ten shares of Genetrix Common Stock and, in the aggregate, such
Series of Genetrix Preferred Stock are convertible into 6,358,409 shares of
Genetrix Common Stock.
Ten percent of the number of shares comprising the Merger Consideration
shall be deposited with an escrow agent reasonably satisfactory to Genetrix and
shall be subject to reduction to satisfy certain claims to which Genzyme is
entitled to be indemnified under the Merger Agreement. The amount of such
claims as of the date hereof is estimated by Genzyme to be approximately
$77,500. Because the Genetrix Charter provides that the Merger Preference must
be satisfied in full before any amounts are payable to holders of Genetrix
Common Stock, the shares deposited in escrow shall be deducted pro rata from the
shares allocable to each former holder of Genetrix Stock after the Merger
Preference is satisfied. Assuming (a) no increase or decrease in the amount of
claims to which Genzyme is entitled to be indemnified under the Merger Agreement
and (b) that the number of shares of Genetrix Common Stock and each Series of
Genetrix Preferred Stock outstanding on the effective date of the Merger is the
same as the number of such shares outstanding as of the Record Date, (i) each
share of Genetrix Common Stock would be converted into approximately .0181 share
of Genzyme General Division Stock, (ii) each share of Series A and B of Genetrix
Preferred Stock would be converted in to approximately .0627 share of Genzyme
General Division Stock, (iii) each share of Series C and D of Genetrix Preferred
Stock would be converted into approximately .0892 share of Genzyme General
Division Stock, (iv) each share of Series E of Genetrix Preferred Stock would be
converted into approximately .0924 share of Genzyme General Division Stock and
(v) each share of Series F of Genetrix Preferred Stock would be converted into
approximately .0998 share of Genzyme General Division Stock.
4
<PAGE> 10
On the Record Date, Genetrix had outstanding 10,232,246 shares of stock
entitled to vote at the Special Meeting. Each share of Genetrix Stock entitled
to vote at the Special Meeting is entitled to one vote for each matter
submitted to a vote at the Special Meeting. A majority in interest of the
outstanding voting stock of Genetrix, represented at the Special Meeting in
person or by proxy, constitutes a quorum for the transaction of business. The
affirmative vote of (i) a majority of the outstanding shares of Genetrix Stock
entitled to vote thereon and (ii) a majority of the outstanding shares of the
Series A, Series B, Series E and Series F Preferred Stock of Genetrix
is required to adopt the Merger Agreement. Abstentions and broker non-votes
will be counted for purposes of determining a quorum, but will have the effect
of a vote against adoption of the Merger Agreement.
Under Delaware law, Genetrix stockholders have certain dissenter's rights
of appraisal in connection with the Merger. Genzyme's obligation to consummate
the Merger is subject to the condition, waivable at the discretion of Genzyme,
that the holders of not more than 2% of the outstanding shares of Genetrix
Common Stock, and no holders of Genetrix Preferred Stock, shall have validly
exercised such rights. See "The Merger - Genetrix Stockholder Appraisal Rights."
The authority granted by an executed proxy may be revoked at any time
before its exercise by filing with the Secretary of Genetrix a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the meeting. Shares represented by valid proxies will be voted in
accordance with the specifications in the proxies. If no specifications are
made, the proxies will be voted to approve the proposals set forth in the
proxy.
This Prospectus/Proxy Statement is also the prospectus of Genzyme filed as
part of a Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") covering the shares of
Genzyme General Division Stock to be issued pursuant to the Merger Agreement.
AN INVESTMENT IN GENZYME GENERAL DIVISION STOCK INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 21.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT IN CONNECTION WITH THE
OFFERING AND SOLICITATION MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY
STATEMENT OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO OR FROM
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS
PROSPECTUS/PROXY STATEMENT SHALL CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF GENZYME OR GENETRIX SINCE THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT OR THAT THE INFORMATION IN THIS PROSPECTUS/PROXY
STATEMENT OR IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATES HEREOF OR THEREOF.
The date of this Prospectus/Proxy Statement is March 19, 1996 and it
is first being mailed or delivered to Genetrix stockholders on or about that
date.
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<PAGE> 11
AVAILABLE INFORMATION
Genzyme is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission relating to its business, financial statements and other
matters. Reports and proxy and information statements filed pursuant to
Sections 14(a) and 14(c) of the Exchange Act and other information filed with
the Commission as well as copies of the Registration Statement, of which this
Prospectus/Proxy Statement is a part, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Midwest Regional Office, 500 West Madison
Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
Genzyme has filed with the Commission a Registration Statement with respect
to the securities offered hereby. This Prospectus/Proxy Statement also
constitutes the prospectus of Genzyme filed as part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus/Proxy Statement as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and any amendments thereto, including exhibits filed or incorporated
by reference as a part thereof, are available for inspection and copying at the
Commission's offices as described above. All information included herein with
respect to Genetrix and its stockholders has been furnished by Genetrix.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Genzyme with the Commission
(File No. 0-14680) under the Exchange Act are incorporated by reference herein:
(1) Genzyme's annual report on Form 10-K for the year ended December 31,
1994, filed with the Commission on March 31, 1995, as amended by
Amendment Nos. 1 and 2 thereto on Form 10-K/A, filed with the
Commission on June 15, 1995 and September 13, 1995, respectively.
(2) Genzyme's quarterly reports on Form 10-Q for the quarters ended March
31, 1995 and June 30, 1995, filed with the Commission on May 15, 1995
and August 11, 1995, respectively, each as amended by Amendment No. 1
thereto on Form 10-Q/A, filed with the Commission on September 13,
1995.
(3) Genzyme's quarterly report on Form 10-Q for the quarter ended
September 30, 1995, filed with the Commission on November 14, 1995.
(4) Genzyme's current reports on Form 8-K, filed with the Commission on
September 21, 1995, October 12, 1995 and February 23, 1996.
(5) The description of Genzyme General Division Common Stock contained in
its Registration Statement on Form 8-B filed on February 28, 1992, as
amended by Form 8-B/A filed on March 31, 1995.
(6) The description of Genzyme General Division Common Stock Purchase
Rights contained in its Registration Statement on Form 8-A filed on
March 23, 1989, as amended by Form 8-A/A filed on November 28, 1994.
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<PAGE> 12
(7) The financial statements and the pro forma financial statements
appearing at pages III-19 to III-42 of Annex III, pages IV-38 to
IV-41 of Annex IV, pages V-37 to V-41 of Annex V and pages VI-2 to
VI-6 of Annex VI to the Prospectus/Joint Proxy Statement included in
Genzyme's Registration Statement on Form S-4 (File No. 33-83346),
which became effective on November 9, 1994.
The quarterly report of BioSurface Technology, Inc. on Form 10-Q for the
quarter ended September 30, 1994, filed with the Commission under the Exchange
Act on November 12, 1994 (File No. 0-21020), is incorporated by reference
herein.
The following documents heretofore filed by Genzyme Development Partners,
L.P. with the Commission (File No. 0-18554) under the Exchange Act are
incorporated by reference herein:
(1) Genzyme Development Partners' annual report on Form 10-K for the year
ended December 31, 1994, filed with the Commission on March 30, 1995.
(2) Genzyme Development Partners' quarterly reports on Form 10-Q for the
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995,
filed with the Commission on May 11, 1995, August 8, 1995 and November
13, 1995, respectively.
All documents filed by Genzyme pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus/Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference in this Prospectus/Proxy Statement and to be a part hereof from the
date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is or is deemed to be incorporated
herein by reference) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus/Proxy Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS FILED BY
GENZYME WITH THE COMMISSION BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM SUSAN
COGSWELL AT THE EXECUTIVE OFFICES OF GENZYME, ONE KENDALL SQUARE, CAMBRIDGE,
MASSACHUSETTS 02139 (TELEPHONE: (617) 252-7526). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL 9, 1996.
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PROSPECTUS/PROXY STATEMENT SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Proxy Statement. Reference is made to, and this
Prospectus/Proxy Statement Summary is qualified in its entirety by, the more
detailed information contained in this Prospectus/Proxy Statement and the
exhibits attached hereto. Unless otherwise defined herein, capitalized terms
used in this summary have the respective meanings ascribed to them elsewhere in
this Prospectus/Proxy Statement. Cross-references in this summary are to
captions in this Prospectus/Proxy Statement. You are urged to read this
Prospectus/Proxy Statement and the other documents attached hereto in their
entirety. The securities described in this Prospectus/Proxy Statement involve
a high degree of risk. See "Risk Factors."
THE PARTIES
GENZYME
Genzyme is a diversified, integrated human health care products company
operating in five major business areas. Genzyme's business activities with
respect to therapeutics, diagnostic services, diagnostic products and
pharmaceuticals are organized as the Genzyme General Division (the "General
Division"). Genzyme's activities to develop, produce and market
technologically advanced products and services for the treatment and prevention
of serious tissue damage are conducted through the Genzyme Tissue Repair
Division (the "Tissue Repair Division"). Genzyme's principal executive offices
are located at One Kendall Square, Cambridge, Massachusetts 02139. Its
telephone number is (617) 252-7500.
GENETRIX
Genetrix is a genetics testing and clinical services company focusing on
the market for prenatal and oncology diagnostic testing. Genetrix's medical
geneticists and technicians evaluate and diagnose genetic disorders in its
network of laboratories. Genetrix provides clinical testing and monitoring
services through its staff of counselors, geneticists and ultrasonographers and
through alliances with perinatal specialty groups. Genetrix's principal
executive offices are located at 6401 East Thomas Road, Scottsdale, Arizona
85251, and its telephone number is (602) 945-4363.
THE SPECIAL MEETING
This Prospectus/Proxy Statement and enclosed proxy are being furnished in
connection with the solicitation by the Board of Directors of Genetrix of
proxies for use at the Special Meeting to be held on Tuesday, April 16, 1996, at
9:00 a.m., at the offices of Genetrix, 6401 East Thomas Road, Scottsdale,
Arizona. Only holders of record of Genetrix Stock as of the close of business
on February 26, 1996 are entitled to notice of and to vote at the Special
Meeting. The purpose of the Special Meeting is to consider and vote upon a
proposal to adopt the Merger Agreement described herein. Such adoption is a
condition to consummation of the Merger.
The presence at the Special Meeting in person or by proxy of the holders of
Genetrix Stock representing a majority of the votes entitled to be cast is
required to constitute a quorum for the transaction of business. Adoption of
the Merger Agreement will require the affirmative vote of (i) the holders of a
majority of the outstanding shares of Genetrix Stock entitled to vote thereon
and (ii) a majority of the then outstanding shares of the Series A, Series B,
Series E and Series F Preferred Stock of Genetrix. At the close of business on
the Record Date, 10,232,246 shares of Genetrix Stock were entitled to vote on
the adoption of the Merger Agreement and 4,980,761 shares of Series A, Series
B, Series E and Series F Preferred Stock of Genetrix were outstanding. Certain
stockholders of Genetrix who are parties to the Merger Agreement (the
"Principal Stockholders") and who have agreed to vote their shares in favor of
adopting the Merger Agreement hold shares representing approximately 38.2% of
the shares entitled to vote on the adoption of the Merger Agreement as well as
a majority of the outstanding shares of the Series A, Series B, Series E and
Series F Preferred Stock of Genetrix. The executive officers and directors of
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<PAGE> 14
Genetrix hold shares of Genetrix Stock representing approximately 75.6% of the
shares entitled to vote on the adoption of the Merger Agreement and 74.4% of the
outstanding shares of the Series A, Series B, Series E and Series F of Genetrix
Preferred Stock (excluding shares which such persons have the right to acquire
upon the exercise of stock options). See "Genetrix Share Ownership."
THE MERGER
As a result of the Merger, shares of Genetrix Stock will be converted into
shares of Genzyme General Division Stock as described below. Upon consummation
of the Merger, Genetrix's separate corporate existence will cease. Genzyme
will be the surviving corporation in the Merger (the "Surviving Corporation")
and will operate Genetrix as part of a business unit within the General
Division.
The Merger will become effective as soon as practicable after satisfaction
or waiver of all conditions to the Merger and at the time and on the date that
appropriate merger documents are duly filed with the Secretary of the
Commonwealth of Massachusetts and the Secretary of the State of Delaware or at
such later time and date as is specified as the effective time of the Merger
(the "Effective Time"). See "The Merger - Merger and Effective Time."
Assuming all conditions to the Merger are met, or waived where permissible, it
is expected that the Effective Time will occur on April 16, 1996, or as soon
thereafter as practicable.
RISK FACTORS
As a result of the Merger, Genetrix stockholders will receive in exchange
for their shares of Genetrix Stock shares of Genzyme General Division Stock, a
class of Genzyme common stock that is intended to reflect the value and track
the performance of the General Division. Genetrix stockholders should
carefully consider the risks involved in an investment in Genzyme General
Division Stock and the risks associated with an investment in a company with
two classes of common stock, as compared to the risks associated with holding
Genetrix Stock. See "Risk Factors."
CONVERSION OF GENETRIX STOCK
As a result of the Merger, at the Effective Time all outstanding shares of
Genetrix Stock (other than shares held by Genetrix as treasury stock and
Dissenting Shares (as defined below)) will be converted into that number of
shares of Genzyme General Division Stock determined by dividing (A) $38,500,000
less the Purchase Price Adjustment Amount (as defined below) by (B) the Closing
Price (as defined below); provided, however, that if the Closing Price is less
than $43.61, Genetrix will have the right not to consummate the Merger unless
Genzyme elects to deliver that number of shares of Genzyme General Division
Stock determined by dividing (X) $35,000,000 less the Purchase Price Adjustment
Amount by (Y) the Closing Price (the "Merger Consideration"). The Merger
Consideration will be reduced by the number of shares of Genzyme General
Division Stock that would otherwise be allocable to shares of Genetrix Stock
held by a stockholder who has properly exercised dissenters' rights with
respect to such shares in accordance with Delaware law (collectively, the
"Dissenting Shares").
The "Purchase Price Adjustment Amount" will be equal to the sum of (A)
$1,000,000, representing the management incentive fee payable to the Chief
Executive Officer of Genetrix, (B) any amounts paid or payable to Alex. Brown &
Sons Incorporated ("Alex. Brown") on or before the closing date of the Merger
(the "Closing Date") in excess of $250,000 in fees payable in respect of the
financial advisory services rendered by Alex. Brown in connection with the
Merger, (C) any legal or accounting fees of Genetrix paid or payable on or
before the Closing Date in respect of the Merger exceeding $250,000, (D)
$148,305, representing the aggregate amount of all bonuses awarded to the
employees of Genetrix by the Board of Directors of Genetrix (the "Genetrix
Board") at its November 14, 1995 meeting, (E) $50,000, representing certain
obligations to make severance payments under agreements with employees of
Genetrix, and (F) $100,000, representing the amount payable under a consulting
agreement with Jack Bratton, a director of Genetrix. The "Closing Price" will
be equal to the average of the closing prices of Genzyme General Division Stock
as reported by the Nasdaq National Market for the ten trading days
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<PAGE> 15
ending on the second trading day prior to the Closing Date; provided, however,
that (i) if the average so determined is less than $47.97 per share and greater
than or equal to $43.61 per share, the Closing Price will be $47.97 and (ii) if
the amount so determined is greater than $67.28 per share, the Closing Price
will be $67.28. If the Closing Price is less than $43.61 per share, Genetrix
will have the right to terminate the Merger Agreement unless Genzyme adjusts
the Merger Consideration as described above.
The Genetrix Charter provides that the Merger Consideration be allocated
among the holders of shares of Genetrix Stock outstanding at the Effective Time
of the Merger (i) by first allocating to the holders of Genetrix Preferred Stock
that number of shares of Genzyme General Division Stock determined by dividing
the aggregate amount to which each such holder is entitled under the Genetrix
Charter (such holder's "Merger Preference") by the Closing Price, rounded down
to the nearest whole share and (ii) then allocating among the holders of
Genetrix Common Stock and the holders of Series A, B, E and F of Genetrix
Preferred Stock that number of shares of Genzyme General Division Stock
determined by multiplying (A) the number of shares of Genetrix Common Stock held
by each such holder and issuable upon conversion of the shares of such Series of
Genetrix Preferred Stock held by each such holder by (B) the Conversion Factor
(as defined below), rounded down to the nearest whole share. Neither the
Genetrix Board, the holders of any class of Genetrix Stock nor the terms of the
Merger Agreement has altered the allocation of the Merger Consideration from
that which is otherwise specified in the Genetrix Charter. In addition, no
distribution to the holders of any class of Genetrix Stock has been made in
contemplation of the Merger. "Conversion Factor" means the quotient obtained by
dividing the number of shares of Genzyme General Division Stock delivered as the
Merger Consideration (after subtracting the number of shares allocable to
holders of Genetrix Preferred Stock as the Merger Preference) by the number of
shares of Genetrix Common Stock outstanding and deemed to be outstanding prior
to the Effective Time, such quotient to be rounded to four decimal places. For
purposes of determining the Conversion Factor, each share of Genetrix Common
Stock issuable upon conversion of the Genetrix Preferred Stock will be deemed
outstanding prior to the Effective Time.
The Genetrix Charter provides that the Merger Preference payable to the
holders of Genetrix Preferred Stock in the event of a merger is first to be
satisfied in full and, therefore, the proportion of the Merger Consideration
allocated to Genetrix Preferred Stock will increase as the value of the
aggregate Merger Consideration decreases. The aggregate Merger Preference of
Genetrix Preferred Stock is approximately $22.6 million. The Merger
Consideration allocable to any holder of Genetrix Common Stock cannot be
determined prior to the Effective Time. However, assuming the Closing Price is
the same as the closing price of Genzyme General Division Stock on the Record
Date ($67.28) and the Purchase Price Adjustment Amount equals $1,682,305, the
Merger Consideration will consist of approximately 547,230 shares of Genzyme
General Division Stock. Of these shares, the Genetrix Charter provides that
approximately 336,339 shares would be allocated to holders of Genetrix Preferred
Stock in satisfaction of the Merger Preference and that the remaining 210,891
shares would be allocated to holders of Genetrix Common Stock and holders of
Series A, B, E and F of Genetrix Preferred Stock, with such holders of such
Series of Genetrix Preferred Stock participating on the basis of the number of
shares of Genetrix Common Stock in to which their shares of Genetrix Preferred
Stock are convertible. Under the Genetrix Charter, each share of Series A, E
and F of Genetrix Preferred Stock is convertible into one share of Genetrix
Common Stock and each share of Series B of Genetrix Preferred Stock is
convertible into ten shares of Genetrix Common Stock and, in the aggregate, such
Series of Genetrix Preferred Stock are convertible into 6,358,409 shares of
Genetrix Common Stock.
Ten percent of the number of shares comprising the Merger Consideration
shall be deposited with an escrow agent reasonably satisfactory to Genetrix and
shall be subject to reduction to satisfy certain claims to which Genzyme is
entitled to be indemnified under the Merger Agreement. The amount of such
claims as of the date hereof is estimated by Genzyme to be approximately
$77,500. Because the Genetrix Charter provides that the Merger Preference must
be satisfied in full before any amounts are payable to holders of Genetrix
Common Stock, the shares deposited in escrow shall be deducted pro rata from the
shares allocable to each former holder of Genetrix Stock after the Merger
Preference is satisfied. Assuming (a) no increase or decrease in the amount of
claims to which Genzyme is entitled to be indemnified under the Merger Agreement
and (b) that the number of shares of Genetrix Common Stock and each Series of
Genetrix Preferred Stock outstanding on the effective date of the Merger is the
same as the number of such shares outstanding as of the Record Date, (i) each
share of Genetrix Common Stock would be converted into approximately .0181 share
of Genzyme General Division Stock, (ii) each share of Series A and B of Genetrix
Preferred Stock would be converted in to approximately .0627 share of Genzyme
General Division Stock, (iii) each share of Series C and D of Genetrix Preferred
Stock would be converted into approximately .0892 share of Genzyme General
Division Stock, (iv) each share of Series E of Genetrix Preferred Stock would be
converted into approximately .0924 share of Genzyme General Division Stock and
(v) each share of Series F of Genetrix Preferred Stock would be converted into
approximately .0998 share of Genzyme General
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Division Stock. See "The Merger - General", " - Conversion of Genetrix Common
Stock", " - Exchange of Certificates", " - Escrow and Indemnity" and " -
Fractional Shares." Following consummation of the Merger, the former
stockholders of Genetrix will hold approximately 1.8% of the outstanding shares
of Genzyme General Division Stock.
REASONS FOR THE MERGER
GENETRIX. The Genetrix Board believes that the Merger will result in greater
value to Genetrix stockholders than would likely have been realized by them in
the foreseeable future through continued independent operations of Genetrix.
The Genetrix Board has believed that Genetrix should expand the scope of
its operations in order to obtain economies of scale and to increase revenues,
which would likely enhance stockholder value. In evaluating the transaction,
the Genetrix Board considered Genetrix's immediate and foreseeable prospects
for such expansion and concluded that the Merger provides the best prospect to
maximize stockholder value.
In reaching its determination, the Genetrix Board also considered the
anticipated advantages of the Merger, including (i) Genzyme's research and
development capabilities which may complement and expand Genetrix's programs in
genetic testing, (ii) Genzyme's superior access to financial resources and
(iii) Genetrix's ability to expand its existing markets and enter new markets
through the use of Genzyme's marketing support resources. See "The Merger -
Genetrix's Reasons for the Merger."
GENZYME. The Board of Directors of Genzyme (the "Genzyme Board") has
determined that the Merger Agreement and the transactions contemplated thereby
are in the best interests of Genzyme and, therefore, has unanimously approved
the Merger Agreement. In reaching such a determination, the Genzyme Board and
Genzyme management reviewed information about Genetrix available to it from
Genetrix management and assessed Genetrix's financial condition. After
considering this information, the Genzyme Board concluded that Genzyme's
research and development capabilities in the medical genetic diagnostics field
and Genetrix's operating strengths in the genetic testing market are
complementary, and that the anticipated business advantages of the Merger
favored adoption of the Merger Agreement and consummation of the Merger. These
advantages include: (i) augmenting Genzyme's ability to launch new testing
services, (ii) making available a broader menu of tests in the cancer testing
area as well as specific marketing and clinical expertise in that area, (iii)
enhancing Genzyme's prospects for an increased market share in the prenatal
genetic testing services market, (iv) creating a market position in geographic
areas where Genzyme is not currently strong, (v) gaining access to innovative
and unique new programs designed to support managed care providers, a rapidly
growing market segment and (vi) promoting Genzyme's access to innovative
technological developments in genetic testing. See "The Merger - Genzyme's
Reasons for the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GENETRIX
THE BOARD OF DIRECTORS OF GENETRIX UNANIMOUSLY RECOMMENDS THAT GENETRIX
STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT.
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FAIRNESS OPINION
Alex. Brown, a nationally recognized investment banking firm, has acted as
financial adviser to Genetrix in connection with the Merger and has delivered
to Genetrix its written opinion that, as of the date hereof, subject to the
assumptions and qualifications stated by Alex. Brown therein, the proposed
Merger Consideration is fair, from a financial point of view, to Genetrix
stockholders. Such fairness opinion is based on financial forecasts provided
by the management of Genetrix as well as current market, economic, financial
and other conditions.
The opinion of Alex. Brown is attached to this Prospectus/Proxy Statement
as Exhibit B and stockholders are urged to read the opinion carefully and in
its entirety. Alex. Brown will receive a fee for its opinion. See "The Merger
- - Fairness Opinion."
COVENANTS
Genetrix, the Principal Stockholders and Genzyme have made certain
covenants and agreements with each other in the Merger Agreement relating to,
among other things, (i) the conduct of Genetrix's business prior to the Merger,
(ii) cooperation with respect to the preparation of this Prospectus/Proxy
Statement, (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and (iv) confidentiality and
publicity. Genetrix and the Principal Stockholders have agreed that they will
not solicit offers from third parties regarding a potential acquisition of
Genetrix, and will notify Genzyme of any such offer received by them. The
Principal Stockholders have also agreed to vote the shares of Genetrix
Preferred Stock held by them in favor of adopting the Merger Agreement and have
given irrevocable proxies to Genzyme to vote such shares at the Special
Meeting. See "The Merger - Representations, Warranties and Covenants."
TERMINATION FEES
If the Merger Agreement is terminated upon the occurrence of certain
events, Genetrix will be obligated to reimburse Genzyme's reasonable
out-of-pocket expenses relating to the Merger up to a maximum of $350,000. In
addition to such reimbursement, Genetrix will be obligated to make a cash
payment to Genzyme of $400,000 if within 12 months following termination of the
Merger Agreement Genetrix is acquired by a third party (other than Genzyme) for
consideration greater than $38,500,000 less the Purchase Price Adjustment
Amount (together, the "Termination Fees"). The Termination Fees could have the
effect of discouraging a third party from pursuing an acquisition transaction
regarding Genetrix because the cost of such acquisition, if successful, would
be increased by the amount of the Termination Fees. See "The Merger - No
Solicitation; Termination Fees."
CONDITIONS OF MERGER; TERMINATION
In addition to the adoption of the Merger Agreement by the Genetrix
stockholders, the respective obligations of Genzyme, Genetrix and the Principal
Stockholders to consummate the Merger are subject to certain conditions,
including that (i) the Registration Statement shall have been declared
effective by the Commission; (ii) any applicable waiting period under the HSR
Act shall have expired or terminated; (iii) Genzyme and Genetrix shall have
obtained all consents and waivers required in order for both parties to perform
the Merger Agreement (iv) Genzyme shall have received letters from certain
"affiliates" of Genetrix; (v) Dissenting Shares shall not exceed 2% of the
shares of Genetrix Common Stock issued and outstanding on the Closing Date and
no holders of Genetrix Preferred Stock shall have dissented; (vi) 90% of the
employees in certain classes shall continue to be employed by Genetrix and
shall have not indicated to either Genetrix or Genzyme an intention to
terminate their employment following the Effective Time and (vii) Genetrix
shall have maintained revenues at certain levels prescribed in the Merger
Agreement. At any time prior to the Effective Time, any of the parties to the
Merger Agreement may waive any condition to its own obligations to consummate
the Merger, but only to the extent that such conditions are intended for its
benefit. See "The Merger - Conditions of Merger."
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The Merger Agreement may be terminated prior to the Effective Time under
certain circumstances, including at the election of the Genzyme Board or
Genetrix if, without fault of the terminating party, the Closing Date shall not
have occurred on or before April 30, 1996, which date may be extended by mutual
consent of the parties. See "The Merger - Termination."
EXCHANGE OF CERTIFICATES
After the Effective Time, stockholders of Genetrix will be entitled to
exchange their certificates representing shares of Genetrix Stock for
certificates representing shares of Genzyme General Division Stock (and for
cash in the case of fractional shares). Genzyme has selected American Stock
Transfer & Trust Company (the "Exchange Agent") to effect the exchange of stock
certificates and payment of cash in lieu of fractional shares. See "The Merger
- - Exchange of Certificates."
HOLDERS OF GENETRIX STOCK SHOULD NOT SEND ANY GENETRIX STOCK CERTIFICATES
WITH THE ENCLOSED PROXY CARD. Instead, such certificates and securities should
be surrendered in accordance with instructions that will be contained in a
letter of transmittal that will be mailed to holders of Genetrix Stock after
the Effective Time. See "The Merger - Exchange of Certificates" and " -
Fractional Shares."
MANAGEMENT OF GENETRIX'S BUSINESS AFTER MERGER
The directors and officers of Genzyme immediately prior to the Effective
Time will be the directors and officers of the Surviving Corporation
immediately after the Effective Time. See "The Merger - Management of
Genetrix's Business after Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Palmer & Dodge, counsel to Genzyme, has delivered an opinion
substantially to the effect that the Merger will constitute a tax-free
reorganization for federal income tax purposes, and that no gain or loss will
be recognized by Genetrix or its stockholders by reason of the receipt of
shares of Genzyme General Division Stock in the Merger (except to the extent of
cash received in lieu of a fractional share of Genzyme General Division Stock,
if any). In addition, the Merger is conditioned on the receipt of a similar
opinion of Palmer & Dodge, dated as of the Closing Date. This condition may be
waived at the discretion of Genetrix and the Principal Stockholders. Genetrix
stockholders are urged to consult their own tax advisors to determine the
effect of the Merger on them under federal, state, local and foreign laws and
to read the discussion of the federal income tax consequences of the Merger
under "Certain Federal Income Tax Consequences."
REGULATORY MATTERS
Other than filings under the HSR Act, the filing of appropriate merger
documents with the Secretary of the State of Delaware and the Secretary of the
Commonwealth of Massachusetts and routine approvals and actions required under
Genetrix's permits and licenses to reflect the change in control of Genetrix,
there are no governmental approvals required to effect the Merger. See "The
Merger - Regulatory Matters."
APPRAISAL RIGHTS
Under Delaware law, Genetrix stockholders who file written notice of their
intention to exercise dissenters' rights before the taking of the vote and do
not vote to adopt the Merger Agreement may elect to have the "fair value" of
their shares (determined in accordance with Delaware law) judicially appraised
and paid to them if the Merger is consummated and if they comply with Section
262 of the Delaware General Corporation Law ("DGCL"), which is attached hereto
as Exhibit C. Failure to comply strictly with such requirements may result in
the loss of statutory dissenters' rights. Genzyme's obligation to consummate
the Merger is subject to the condition, waivable at the discretion of Genzyme,
that the holders of not more than 2% of the outstanding shares of Genetrix
Common
13
<PAGE> 19
Stock, and no holders of Genetrix Preferred Stock, shall have validly exercised
such rights. See "The Merger - Genetrix Stockholder Appraisal Rights."
ACCOUNTING TREATMENT
If the Merger is consummated, Genzyme expects to account for the Merger as
a pooling of interests. See "The Merger - Accounting Treatment."
DIFFERENCES IN RIGHTS OF HOLDERS OF STOCK
Genzyme is organized under the corporate law of the Commonwealth of
Massachusetts. Genetrix is organized under the corporate law of the State of
Delaware. There are certain differences in the laws of these two states and in
the charter documents and by-laws of Genzyme and Genetrix. See "Comparison of
Rights of Holders of Genzyme General Division Stock and Genetrix Stock."
MARKET FOR GENZYME GENERAL DIVISION STOCK AND DIVIDEND POLICY
Genzyme General Division Stock is listed for trading on the Nasdaq National
Market and designated a Nasdaq National Market security. On February 13, 1996,
the last trading day prior to the first public announcement of the proposed
Merger, the closing price of Genzyme General Division Stock as reported by the
Nasdaq National Market was $73.00. Following the Merger, Genzyme General
Division Stock will continue to be listed for trading by Nasdaq and designated
a Nasdaq National Market security.
Genzyme has never paid a cash dividend on shares of its capital stock; it
has retained any earnings for use in its business. Genzyme expects to continue
to follow the policy of retaining funds for reinvestment in its business.
NO MARKET FOR GENETRIX STOCK
Genetrix is a privately held company and there is no public market for its
capital stock. It has never paid a cash dividend on its capital stock.
Genetrix's current line of credit prohibits the payment of dividends by
Genetrix without the prior written consent of the lender.
14
<PAGE> 20
GENZYME GENERAL DIVISION SELECTED FINANCIAL DATA
(HISTORICAL)
The following table represents summary historical financial statement data
of the General Division. The balance sheet data presented below as of December
31, 1992, 1993 and 1994 and the statement of operations data presented below for
each of the years in the four-year period ended December 31, 1994 are derived
from the General Division's financial statements, which have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements as
of December 31, 1993 and 1994 and for each of the years in the three-year period
ended December 31, 1994 and the report of Coopers & Lybrand L.L.P. relating
thereto are incorporated by reference in this Prospectus/Proxy Statement and the
summary financial data presented below are qualified in their entirety by
reference thereto. The balance sheet data presented below as of December 31,
1990 and 1991 and the statement of operations data presented below for the year
ended December 31, 1990 are derived from the General Division's unaudited
financial statements. The balance sheet data as of September 30, 1995 and the
statement of operations data for the nine-month periods ended September 30, 1994
and 1995 are derived from the General Division's unaudited financial statements
which are also incorporated herein by reference. In the opinion of management,
the unaudited financial statements have been prepared on a basis consistent with
the audited financial statements and include all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the results of
operations for these periods. The operating results for the nine months ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the entire fiscal year. The data should be read in conjunction
with the historical financial statements and notes thereto, and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the General Division incorporated by reference in this
Prospectus/Proxy Statement. See "Incorporation of Certain Documents by
Reference." Amounts are in thousands, except for per share amounts.
<TABLE>
<CAPTION>
For the Nine
Months Ended
For the Years Ended December 31, September 30,
---------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Combined Statement of Operations Data(1):
Revenues:
Net product sales . . . . . . . . . . . . . . . . . . $ 32,057 $ 72,019 $139,568 $183,366 $238,645 $173,499 $219,374
Net service sales . . . . . . . . . . . . . . . . . . 13,941 21,503 40,400 50,511 49,686 38,188 35,461
Revenues from research and development contracts:
Related parties . . . . . . . . . . . . . . . . . . 10,528 21,486 32,746 29,478 20,883 15,025 19,088
Other . . . . . . . . . . . . . . . . . . . . . . . 4,162 4,616 3,699 2,332 1,513 1,128 78
-------- -------- -------- -------- -------- ------- --------
60,688 119,624 216,413 265,687 310,727 227,840 274,001
Operating costs and expenses:
Cost of products sold . . . . . . . . . . . . . . . . 18,239 33,164 52,514 64,704 92,226 65,530 82,938
Cost of services sold . . . . . . . . . . . . . . . . 8,439 14,169 27,254 34,558 32,116 24,600 23,353
Selling, general and administrative . . . . . . . . . 23,521 38,296 58,881 78,015 84,767 63,649 72,056
Research and development (including research
and development related to contracts) . . . . . . . 18,238 25,501 37,324 45,526 51,696 37,058 42,472
Purchase of in-process research and development (2) . 20,783 - 51,100 24,000 - - -
Goodwill impairment and restructuring costs (4) . . . - - - 26,517 - - -
Charge for purchase options and financing
expenses (3) . . . . . . . . . . . . . . . . . . . . 9,050 - 16,905 - - - -
-------- -------- -------- -------- -------- -------- --------
98,270 111,130 243,978 273,320 260,805 190,837 220,819
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) . . . . . . . . . . . . . . . . (37,582) 8,494 (27,565) (7,633) 49,922 37,003 53,182
Other income and (expenses):
Minority interest in net loss of subsidiaries . . . . 645 2,362 1,678 9,892 1,659 1,216 1,608
Equity in net loss of unconsolidated affiliate . . . - - - - (1,353) - (1,207)
Charge for impaired investments . . . . . . . . . . . - - - (700) (9,431) - -
Settlement of lawsuit . . . . . . . . . . . . . . . . - - - - (1,980) - -
Investment income . . . . . . . . . . . . . . . . . . 4,752 12,371 21,981 12,209 9,072 7,305 3,891
Interest expense . . . . . . . . . . . . . . . . . . (681) (2,088) (7,099) (2,500) (1,354) (1,658) (732)
Gain on issuance of stock by IG Labs . . . . . . . . 7,214 - - - - - -
Gain on sale of GENE-TRAK . . . . . . . . . . . . . . - 4,065 - - - - -
-------- -------- -------- -------- -------- -------- --------
11,930 16,710 16,560 18,901 (3,387) 6,863 3,560
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary credit . . . . . . . . . . . . . . . . . (25,652) 25,204 (11,005) 11,268 46,535 43,866 56,742
Provision for income taxes . . . . . . . . . . . . . . (730) (12,589) (19,007) (2,812) (16,341) (15,533) (21,562)
-------- --------- -------- -------- -------- -------- --------
Income (loss) before extraordinary credit . . . . . . . (26,382) 12,615 (30,012) 8,456 30,194 28,333 35,180
Extraordinary credit resulting from utilization
of operating loss carryforwards . . . . . . . . . . . - 8,323 - - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . (26,382) 20,938 (30,012) 8,456 30,194 28,333 35,180
Allocated tax benefit generated by Tissue
Repair Division (pro forma) . . . . . . . . . . . . . - 169 203 9,564 1,860 1,231 5,877
-------- -------- -------- -------- -------- -------- --------
Net income (loss) attributable to Genzyme General
Division Stock . . . . . . . . . . . . . . . . . . . . $(26,382) $ 21,107 $(29,809) $ 18,020 $ 32,054 $ 29,564 $ 41,057
======== ======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 21
<TABLE>
<CAPTION>
For the Nine
Months Ended
For the Years Ended December 31, September 30,
------------------------------------------------------ -------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Common Share Data:
Applicable to the General Division (pro forma):
Net income (loss) attributable to Genzyme General
Division Stock . . . . . . . . . . . . . . . . . . $(26,382) $ 21,107 $(29,809) $ 18,020 $ 32,054 $ 29,564 $ 41,057
======== ======== ======== ======== ======== ======== ========
Per common and common equivalent share:
Income (loss) before extraordinary credit . . . . . . $ (1.56) $ 0.54 $ (1.33) $ 0.69 $ 1.22 $ 1.13 $ 1.42
Extraordinary credit . . . . . . . . . . . . . . . . - 0.36 - - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . $ (1.56) $ 0.90 $ (1.33) $ 0.69 $ 1.22 $ 1.13 $ 1.42
======== ======== ======== ======== ======== ======== ========
Average shares outstanding . . . . . . . . . . . . . 16,910 23,554 22,370 26,250 26,169 26,117 28,816
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------------------------------------------- ----------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined Balance Sheet Data:
Cash and investments (5) . . . . . . . . . . . . . . $ 47,059 $283,473 $248,325 $168,953 $128,652 $110,750
Working capital . . . . . . . . . . . . . . . . . 62,252 147,007 166,101 99,503 83,314 148,743
Total assets (8) . . . . . . . . . . . . . . . . 129,625 403,643 481,896 532,357 630,144 660,502
Long-term debt and capital
lease obligations excluding
current portion (6) . . . . . . . . . . . . . . 5,694 104,609 105,369 144,674 126,555 126,258
Division equity (7), (8) . . . . . . . . . . . . 103,300 268,333 322,390 324,391 395,651 472,914
</TABLE>
There were no cash dividends paid.
_________
(1) In October 1992, the General Division acquired all the outstanding
common shares of Vivigen, Inc. ("Vivigen") in a transaction accounted for as a
pooling of interests. Accordingly, the General Division's financial data has
been restated to include Vivigen for all periods presented.
(2) In 1992 and 1993, the General Division acquired the rights to the
Neozyme I Corporation ("Neozyme I") development programs and Medix Biotech,
Inc. In connection with these transactions, all of which were accounted for as
purchases, the General Division charged to operations the following amounts
which represented the purchase of in-process research and development: 1992,
$51.1 million and 1993, $24.0 million.
(3) In 1990 and 1992, respectively, the General Division sponsored
formation of Neozyme I and Neozyme II Corporation ("Neozyme II"). In
connection with these transactions, the General Division obtained options to
acquire all of the equity of Neozyme I and Neozyme II under certain
circumstances in exchange for the issuance of warrants to acquire the General
Division's stock. The value assigned to each option ($8.2 million for Neozyme
I and $16.9 million for Neozyme II) was charged to operations in the period
each option was obtained due to uncertainty as to the General Division's
future exercise of these options.
(4) In December 1993, Genzyme incurred restructuring charges of $2.8
million related to the consolidation of laboratory operations in its diagnostic
services business. Also in December 1993, Genzyme wrote off $23.7 million for
the value of impaired goodwill associated primarily with IG's acquisition of
GDI in 1992.
(5) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(6) In October 1991, Genzyme issued $100.0 million of its 6 3/4%
convertible subordinated notes due October 2001 and received net proceeds of
$97.3 million.
(7) In April 1991, Genzyme completed the sale to the public of 4,025,000
shares of Genzyme Common Stock for net proceeds of $136.4 million. In December
1994, the outstanding shares of Genzyme Common Stock were redesignated as
General Division Common Stock on a share-for-share basis. In October 1995
Genzyme completed the sale to the public of 2,875,000 shares of Genzyme General
Division Stock for net proceeds of $141.5 million.
(8) In October 1995, Genzyme acquired the publicly-held minority interest
of IG Laboratories, Inc. ("IG") by issuing 385,255 shares of Genzyme General
Division Stock (.1201 of one share of Genzyme General Division Stock for each
share of IG common stock). The acquisition was accounted for as a purchase.
16
<PAGE> 22
GENZYME CORPORATION AND SUBSIDIARIES SUMMARY FINANCIAL DATA
(HISTORICAL)
Genzyme holds title to all of its assets and is responsible for all of
its liabilities, and the holders of Genzyme General Division Stock have no
specific claim against the assets attributed for financial statement purposes
to the General Division. Liabilities or other contingencies of either division
that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of both divisions. The
following consolidated statement of operations and balance sheet data of
Genzyme are presented as additional information for use in comparing the
results of the General Division to the results of Genzyme.
The following table represents selected historical statement of
operations and balance sheet data of Genzyme and its subsidiaries as derived
from its consolidated financial statements. The operating results for the nine
months ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the entire fiscal year. The data should be read in
conjunction with the historical financial statements and notes thereto and
related Management's Discussion and Analysis of Financial Condition and Results
of Operations of Genzyme incorporated by reference in this Prospectus/Proxy
Statement. See "Incorporation of Certain Documents by Reference." Amounts are
in thousands.
<TABLE>
<CAPTION>
For the Nine
Months Ended
For the Years Ended December 31, September 30,
---------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data (1):
Revenues: . . . . . . . . . . . . . . . . . . . $ 61,549 $121,916 $219,079 $270,371 $311,051 $227,840 $277,713
Net Income (loss) (2): . . . . . . . . . . . . (25,988) 20,846 (30,317) (6,095) 16,303 26,561 26,706
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------------------------------------ ----------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and investments (3) . . . . . . . . . . $ 47,059 $283,473 $248,325 $168,953 $153,460 $164,482
Working capital . . . . . . . . . . . . . . 62,252 147,007 166,324 99,605 103,871 198,380
Total assets (6) . . . . . . . . . . . . . . 129,625 403,643 481,896 542,052 658,408 716,982
Long-term debt and capital
lease obligations excluding
current portion (4) . . . . . . . . . . . . 5,694 104,609 105,369 144,674 126,729 126,258
Stockholders' equity (5), (6) . . . . . . . 103,300 268,333 322,613 334,072 418,964 525,231
</TABLE>
There were no cash dividends paid.
_________
(1) In October 1992, Genzyme acquired all the outstanding common shares of
Vivigen in a transaction accounted for as a pooling of interests. Accordingly,
Genzyme's financial data has been restated to include Vivigen for all periods
presented.
(2) Net income (loss) includes the purchase of in-process research and
development totaling $20.8 million, $51.1 million, $49.0 million and $11.2
million, respectively, for the years ended December 31, 1990, 1992, 1993
and 1994; impaired goodwill and restructuring costs totaling $26.5 million for
the year ended December 31, 1993; and charges for purchase options and
financing expenses totaling $9.0 million and $16.9 million, respectively, for
the years ended December 31, 1990 and 1992.
(3) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(4) In October 1991, Genzyme issued $100.0 million of its 6 3/4%
convertible subordinated notes due October 2001 and received net proceeds of
$97.3 million.
(5) In April 1991, Genzyme completed the sale to the public of 4,025,000
shares of Genzyme Common Stock for net proceeds of $136.4 million. In December
1994, the outstanding shares of Genzyme Common Stock were redesignated as
Genzyme General Division Stock on a share-for-share basis and a second class of
common stock designated as Tissue Repair Division Common Stock ("Genzyme TR
Division Stock") was distributed on the basis of .135 of one share of Genzyme
TR Division Stock for each share of Genzyme's previous common stock held by
stockholders of record on October 14, 1994. In December 1994, Genzyme issued
5,000,000 shares of Genzyme TR Division Stock valued at $25.3 million in
connection with the acquisition of BioSurface Technology, Inc. In September
1995, Genzyme completed the sale to the public of 3,000,000 shares of Genzyme
TR Division Stock for net proceeds of $42.4 million. In October 1995, Genzyme
completed the sale to the public of 2,875,000 shares of Genzyme General
Division Stock for net proceeds of $141.5 million.
(6) In October 1995, Genzyme acquired the publicly-held minority interest
of IG by issuing 385,255 shares of Genzyme General Division Stock (.1201 of one
share of Genzyme General Division Stock for each share of IG common stock).
The acquisition was accounted for as a purchase.
17
<PAGE> 23
GENETRIX SELECTED FINANCIAL DATA
(HISTORICAL)
The following table represents selected historical consolidated
operations and balance sheet data of Genetrix. The consolidated balance sheet
data presented below as of December 31, 1990, 1991, 1992, 1993 and 1994 and the
consolidated statement of operations data presented below for each of the years
in the five-year period ended December 31, 1994 are derived from Genetrix's
consolidated financial statements, which have been audited by Ernst & Young
LLP, independent public accountants. The consolidated financial statements as
of December 31, 1993 and 1994 and for each of the years in the three-year
period ended December 31, 1994 and the report of Ernst & Young LLP relating
thereto are included in this Prospectus/Proxy Statement and the selected
financial data presented below are qualified in their entirety by reference
thereto. The consolidated balance sheet data presented below as of September
30, 1995 and consolidated statement of operations data for the nine-month
periods ended September 30, 1994 and 1995 are derived from Genetrix's unaudited
consolidated financial statements that are also included herein. In the
opinion of management, the unaudited consolidated financial statements have
been prepared on a basis consistent with the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. The operating results for the nine
months ended September 30, 1994 or 1995 are not necessarily indicative of the
results that may be expected for the entire fiscal year. Amounts are in
thousands, except for per share amounts.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Net revenues . . . . . . . . . . . . . . . . . $ 5,098 $ 8,024 $13,819 $15,089 $19,834 $14,058 $16,391
Cost of revenues . . . . . . . . . . . . . . 3,055 4,290 7,399 7,961 10,784 7,837 8,421
------- ------- ------- ------- ------- ------- -------
Gross margin . . . . . . . . . . . . . . . . . 2,043 3,734 6,420 7,128 9,050 6,221 7,970
Selling, general and administrative . . . . . 3,798 6,185 9,316 8,032 9,108 6,501 7,528
Amortization . . . . . . . . . . . . . . . . 38 394 1,269 1,289 1,044 933 395
Restructuring expenses (2) . . . . . . . . . . - - - - 1,229 1,229 -
Write-down of intangibles (3) . . . . . . . . - - - 901 834 834 -
Offering expense . . . . . . . . . . . . . . . - - 418 - - - -
Loss on sale-leaseback . . . . . . . . . . . . - 592 - - - - -
------- ------- ------- ------- ------- ------- -------
Operating income (loss) . . . . . . . . . . . (1,793) (3,437) (4,583) (3,094) (3,165) (3,276) 47
Interest expense . . . . . . . . . . . . . . (71) (80) (237) (211) (209) (164) (170)
Interest and other income . . . . . . . . . . 174 118 176 110 60 101 7
------- ------- ------- ------- ------- ------- -------
Net loss . . . . . . . . . . . . . . . . . . . $(1,690) $(3,399) $(4,644) $(3,195) $(3,314) $(3,339) $ (116)
======= ======= ======= ======= ======= ======= =======
Loss per common share . . . . . . . . . . . . $ (0.59) $ (0.90) $ (1.20) $ (0.81) $ (0.69) $ (0.72) $ (0.02)
Weighted average common shares outstanding . . 2,845 3,763 3,873 3,928 4,809 4,663 5,251
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------------- ----------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . $ 5,346 $11,159 $13,909 $10,440 $13,150 $12,105
Long-term obligations . . . . . . . . . . . . 344 2,303 1,919 619 552 486
Stockholders' equity . . . . . . . . . . . . . 4,117 6,684 8,590 5,396 7,235 7,106
</TABLE>
There were no cash dividends paid.
__________________
(1) Genetrix acquired certain assets of Genetics & Laboratory Medicine, Inc.,
NMG Genetic Services, Inc., Research and Education Institute, Inc, and
MediGene, Inc. in May 1991, October 1991, July 1992 and April 1994,
respectively. All acquisitions were accounted for as purchases.
(2) In April 1994, Genetrix incurred restructuring charges of $1.2 million
related to the consolidation of laboratory operations.
(3) In December 1993, Genetrix wrote off $0.9 million of customer list assets
acquired in July 1992 in an agreement with Research and Education Institute,
Inc. and Harbor-UCLA Medical Center following closure of the related laboratory
facility. In December 1994, Genetrix wrote off $0.5 million and $0.3 million
of customer list assets related to the acquisitions of NMG Genetic Services,
Inc. and Genetics & Laboratory Medicine, Inc., respectively, following closure
of the related facilities.
18
<PAGE> 24
Unaudited Pro Forma Summary Financial Data
The following tables present certain summary unaudited pro forma
financial data of Genzyme Corporation and Genzyme General Division after giving
effect to the Merger and acquisition of Genzyme Development Partners, L.P. This
summary pro forma financial data is provided for comparative purposes only and
does not purport to be indicative of the financial position or results of
operations that would have been reported had the transactions occurred for the
periods or as of the dates for which pro forma data are presented, or which may
be reported in the future. Amounts are in thousands, except for per share
amounts.
<TABLE>
<CAPTION>
Pro Forma Genzyme Corporation
-------------------------------------------------------------
Nine Months
Year Ended December 31, Ended September 30,
------------------------------ -------------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenue ................................. $232,898 $285,460 $329,972 $240,985 $294,104
Net income (loss)(1) .................... $(32,980) $(7,909) $13,737 $23,976 $26,667
Primary income (loss) per General
Division common share ................. $(1.42) $0.60 $1.05 $0.96 $1.34
Fully diluted income (loss) per General
Division common share ................. - - $0.98 $0.90 $1.22
Primary income (loss) per Tissue
Repair Division common share .......... $(0.17) $(7.43) $(4.40) $(0.91) $(1.62)
Cash dividends .......................... $0 $0 $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
September 30,
------------
1995
----
<S> <C>
Summary Balance Sheet Data:
Total assets ............................................ $729,353
Long-term debt and capital lease obligations,
excluding current portion ............................. $126,552
General Division equity ................................. $480,377
Book value per General Division common share ............ $16.32
Tissue Repair Division equity ........................... $52,317
Book value per Tissue Repair Division common share ....... $6.03
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Genzyme General Division
-------------------------------------------------------------
Nine Months
Year Ended December 31, Ended September 30,
------------------------------ -------------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenue ................................. $230,232 $280,776 $329,648 $240,985 $290,392
Net income (loss) attributable to
Genzyme General Division Stock (1)..... $(32,472) $16,206 $29,488 $26,979 $41,018
Primary income (loss) per common
share ................................. $(1.42) $0.60 $1.05 $0.96 $1.34
Fully diluted income (loss) per common
share ................................. - - $0.98 $0.90 $1.22
Cash dividends .......................... $0 $0 $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
September 30,
------------
1995
----
<S> <C>
Summary Balance Sheet Data:
Total assets ............................................ $672,963
Long-term debt and capital lease obligations,
excluding current portion ............................. $126,552
General Division equity ................................. $480,377
Book value per General Division common share ............ $16.32
</TABLE>
- -----------------
(1) Includes charges of approximately $68,005,000 and $50,517,000 for the years
ended December 31, 1992 and 1993, respectively, related to the purchase of
in-process research and development, charges for purchase options and financing
expenses, impaired goodwill and certain restructuring costs.
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<PAGE> 25
COMPARATIVE PER SHARE FINANCIAL INFORMATION
<TABLE>
The following unaudited information reflects certain comparative per
share data related to book value and income (loss) from continuing operations
(i) on a historical basis for Genzyme General Division Stock and Genetrix
Common Stock; (ii) on a pro forma basis per share of Genzyme General Division
Stock giving effect to the Merger and Genzyme's proposed acquisition of Genzyme
Development Partners, L.P.; and (iii) on an equivalent pro forma basis per
share of Genetrix Common Stock giving effect to the Merger and Genzyme's
proposed acquisition of Genzyme Development Partners, L.P. Equivalent pro
forma per share amounts for Genetrix Common Stock are calculated assuming that
the holder of one share of Genetrix Common Stock would be entitled to .0181
share of Genzyme General Division Stock for all periods presented.(1)
The information shown below should be read in conjunction with the
consolidated historical financial statements incorporated herein by reference
in the case of Genzyme, and delivered herewith in the case of Genetrix. Neither
Genzyme nor Genetrix has paid any cash dividends since its inception.
<CAPTION>
GENZYME GENERAL DIVISION STOCK GENETRIX COMMON STOCK
------------------------------ ---------------------
September 30, September 30,
1995 1995
------------- -------------
<S> <C> <C>
Book Value Per Share
Historical . . . . . . . . . $17.14 $0.61
Pro Forma . . . . . . . . . . $16.32 $0.30
</TABLE>
<TABLE>
GENZYME GENERAL DIVISION
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
----------------------- -------------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRIMARY INCOME (LOSS)
PER SHARE FROM CONTINUING
OPERATIONS:
Historical . . . . . . . . . . . $(1.33) $0.69 $1.22 $1.13 $1.42
Pro Forma . . . . . . . . . . . . $(1.42) $0.60 $1.05 $0.96 $1.34
FULLY DILUTED INCOME (LOSS)
PER SHARE FROM CONTINUING
OPERATIONS:
Historical . . . . . . . . . . . $1.14 $1.05 $1.30
Pro Forma . . . . . . . . . . . . $0.98 $0.90 $1.22
</TABLE>
<TABLE>
GENETRIX
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------ -------------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRIMARY INCOME (LOSS)
BEFORE EXTRADORINARY
ITEM PER COMMON SHARE
Historical . . . . . . . . . . . $(1.20) $(0.81) $(0.69) $(0.75) $(0.02)
Pro Forma (1) . . . . . . . . . . $(0.03) $ 0.01 $ 0.02 $ 0.02 $ 0.02
FULLY DILUTED INCOME (LOSS) PER SHARE
FROM CONTINUING OPERATIONS:
Pro Forma . . . . . . . . . . . . $ 0.02 $ 0.02 $ 0.02
<FN>
- ---------------
(1) Assumes a Closing Price of Genzyme General Division Stock of $67.28 per
share and, accordingly, that (i) 547,230 shares of Genzyme General Division
Stock will be issued as the Merger Consideration, (ii) approximately 336,339 of
such shares would be allocated to holders of Genetrix Preferred Stock in
satisfaction of the Merger Preference, (iii) the remaining 210,891 shares would
be allocated to holders of Genetrix Common Stock and holders of Series A, B, E
and F of Genetrix Preferred Stock, with holders of such Series of Genetrix
Preferred Stock participating on the basis of the number of shares of Genetrix
Common Stock into which their shares of Genetrix Preferred Stock are
convertible, (iv) the amount of claims to which Genzyme is entitled to
indemnification under the Merger Agreement is $77,500, and (v) the number of
shares of Genetrix Common Stock outstanding on the effective date of the Merger
is the same as the number of such shares outstanding as of the Record Date.
Amounts at the Effective Time of the Merger may differ from the information
presented above based on subsequent changes to the Closing Price of Genzyme
General Division Stock, the Purchase Price Adjustment Amount and any other
related items which may impact the amounts reflected above. See "The Merger -
Conversion of Genetrix Stock."
</TABLE>
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<PAGE> 26
RISK FACTORS
RISKS RELATED TO TWO CLASSES OF COMMON STOCK:
Genzyme currently has two classes of common stock outstanding: Genzyme
General Division Stock and Tissue Repair Division Stock ("Genzyme TR Division
Stock"). Stockholders of Genetrix will receive shares of Genzyme General
Division Stock in the Merger. Stockholders of Genetrix should carefully
consider the following factors in evaluating the Merger.
STOCKHOLDERS OF ONE COMPANY; FINANCIAL IMPACTS ON ONE DIVISION COULD AFFECT THE
OTHER. Genzyme continues to hold title to all of its assets and is responsible
for all of its liabilities, and the holders of the Genzyme General Division
Stock and the Genzyme TR Division Stock have no specific claim against the
assets attributed for financial statement presentation purposes to the division
whose performance is associated with the class of stock they hold. Liabilities
or contingencies of either division that affect Genzyme's resources or
financial condition could affect the financial condition or results of
operations of both divisions. Genetrix stockholders should, therefore, read
Genzyme's consolidated financial statements in conjunction with the financial
statements of the General Division.
NO RIGHTS OR ADDITIONAL DUTIES WITH RESPECT TO THE DIVISIONS; POTENTIAL
CONFLICTS. Holders of Genzyme General Division Stock and Genzyme TR Division
Stock have only the rights of stockholders of Genzyme, and, except in limited
circumstances, do not have any rights specifically related to the General
Division or the Tissue Repair Division, respectively.
The existence of separate classes of common stock may give rise to
occasions when the interests of holders of Genzyme General Division Stock and
holders of Genzyme TR Division Stock may diverge or appear to diverge.
Although Genzyme is aware of no precedent concerning the manner in which
Massachusetts law would be applied to the duties of a board of directors in the
context of multiple classes of common stock with divergent interests, Genzyme
believes that a Massachusetts court would hold that a board of directors owes
an equal duty to all stockholders regardless of class and does not have
separate or additional duties to any group of stockholders. That duty is the
fiduciary duty to act in good faith and in a manner it reasonably believes to
be in the best interests of the corporation. Genzyme believes that, under
Massachusetts law, a good faith determination by a disinterested and adequately
informed board of directors that an action is in the best interests of the
corporation should represent an appropriate defense to any challenge by or on
behalf of the holders of any class of stock that such action could have a
disparate effect on different classes of common stock.
Disproportionate ownership interests of members of the Genzyme Board in
either class of common stock or disparate values in such stock could create or
appear to create potential conflicts of interest when directors are faced with
decisions that could have different implications for each class of stock.
Nevertheless, Genzyme believes that a director would be able to discharge his
or her fiduciary responsibilities even if his or her interests in shares of
such various classes were disproportionate or had disparate values. The
Genzyme Board may also from time to time establish one or more committees to
review matters presented to it that raise conflict issues, which committee(s)
would report to the full Genzyme Board on such matters.
NO ADDITIONAL SEPARATE VOTING RIGHTS. Holders of Genzyme General Division
Stock and holders of Genzyme TR Division Stock vote together as a single class
on all matters as to which common stockholders generally are entitled to vote.
Except in certain limited circumstances provided under Massachusetts law, in
Genzyme's Articles of Organization, as amended, and in the management and
accounting policies adopted by the Genzyme Board, holders of each class of
common stock have no rights to vote on matters as a separate class.
Accordingly, except in limited circumstances, holders of shares of one class of
common stock could not bring a proposal to a vote of the holders of that class
of common stock only, but would be required to bring any proposal to a vote of
both classes of common stock.
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<PAGE> 27
On all matters as to which common stockholders generally are entitled to
vote, each share of Genzyme General Division Stock has one vote, and each share
of Genzyme TR Division Stock will, through December 31, 1996, have .29 votes.
On January 1, 1997 and on January 1 every two years thereafter, the number of
votes to which each share of Genzyme TR Division Stock will be entitled will be
adjusted to equal the ratio of the Fair Market Value of one share of Genzyme TR
Division Stock to the Fair Market Value of one share of Genzyme General
Division Stock as of such date.
Fair Market Value as of any date means the average of the daily closing
prices as reported by the Nasdaq National Market (or the appropriate exchange
on which such shares are then traded) for the 20 consecutive trading days
commencing on the 30th trading day prior to such date. In the event such
closing prices are unavailable, Fair Market Value will be determined by the
Genzyme Board
Certain matters as to which the holders of common stock are entitled to
vote may involve a divergence or the appearance of a divergence of the
interests of holders of Genzyme General Division Stock and holders of Genzyme
TR Division Stock. If, when a stockholder vote is taken on any matter as to
which a separate vote by either class is not required and the holders of either
class of common stock would have more than the number of votes required to
approve any such matter, the holders of that class would control the outcome of
the vote on such matter. Holders of Genzyme General Division Stock and holders
of Genzyme TR Division Stock currently have approximately 90% and 10%,
respectively, of the total voting power of Genzyme. As a result, on matters
which are submitted to a vote of the holders of both classes of common stock,
the preferences of the holders of Genzyme General Division Stock are likely to
dominate and determine the outcome of such vote unless and until the relative
number of shares outstanding and/or the market value of Genzyme General
Division Stock and Genzyme TR Division Stock materially changes.
NO ADJUSTMENT TO LIQUIDATING DISTRIBUTIONS. In the event of a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of Genzyme
(other than pursuant to a merger, business combination or sale of substantially
all assets), holders of outstanding shares of Genzyme General Division Stock
and Genzyme TR Division Stock would receive the assets, if any, remaining for
distribution to common stockholders on a per share basis in proportion to the
respective per share liquidation unit of such class. Currently, each share of
Genzyme General Division Stock has one liquidation unit and each share of
Genzyme TR Division Stock has .29 liquidation units. Because the liquidation
units will not be adjusted to reflect changes in the relative market value or
performance of the General Division and the Tissue Repair Division, the per
share liquidating distribution to a holder of Genzyme General Division Stock or
Genzyme TR Division Stock will not necessarily correspond to the value of the
assets of the Genzyme General Division or Tissue Repair Division, respectively,
at the time of a dissolution, liquidation or winding up of Genzyme.
MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE. The Genzyme Board has
adopted certain management and accounting policies applicable to the
preparation of the financial statements of both divisions, the allocation of
corporate expenses, assets and liabilities and other accounting matters, the
reallocation of assets between divisions and other matters. These policies
may, except as stated therein, be modified or rescinded in the sole discretion
of the Genzyme Board without the approval of Genzyme's stockholders, subject to
the Genzyme Board's fiduciary duty to all holders of Genzyme's capital stock,
although there is no present intention to do so. The Genzyme Board may also
adopt additional policies depending upon the circumstances. See "Management
and Accounting Policies Governing the Relationship of Genzyme Divisions."
LIMITED TRADING HISTORY. As discussed above, the Genzyme General Division
Stock and the Genzyme TR Division Stock are intended to reflect the value and
track the performance of the General Division and the Tissue Repair Division,
respectively. Since the Genzyme General Division Stock and the Genzyme TR
Division Stock have only a limited trading history, there can be no assurance
as to the degree to which the market price of such classes of common stock will
reflect the value and track the performance of the General Division and the
Tissue Repair Division as reflected in their respective financial statements.
In addition, Genzyme cannot predict the impact that
22
<PAGE> 28
certain terms of the securities, such as the ability of Genzyme to exchange
each share of Genzyme TR Division Stock for cash and/or shares of Genzyme
General Division Stock, will have on the market prices of each class of common
stock.
RISKS RELATED TO GENZYME:
As a result of the Merger, stockholders of Genetrix will become
stockholders of Genzyme. An investment in Genzyme General Division Stock
involves a high degree of risk. Stockholders of Genetrix should carefully
consider the following factors in evaluating the Merger and the business of
Genzyme and compare these factors with the risks associated with holding
Genetrix Stock.
DEPENDENCE ON CEREDASE(R) AND CEREZYME(R) ENZYME SALES. Genzyme's results of
operations and cash flows are highly dependent upon sales of its Ceredase(R)
enzyme, a biotherapeutic product for the treatment of Gaucher disease, and
Cerezyme(R) enzyme, a recombinant form of the enzyme. Commercial sales of
Ceredase(R) and Cerezyme(R) began in April 1991 and June 1994, respectively,
following receipt of United States Food and Drug Administration ("FDA")
marketing approval and during 1994, sales from these two products totalled
$172.0 million, or 72% of General Division product sales and 56% of total
sales.
The Ceredase(R) and Cerezyme(R) products have each been given orphan drug
status by the FDA, which entitles Genzyme to market exclusivity for these
products until April 1998 and May 2001, respectively. Legislation has been
periodically introduced in recent years to amend the Orphan Drug Act to limit
market exclusivity in certain situations. See "Risk Factors - Regulation by
Government Agencies."
LIMITED SUPPLY OF KEY RAW MATERIAL; NECESSITY OF APPROVALS FOR PRODUCTION OF
CEREZYME(R). Genzyme produces Ceredase(R) enzyme from raw material extracted
from human placental tissue. Pasteur Merieux, located in France, is the only
significant source of this material. Under its agreement with Genzyme, Pasteur
Merieux is obligated to process at least 50% of its placental tissue and supply
all of its output to Genzyme. Currently, it is processing all of its available
material and supplying the output to Genzyme. If this agreement were
terminated prior to the scheduled expiration in 2001 due to Pasteur Merieux's
inability or failure to perform its obligations thereunder, or if Pasteur
Merieux were to reduce the amount of material it processes, Genzyme might not
be able to obtain alternative sources of such raw material at a commercially
reasonable cost, if at all.
The supply of starting material available for the production of Ceredase(R)
enzyme effectively limits the amount of product that can be produced. During
1994, Genzyme and its supplier were successful in improving the yield of enzyme
obtained from the starting material, thereby increasing the amount of product
that could be produced. However, there can be no assurance that further
improvements in yield will occur. Any disruption in the supply or
manufacturing process of Ceredase(R) enzyme may have a material adverse effect
on revenue in any period. To address supply constraints, Genzyme has developed
Cerezyme(R) enzyme, a recombinant form of the enzyme that is not derived from
human placental tissue. In 1994, Genzyme received approval to market this
product in the U.S. and Israel and currently is working to expedite the foreign
approvals needed to market Cerezyme(R) enzyme elsewhere abroad. Manufacturing
constraints on Cerezyme(R) enzyme, presently produced in Genzyme's small scale
cell culture plant, will limit the availability of the product for new patients
until receipt of regulatory approval to use Genzyme's large scale mammalian
cell culture manufacturing plant in Allston, Massachusetts for production of
Cerezyme(R) enzyme.
UNCERTAINTY OF PRODUCT DEVELOPMENT. Genzyme's future success is largely
dependent upon its ability to develop, manufacture and sell technologically
advanced new products. Such products must be developed, tested and, in most
cases, approved for use by appropriate government agencies. Once approved,
they must be manufactured in commercial quantities and marketed successfully.
Each of these steps, as well as the process taken as a whole, involves
significant time and expense. There can be no assurance that any of Genzyme's
products under development, if and when fully developed and tested, will
perform in accordance with Genzyme's expectations, that
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<PAGE> 29
necessary regulatory approvals will be obtained in a timely manner, if at all,
or that these products can be successfully and profitably manufactured and
sold.
TECHNOLOGY TRANSFERRED TO GENZYME DEVELOPMENT PARTNERS AND NEOZYME II. Genzyme
organized two special purpose research and development entities, Genzyme
Development Partners, L.P. ("Genzyme Development Partners") and Neozyme II
Corporation ("Neozyme II"), to which it transferred technology and commercial
rights to certain products that Genzyme previously had under development.
Genzyme has options to purchase the limited partnership interests in Genzyme
Development Partners under certain circumstances and to acquire all of the
outstanding shares of the callable common stock of Neozyme II.
On January 31, 1996, Genzyme made an offer to a special committee of the
independent directors of the general partner of Genzyme Development Partners to
acquire substantially all the assets of Genzyme Development Partners for
approximately $93,000,000 in shares of Genzyme General Division Stock. Such
offer was made in lieu of Genzyme's option to purchase the limited partnership
interests of Genzyme Development Partners and could result in dilution to
holders of Genzyme General Division Stock and negatively affect the market
price of such stock. There can be no assurance that Genzyme's offer will be
accepted by the general partner or that alternative terms proposed by the
general partner, if any, will be acceptable to Genzyme.
It is also uncertain at this time whether Genzyme will exercise its option
to purchase the limited partnership interests in the event that no agreement is
reached with the general partner in respect of the purchase of the assets of
Genzyme Development Partners or whether Genzyme will exercise its option to
purchase the outstanding shares of Neozyme II callable common stock. If
Genzyme does not exercise these options or otherwise reach agreements to
acquire the rights to products of Genzyme Development Partners or Neozyme II,
it will have no rights to the related products of Neozyme II and limited rights
in revenues generated from the sale of the Genzyme Development Partners'
products. If Genzyme does exercise these options, it will be required to make
substantial cash payments or to issue shares of Genzyme General Division Stock,
or both. Cash payments will diminish Genzyme's capital resources. Payments in
Genzyme General Division Stock could result in dilution to holders of Genzyme
General Division Stock and could negatively affect the market price of such
stock.
FUTURE CAPITAL NEEDS. Although Genzyme currently has substantial cash
resources, it has committed to utilize a portion of such funds for certain
purposes, such as making certain payments to third parties in connection with
strategic collaborations and acquisitions. In addition, should Genzyme
exercise its option to acquire Neozyme II callable common stock or its option
to acquire the partnership interests in Genzyme Development Partners using cash
to pay some or all the exercise price, its cash resources will be diminished.
As a result, Genzyme may have to obtain additional financing. There can be no
assurance that such financing will be available on acceptable terms.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.
Genzyme's success depends, to a large extent, on its ability to maintain a
competitive technological position in its product areas. Proprietary rights
relating to Genzyme's products are protected from unauthorized use by third
parties only to the extent that they are covered by patents or are maintained
in confidence as trade secrets. Genzyme has filed for patents and has rights
to numerous patents and patent applications worldwide. While certain of
Genzyme's patents have been allowed or issued, there can be no assurance that
any additional patents will be allowed or will issue or that, to the extent
issued, such patents will effectively protect the proprietary technology of
Genzyme. Genzyme has also relied upon trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that others will not independently develop
such know-how or otherwise obtain access to Genzyme's technology. While
Genzyme's employees, consultants and corporate partners with access to
proprietary information are generally required to enter into confidentiality
agreements, there can be no assurance that these agreements will be honored.
Certain of Genzyme's consultants have developed portions of Genzyme's
proprietary technology at their respective universities or in government
laboratories. There can be no assurance that such universities or governmental
authorities will not assert rights to intellectual property arising out of
24
<PAGE> 30
university or government based research conducted by such consultants. In
addition, patent litigation is widespread in the biotechnology industry and it
is not possible to predict how any such litigation will affect Genzyme.
Parties not affiliated with Genzyme may hold pending or issued patents
relating to the technology utilized by Genzyme in its products presently
available or under development. Genzyme may, depending on the final
formulation of such products, need to acquire licenses to, or contest the
validity of, such patents or any other similar patents that may be issued. The
extent to which Genzyme may need to license such rights or contest the validity
of such patents depends on the scope and validity of such patents and
ultimately on the final design or formulation of its products under
development. The cost and ability to license any such rights and the
likelihood of successfully contesting the validity of such patents are
uncertain.
INTENSE COMPETITION. Genzyme is engaged in a segment of the human health care
products industry that is extremely competitive. Competitors in the United
States and elsewhere are numerous and include major pharmaceutical, chemical
and biotechnology companies, many of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than Genzyme. These companies may succeed in developing products that are more
effective than any that have been or may be developed by Genzyme and may also
be more successful than Genzyme in producing and marketing these products.
RAPID TECHNOLOGICAL CHANGE. The field of biotechnology is expected to continue
to undergo significant and rapid technological change. Although Genzyme will
seek to expand its technological capabilities in order to remain competitive,
there can be no assurance that research and discoveries by others will not
render Genzyme's products or processes obsolete.
REGULATION BY GOVERNMENT AGENCIES. Most of the products Genzyme plans to
manufacture and sell will require approval by governmental agencies in the
United States and elsewhere. In particular, human therapeutic and diagnostic
products are subject to pre-marketing approval by the FDA and comparable
agencies in foreign countries. The process of obtaining these approvals varies
according to the nature and use of the product and can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time-consuming procedures. There can be no assurance that any of the
required approvals will be granted on a timely basis, if at all.
Certain of Genzyme's products, including its Ceredase(R) and Cerezyme(R)
enzymes, have been designated as orphan drugs under the Orphan Drug Act, which
provides incentives to manufacturers to develop and market drugs for rare
diseases. The Orphan Drug Act generally entitles the first developer to
receive FDA marketing approval for an orphan drug to a seven-year exclusive
marketing period in the United States for that product. However, legislation
has been periodically introduced in recent years to amend the Orphan Drug Act.
Such legislation has generally been directed to shortening the period of
automatic market exclusivity and granting certain marketing rights to
simultaneous developers of a drug. The effect on Genzyme of any amendments
ultimately adopted cannot be assessed at this time.
Although Genzyme has filed for or received orphan drug designation for
various other products, Genzyme believes that the commercial success of these
products will depend more significantly on the associated safety and efficacy
profile and on the price and other characteristics of each product relative to
competitive or alternative treatments than on any exclusivity afforded by the
Orphan Drug Act. Additionally, these products may be protected by patents and
other means. Nonetheless, it is not possible to predict precisely what effect
a lessening of the market exclusivity protection afforded by the Orphan Drug
Act would have on Genzyme's results of operations.
FOREIGN SALES ACTIVITIES. Foreign sales accounted for 37% of the General
Division's total revenues in 1994, and Genzyme anticipates that foreign sales
will continue to represent a significant percentage of Genzyme's revenues.
Accordingly, a substantial portion of Genzyme's revenues may be subject to
currency fluctuations and other risks
25
<PAGE> 31
associated with foreign operations. In addition, the strength of the United
States dollar in relation to certain foreign currencies may adversely affect
Genzyme's sales to foreign customers.
THIRD PARTY REIMBURSEMENT AND HEALTHCARE COST CONTAINMENT INITIATIVES. A
majority of Genzyme's revenues are attributable directly or indirectly to
payments received from third party payors. Genzyme's revenues and
profitability may be affected by ongoing efforts of third party payors to
contain such costs. In addition, during 1994 the Clinton administration and
Congress proposed the implementation of broad-based healthcare cost containment
measures. While these proposals were not implemented, it is likely that
renewed health care measures will again be proposed in the present or future
Congressional sessions. Accordingly, the effects on Genzyme of any such
measures that are ultimately adopted cannot be assessed at this time.
PRODUCT LIABILITY AND LIMITATIONS OF INSURANCE. Genzyme could be subject to
product liability claims in connection with the use or misuse of its products
during testing or after commercialization. While Genzyme has taken, and
continues to take, what it believes are appropriate precautions, there can be
no assurance that Genzyme will avoid significant liability exposure. Genzyme
has only limited amounts of product liability insurance and, although Genzyme
believes the coverage provided by such insurance is adequate for its businesses
as presently conducted and in light of its experience to date, there can be no
assurance that such insurance will provide sufficient coverage against any or
all potential product liability claims. If Genzyme attempts to obtain
additional insurance in the future, there can be no assurance that it will be
able to do so on acceptable terms, if at all, or that such insurance will
provide adequate coverage against claims asserted.
POTENTIAL CONFLICTS OF INTEREST OF DIRECTORS. Certain directors of Genzyme are
also directors of other companies in the biotechnology and pharmaceutical
industries or provide consulting or similar services to other companies doing
business in such industries. As such, those directors may be subject to
conflicts of interest with respect to business opportunities that may be of
interest to two or more of the entities with which they have fiduciary or
contractual relationships. In addition, the scope of research and development
being conducted by Genzyme is very broad, and such other entities may be
engaged in research and development activities with respect to products that
may compete directly with products marketed by Genzyme in the future. Each
director of Genzyme has been advised that he has an obligation to disclose any
competitive relationship and any interest that he or a company with which he is
affiliated may have in any transaction involving Genzyme. Should the Genzyme
Board be presented with any matters in which a director has such a conflicting
interest, the decision would be made by the Genzyme Board or a committee
thereof without participation by the interested director. Notwithstanding this
policy, it is possible that a conflict of interest may affect the actions of a
director in performing his duties on the Genzyme Board.
POSSIBLE VOLATILITY OF SHARE PRICE AND ABSENCE OF DIVIDENDS. The market prices
for securities of biotechnology companies have been volatile. Factors such as
announcements of technological innovations or new commercial products by
Genzyme or its competitors, governmental regulation, patent or proprietary
rights developments, public concern as to the safety or other implications of
biotechnology products and market conditions in general may have a significant
impact on the market price of Genzyme General Division Stock. No cash
dividends have been paid on Genzyme General Division Stock to date and Genzyme
does not anticipate paying cash dividends on either class of its common stock
in the foreseeable future.
CHANGE IN CONTROL. Certain provisions of Genzyme's Articles of Organization
and By-Laws and the terms of Genzyme's Stockholder Rights Plan may have the
effect of delaying, deferring or preventing a change in control of Genzyme,
thereby possibly having the effect of depriving stockholders of the opportunity
to receive a premium for their shares. Certain provisions of Massachusetts law
may have a similar effect. See "Comparison of Rights of Holders of Genzyme
General Division Stock and Genetrix Stock - "Anti- Takeover" Provisions."
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<PAGE> 32
INTRODUCTION
This Prospectus/Proxy Statement is being furnished to the stockholders of
Genetrix in connection with the solicitation of proxies by the Genetrix Board to
be voted at the Special Meeting. This Prospectus/Proxy Statement is also the
prospectus of Genzyme filed as part of the Registration Statement relating to
the registration of the issuance of Genzyme General Division Stock to holders of
Genetrix Stock pursuant to the Merger Agreement.
THE SPECIAL MEETING
RECORD DATE; OUTSTANDING SECURITIES. This Prospectus/Proxy Statement and
enclosed proxy are being furnished in connection with the solicitation by the
Genetrix Board of proxies in the enclosed form for use at the Special Meeting to
be held on Tuesday, April 16, 1996, at 9:00 a.m., at the offices of Genetrix,
6401 East Thomas Road, Scottsdale, Arizona 85251. The Genetrix Board has fixed
the close of business on February 26, 1996 as the Record Date. Only the
holders of shares of Genetrix Stock of record at the close of business on the
Record Date will be entitled to receive notice of and to vote at the Special
Meeting. At the Record Date, 5,251,485 shares of Genetrix Common Stock were
issued and outstanding and 5,021,468 shares of Genetrix Preferred Stock were
issued and outstanding, consisting of six series as follows: 1,530,720 shares of
Series A Preferred Stock, 153,072 shares of Series B Preferred Stock, 3,207
shares of Series C Preferred Stock, 37,500 shares of Series D Preferred Stock,
1,600,000 shares of Series E Preferred Stock and 1,696,969 shares of Series F
Preferred Stock. Each share of Common Stock and Series A, Series B, Series E and
Series F Preferred Stock of Genetrix is entitled to one vote on the proposal to
adopt the Merger Agreement. There are approximately 65 holders of Genetrix
Common Stock.
PURPOSE OF THE MEETING. At the Special Meeting, the stockholders of Genetrix
will consider and vote upon a proposal to adopt the Merger Agreement pursuant to
which (i) the Merger and the other transactions contemplated by the Merger
Agreement are to be consummated, (ii) holders of Genetrix Stock are to receive
shares of Genzyme General Division Stock in exchange for the Genetrix Stock held
by each of them as of the Effective Time of the Merger and (iii) certain
unexercised options or warrants for Genetrix Common Stock are to be assumed by
Genzyme. See "The Merger - General," " - Conversion of Genetrix Stock" and " -
Treatment of Options and Warrants."
REQUIRED VOTE. Shares of Genetrix Stock representing a majority of the votes
entitled to be cast, represented in person or by proxy at the Special Meeting,
will constitute a quorum. The affirmative vote of (i) a majority of the shares
entitled to vote on the adoption of the Merger Agreement and (ii) a majority of
the then outstanding shares of the Series A, Series B, Series E and Series F
Preferred Stock of Genetrix is a condition to both Genzyme's and Genetrix's
obligation to consummate the Merger.
THE GENETRIX BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
GENETRIX AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE TO ADOPT THE
MERGER AGREEMENT.
VOTING OF PROXIES. All proxies that are properly executed and returned will be
voted at the Special Meeting in accordance with the instructions thereon, unless
previously revoked. With regard to any other business not specified above that
may properly come before the Special Meeting, shares represented by properly
executed proxies will be voted at the discretion of the persons named in the
relevant proxy. The execution of a proxy will not affect a stockholder's right
to attend the Special Meeting and vote in person.
ANY GENETRIX STOCKHOLDER GIVING A PROXY HAS THE POWER TO REVOKE THE PROXY
PRIOR TO ITS EXERCISE. A PROXY MAY BE REVOKED BY (A) FILING WITH THE SECRETARY
OF GENETRIX, AT OR BEFORE THE TAKING OF THE VOTE AT THE SPECIAL MEETING, (1) A
WRITTEN NOTICE OF REVOCATION SPECIFYING THE NUMBER OF SHARES AND CLEARLY
IDENTIFYING THE PROXY TO BE REVOKED OR (2) DULY EXECUTING AND FILING A NEW PROXY
BEARING A LATER
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DATE, OR (B) ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON (ALTHOUGH
ATTENDANCE AT THE MEETING WILL NOT IN AND OF ITSELF CONSTITUTE A REVOCATION OF A
PROXY). ANY WRITTEN NOTICE OF REVOCATION OR SUBSEQUENT PROXY SHOULD BE SENT AND
DELIVERED TO GENETRIX, INC., 6401 EAST THOMAS ROAD, SCOTTSDALE, ARIZONA 85251,
ATTENTION: SECRETARY, OR HAND DELIVERED TO THE SECRETARY OF GENETRIX AT OR
BEFORE THE TAKING OF THE VOTE AT THE SPECIAL MEETING.
AGREEMENTS TO VOTE IN FAVOR. The Principal Stockholders, who hold approximately
38.2% of the shares entitled to vote on the adoption of the Merger Agreement and
a majority of the outstanding Series A, Series B, Series E and Series F
Preferred Stock of Genetrix, have agreed to vote their respective shares in
favor of adopting the Merger Agreement and have given irrevocable proxies to
Genzyme to vote such shares at the Special Meeting. See "The Merger -
Representations, Warranties and Covenants."
APPRAISAL RIGHTS. Under Delaware law, Genetrix stockholders who file written
notice of their intention to exercise dissenters' rights before the taking of
the vote to adopt the Merger Agreement may elect to have the "fair value" of
their shares (determined in accordance with Delaware law) judicially appraised
and paid to them if the Merger is consummated and if they comply with the
provisions of Section 262 of the DGCL, which are attached hereto as Exhibit C.
Failure to comply strictly with such requirements may result in the loss of
dissenters' rights. See "The Merger - Genetrix Stockholder Appraisal Rights."
If you have any questions about giving your Genetrix proxy or require
assistance, please contact Mark Smith, Chief Financial Officer of Genetrix, as
follows:
Genetrix, Inc.
6401 East Thomas Road
Scottsdale, Arizona 85251
(602) 945-4363
THE MERGER
The detailed terms of and conditions to the consummation of the Merger are
contained in the Merger Agreement, a conformed copy of which is attached hereto
as Exhibit A and incorporated herein by reference. The following discussion sets
forth a description of the material terms and conditions of the Merger Agreement
and is qualified by, and made subject to, the more complete information set
forth in the Merger Agreement.
GENERAL
The Merger Agreement provides for the merger of Genetrix with and into
Genzyme. If the Merger Agreement is adopted by Genetrix stockholders, certain
additional conditions are satisfied or waived and the Merger is consummated,
Genzyme will be the Surviving Corporation and will operate Genetrix as part of a
business unit within the General Division.
As a result of the Merger, at the Effective Time the Genetrix Stock then
outstanding will be converted as provided in the Merger Agreement into the
Merger Consideration. The Merger Consideration will be allocated among the
holders of Genetrix Stock as hereinafter described. See "The Merger - Conversion
of Genetrix Stock" and "- Escrow and Indemnity."
For a description of the procedures for exchanging Genetrix Stock for
Genzyme General Division Stock and for payment of cash in lieu of the issuance
of fractional shares, see "The Merger - Exchange of Certificates" and " -
Fractional Shares."
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BACKGROUND OF THE MERGER
Genetrix believes the trend in the genetic testing industry is moving
toward consolidation in order to create economies of scale and respond to the
pressures of hospitals, universities and other payors to provide efficient
testing at reduced costs. In this regard Genetrix has pursued a business
strategy designed to increase testing volume and enhance profitability through
economies of scale. This strategy has included acquiring selected hospital-based
laboratories and analyzing Genetrix's own procedures and plans to consolidate
its operations.
Upon examination of Genetrix's progress, the Genetrix Board determined that
Genetrix was not meeting its goals and began to reassess Genetrix's business
strategy for the future. The reexamination of the business plan led the Genetrix
Board to conclude that Genetrix would require substantial additional capital in
order to achieve greater economies of scale, develop a broader customer base and
diversify services. Such additional capital was not available.
In January 1995, Genetrix and Genzyme first discussed a possible merger at
an industry conference where James A. Cavanaugh, a member of the Genetrix Board,
approached Henri A. Termeer, the Chief Executive Officer of Genzyme. Following
this informal discussion, the parties first met formally in February 1995.
Genzyme executed a Confidentiality Agreement on March 20, 1995. Discussions
concerning a merger became more detailed in May and June of 1995, when Genetrix
met again with Genzyme. After preliminary negotiations during June 1995, the
parties worked toward an agreement whereby Genzyme would purchase all of the
outstanding capital stock of Genetrix for $35 million, payable in Genzyme
General Division Stock. By July 1995, however, the parties had not reached an
agreement regarding the proposed transaction.
In June 1995, the Genetrix Board authorized management to begin
interviewing investment banking firms to obtain a financial advisor to assist
Genetrix's exploration of its strategic alternatives, including the possible
sale of Genetrix. In early July 1995, the Board of Directors authorized Genetrix
to engage Alex. Brown as its financial advisor in connection with potential
merger and acquisition transactions. Pursuant to an engagement letter dated
August 1, 1995 (the "Engagement Letter"), Genetrix formally retained Alex. Brown
as its exclusive financial advisor in connection with merger and acquisition
transactions, strategic alliances, and other investment banking services.
Alex. Brown and Genetrix compiled a list of potential merger, acquisition
or strategic partner candidates. Commencing in August 1995 and continuing
throughout the following months Alex. Brown and Genetrix held discussions with
eight companies, including Genzyme, concerning potential acquisition
transactions. Genetrix's management made detailed presentations to four of those
companies. Genzyme and one other company undertook substantial due diligence and
subsequently presented Genetrix with acquisition offers.
In September 1995, Genetrix informed Genzyme that a third party had
expressed interest in purchasing Genetrix for approximately $42 million, and
invited Genzyme to match that offer. On September 19, 1995, Genzyme informed
Alex. Brown that is was withdrawing its offer to purchase Genetrix for $35
million and terminated further negotiations with Genetrix regarding the proposed
merger.
During October and November of 1995, further discussions were held between
Genetrix and the third party as well as between Genetrix and Genzyme regarding
the proposed merger. Following such negotiations with Genzyme, the parties
agreed to an acquisition price of $38,500,000 less the Purchase Price Adjustment
Amount, payable in Genzyme General Division Stock, subject to a fixed price
collar, the Termination Fee and an escrow.
In December 1995, the same third party offeror presented Genetrix with an
alternative proposal. The Genetrix Board concluded that Genzyme's offer was more
favorable than the third party proposal due in large part to the fact that (i) a
substantial amount of the consideration in the third party offer was contingent
upon the future performance of Genetrix and (ii) the likelihood of consummating
a transaction with Genzyme was greater than with the third party.
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The Genzyme Board approved the Merger Agreement and the transactions
contemplated thereby on December 7, 1995. On December 22, 1995, the Genetrix
Board voted to approve the Merger Agreement. The Merger Agreement was executed
on January 11, 1996.
GENETRIX'S REASONS FOR THE MERGER
The Genetrix Board believes that the Merger will result in greater value to
Genetrix stockholders than would likely have been realized by them in the
foreseeable future through continued independent operations by Genetrix.
The Genetrix Board considered that the consummation of the Merger
necessarily means that Genetrix's stockholders will not benefit from any
increase in the valuation of Genetrix which might be achieved if it were to
continue to operate independently. In order to achieve such increased value,
however, the Genetrix Board believes that Genetrix would be required to expand
the scope of its operations in order to obtain economies of scale and to
increase revenues, and that the additional financing that would be required to
achieve these objectives might not be available on satisfactory terms, if at
all. Accordingly, in evaluating the Merger, the Genetrix Board considered
Genetrix's immediate and foreseeable prospects for such expansion and concluded
that the Merger provides the best available alternative to maximize stockholder
value.
In reaching its determination, the Genetrix Board also considered the
anticipated advantages of the Merger, including (i) Genzyme's research and
development capabilities which may complement and expand Genetrix's programs in
genetic testing, (ii) Genzyme's superior access to financial resources and (iii)
Genetrix's ability to expand its existing markets and enter new markets through
the use of Genzyme's marketing support resources.
FAIRNESS OPINION
On August 1, 1995, the Genetrix Board retained Alex. Brown to act as its
financial advisor in connection with the Merger and the evaluation of other
strategic alternatives. Alex. Brown participated in the structuring and
negotiating of the Merger; it did not, however, make any recommendation to the
Genetrix Board as to the form or amount of the consideration offered by Genzyme.
On December 22, 1995, Alex. Brown made a presentation to the Genetrix Board with
respect to the Merger and delivered its written opinion, that as of such date,
based upon the facts and circumstances as they existed at the time, and subject
to certain assumptions, factors and limitations set forth in such opinion, the
Merger Consideration was fair from a financial point of view to the Genetrix
common and preferred stockholders taken as a whole ("Genetrix Stockholders").
THE FULL TEXT OF ALEX. BROWN'S WRITTEN OPINION, DATED DECEMBER 22, 1995
(THE "ALEX. BROWN OPINION"), WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS INCLUDED AS EXHIBIT B TO
THIS PROSPECTUS/PROXY STATEMENT. THE GENETRIX STOCKHOLDERS ARE URGED TO READ
SUCH OPINION IN ITS ENTIRETY. THE ALEX. BROWN OPINION IS DIRECTED TO THE
GENETRIX BOARD, ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE MERGER CONSIDERATION TO BE RECEIVED BY THE GENETRIX STOCKHOLDERS TAKEN AS A
WHOLE PURSUANT TO THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY OF
THE GENETRIX STOCKHOLDERS AS TO HOW SUCH STOCKHOLDERS SHOULD VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE ALEX. BROWN OPINION SET FORTH IN THIS
PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In connection with the Alex. Brown Opinion, Alex. Brown (i) reviewed the
final draft of the Merger Agreement; (ii) reviewed certain publicly available
information concerning Genzyme and comparable information regarding Genetrix;
(iii) reviewed financial and other information concerning Genetrix made
available to Alex. Brown by Genetrix's management; (iv) held discussions with
members of the senior management of Genetrix and Genzyme regarding the business
and the prospects of their respective companies; (v) reviewed the reported price
and trading activity for Genzyme General Division Stock; (vi) compared certain
financial information for Genetrix and certain publicly available financial
information for Genzyme with similar information for certain publicly traded
companies which Alex. Brown deemed similar to Genetrix and Genzyme,
respectively; (vii) reviewed the financial
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terms of certain recent business combinations that Alex. Brown deemed comparable
in whole or in part; and (viii) performed such other studies and analyses and
considered such other factors as Alex. Brown deemed appropriate.
As described in the Alex. Brown Opinion, Alex. Brown assumed, without
independent verification, and relied upon the accuracy and completeness of the
information furnished to or otherwise reviewed by or discussed with it for the
purposes of the Alex. Brown Opinion. With respect to the financial projections
used in its analyses, Alex. Brown assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
senior management of Genetrix as to the likely future financial performance of
Genetrix. The Genetrix financial projections provided by Genetrix to Alex. Brown
assumed a ten year compound annual growth rate in revenue of approximately 11.5%
and operating income margin of approximately 3% in 1995 and increasing to
approximately 20% in 2005. Alex. Brown did not make an independent evaluation or
appraisal of the assets of Genetrix or Genzyme. The Alex. Brown Opinion stated
that such opinion was based on market, economic and other conditions as they
existed and could be evaluated as of the date of its opinion. The Alex. Brown
Opinion does not imply any conclusion as to the likely trading range of Genzyme
General Division Stock following consummation of the Merger.
The following is a brief summary of the presentation Alex. Brown made to
the Genetrix Board on December 22, 1995 in connection with rendering the Alex.
Brown Opinion to the Genetrix Board:
GENZYME STOCK TRADING HISTORY AND WALL STREET RESEARCH ANALYSIS. Alex.
Brown reviewed and analyzed the trading prices and volume for Genzyme over a
period from December 3, 1993 to December 8, 1995. Alex. Brown also reviewed
recent Wall Street research reports with respect to the projected earnings per
share ("EPS") estimates for Genzyme General Division for 1995-1997, the 12-18
month price target for Genzyme General Division Stock, the recommendation (or
rating) assigned by the various research analysts, the 3-5 year projected EPS
growth rates and certain qualitative comments regarding Genzyme's recent results
and prospects. This information was provided to the Genetrix Board for
background information only.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Alex. Brown
compared certain financial information for Genzyme to corresponding publicly
available financial information of certain other biotechnology companies and
certain financial information for Genetrix to the corresponding publicly
available financial information of certain clinical laboratory companies. Alex.
Brown calculated multiples for such companies of market value of the total
outstanding common equity ("Market Value") to latest twelve months ("LTM")
earnings per share ("EPS") or net earnings, as available, current fiscal year
projected EPS, or net earnings, as available, next fiscal year projected EPS or
net earnings as available, next fiscal year plus one additional year projected
EPS or net earnings, as available, and latest fiscal quarter's ("LFQ") common
equity, and multiples of the Market Value plus total debt minus cash and cash
equivalents (the "Market Capitalization") to LTM earnings before interest,
taxes, depreciation and amortization ("EBITDA"), LTM earnings before interest
and taxes ("EBIT") and LTM sales.
Alex. Brown compared Genzyme to five biotechnology companies deemed by
Alex. Brown to be comparable in certain respects to Genzyme: Amgen, Inc.,
Biogen, Inc., Chiron Corporation, Genentech, Inc., and Genetic Institute, Inc.
(collectively the "Genzyme Comparable Companies"). An analysis of the multiples
for the Genzyme Comparable Companies produced the following results: (a) Market
Value to LTM net earnings yielded a range of 20.2 x to 42.1x with a mean of
31.1x; (b) Market Value to current fiscal year projected EPS yielded a range of
26.3x to 38.7x with a mean of 32.5x; (c) Market Value to next fiscal year
projected EPS yielded a range of 22.6x to 76.3x with a mean of 47.0x; (d) Market
Value to next fiscal year plus one additional year projected EPS yielded a range
of 19.7x to 43.0x with a mean of 29.0x; (e) Market Value to LFQ common equity
yielded a range of 3.8x to 8.8x with a mean of 5.9x; (g) Market Capitalization
to LTM EBIT yielded a range of 7.9x to 30.0x with a mean of 19.7x; and (h)
Market Capitalization to LTM sales yielded a range of 6.1x to 12.2x with a mean
of 7.9x.
Alex. Brown then calculated aggregate and per share imputed equity values
for Genzyme by applying Genzyme's actual and certain financial results
forecasted by approximately 16 Wall Street analysts to certain
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multiples derived from its analysis of the Genzyme Comparable Companies
described above. Considering all of the multiples discussed above, Alex. Brown
calculated per share imputed equity values of Genzyme ranging from a low of
$16.24 (based on Market Capitalization as a multiple of LTM EBIT) to a high of
$155.89 (based on Market Value as a multiple of next fiscal year projected EPS),
and mean per share imputed equity values of Genzyme ranging from a low of $34.98
(based on Market Capitalization as a multiple of LTM EBIT) to a high of $105.31
(based on Market Value as a multiple of LFQ common equity).
Alex. Brown compared Genetrix to seven clinical laboratory companies,
including: DIANON Systems, Inc., LabOne, Inc., Laboratory Corporation of America
Holdings, Meris Laboratories, Inc., OncorMed, Inc., Unilab Corporation, and
Universal Standard Medical Labs, Inc. (collectively, the "Genetrix Comparable
Companies"). An analysis of the multiples for the Genetrix Comparable Companies
produced the following results: (a) Market Value to next fiscal year projected
net earnings yielded a range of 3.5x to 17.0x with a mean of 9.4x; (b) Market
Capitalization to LTM EBITDA yielded a range of 3.2x to 16.2x with a mean of
8.6x; (c) Market Capitalization to LTM EBIT yielded a range of 4.4x to 36.3x
with mean of 16.9x; (d) Market Capitalization to LTM sales yielded a range of
0.3x to 2.4x with a mean of 0.9x.
Alex. Brown then calculated aggregate imputed equity values for Genetrix by
applying Genetrix's actual and certain forecasted financial results to the
multiples derived from its analysis of the Genetrix Comparable Companies
described above. Considering all of the multiples discussed above, Alex. Brown
calculated imputed equity values of Genetrix ranging from a low of $1.1 million
(based on Market Capitalization as a multiple of LTM EBIT) to a high of $50.6
million (based on Market Capitalization as a multiple of LTM sales), and mean
imputed equity values of Genetrix ranging from a low of $1.1 million (based on
Market Capitalization as a multiple of LTM EBIT) to a high of $18.8 million
(based on Market Capitalization as a multiple of LTM sales).
No company utilized in the Analysis of Selected Comparable Publicly Traded
Companies was identical to Genzyme or Genetrix. Accordingly, an analysis of the
results of such a comparison is not purely mathematical; rather, it involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable companies
and other factors that could affect the public trading value of the comparable
companies or company to which they are being compared.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Alex. Brown
reviewed and analyzed 31 selected pending and completed mergers and acquisitions
in the clinical laboratory industry that have been announced since November 1981
(the "Selected Transactions"). Alex. Brown analyzed the amounts paid for the
equity of each of these Selected Transactions (the "Offer Value") and the Offer
Value plus the acquired business's total debt less cash and cash equivalents
(the "Transaction Value") multiples from these transactions. In particular,
Alex. Brown calculated Offer Value as a multiple of current fiscal year
projected EPS or net earnings, as available, LTM net earnings and LFQ common
equity and Transaction Value as a multiple of LTM EBITDA, LTM EBIT and LTM
sales.
An analysis of the multiples for the Selected Transactions produced the
following results: (a) Offer Value to next 12 months projected EPS yielded a
range of 16.4x to 40.6x with a mean of 25.9x; (b) Offer Value to LFQ common
equity yielded a range of 2.0x to 10.6x with a mean of 4.7x; (c) Transaction
Value to LTM EBITDA yielded a range of 6.2x to 21.0x with a mean of 12.5x; (d)
Transaction Value to LTM EBIT yielded a range of 6.4x to 32.4x with a mean of
18.8x; (e) Transaction Value to LTM sales yielded a range of 0.7x to 3.1x with a
mean of 1.7x.
Alex. Brown then calculated aggregate imputed equity values for Genetrix by
applying Genetrix's actual and certain forecasted financial results to the
multiples derived from its analysis of the Selected Transactions described
above. Considering all of the multiples discussed above, Alex. Brown calculated
imputed equity values of Genetrix ranging from a low of $1.4 million (based on
Transaction Value as a multiple of LTM EBIT) to a high of $75.5 million (based
on Offer Value as a multiple of LFQ common equity), and mean imputed equity
values of Genetrix
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ranging from a low of $1.4 million (based on Transaction Value as a multiple of
LTM EBIT) to a high of $35.4 million (based on Transaction Value as a multiple
of LTM sales).
No acquired business utilized in the Analysis of Selected Comparable
Acquisition Transactions was identical to Genetrix. Accordingly, an analysis of
the results of this comparison is not purely mathematical; rather it involves
complex considerations and judgments concerning difference in historical and
projected financial and operating characteristics of the comparable acquired
businesses and other factors that could affect the acquisition value of such
businesses and Genetrix.
DISCOUNTED CASH FLOW ANALYSES. Alex. Brown calculated ranges of equity
value for Genetrix based upon the discount to present value of its ten-year
stream of unleveraged after-tax cash flow and its fiscal year 2005 terminal
values based upon a range of multiples of its projected fiscal year 2005 EBITDA.
In conducting its analysis, Alex. Brown relied upon financial projections
provided by the management of Genetrix. Alex. Brown utilized discount rates
ranging from 14% to 16% and terminal value multiples of 2005 EBITDA ranging from
6.0x to 8.0x that assumed a ten year compound annual growth rate in revenue of
approximately 11.5% and operating income margin of approximately 3% in 1995 and
increasing to approximately 20% in 2005. The range of terminal value multiples
used reflects different assumptions regarding the possible public trading value
and merger transaction value for Genetrix in fiscal year 2005. Based on this
analysis, and after adjusting for total debt and cash and the discount to
present value of Genetrix's net operating loss tax benefit, Alex. Brown
calculated equity present values of Genetrix ranging from a low of $36.9 million
to a high of $51.1 million.
PRO FORMA ANALYSIS. Alex. Brown analyzed certain pro forma effects
resulting from the Merger including the effect of the consummation of the Merger
on the EPS of Genzyme following the Merger. In conducting its analysis, Alex.
Brown relied upon financial projections provided by the management of Genetrix
for the years 1996 through 1997 and discussions with the management of Genzyme
regarding projected financial results for 1996 and 1997. Alex. Brown assumed for
purposes of this analysis that no synergies would be achieved following the
Merger. The results of this analysis were that the dilutive/antidilutive effects
to Genzyme stockholders were not considered material. The results of the pro
forma analysis are not necessarily indicative of future operating results or
financial position of the combined companies.
The summary set forth above does not purport to be a complete description
of the presentation by Alex. Brown to the Genetrix Board or the analyses
performed and factors considered by Alex. Brown in connection with the Alex.
Brown Opinion dated December 22, 1995. Alex. Brown believes that its analyses
and the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all factors and analyses, would
create an incomplete understanding of the process underlying the analyses set
forth in the Alex. Brown Opinion. In performing its analyses, Alex. Brown made
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Genetrix or Genzyme. The analyses performed by Alex. Brown
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Alex. Brown is an internationally recognized investment banking firm and,
as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
corporate and other purposes. The Genetrix Board selected Alex. Brown to serve
as its financial advisor because of Alex. Brown's reputation and healthcare
expertise. Alex. Brown regularly publishes research reports regarding the
healthcare industry and the businesses and securities of publicly traded
companies in that industry. In the ordinary course of its trading and brokerage
activities, Alex. Brown may, from time to time, hold long or short positions in,
may trade or may otherwise effect transactions, for its own account or for the
account of customers, in securities of Genzyme.
Pursuant to the terms of the Engagement Letter, Genetrix has agreed to pay
Alex. Brown a transaction fee, upon consummation of the Merger, equal to
$500,000 plus 5% of the amount by which the Merger Consideration exceeds
$35,000,000. Such fee was proposed by Alex. Brown and the appointment of Alex.
Brown was approved by the
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Genetrix Board after consideration of the other investment bankers interviewed
by the Genetrix Board. Genetrix agreed to pay Alex. Brown $250,000 of this
amount upon rendering its opinion as to the fairness, from a financial point of
view, of the Merger Consideration to be received by the Genetrix Stockholders.
In addition, Genetrix has agreed to reimburse Alex. Brown for its reasonable
out-of-pocket expenses, including fees and disbursements of counsel, and to
indemnify Alex. Brown and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, relating to, or
arising out of, its engagement.
GENZYME'S REASONS FOR THE MERGER
The Genzyme Board believes that the Merger is in the best interests of
Genzyme and, therefore, has unanimously approved the Merger Agreement and the
transactions contemplated thereby.
The Genzyme Board reviewed information about Genetrix available to it from
Genetrix management and assessed Genetrix's financial condition. After
considering this information, the Genzyme Board concluded that Genzyme's
research and development capabilities in the medical genetic diagnostics field
and Genetrix's operating strengths in the genetic testing market are
complementary, and that the anticipated business advantages of the Merger
favored adoption of the Merger Agreement and consummation of the Merger. These
advantages include: (i) augmenting Genzyme's ability to launch new testing
services, (ii) making available a broader menu of tests in the cancer testing
area as well as specific marketing and clinical expertise in that area, (iii)
enhancing Genzyme's prospects for an increased market share in the prenatal
genetic testing services market, (iv) creating a market position in geographic
areas where Genzyme is not currently strong, (v) gaining access to innovative
and unique new programs designed to support managed care providers, a rapidly
growing market segment, and (vi) promoting Genzyme's access to innovative
technological developments in genetic testing.
The Genzyme Board not only considered the benefits that could arise from
the Merger, but also considered certain adverse factors, including the dilution
to holders of Genzyme General Division Stock resulting from the issuance of the
shares of Genzyme General Division Stock in the Merger, which Genzyme estimated
would not be material, and Genetrix's operating losses to be borne by the
General Division upon consummation of the Merger. The Genzyme Board concluded,
in its business judgment, that the factors favoring adoption of the Merger
Agreement outweighed any of the Merger's potential adverse effects.
CONVERSION OF GENETRIX STOCK
As a result of the Merger, at the Effective Time all outstanding shares of
Genetrix Stock (other than shares held by Genetrix as treasury stock and
Dissenting Shares) will be converted into that number of shares of Genzyme
General Division Stock determined by dividing (A) $38,500,000 less the Purchase
Price Adjustment Amount by (B) the Closing Price; provided, however, that if the
Closing Price is less than $43.61, Genetrix will have the right not to
consummate the Merger unless Genzyme elects to deliver that number of shares of
Genzyme General Division Stock determined by dividing (X) $35,000,000 less the
Purchase Price Adjustment Amount by (Y) the Closing Price. The Merger
Consideration will be reduced by the number of shares of Genzyme General
Division Stock that would otherwise be allocable to holders of Genetrix Stock
who perfect dissenters' rights under Delaware law.
The Purchase Price Adjustment Amount will be equal to the sum of (A)
$1,000,000, representing the management incentive fee payable to the Chief
Executive Officer of Genetrix, (B) any amounts paid or payable to Alex. Brown on
or before the Closing Date in excess of $250,000 in fees payable in respect to
the financial advisory services rendered by Alex. Brown in connection with the
Merger, (C) any legal or accounting fees of Genetrix paid or payable on or
before the Closing Date in respect to the Merger exceeding $250,000, (D)
$148,305, representing the aggregate amount of all bonuses awarded to the
employees of Genetrix by the Genetrix Board at its November 14, 1995 meeting,
(E) $50,000, representing certain obligations to make severance payments under
agreements with employees of Genetrix and (F) $100,000, representing the amount
payable under a consulting agreement with Jack
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<PAGE> 40
Bratton, a director of Genetrix. The Closing Price will be equal to the average
of the closing prices of Genzyme General Division Stock as reported by the
Nasdaq National Market for the ten trading days ending on the second trading day
prior to the Closing Date; provided, however, that (i) if the average so
determined is less than $47.97 per share and greater than or equal to $43.61 per
share, the Closing Price will be $47.97 and (ii) if the amount so determined is
greater than $67.28 per share, the Closing Price will be $67.28. If the Closing
Price is less than $43.61 per share, Genetrix will have the right to terminate
the Merger Agreement unless Genzyme adjusts the Merger Consideration as
described above.
The Genetrix Charter provides that the Merger Consideration be allocated
among the holders of shares of Genetrix Stock outstanding at the Effective Time
of the Merger (i) by first allocating to the holders of Genetrix Preferred Stock
that number of shares of Genzyme General Division Stock determined by dividing
the aggregate amount to which each such holder is entitled under the Genetrix
Charter (such holder's "Merger Preference") by the Closing Price, rounded down
to the nearest whole share and (ii) then allocating among the holders of
Genetrix Common Stock and the holders of Series A, B, E and F of Genetrix
Preferred Stock that number of shares of Genzyme General Division Stock
determined by multiplying (A) the number of shares of Genetrix Common Stock held
by each such holder and issuable upon conversion of the shares of such Series of
Genetrix Preferred Stock held by each such holder by (B) the Conversion Factor
(as defined below), rounded down to the nearest whole share. Neither the
Genetrix Board, the holders of any class of Genetrix Stock nor the Merger
Agreement has altered the allocation of the Merger Consideration from that
which is otherwise specified in the Genetrix Charter. In addition, no
distribution to the holders of any class of Genetrix Stock has been made in
contemplation of the Merger. "Conversion Factor" means the quotient obtained by
dividing the number of shares of Genzyme General Division Stock delivered as the
Merger Consideration (after subtracting the number of shares of allocable to
holders of Genetrix Preferred Stock as the Merger Preference) by the number of
shares of Genetrix Common Stock outstanding and deemed to be outstanding prior
to the Effective Time, such quotient to be rounded to four decimal places. For
purposes of determining the Conversion Factor, each share of Genetrix Common
Stock issuable upon conversion of the Genetrix Preferred Stock will be deemed
outstanding prior to the Effective Time.
The Genetrix Charter provides that the Merger Preference payable to the
holders of Genetrix Preferred Stock in the event of a merger is first to be
satisfied in full and, therefore, the proportion of the Merger Consideration
allocated to Genetrix Preferred Stock will increase as the value of the
aggregate Merger Consideration decreases. The aggregate Merger Preference of
Genetrix Preferred Stock is approximately $22.6 million. The Merger
Consideration allocable to any holder of Genetrix Common Stock cannot be
determined prior to the Effective Time. However, assuming the Closing Price is
the same as the closing price of Genzyme General Division Stock on the Record
Date ($67.28) and the Purchase Price Adjustment Amount equals $1,682,304, the
Merger Consideration will consist of approximately 547,230 shares of Genzyme
General Division Stock. Of these shares, approximately 336,339 shares would be
allocated to holders of Genetrix Preferred Stock in satisfaction of the Merger
Preference and that the remaining 210,891 shares would be allocated to holders
of Genetrix Common Stock and holders of Series A, B, E and F of Genetrix
Preferred Stock, with such holders of such Series of Genetrix Preferred Stock
participating on the basis of the number of shares of Genetrix Common Stock in
to which their shares of Genetrix Preferred Stock are convertible. Under the
Genetrix Charter, each share of Series A, E and F of Genetrix Preferred Stock is
convertible into one share of Genetrix Common Stock and each share of Series B
of Genetrix Preferred Stock is convertible into ten shares of Genetrix Common
Stock and, in the aggregate, such Series of Genetrix Preferred Stock are
convertible into 6,358,409 shares of Genetrix Common Stock.
Ten percent of the number of shares comprising the Merger Consideration
shall be deposited with an escrow agent reasonably satisfactory to Genetrix and
shall be subject to reduction to satisfy certain claims to which Genzyme is
entitled to be indemnified under the Merger Agreement. The amount of such claims
as of the date hereof is estimated by Genzyme to be approximately $77,500.
Because the Genetrix Charter provides that the Merger Preference must be
satisfied in full before any amounts are payable to holders of Genetrix Common
Stock, the shares deposited in escrow shall be deducted pro rata from the shares
allocable to each former holder of Genetrix Stock after the Merger Preference is
satisfied. Assuming (a) no increase or decrease in the amount of claims to which
Genzyme is entitled to be indemnified under the Merger Agreement and (b) that
the number of shares of Genetrix Common Stock and each Series of Genetrix
Preferred Stock outstanding on the effective date of the Merger is the same as
the number of such shares outstanding as of the Record Date, (i) each share of
Genetrix Common Stock would be converted into approximately .0181 share of
Genzyme General Division Stock, (ii) each share of Series A and B of Genetrix
Preferred Stock would be converted in to approximately .0627 share of Genzyme
General Division Stock, (iii) each share of Series C and D of Genetrix Preferred
Stock would be converted into
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<PAGE> 41
approximately .0892 share of Genzyme General Division Stock, (iv) each share of
Series E of Genetrix Preferred Stock would be converted into approximately
.0924 share of Genzyme General Division Stock and (v) each share of Series F of
Genetrix Preferred Stock would be converted into approximately .0998 share of
Genzyme General Division Stock. Following consummation of the Merger, the former
stockholders of Genetrix will hold approximately 1.8% of the outstanding shares
of Genzyme General Division Stock.
TREATMENT OF OPTIONS AND WARRANTS
Genetrix has undertaken to use all reasonable efforts (which shall not
include the making of any cash payment or the acceleration of vesting) to effect
the termination of all outstanding options and warrants to purchase Genetrix
Common Stock that are not exercised as of the Effective Time. Each outstanding
and unexercised option and warrant to purchase Genetrix Common Stock that has
not been so terminated will, at the Effective Time, cease to represent a right
to acquire shares of Genetrix Common Stock and shall be converted automatically
into an option or warrant to purchase shares of Genzyme General Division Stock.
The number of shares of Genzyme General Division Stock subject to the new
option or warrant will be equal to the product of (i) the number of shares of
Genetrix Common Stock subject to the original option or warrant and (ii) the
"Option/Warrant Conversion Factor" (as herein defined). The "Option/Warrant
Conversion Factor will mean the quotient obtained by dividing the number of
shares of Genzyme General Division Stock delivered as the Merger Consideration
(after satisfying the aggregate liquidation preference of Genetrix Preferred
Stock, but before subtracting such number of shares allocable to stockholders
exercising their statutory dissenters' rights) by the number of shares of
Genetrix Common Stock outstanding and deemed to be outstanding immediately prior
to the Effective Time, such quotient to be rounded to four decimal places;
provided that any fractional share of Genzyme General Division Stock resulting
from such multiplication will be rounded down to the nearest share. For purposes
of calculating the Option/Warrant Conversion Factor, each share of Genetrix
Common Stock issuable upon exercise of a Genetrix stock option or warrant
outstanding as of the Effective Time and each share of Genetrix Common Stock
issuable upon conversion of Genetrix Preferred Stock will be deemed to be
outstanding immediately prior to the Effective Time.
The exercise price per share of Genzyme General Division Stock under the
new option or warrant shall be equal to the quotient obtained by dividing the
exercise price per share of Genetrix Common Stock under the original option or
warrant by the Option/Warrant Conversion Factor; provided that such exercise
price will be rounded to the nearest cent.
Any adjustments to options that are "incentive stock options" (as defined
in Section 422 of the Code) are intended to be effected in a manner consistent
with Section 424(a) of the Code. The duration, schedule of vesting and other
terms of new options and warrants issued will remain the same as the original
option or warrant, except that all references to Genetrix will be deemed to be
references to Genzyme. Genzyme will reserve for issuance the number of shares of
Genzyme General Division Stock issuable upon exercise of each new option or
warrant and, upon surrender of the certificate or certificates representing an
original Genetrix option or warrant, issue to each holder thereof a document
evidencing the assumption of such option or warrant by Genzyme.
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<PAGE> 42
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On September 6, 1995, Paul R. Sohmer, M.D., the President and Chief
Executive Officer of Genetrix, entered into an Incentive Compensation Agreement
with Genetrix whereby Dr. Sohmer will receive an incentive bonus of $1,000,000
upon consummation of the Merger. The Genetrix Board determined that such an
agreement would provide incentives to Dr. Sohmer to manage the affairs of
Genetrix in a manner calculated to create liquidity for Genetrix stockholders in
light of the fact that, as a result of accumulated liquidation preferences of
Genetrix Preferred Stock, shares of Genetrix Common Stock subject to options
held by Dr. Sohmer could have little or no value in the event of a merger or
change of control of Genetrix. Dr. Sohmer does not own any shares of Genetrix
Stock entitled to be cast at the Special Meeting other than those which he has
the right to acquire upon the exercise of stock options. See "Genetrix Share
Ownership."
MERGER AND EFFECTIVE TIME
It is expected that the closing contemplated by the Merger Agreement will
take place on April 16, 1996 (the "Closing Date").
The date and time of the filing of appropriate merger documents with the
Secretary of the Commonwealth of Massachusetts and the Secretary of the State of
Delaware, or such later time as may be specified therein, will be the Effective
Time of the Merger. Genetrix and Genzyme will cause such merger documents to be
filed and recorded as soon as practicable on or after the satisfaction or waiver
of all conditions to the Merger. It is expected that the merger documents will
be filed on the Closing Date, and will specify an Effective Time of
April 16, 1996.
EXCHANGE OF CERTIFICATES
The Exchange Agent will exchange Genetrix Stock certificates for Genzyme
General Division Stock certificates and pay cash in lieu of fractional shares.
As soon as practicable after the Effective Time, the Exchange Agent will mail to
all holders of record of Genetrix Stock at the Effective Time instructions for
surrendering their Genetrix Stock certificates in exchange for a certificate or
certificates representing shares of Genzyme General Division Stock. GENETRIX
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF INSTRUCTIONS FROM THE EXCHANGE AGENT. Upon
surrender of a Genetrix Stock certificate for cancellation to the Exchange
Agent, the holder of such certificate will be entitled to receive in exchange a
certificate representing the number of whole shares of Genzyme General Division
Stock into which the shares of Genetrix Stock previously represented by such
certificate are converted. Surrendered certificates shall forthwith be
cancelled. Until surrendered, each Genetrix Stock certificate shall represent
for all purposes the right to receive shares of Genzyme General Division Stock.
If any Genzyme General Division Stock certificates are to be issued in a
name other than that in which the Genetrix Common Stock certificate surrendered
is registered, it will be a condition of such exchange that the person
requesting such exchange deliver to the Exchange Agent all documents necessary
to evidence and effect such transfer and pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such
shares of Genzyme General Division Stock in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
At the Effective Time, the stock transfer books of Genetrix will be closed
and no transfer of Genetrix Stock will thereafter be made on those stock
transfer books.
FRACTIONAL SHARES
No fractional shares of Genzyme General Division Stock will be issued in
the Merger, and any fractional interest will not entitle the owner to vote or to
any other rights as a holder of Genzyme General Division Stock.
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<PAGE> 43
Fractions of Genzyme General Division Stock will be paid in cash (without
interest) in an amount determined by multiplying such fraction by the Closing
Price. Neither the Exchange Agent nor Genzyme will be liable to any holder of
Genetrix Stock for any cash in lieu of fractional interests properly delivered
to a public official pursuant to applicable escheat or abandoned property laws.
RESALES OF GENZYME GENERAL DIVISION STOCK
The shares of Genzyme General Division Stock to be issued pursuant to the
Merger Agreement have been registered under the Securities Act, and may be
traded without restriction by all former holders of shares of Genetrix Common
Stock who are not "affiliates," as defined under the Securities Act, of Genetrix
("Affiliates").
Directors, executive officers and certain 5% stockholders of Genetrix may
be deemed to be Affiliates. It is a condition to Genzyme's obligations under the
Merger Agreement that each Affiliate execute and deliver to Genzyme an
"affiliate letter" setting forth certain restrictions on such Affiliate's
ability to sell the shares of Genzyme General Division Stock received in the
Merger. Such restrictions arise from the applicable provisions of Rules 144 and
145 under the Securities Act. See "The Merger - Conditions of the Merger."
REPRESENTATIONS, WARRANTIES AND COVENANTS
Genetrix, the Principal Stockholders and Genzyme have made certain
representations and warranties to each other relating to, among other things,
compliance with laws, preparation of financial statements, legal actions and
proceedings, the absence of undisclosed liabilities, and capitalization and
share ownership.
Genetrix has agreed that, except with the prior written consent of Genzyme
and with certain other exceptions set forth in the Merger Agreement, prior to
the consummation of the Merger it shall observe certain covenants relating to
the conduct of Genetrix's business, including conducting its business in the
usual course and using reasonable efforts to (i) preserve intact and keep
available the services of Genetrix's employees, (ii) keep in effect certain
insurance policies in coverage amounts not less than those in effect at the date
of the Merger Agreement, (iii) preserve its business, advertise, promote and
market its services, keep its properties intact and preserve its goodwill, and
(iv) use all reasonable efforts to preserve and protect its intellectual
property rights. Genetrix has also agreed to take all reasonable efforts (which
shall not include the making of any cash payment or acceleration of vesting) to
effect the termination of all outstanding stock options and warrants to purchase
Genetrix Stock that are not exercised prior to the Effective Time.
Genetrix has also agreed that, except with the prior written consent of
Genzyme and with certain other exceptions set forth in the Merger Agreement, it
will not (i) sell or transfer, or mortgage, pledge or create or permit to be
created any security interest on, any of its assets other than sales or
transfers in the ordinary course of business, (ii) incur any obligation or
liability other than in the ordinary course of business, incur any indebtedness
for borrowed money or enter into any other contracts or commitments involving
payments by Genetrix of $50,000 or more, other than purchase orders for
inventory materials and supplies in the ordinary course of business, (iii)
change the compensation or fringe benefits for any officer, director, employee,
or consultant, except for ordinary merit increases for employees other than
officers based on periodic reviews in accordance with past practices, or enter
into or modify any employee benefit plan or any employment severance or other
agreement with any officer, director, employee, or consultant of Genetrix; (iv)
grant or accelerate the exercisability of any option, warrant, or other right to
purchase, or convert any obligation into, shares of Genetrix Stock, declare or
pay any dividend or other distribution with respect to any shares of Genetrix
Stock, or issue any shares of Genetrix Stock, except upon the exercise of
options or the conversion of Genetrix Preferred Stock; (v) amend its certificate
of incorporation or by-laws, (vi) make any material acquisition of property
other than in the ordinary course of business; (vii) enter into or modify any
license, technology development or technology transfer agreement with any other
person or entity other than in the ordinary course of business; or (viii) enter
into or modify any agreement with any health maintenance organization or other
managed care provider, other than in the ordinary course of business providing
for reimbursement for services provided thereunder at rates not materially lower
than rates charged by Genetrix for
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<PAGE> 44
comparable services under agreements with such organizations in effect as of the
date of the Merger Agreement. At any time prior to the Effective Time, any of
the parties to the Merger Agreement may waive any conditions to its own
obligation to consummate the Merger, but only to the extent that such conditions
are intended for its benefit.
The Principal Stockholders have agreed to vote all of their respective
shares of Genetrix Preferred Stock in favor of adopting the Merger Agreement and
the transactions contemplated thereby and not to exercise any dissenters' rights
that they may have under Section 262 of the DGCL. In connection with such voting
commitment, each Principal Stockholder has granted Genzyme an irrevocable proxy
to vote the shares of Genetrix Stock held by such Principal Stockholder at the
Special Meeting. Such proxy shall be void upon termination of the Merger
Agreement.
Genetrix and Genzyme have each agreed to use their respective reasonable
commercial efforts to obtain all authorizations and consents of third parties
necessary to the consummation of the transactions contemplated by the Merger
Agreement, to perform and fulfill its obligations under the Merger Agreement,
and to obtain the other party's approval prior to issuance of any press release
or other information to the press or any third party with respect to the Merger
Agreement or the transactions contemplated thereby.
CONDITIONS OF MERGER
In addition to the adoption of the Merger Agreement by the stockholders of
Genetrix, the respective obligations of Genzyme, Genetrix and the Principal
Stockholders to consummate the Merger are subject to the following conditions,
among others: (i) the representations and warranties contained in the Merger
Agreement must be accurate in all material respects at the Effective Time; (ii)
all covenants and agreements required by the Merger Agreement to be performed or
complied with shall have been performed or complied with in all material
respects on or prior to the Effective Time; (iii) the parties shall have
received customary legal opinions and other documents as described in the Merger
Agreement; (iv) Genzyme shall have received a letter from Ernst & Young LLP,
independent accountants for Genetrix, regarding the concurrence with Genetrix
management's conclusion that Genetrix meets the requirements applicable to a
combining company for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if the Merger is consummated in accordance with
the Merger Agreement and relating to the financial statements and other
financial data of Genetrix included in this Prospectus/Proxy Statement; (v)
Genzyme shall have received letters from specified Affiliates (as defined under
"The Merger - Resales of Genzyme General Division Stock" above) of Genetrix
agreeing not to sell or transfer shares of Genzyme General Division Stock to be
received in the Merger, except under certain circumstances or in compliance with
certain conditions; (vi) the parties shall have obtained all approvals, consents
and waivers required to be obtained in connection with the performance of the
Merger Agreement; (vii) the parties shall have entered into an agreement
governing the Merger Consideration to be held in escrow (the "Escrow
Agreement"); (viii) the Registration Statement shall have been declared
effective by the Commission and no stop order suspending the effectiveness
thereof shall have been issued; (ix) any applicable waiting period under the HSR
Act shall have expired or terminated; (x) Genetrix shall have received an
opinion of counsel to the effect that the Merger will be a tax-free
reorganization; (xi) Dissenting Shares shall not exceed 2% of the shares of
Genetrix Common Stock issued and outstanding as of the Closing Date and no
holders of Genetrix Preferred Stock shall have dissented; (xii) 90% of the
employees in certain classes shall continue to be employed by Genetrix and shall
have not indicated to either Genetrix or Genzyme an intention to terminated
their employment following the Effective Time; and (xiii) Genetrix shall have
maintained revenues at certain levels prescribed in the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time: (i) by the Genetrix Board upon written notice to Genzyme if Genzyme has
breached any representation, warranty, covenant or agreement contained in the
Merger Agreement and has not cured such breach within the earlier of 10 business
days of receipt of written notice or the Closing Date; (ii) by Genetrix if the
Closing Price of Genzyme General Division Stock is less than $43.61, provided
that Genzyme may negate such termination within 24 hours of receiving notice
from Genetrix of termination by
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<PAGE> 45
Genzyme's election to determine the Merger Consideration by dividing (X)
$35,000,000 less the Purchase Price Adjustment Amount by (Y) the Closing Price;
(iii) by the Genzyme Board upon written notice to Genetrix if Genetrix has
breached any representation, warranty, covenant or agreement contained in the
Merger Agreement and has not cured such breach with 10 business days of receipt
of written notice; (iv) by Genzyme if the Genetrix Board withdraws its
recommendation that Genetrix stockholders vote in favor of adopting the Merger
Agreement or promulgates a favorable recommendation regarding an Acquisition
Transaction (as defined below); (v) by either party if (A) any court of
competent jurisdiction or United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree or ruling shall have
become final and nonappealable, (B) the requisite Genetrix stockholder vote
adopting the Merger Agreement is not obtained or (C) if, without fault of the
terminating party, the Effective Time shall not have occurred on or before April
30, 1996; or (vi) at any time prior to the Effective Time upon the written
consent of Genzyme, Genetrix and the Principal Stockholders.
If terminated as provided above, the Merger Agreement will become void and
have no effect, without any liability on the part of either party, its
directors, officers or stockholders with the exception of the provisions
relating to confidentiality, publicity, expenses and termination fees, which
shall remain in effect. However, termination of the Merger Agreement pursuant to
one or more of the methods described above will not relieve any party from
liability for any breach thereof occurring before such termination.
WAIVER AND AMENDMENT
At any time prior to the Effective Time, (i) the parties to the Merger
Agreement may, by written agreement, waive or extend the time for performance of
any obligation under the Merger Agreement and (ii) any term or provision of the
Merger Agreement may be waived in writing by the party entitled to the benefits
thereof.
NO SOLICITATION; TERMINATION FEES
Genetrix and the Principal Stockholders have agreed not to (i) solicit or
initiate discussions with any person, other than Genzyme, relating to the
possible acquisition of Genetrix or all or a material portion of the assets or
any of the capital stock of Genetrix or any merger or other business combination
with Genetrix (an "Acquisition Transaction") or (ii) except to the extent
reasonably required by fiduciary obligations under applicable law as advised by
independent legal counsel, participate in any negotiations regarding, or furnish
to any other person information with respect to, any effort or attempt by any
other person to do or to seek any Acquisition Transaction. Genetrix and the
Principal Stockholders have also agreed to inform Genzyme within one business
day of their receipt of any offer, proposal or inquiry relating to any
Acquisition Transaction.
If the Merger Agreement is terminated as herein described, Genetrix will be
obligated to reimburse Genzyme in the amount of Genzyme's reasonable
out-of-pocket expenses in connection with the Merger (as evidenced by invoices
and receipts in reasonable detail) up to a maximum of $350,000. Such
reimbursement will be required if Merger Agreement is terminated by (i) Genzyme
or Genetrix if the requisite Genetrix stockholder vote adopting the Merger
Agreement is not obtained and, at the time of such termination any person (other
than Genzyme) shall have made, or disclosed an intention to make, a proposal to
engage in an Acquisition Transaction; (ii) Genzyme for a willful, material
breach by Genetrix or a Principal Stockholder of any representation, warranty,
covenant or agreement; and (iii) Genzyme if the Genetrix Board (A) withdraws its
recommendation that stockholders vote in favor of the Merger Agreement or (B)
promulgates a favorable recommendation regarding an Acquisition Transaction. In
addition to the reimbursement of Genzyme's reasonable out-of-pocket expenses,
Genetrix will required to pay Genzyme a fee of $400,000 if within twelve (12)
months following the termination of the Merger Agreement Genetrix is acquired in
an Acquisition Transaction for consideration greater than $38,500,000 less the
Purchase Price Adjustment Amount.
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ESCROW AND INDEMNITY
Pursuant to the Merger Agreement, Genzyme will deposit 10% of the total
number of shares comprising the Merger Consideration with an escrow agent
reasonably satisfactory to Genetrix (the "Escrow Agent"), to be held for a
twelve-month period following the Effective Time and disbursed by the Escrow
Agent in accordance with the Escrow Agreement. Subject to the terms and
conditions set forth therein, the Escrow Agreement provides that the percentage
of the Merger Consideration deposited with the Escrow Agent shall be reduced
from 10% to 5% upon expiration of the period ending six months after the
Effective Time. Such shares will be deducted pro rata from the shares allocable
to each former holder of Genetrix Stock after subtracting that number of shares
of Genzyme General Division Stock allocable to the holders of Genetrix Preferred
Stock as the Merger Preference.
The holders of Genetrix Stock will indemnify and hold harmless Genzyme (and
its directors, officers, employees, agents and assigns) subsequent to the
Effective Time from and against all losses, liabilities, damages, deficiencies,
costs or expenses, including interest and penalties imposed or assessed by any
judicial or administrative body and reasonable attorney's fees, whether or not
arising out of third party claims and including all amounts paid in
investigation, defense or settlement of the foregoing ("Losses"), arising out of
any inaccuracy in, or breach of, any representation, warranty or covenant of
Genetrix contained in the Merger Agreement and for certain other Losses
specified in the Merger Agreement. Subject to the conditions set forth in the
Merger Agreement, such indemnification is limited to the extent of each holders'
interest in the portion of the Merger Consideration held in escrow. In addition,
each Principal Stockholder will indemnify and hold harmless Genzyme (and its
directors, officers, employees, agents and assigns) subsequent to the Effective
Time from and against all Losses arising out of any inaccuracy in, or breach of,
any representation, warranty or covenant of such Principal Stockholder contained
in the Merger Agreement.
By voting in favor of the Merger, a Genetrix stockholder is approving the
terms and conditions of the Escrow Agreement and thereby is agreeing to share in
the obligation to indemnify Genzyme under the Merger Agreement to the extent of
the funds deposited in escrow.
REGULATORY MATTERS
Each of Genzyme and Genetrix has filed premerger notification forms under
the HSR Act (the "HSR Filings"). Because neither the Department of
Justice nor the Federal Trade Commission objected to the Merger or requested
further information by March 4, 1996, such governmental agencies are deemed by
law to have consented to the Merger. The approval of the Merger under the HSR
Act is a condition to the parties' respective obligations to consummate the
Merger. See "The Merger - Conditions of Merger."
Other than the HSR Filings, the filing of appropriate merger documents with
the Secretary of the State of Delaware and the Secretary of the Commonwealth of
Massachusetts and routine approvals and actions required under Genetrix's
permits and licenses to reflect the change in control of Genetrix, there are no
governmental approvals required to effect the Merger.
EXPENSES
The Merger Agreement provides that if the Merger is not consummated,
Genzyme and Genetrix will bear their respective expenses incurred in connection
with the preparation, execution, and performance of the Merger Agreement and the
transactions contemplated thereby. If the Merger is consummated, however,
Genzyme will assume, by operation of law, the obligation to pay Genetrix's
expenses in connection with the Merger, including without limitation the
expenses comprising the Purchase Price Adjustment Amount. Genzyme will pay all
fees relating to the registration and issuance of the shares of Genzyme General
Division Stock comprising the Merger Consideration under applicable federal and
state securities laws and the pre-merger notification form under the HSR Act.
The expenses of printing the Prospectus/Proxy Statement will also be borne by
Genzyme.
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ACCOUNTING TREATMENT
Genzyme expects to account for the Merger as a pooling of interests. It is
a condition to Genzyme's obligation to consummate the Merger that it receive a
letter from the independent accountants for Genetrix regarding its concurrence
with Genetrix management's conclusion that Genetrix meets the requirements
applicable to a combining company for pooling of interests accounting treatment
under Accounting Principles Board Opinion No. 16 if the Merger is consummated in
accordance with the Merger Agreement. See "The Merger - Conditions to Merger."
MANAGEMENT OF GENETRIX'S BUSINESS AFTER MERGER
Following consummation of the Merger, Genetrix will operate as part of a
business unit within the General Division.
At and immediately after the Effective Time, the Board of Directors of the
Surviving Corporation will be Henri A. Termeer, Constantine E. Anagnostopoulos,
Douglas A. Berthiaume, Henry E. Blair, Robert J. Carpenter, Charles L. Cooney
and Henry R. Lewis, of whom Mr. Termeer is an executive officer of Genzyme. The
following table contains certain information about the directors of the
Surviving Corporation.
<TABLE>
<CAPTION>
Present
Business Experience During Past Five Director Term
NAME AND AGE Years and Other Directorships Since Expires
------------ ------------------------------------ -------- -------
<S> <C> <C> <C>
Henri A. Termeer Mr. Termeer has served as President of Genzyme since 1983 1997
Age: 50 October 1983, Chief Executive Officer since December 1985
and Chairman of the Board since May 1988. For ten years
prior to joining Genzyme, Mr. Termeer worked for Baxter
Travenol Laboratories, Inc., a manufacturer of human health
care products. Mr. Termeer is Chairman of the Boards of
Genzyme Transgenics Corporation ("GTC") and Neozyme II.
Mr. Termeer is also a director of Abiomed, Inc., AutoImmune
Inc., Geltex Pharmaceuticals, Inc., and Xenova Ltd. and a
trustee of Hambrecht & Quist Healthcare Investors and of
Hambrecht & Quist Life Sciences Investors.
Henry E. Blair Mr. Blair is a consultant to several companies, including 1981 1998
Age: 52 Genzyme. Prior to January 1990, Mr. Blair was Senior Vice
President, Scientific Affairs of Genzyme. Before joining
Genzyme in 1981, he was Associate Director of the New
England Enzyme Center at Tufts University School of
Medicine. Mr. Blair is also a director of GTC, Dynagen, Inc.
and Celtrix Pharmaceuticals, Inc.
Charles L. Cooney Dr. Cooney is a Professor of Chemical and Biochemical 1983 1996
Age: 51 Engineering and Co-Director of the Program on the
Pharmaceutical Industry at Massachusetts Institute of
Technology. Dr. Cooney joined the MIT faculty as an
Assistant Professor in 1970 and became a Professor in 1982.
Dr. Cooney is also a principal of BioInformation Associates,
Inc., a consulting company.
</TABLE>
42
<PAGE> 48
<TABLE>
<CAPTION>
Present
Business Experience During Past Five Director Term
NAME AND AGE Years and Other Directorships Since Expires
------------ ------------------------------------ -------- -------
<S> <C> <C> <C>
Constantine E. Dr. Anagnostopoulos is Managing General Partner of Gateway 1986 1996
Anagnostopoulos Associates, which is the general partner of Gateway Venture
Age: 73 Partners III, L.P., a venture capital partnership. From
January 1986 to April 1987, Dr. Anagnostopoulos was
a consultant to Monsanto Company, a producer of
pharmaceuticals, chemicals, plastics and textiles,
and to Alafi Capital, a venture capital firm. From
1982 through 1985, he served as Corporate Vice
President of Monsanto Company.
Henry R. Lewis Mr. Lewis is a consultant to several companies and Chairman 1987 1997
Age: 70 of the Board of Delphax Systems, a manufacturer of high
speed non-impact printers, and a member of the Board
of Dyax Corp., a bioseparation, pharmaceutical
discovery and development company. From 1986 to
February 1991, Mr. Lewis was the Vice Chairman of
the Board of Dennison Manufacturing Company, a
manufacturer and distributor of products for the
stationery, technical paper, and industrial and
retail systems markets. From 1982 to 1986, Mr. Lewis
was a Senior Vice President of Dennison.
Douglas A. Mr. Berthiaume is a director, President, and Chief Executive 1988 1998
Berthiaume Officer of Waters Corporation, a high technology manufacturer
Age: 46 of products used for analysis and purification, formerly a
division of Millipore Corporation. From May 1991 to
August 1994, he was President of the Waters Division
of Millipore Corporation and from 1988 to 1991, he
was Chief Financial Officer of Millipore
Corporation.
Robert J. Mr. Carpenter is President and Chief Executive Officer of 1994 1996
Carpenter VacTex, Inc., a privately held biotechnology company which
Age: 50 he co-founded in November 1995, and Chairman of GelTex
Pharmaceuticals, Inc., a publicly held
pharmaceutical development company which he
co-founded in November 1991 and where he served as
President and Chief Executive Officer until May
1993. Mr. Carpenter was Chairman of the Board,
President, and Chief Executive Officer of Integrated
Genetics, Inc., a biotechnology company that merged
with Genzyme in 1989. Following the merger and until
1991, Mr. Carpenter was Executive Vice President
of Genzyme, and Chief Executive Officer and
Chairman of the Board of IG Laboratories, Inc.
Mr. Carpenter is also presently a director of
Apex BioSciences, Inc. and Neozyme II.
</TABLE>
The executive officers of Genzyme will not change as a result of the
Merger. Biographical data for the current executive officers of Genzyme is
contained in Part I, Item 1A of Genzyme's annual report on Form 10-K for the
year ended December 31, 1994, which is incorporated herein by reference. See
"Incorporation of Certain Documents by Reference."
43
<PAGE> 49
GENETRIX STOCKHOLDER APPRAISAL RIGHTS
Pursuant to Section 262 of the DGCL ("Section 262"), record holders of
shares of Genetrix Stock on the Record Date are entitled to assert dissenters'
rights in connection with the Merger and obtain payment of the "fair value" of
their shares, provided that such stockholders comply with the requirements of
Section 262. The following is a summary of the statutory procedures to be
followed by stockholders of Genetrix electing to exercise their dissenters'
rights and is qualified in its entirety by reference to Section 262, the full
text of which is attached to this Prospectus/Proxy Statement as Exhibit C.
Section 262 should be reviewed carefully by stockholders who wish to assert
their dissenters' rights or who wish to preserve the right to do so, since
failure to comply with those procedures may result in the loss of such
dissenters' rights.
A Genetrix stockholder who elects to exercise dissenters' rights must
satisfy each of the following conditions: (i) such holder must deliver to
Genetrix, before the taking of the vote with respect to the Merger Agreement,
written notice of his or her intention to demand payment of the fair value of
his or her shares (this written notice must be in addition to and separate from
any proxy or vote against the Merger Agreement; neither voting against adoption
nor a failure to vote for the Merger Agreement will constitute such a notice);
and (ii) such holders must not vote in favor of adoption of the Merger Agreement
(a failure to vote will satisfy this requirement, but a vote in favor of
adoption of the Merger Agreement, by proxy or in person, will constitute a
waiver of such holder's dissenters' rights and will nullify any previously filed
written notice of intent to demand payment). A stockholder who fails to comply
with either of these conditions will have no dissenters' rights with respect to
his or her shares.
All written notices should be addressed to: Genetrix, Inc. 6401 East Thomas
Road, Scottsdale, Arizona 85251, Attention: Secretary, and must be executed by,
or with the consent of, the holder of record. The notice must identify the
stockholder and indicate the intention of such stockholder to demand payment of
the fair value of his or her shares. In the notice, the stockholder's name
should be stated as it appears on his or her stock certificate(s). If the shares
are owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by or for the fiduciary. If the shares
are owned of record by or for more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner(s) and expressly disclose the fact that, in exercising
the demand, he is acting as agent for the record owners.
A record owner, such as a broker, who holds shares as a nominee for others
may exercise his or her right of appraisal with respect to the shares for all or
less than all beneficial owners of shares as to which he or she is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly mentioned,
the demand will be presumed to cover all shares outstanding in the name of such
record owner.
After the stockholder vote adopting the Merger Agreement, and assuming the
Merger is consummated, Genzyme must give written notice within ten days after
the Effective Time that the Merger Agreement has been adopted to each
stockholder who filed a written notice of intent to demand payment for such
stockholder's shares and who did not vote in favor of adoption of the Merger
Agreement (a "Dissenting Stockholder"). Within 120 days after the Effective
Time, Genzyme or any Dissenting Stockholder may file a petition in the Delaware
Court of Chancery (the "Court") demanding a determination of the value of the
stock of all Dissenting Stockholders. Notwithstanding the foregoing, at any time
within 60 days after the Effective Time, any Dissenting Stockholder has the
right to withdraw his or her demand for appraisal and to accept the Merger
Consideration to which he or she otherwise would have been entitled. In
addition, within 120 days after the Effective Time, any Dissenting Stockholder
will, upon written request, be entitled to receive from Genzyme a statement
setting forth the aggregate number of shares not voted in favor of adopting the
Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares.
44
<PAGE> 50
At the hearing on such petition, the Court will determine the stockholders
who have perfected their dissenters' rights. The Court may require Dissenting
Stockholders to submit their stock certificates to the Register in Chancery for
notation thereon of the pending of appraisal proceedings; the failure of a
Dissenting Stockholder to comply with such direction may result in the Court
dismissing the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court will
appraise the shares, determining the fair value arising from the consummation of
the Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be fair value. In determining such fair value, the Court
may take into account all relevant factors. The Court will then direct the
payment of the fair value of the shares, together with any interest, by Genzyme
to the Dissenting Stockholders upon the surrender to Genzyme of the certificates
representing the Dissenting Shares.
Stockholders considering seeking appraisal for their shares should note
that the fair value of their shares determined under Section 262 could be more,
the same or less than the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their shares. The costs of
the appraisal proceeding may be determined by the Court and allocated among the
parties as the Court deems equitable under the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all shares entitled to
appraisal. In the absence of such a determination or assessment, each
stockholder bears his or her own expenses.
Genzyme's obligation to consummate the Merger is subject to the condition,
waivable at the discretion of Genzyme, that the holders of not more than 2% of
the outstanding shares of Genetrix Common Stock, and no holders of Genetrix
Preferred Stock, shall have validly exercised statutory appraisal rights.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the Merger. The discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations, current administrative rulings of the Internal Revenue
Service ("IRS") and judicial decisions, all of which are subject to change.
Moreover, this discussion does not purport to be a complete analysis of all
potential tax effects relevant to a particular Genetrix stockholder nor does it
address the tax consequences that may be relevant to particular categories of
stockholders subject to special treatment under certain federal income tax laws.
In addition, it does not describe any tax consequences arising under the laws of
any state, local or foreign jurisdiction. Accordingly, each Genetrix stockholder
is urged to consult his or her own tax advisor regarding the tax consequences of
the Merger in his or her own particular tax situation and regarding state, local
and foreign tax implications of the Merger and any tax reporting requirements of
the Merger.
Palmer & Dodge, counsel to Genzyme, has delivered an opinion to the effect
that the description of the federal income tax consequences of the Merger
contained in this section fairly and accurately sets forth the material federal
income tax consequences of the Merger for Genetrix stockholders, assuming the
Merger is consummated in accordance with the terms of the Merger Agreement. This
summary reflects the views of Palmer & Dodge as to the material federal income
tax consequences of the Merger. However, both the opinion and this summary are
based upon representations by the managements of Genetrix and Genzyme and
current law, and assume that the Merger is carried out as described herein. If
those representations are not accurate, if changes are made to current law or if
the Merger is not carried out as described herein, the federal income tax
consequences of the Merger may vary from those described in the opinion and in
this summary. Neither this summary nor the legal opinion is binding on the IRS,
and no rulings have been or will be requested from the IRS with respect to the
Merger.
45
<PAGE> 51
The following discussion may not be applicable with respect to Genetrix
Stock received pursuant to the exercise of employee stock options or otherwise
as compensation.
TAX TREATMENT OF GENETRIX AND GENZYME. In the opinion of Palmer & Dodge, the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code. Accordingly, it is anticipated that (i) Genetrix and Genzyme will
recognize no gain or loss by reason of the Merger and (ii) the basis and holding
periods of Genetrix's assets immediately after the Merger will include the basis
and holding periods in its hands immediately before the Merger.
TAX CONSEQUENCES TO GENETRIX'S STOCKHOLDERS. In the opinion of Palmer & Dodge,
no gain or loss will be recognized by a Genetrix stockholder with respect to the
receipt of Genzyme General Division Stock in exchange for Genetrix Stock in the
Merger. The basis of Genzyme General Division Stock received by a Genetrix
stockholder will be the same as the basis of the Genetrix Stock exchanged
therefor. The holding period of the Genzyme General Division Stock, including
any fractional shares deemed received, will include the holding period of the
Genetrix Stock surrendered in exchange therefor, provided the Genetrix Stock was
a capital asset in the hands of such stockholder at the Effective Time. A
Genetrix stockholder will recognize gain or loss in an amount equal to the
difference between the amount of cash received in lieu of a fractional share of
Genzyme General Division Stock and the portion of the stockholder's basis that
is allocable to the fractional share. Generally, any such gain or loss will be
capital gain or loss assuming the Genetrix Stock surrendered is held as a
capital asset at the Effective Time and will be long-term capital gain or loss
if the stockholder has held his Genetrix Stock for more than one year at the
Effective Time.
A Genetrix stockholder who exercises dissenters' rights with respect to his
or her shares will be subject to tax on the receipt of payments pursuant to the
stock redemption rules of Section 302 of the Code (taking into account the stock
attribution rules of Section 318 of the Code). In general, if a stockholder
holds his or her shares in Genetrix as a capital asset at the Effective Time,
such stockholder will recognize capital gain or loss measured by the difference
between the amount of cash received by such stockholder and the basis for his or
her shares.
In addition, the Merger is conditioned on the receipt of an opinion of
Palmer & Dodge, dated as of the Closing Date, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and no gain or loss will be recognized by Genetrix or its stockholders by
reason of receipt of the shares of Genzyme General Division Stock in the Merger
(except to the extent of cash received in lieu of a fractional share of Genzyme
General Division Stock, if any). This opinion may be waived at the discretion
of Genetrix and the Principal Stockholders.
DESCRIPTION OF GENZYME
The business of Genzyme is described in Genzyme's annual report on Form
10-K for the year ended December 31, 1994, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
DESCRIPTION OF GENETRIX
OPERATIONS
Genetrix has developed a nationwide network of physicians, genetic
counselors, and proceduralists to provide genetic testing and risk management
services. This nationwide network provides access to genetic consultation 24
hours a day, 7 days a week.
Genetrix's genetic testing involves the analysis of fluid and tissue
samples that are collected by physicians, hospitals, and other commercial
laboratories. Test samples are delivered to Genetrix in shipping materials
provided by Genetrix. Genetrix then performs the required tests and communicates
the results by telephone, facsimile or
46
<PAGE> 52
other method as requested. Abnormal results are communicated by a genetic
counselor or board certified medical geneticist who advise patients of the
significance of the results and options for further testing and management.
In addition to testing services, Genetrix provides testing, diagnosis and
management of prenatal genetic disorders in collaboration with hospitals and
perinatology specialty groups. Such services include ultrasound, amniocentesis
and placental tissue sampling. These services are performed in Genetrix's 16
Perinatal Diagnostic Centers, which are staffed by perinatologists,
obstetricians, medical geneticists, genetic counselors and client service
personnel.
EMPLOYEES
Genetrix has more than 200 employees including approximately 196 in
clinical services, 19 in sales and marketing, and 19 in administration.
FACILITIES
The Company is headquartered in Scottsdale, Arizona and has laboratories in
Alameda (California), Las Vegas, New York, Philadelphia, Phoenix, Scottsdale and
Tampa. The Perinatal Diagnostic Centers are located in Berkeley (California),
Los Angeles, Modesto (California), Orange County (California), Santa Clara
(California), New York, Philadelphia and Tampa (through a contractual
agreement).
MARKET FOR CAPITAL STOCK; DIVIDENDS
Genetrix is a privately held company and there is no public market for its
capital stock. It has never paid a cash dividend on its capital stock.
Genetrix's current line of credit prohibits the payment of dividends by Genetrix
without the prior written consent of the lender.
47
<PAGE> 53
GENETRIX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of Genetrix contained elsewhere in this
Prospectus/Proxy Statement.
RESULTS OF OPERATIONS
Nine Months ended September 30, 1995 and 1994
Genetrix experienced a net loss of $115,917 for the nine months ended
September 30, 1995 compared to a net loss of $3,338,474 for the nine months
ended September 30, 1994. This decrease in net loss was attributable primarily
to a restructuring charge of approximately $1,229,000 accrued during 1994 and a
write down of intangibles of approximately $834,000, neither of which recurred
during 1995. In addition, Genetrix experienced operating income of $47,690 for
the nine months ended September 30, 1995 while it experienced an operating loss
of $3,276,005 for the nine months ended September 30, 1994. This increased
operating income resulted from continued rationalization of functions, reduction
of various employee related expenses and improved economies of scale resulting
from acquisitions.
Net revenues for the nine month period ended September 30, 1995 increased
$2,333,471 (17%) over the nine months ended September 30, 1994. This increase in
revenues resulted in part from the acquisition of the assets and operations of
Medigene, Inc. ("Medigene") and as a result of an ongoing reorganization of the
sales function.
Cost of revenues as a percentage of revenues decreased to 51.4% in the nine
months ended September 30, 1995, as compared to 55.7% in the same nine months in
the prior year due primarily to the consolidation of the former operations of
Medigene.
Selling, general and administrative expenses in the nine months ended
September 30, 1995 as a percentage of revenues were approximately the same as
compared to the corresponding nine months in 1994, notwithstanding a general
downward trend during the years ended 1994, 1993, and 1992. This interruption in
such downward trend during the first nine months of 1995 has occurred because of
expenses related to selling Genetrix, expenses related to recruiting members of
the sales force and because of additional selling, general and administrative
costs associated with an acquisition in Sacramento.
Years ended December 31, 1994, 1993 and 1992
Net losses for the years ended December 31, 1994, 1993 and 1992 were
$3,314,268, $3,195,232 and $4,643,719, respectively. The increase in net loss in
the year ended 1994 compared to the year ended 1993 was attributable to a
restructuring charge of approximately $1,229,000 accrued during 1994 and a write
down of intangibles of approximately $834,000. The decrease in net loss in the
year ended 1993 compared to the year ended 1992 resulted primarily from a
decrease in selling, general and administrative expenses of approximately
$1,285,000 during 1993 as a result of the rationalization of functions and the
reduction of various expenses, including employee related expenses.
Genetrix's net revenues increased 31% in the year ended December 31, 1994
compared to the year ended 1993. This increase in revenues resulted in part from
the acquisition of the net assets and operations of Medigene and as a result of
an ongoing reorganization of the sales function. Net revenues during 1993 were
9% greater than net revenues during 1992 as a result of the implementation of a
reorganization of the sales force and a full year of revenues derived as a
result of the acquisition of Harbor-UCLA.
48
<PAGE> 54
Cost of revenues as a percentage of revenues increased to 54.4% in the year
ended December 31, 1994, as compared to 52.8% in the year ended December 31,
1993. This increase was caused entirely by operational redundancies initially
brought about by the acquisition of Medigene. As discussed above, however, cost
of revenues has decreased in 1995 as the former operations of Medigene and the
operations of Genetrix have been consolidated. Cost of revenues as a percentage
of revenues decreased to 52.8% in the year ended December 31, 1993, as compared
to 53.5% in the year ended December 31, 1992. This decrease resulted primarily
from increasing revenues produced by a relatively static operational base.
Selling, general and administrative expenses as a percentage of revenues
have decreased in each of the years ended December 31, 1994, 1993 and 1992 as a
result of the continuing rationalization of operations in virtually all
categories of expenses.
Operating losses for the years ended December 31, 1994, 1993, and 1992 were
$3,165,495, $3,094,142 and $4,582,325, respectively. Operating losses have
decreased substantially during each of these periods as a result of lower
relative costs of revenues and lower selling, general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Genetrix's most recent major sale of equity for cash occurred in 1992. Cash
used in operating activities was $921,923, $1,083,950, and $2,217,217 during
1994, 1993 and 1992, respectively. Cash flow from operating activities was
$59,678 for the nine months ended September 30, 1995. This downward trend in
cash used in operating activities resulted from lower relative costs of revenues
and lower selling, general and administrative expenses described above. Genetrix
has approximately $500,000 available to it from the unused portion of an
outstanding credit line. In management's opinion, current working capital, the
credit line and cash flow from operations are sufficient to meet its operating
requirements in the near term.
RECENT DEVELOPMENTS
On November 9, 1995, Genzyme was named as a defendant in a lawsuit
commenced in the United States District Court for the District of Massachusetts
by Michael Spielman, on his own behalf and purportedly on behalf of a class of
approximately two hundred others. Mr. Spielman was a limited partner of Genzyme
Clinical Partners, L.P. ("GCP"). The general partner of GCP was Genzyme
Development Corporation ("GDC"), a former subsidiary of Genzyme that was
dissolved in 1990 after the Company purchased the assets of GCP. The nature of
Mr. Spielman's claims is that Genzyme and GDC breached a duty to him (and other
limited partners) to provide certain tax information, and to subsequently notify
them of a potential state tax liability (that was previously disclosed) several
years after the dissolution of GCP. Genzyme has answered the complaint, denying
liability. No action has been taken by the court on the plaintiff's request to
certify the complaint as a class action. In February 1996, Genzyme filed a
motion for summary judgment, requesting that the court enter judgment for
Genzyme on all claims asserted in the complaint. The court denied this motion
pending discovery.
49
<PAGE> 55
GENZYME SHARE OWNERSHIP
The following table and footnotes set forth certain information regarding
the ownership of Genzyme General Division Stock and Genzyme TR Division Stock,
and the common stock of GTC, a subsidiary of Genzyme, as of February 1, 1996 by
(i) persons known by Genzyme to be beneficial owners of more than 5% of Genzyme
General Division Stock or Genzyme TR Division Stock, (ii) the Chief Executive
Officer and each of the four other most highly compensated executive officers of
Genzyme during the fiscal year ended December 31, 1995, (iii) each director of
Genzyme, and (iv) all current executive officers and directors of Genzyme as a
group. Assuming that approximately 547,230 shares are issued in the Merger, the
interest in Genzyme General Division Stock held by each of the beneficial owners
listed below will be reduced by approximately 0.1%.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned (1)
--------------------------
Beneficial Owner Shares Percent
---------------- ------ -------
<S> <C> <C>
Twentieth Century Companies (2)
4500 Main Street, P.O. Box 41820
Kansas City, Missouri 64141
Genzyme General Division Stock.................................. 2,070,000 6.55
Genzyme TR Division Stock....................................... 800,000 6.63
Friess Associates (3)
350 Broadway, P.O. Box 576
Jackson, Wyoming 83001
Genzyme General Division Stock.................................. 1,753,600 5.55
Genzyme TR Division Stock....................................... 0 --
State of Wisconsin Investment Board (4)
121 East Wilson Avenue
Madison, Wisconsin 53702
Genzyme General Division Stock.................................. 806,000 2.55
Genzyme TR Division Stock....................................... 651,189 5.39
Henri A. Termeer (5)
Genzyme General Division Stock.................................. 440,183 1.39
Genzyme TR Division Stock....................................... 80,547 *
Alan E. Smith (6)
Genzyme General Division Stock.................................. 71,346 *
Genzyme TR Division Stock....................................... 18,673 *
Gregory D. Phelps (7)
Genzyme General Division Stock.................................. 72,883 *
Genzyme TR Division Stock...................................... 37,632 *
Elliott D. Hillback, Jr (8)
Genzyme General Division Stock................................. 84,889 *
Genzyme TR Division Stock...................................... 15,844 *
Geoffrey F. Cox (9)
Genzyme General Division Stock................................. 77,087 *
Genzyme TR Division Stock...................................... 29,915 *
</TABLE>
50
<PAGE> 56
<TABLE>
<CAPTION>
<S> <C> <C>
Henry E. Blair (10)
Genzyme General Division Stock................................. 18,500 *
Genzyme TR Division Stock...................................... 9,144 *
Robert J. Carpenter (11)
Genzyme General Division Stock.................................. 10,834 *
Genzyme TR Division Stock...................................... 23,197 *
Charles L. Cooney (12)
Genzyme General Division Stock.................................. 17,340 *
Genzyme TR Division Stock....................................... 7,419 *
Constantine E. Anagnostopoulos (13)
Genzyme General Division Stock.................................. 16,000 *
Genzyme TR Division Stock....................................... 7,160 *
Henry R. Lewis (14)
Genzyme General Division Stock.................................. 13,300 *
Genzyme TR Division Stock....................................... 6,795 *
Douglas A. Berthiaume (15)
Genzyme General Division Stock.................................. 14,250 *
Genzyme TR Division Stock....................................... 6,923 *
All current executive officers and directors as a group
(20 persons) (16)
Genzyme General Division Stock.................................. 1,286,125 4.07
Genzyme TR Division Stock....................................... 393,862 3.26
</TABLE>
- --------------------
* Indicates less than 1%
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares listed in the table.
Information regarding shares acquired for the account of any officer under the
Genzyme 1990 Employee Stock Purchase Plan after December 31, 1995 is not
available and, therefore, is not included in the table.
(2) Based on the quarterly report on Form 13F for the quarter ended September
30, 1995 filed with the Commission by Twentieth Century Companies.
(3) Based on the quarterly report on Form 13F for the quarter ended September
30, 1995 filed with the Commission by Friess Associates.
(4) The State of Wisconsin Investment Board ("SWIB") is a government agency
which manages public pension funds. SWIB retains sole voting and dispositive
power for all of the shares shown. The foregoing information regarding SWIB is
based on information supplied to Genzyme by SWIB.
(5) The stock beneficially owned by Mr. Termeer includes 425,750 and 75,093
shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to stock options exercisable within the 60-day period
following February 1, 1996 and 3,300 and 445 shares of Genzyme General Division
Stock and Genzyme TR Division Stock, respectively, subject to currently
exercisable warrants. In addition, Mr. Termeer owns 9,500 shares of GTC common
stock and holds options to purchase 6,000 shares of GTC Common Stock that are
exercisable within the 60-day period following February 1, 1996.
(6) The stock beneficially owned by Dr. Smith includes 68,493 and 17,518 shares
of Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following February
1, 1996. In addition, Dr. Smith holds options to purchase 6,000 shares of GTC
common stock that are exercisable within the 60-day period following February 1,
1996.
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<PAGE> 57
(7) The stock beneficially owned by Mr. Phelps includes 69,483 and 26,811 shares
of Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following
February 1, 1996. In addition, Mr. Phelps holds options to purchase 4,000
shares of GTC common stock that are exercisable within the 60-day period
following February 1, 1996.
(8) The stock beneficially owned by Mr. Hillback includes 79,813 and 15,423
shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to stock options exercisable within the 60-day period
following February 1, 1996. Also included are 84 and 11 shares of Genzyme
General Division Stock and Genzyme TR Division Stock, respectively, and
currently exercisable warrants to purchase 600 and 81 shares of Genzyme General
Division Stock and Genzyme TR Division Stock, respectively, held by Mr.
Hillback's wife for her own account. In addition, Mr. Hillback's wife holds 252
and 34 shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, as custodian for their children.
(9) The stock beneficially owned by Dr. Cox includes 73,493 and 17,429 shares of
Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following February
1, 1996 and 3,594 and 12,486 shares of Genzyme General Division Stock and
Genzyme TR Division Stock, respectively, held jointly with his wife.
(10) The stock beneficially owned by Mr. Blair includes 6,000 and 5,810 shares
of Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following February
1, 1996. In addition, Mr. Blair holds options to purchase 6,000 shares of GTC
common stock that are exercisable within the 60-day period following February 1,
1996.
(11) The stock beneficially owned by Mr. Carpenter includes 1,600 and 5,400
shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to stock options exercisable within the 60-day period
following February 1, 1996 and 2,000 and 270 shares of Genzyme General Division
Stock and Genzyme TR Division Stock, respectively, subject to currently
exercisable warrants. Also included are 246 and 33 shares of Genzyme General
Division Stock and Genzyme TR Division Stock, respectively, and 1,000 and 135
shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to currently exercisable warrants held by his wife. Mr.
Carpenter disclaims beneficial ownership of all shares held by his wife.
(12) The stock beneficially owned by Dr. Cooney includes 6,000 and 5,810 shares
of Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following February
1, 1996 and 60 shares of Genzyme General Division Stock held jointly with his
wife.
(13) The stock beneficially owned by Dr. Anagnostopoulos consists of 16,000 and
7,160 shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to stock options exercisable within the 60-day period
following February 1, 1996.
(14) The stock beneficially owned by Mr. Lewis includes 12,000 and 6,620 shares
of Genzyme General Division Stock and Genzyme TR Division Stock, respectively,
subject to stock options exercisable within the 60-day period following February
1, 1996.
(15) The stock beneficially owned by Mr. Berthiaume includes 14,000 and 6,890
shares of Genzyme General Division Stock and Genzyme TR Division Stock,
respectively, subject to stock options exercisable within the 60-day period
following February 1, 1996.
(16) Includes 1,202,440 and 321,360 shares of Genzyme General Division Stock and
Genzyme TR Division Stock, respectively, that are subject to outstanding stock
options exercisable within the 60-day period following February 1, 1996 and
7,300 and 985 shares of Genzyme General Division Stock and Genzyme TR Division
Stock, respectively, subject to currently exercisable warrants. Also includes
22,628 and 22,114 shares of Genzyme General Division Stock and Genzyme TR
Division Stock, respectively, held jointly by officers and directors of Genzyme
with their respective spouses. Also includes 330 and 44 shares of Genzyme
General Division Stock and Genzyme TR Division Stock, respectively, and
currently exercisable warrants to purchase 1,600 and 216 shares of Genzyme
General Division Stock and Genzyme TR Division Stock, respectively, held by the
spouses of officers, and 2,865 and 353 shares of Genzyme General Division Stock
and Genzyme TR Division Stock, respectively, held by the spouses of officers for
the benefit of the children of such officers. All such shares subject to
warrants and stock options are treated as outstanding for the purpose of
computing the stated percentage.
52
<PAGE> 58
Genzyme's officers and directors as a group own beneficially an aggregate
of 31,500 shares of common stock, less than 1% of the shares outstanding, of
GTC, including 22,000 shares subject to stock options exercisable within the
60-day period following December 1, 1995.
GENETRIX SHARE OWNERSHIP
The following table and footnotes set forth certain information regarding
the beneficial ownership of Genetrix voting securities as of November 30, 1995
by (i) persons known by Genetrix to be beneficial owners more than 5% of a class
of voting securities, (ii) the directors and executive officers of Genetrix, and
(iii) all executive officers and directors as a group:
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned (1)
-----------------------
Beneficial Owner Shares Percent
- ---------------- ------ -------
<S> <C> <C>
James H. Cavanaugh (2)
379 Thornall Street
Edison, NJ 08837......................................... 2,579,769 25.1
Medigene, Inc. (2)
379 Thornall Street
Edison, NJ 08837......................................... 2,579,769 25.1
Charles Atkinson (3)
3920 Innsbruck Court
Reno, NV 89509........................................... 2,295,529 22.3
Gian Andrea Botta (4)
375 Park Avenue
New York, NY 10152....................................... 1,186,000 11.5
Steven V. O'Connell (4)
375 Park Avenue
New York, NY 10152....................................... 1,186,000 11.5
FIMA Finance Management, Inc. (4)
375 Park Avenue
New York, NY 10152....................................... 1,186,000 11.5
Joseph S. Lacob (5)
2750 Sand Hill Road
Menlo Park, CA 94025..................................... 981,343 9.5
Kleiner Perkins Caufield and Byers V (5)
2750 Sand Hill Road
Menlo Park, CA 94025..................................... 981,343 9.5
KPCB Zaibatsu Fund (5)
2750 Sand Hill Road
Menlo Park, CA 94025..................................... 981,343 9.5
Andrew Senyei (6)
797 Ivanhoe Road, Suite 550
La Jolla, CA 92037....................................... 624,234 6.1
Enterprise Partners II, L.P. (7)
5000 Birch Street
Newport Beach, CA 92660.................................. 624,234 6.1
</TABLE>
53
<PAGE> 59
<TABLE>
<S> <C> <C>
Enterprise Partners II, L.P. Associates (6)
5000 Birch Street
Newport Beach, CA 92660.................................. 624,234 6.1
Daniel Davidson
666 Post Street, #803
San Francisco, CA 94109.................................. 505,246 6.1
Paul R. Sohmer (7)
4531 Quartz Mountain Road
Paradise Valley, AZ 85253................................ 392,600 3.7
Jack Bratton (8)
1036 Rodeo Road
Pebble Beach, CA 93953................................... 191,667 1.9
Phillip C. Kantz (9)
2295 Skyfarm Drive
Hillsborough, CA 94010................................... 74,158 *
Robert Byrnes (10)
1821 East Dyer Road
Santa Ana, CA 92705...................................... 25,000 *
Mark Smith (11)
4928 E. Lemarche Avenue
Scottsdale, AZ 85254..................................... 6,500 *
All officers and directors as a group (12).................. 8,356,800 77.0
</TABLE>
- --------------------
* Indicates less than 1%
(1) Unless otherwise indicated, Genetrix believes that each person listed or
included in the group, based on information furnished by such persons, has sole
voting and sole investment power with respect to the shares, subject to
community property laws where applicable.
(2) Mr. Cavanaugh is the president of Medigene, Inc. Accordingly, Mr.
Cavanaugh and Medigene, Inc. may be deemed to exercise voting control over the
shares of the other. This amount includes 25,333 shares of voting securities
issuable within 60 days upon exercise of a warrant to purchase Genetrix Common
Stock. The address provided for Medigene is that of HealthCare Investment
Corporation, since Medigene is not currently active.
(3) This amount includes 19,000 shares of voting securities issuable within 60
days upon exercise of a warrant to purchase Genetrix Common Stock.
(4) Mr. O'Connell and Mr. Botta are the designated representatives of the Series
E Preferred stockholders pursuant to the Second Amended and Restated
Stockholders' Agreement dated as of April 29, 1994 by and among Genetrix,
Charles M. Atkinson and the holders of Series A, Series B, Series E and Series F
Preferred Stock of Genetrix. Accordingly, Mr. O'Connell, Mr. Botta and the
holders of Series E Preferred Stock may be deemed to exercise voting control
over the shares of the other.
(5) Mr. Lacob is the designated representative of Kleiner Perkins Caufield &
Byers V and KPCB Zaibatsu Fund I. Accordingly, each of Mr. Lacob, Kleiner
Perkins Caufield & Byers V and KPCB Zaibatsu Fund I may be deemed to exercise
voting control over the other. This amount includes 30,400 shares of voting
securities issuable upon exercise of a currently exercisable warrant to purchase
Genetrix Common Stock.
(6) Dr. Senyei is the designated representative of Enterprise Partners, II L.P.
and Enterprise Partners, II L.P. Associates pursuant to the Shareholders'
Agreement. Accordingly, each of Dr. Senyei, Enterprise Partners, II L.P. and
Enterprise Partners,
54
<PAGE> 60
II L.P. Associates may be deemed to exercise voting control over the shares of
the other. This amount includes 44,000 shares of voting securities issuable
within 60 days upon exercise of options and warrants to purchase Genetrix Common
Stock.
(7) This amount includes 392,600 shares of voting securities issuable within 60
days upon exercise of options to purchase Genetrix Common Stock.
(8) This amount includes 25,000 shares of voting securities issuable within 60
days upon exercise of options to purchase Genetrix Common Stock.
(9) This amount includes 51,158 shares of voting securities issuable within 60
days upon exercise of options and warrants to purchase Genetrix Common Stock.
(10) This amount includes 25,000 shares of voting securities issuable within 60
days upon exercise of options to purchase Genetrix Common Stock.
(11) This amount includes 6,500 shares of voting securities issuable within 60
days upon exercise of options to purchase Genetrix Common Stock.
(12) Includes 621,991 shares of Genetrix Stock that are subject to outstanding
stock options exercisable within the 60-day period following December 1, 1995 or
currently exercisable warrants. All such shares subject to stock options and
warrants are treated as outstanding for the purpose of computing the stated
percentage.
55
<PAGE> 61
COMPENSATION OF GENZYME'S EXECUTIVE OFFICERS
The following tables set forth certain compensation information for the
Chief Executive Officer of Genzyme and each of the four other most highly
compensated executive officers of Genzyme.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS ALL OTHER
------ ------ ---------
COMPENSATION COMPENSATION
------------ ------------
Options(#)
----------
Genzyme Genzyme TR
------- ----------
Name and Principal Position Year Salary($) Bonus($) General Division ($)(1)
--------------------------- ---- --------- -------- ------- -------- ------
Division Stock Stock GTC
-------------- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Henri A. Termeer 1995 549,039 450,000(2) 22,500 22,500 10,000 15,234
Chief Executive Officer 1994 499,231 387,500 60,000 66,000 -- 14,640
1993 459,462 225,000 105,000 -- -- 14,388
Alan E. Smith 1995 234,779 100,000(2) 6,800 5,100 -- 1,875
Senior Vice President, 1994 201,788 81,500 18,500 15,000 4,000 1,875
Research 1993 190,831 50,000 33,500 -- 2,000 2,249
Elliott D. Hillback, Jr 1995 205,028 130,000(2) 7,650 2,550 -- 1,875
Senior Vice President 1994 184,808 90,000 18,500 7,500 -- 1,875
1993 174,846 42,000 33,500 -- -- 2,186
Geoffrey F. Cox 1995 206,894 130,000(2) 6,800 5,100 -- 1,875
Senior Vice President, 1994 179,808 100,000 18,500 15,000 -- 1,875
Operations 1993 167,846 40,000 33,500 -- -- 2,123
Gregory D. Phelps 1995 221,605 130,000(2) 4,250 12,750 -- 1,875
Senior Vice President 1994 179,712 100,000 18,500 37,500 2,000 1,875
1993 164,846 46,000 33,500 -- 2,000 13,568
</TABLE>
- --------------
(1) The reported amounts consist of employer contributions under the Genzyme
Corporation Retirement Savings Plan, a 401(k) plan. For Mr. Termeer, the
reported amounts also include insurance premiums of $13,359, $12,765 and $12,139
paid by Genzyme on his behalf in 1995, 1994 and 1993, respectively, for life and
disability insurance benefits. For Mr. Phelps, the reported amount for 1993 also
includes $11,508 for reimbursement of relocation expenses.
(2) The reported amounts are bonus targets for 1995; such amounts have not yet
been paid. The bonus targets were recommended by the Chief Executive Officer for
all officers other than himself and the Compensation Committee of the Genzyme
Board evaluated and approved such targets. The Chief Executive Officer's bonus
target was set by the Compensation Committee of the Genzyme Board. The bonus
targets include both a corporate performance component and an individual
performance component. The corporate performance component of the annual bonus
for all executive officers and the individual performance component of the
annual bonus with respect to the Chief Executive Officer is payable at the
discretion of the Compensation Committee of the Genzyme Board based on the
extent to which Genzyme achieved the operating income goals approved by the
Genzyme Board in connection with setting the 1995 annual budget. The
individual performance component is payable at the discretion of the Chief
Executive Officer based on his evaluation of the executive officer's qualitative
performance for the year. Such amounts will be determined in March 1996.
56
<PAGE> 62
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of Stock
Securities Granted to Exercise or Price Appreciation for Option Term
Underlying Employees Base Price ----------------------------------
Options in Fiscal ($/Share) Expiration
Name Granted(#)(1) 1995 (1) Date 0%($) 5%($)(2) 10%($)(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henri A. Termeer
Genzyme (TR) 22,500 1.4 6.00 5/18/2005 0 84,901 215,155
Genzyme (TR) 55,555 3.5 17.50 12/15/2005 0 611,419 1,549,456
Genzyme (General) 22,500 0.4 38.875 5/18/2005 0 550,086 1,394,027
Genzyme (General) 28,410 0.5 56.00 12/15/2005 0 907,992 2,388,204
Alan E. Smith
Genzyme (TR) 5,100 0.9 6.00 5/18/2005 0 19,244 48,769
Genzyme (TR) 13,333 0.8 17.50 12/15/2005 0 146,738 371,864
Genzyme (General) 6,800 0.1 38.875 5/18/2005 0 166,248 421,306
Genzyme (General) 15,909 0.3 56.00 12/15/2005 0 508,457 1,337,344
Elliott D. Hillback, Jr.
Genzyme (TR) 2,550 0.5 6.00 5/18/2005 0 9,622 24,384
Genzyme (TR) 4,444 0.3 17.50 12/15/2005 0 48,909 123,945
Genzyme (General) 7,650 0.1 38.875 5/18/2005 0 187,029 473,969
Genzyme (General) 20,859 0.4 56.00 12/15/2005 0 653,748 1,719,490
Geoffrey F. Cox
Genzyme (TR) 5,100 0.9 6.00 5/18/2005 0 19,244 48,769
Genzyme (TR) 22,222 1.4 17.50 12/15/2005 0 244,568 619,783
Genzyme (General) 6,800 0.1 38.875 5/18/2005 0 166,248 421,306
Genzyme (General) 11,364 0.2 56.00 12/15/2005 0 363,197 955,282
Gregory D. Phelps
Genzyme (TR) 12,750 2.4 6.00 5/18/2005 0 48,110 121,921
Genzyme (TR) 22,222 1.4 17.50 12/15/2005 0 244,568 619,783
Genzyme (General) 4,250 0.1 38.875 5/18/2005 0 103,905 263,316
Genzyme (General) 11,364 0.2 56.00 12/15/2005 0 363,197 955,282
All Genzyme
Stockholders
Genzyme (TR) -- -- 6.00 -- 0 45,581,735 115,039,616
Genzyme (TR) -- -- 17.50 -- 0 133,007,020 335,592,508
Genzyme (General) -- -- 38.875 -- 0 772,433,266 1,949,294,238
Genzyme (General) -- -- 56.00 -- 0 1,112,530,951 2,807,816,209
</TABLE>
- --------------
(1) The Genzyme TR Division Stock and Genzyme General Division Stock options
shown on the first and third lines for each officer were granted on May 18,
1995, were exercisable with respect to 20% of such shares on the date of grant,
will become exercisable with respect to an additional 20% of such shares on each
of the next four anniversaries of the grant date, and were granted at fair
market value on the date of grant. The Genzyme TR Division Stock and Genzyme
General Division Stock options shown on the second and fourth lines for each
officer were granted on December 15, 1995. These options will become exercisable
in full on June 30, 2005, but may be accelerated, separately with respect to
each class of common stock, at the discretion of the Compensation Committee if
the average closing price of shares of Genzyme General Division Stock for any
period of ninety (90) consecutive trading days during the Measurement Period (as
defined below) is equal to or greater than $100.00 per share (the "General
Target Price") or if the average closing price of shares of Genzyme TR Division
Stock for any period of ninety (90) consecutive trading days during the
Measurement Period is equal to or greater than $40.00 per share (the "TR Target
Price"). The "Measurement Period" will be from January 1, 1998 through and
including December 31, 1998 if the average closing price for Genzyme General
Division Stock for the 90-day period starting 45 calendar days prior to December
31, 1996 and ending 45 days after such date is greater than or equal to $67.26
plus the closing price of .136 share of Genzyme TR Division Stock over such
period, and otherwise the Measurement Period will be from April 1, 1998 through
and including March 31, 1999. The General Target Price and the TR Target Price
will be equitably adjusted by the Compensation Committee in the event of stock
splits, dividends or combinations and other corporate transactions affecting the
Genzyme's outstanding common stock. These options were granted at fair market
value on the date of grant.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and, therefore,
are not intended to forecast possible future appreciation, if any, in the price
of the underlying Genzyme TR Division Stock or Genzyme General Division Stock.
No gain to the optionees is possible without an increase in the price of the
underlying stock, which will benefit all shareholders proportionately. In order
to realize the potential values set forth in the 5% and 10% columns of this
table, the trading price of Genzyme General Division Stock and Genzyme TR
Division Stock would have to be approximately 63% and 159% above their
respective exercise prices for each option, or approximately $9.78 and $15.54
for the Genzyme TR Division Stock options with a $6.00 exercise price, or
approximately $63.37 and $100.69 for the General Division options with a $38.875
exercise price. The amounts shown for all Genzyme stockholders reflect the
potential value to all stockholders if the Genzyme TR Division Stock or the
Genzyme General Division Stock appreciates at the rates shown over the term of
the options, assuming a purchase in 1995 at the option exercise prices shown.
57
<PAGE> 63
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares December 31, 1995(#) December 31, 1995($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henri A. Termeer
Genzyme (General) -- -- 425,750/177,410 $18,693,739/4,776,251
Genzyme (TR) -- -- 75,093/129,496 882,188/790,664
Alan E. Smith
Genzyme (General) 20,350 894,595 68,493/63,216 $2,485,805/1,571,042
Genzyme (TR) -- -- 17,518/31,738 206,147/197,581
Elliott D. Hillback, Jr.
Genzyme (General) 10,000 407,600 79,813/68,442 $2,910,174/1,618,463
Genzyme (TR) -- -- 15,423/16,638 176,443/130,131
Geoffrey F. Cox
Genzyme (General) 32,550 1,431,949 73,493/58,671 $2,797,627/1,544,527
Genzyme (TR) -- -- 17,429/40,956 200,392/200,338
Gregory D. Phelps
Genzyme (General) -- -- 69,483/56,631 $1,309,811/1,496,587
Genzyme (TR) -- -- 26,811/60,576 268,715/410,961
<FN>
- --------------
(1) Based on the difference between the option exercise price and the closing
price of the underlying common stock on December 29, 1995, which closing price
was $62.375, in the case of Genzyme General Division Stock and $15.875 in the
case of Genzyme TR Division Stock.
</TABLE>
58
<PAGE> 64
EXECUTIVE EMPLOYMENT AGREEMENTS
Henri A. Termeer, President and Chief Executive Officer of Genzyme, has an
employment agreement with Genzyme that renews automatically each January 1 for
an additional one year period, unless prior written notice of nonrenewal is
given. The agreement provided for an initial annual base salary in 1990 of
$300,000, subject to increase in subsequent years as determined by the Board of
Directors or Compensation Committee, as well as certain life and disability
insurance benefits. The agreement entitles Mr. Termeer to participate in
Genzyme's cash bonus plan and in any equity incentive plans established by
Genzyme. In addition, the agreement provides for a lump sum payment of two times
annual salary and bonus and full vesting of all rights and options (other than
certain performance options) under stock or other equity incentive plans in the
event that Mr. Termeer's employment is terminated by Genzyme without cause (as
defined). If Mr. Termeer's employment is terminated by Genzyme without cause or
by Mr. Termeer for good reason (as defined) following a change in control of
Genzyme, Genzyme will make a lump sum severance payment to him of three times
annual salary and bonus. Upon such termination, the agreement also provides for
(i) a cash payment equal to the additional retirement benefit that would have
been earned under any retirement plan of Genzyme if employment had continued for
three years, (ii) continuation of his life, accident and health insurance
coverage for three years, except to the extent comparable benefits are provided
by a subsequent employer and (iii) in certain circumstances, legal costs and
relocation expenses associated with such termination. The agreement contains
customary confidentiality, non-competition and ownership of inventions
provisions.
EXECUTIVE SEVERANCE AGREEMENTS
Genzyme has Executive Severance Agreements with its executive officers
other than Messrs. Termeer and Lebson, pursuant to which payments will be made
under certain circumstances following a change in control of Genzyme. The
Agreements are automatically renewed for successive one year terms each January
1 unless prior written notice of nonrenewal is given. These agreements provide
that in the event the officer's employment is terminated by Genzyme without
cause or by the officer for good reason following a change in control, Genzyme
will make a lump sum severance payment to the officer of two times (in the case
of David J. McLachlan, Genzyme's Chief Financial Officer, three times) annual
salary and bonus. Upon such termination, the Agreements also provide for (i) a
cash payment equal to the additional retirement benefit which would have been
earned under Genzyme's retirement plans if employment had continued for two
years (in the case of Mr. McLachlan, three years) following the date of
termination, (ii) participation in the life, accident and health insurance plans
of Genzyme for such period except to the extent such benefits are provided by a
subsequent employer and (iii) in certain circumstances, legal costs and
relocation expenses associated with such termination.
COMPENSATION FROM THIRD PARTIES
Peter Wirth, Senior Vice President and General Counsel of Genzyme, is
a partner of Palmer & Dodge, outside counsel to Genzyme, Neozyme II and GTC.
Mr. Wirth participates as a partner of Palmer & Dodge in revenues for legal
services rendered to Genzyme, Neozyme II and GTC.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective July 1, 1994, Genzyme and Dr. Cooney entered into a consulting
agreement under which he provides consulting services to Genzyme for a minimum
of 20 days per year for an annual fee of $30,000.
59
<PAGE> 65
RELATED PARTY ARRANGEMENTS
During the periods covered by the financial statements incorporated by
reference from the reports of Genzyme, Genzyme entered into
agreements with its subsidiaries, as described below.
IG. On October 2, 1995, IG Laboratories, Inc. ("IG") was merged with and into
Genzyme and now operates as part of the diagnostic services unit of the General
Division. Prior to the merger, Henri A. Termeer was the Chairman of the IG Board
and a member of its Compensation Committee, Elliott J. Hillback was the
President and Chief Executive Officer of IG and David J. McLachlan was a member
of the IG Board. Mr. Termeer is also the Chief Executive Officer of Genzyme,
which, prior to the merger, owned approximately 69% of the outstanding IG Common
Stock. In addition, Messrs. Hillback and McLachlan are executive officers of
Genzyme. Prior to the merger, Mr. Hillback's compensation was paid by Genzyme
but charged to IG under a services agreement between IG and Genzyme described
below.
This Service Agreement provided that IG pay Genzyme a monthly fee for
certain basic services provided by Genzyme, such as treasury, data processing
and laboratory support services. Genzyme and IG were also parties to a sublease
agreement pursuant to which Genzyme sublet a portion of one of its facilities in
Framingham, Massachusetts to IG and a credit agreement pursuant to which Genzyme
extended to IG an unsecured line of credit of up to $9 million at an annual
interest rate of 6.5%. Pursuant to the services, sublease and credit agreements,
Genzyme received $2.2 million from IG in 1995. In June 1992, in connection with
IG's acquisition of Genetic Design, Inc. ("GDI"), an identity testing company,
Genzyme received shares of IG Common Stock in exchange for Genzyme common stock
and cash issued in the acquisition. Genzyme also purchased additional shares of
IG Common Stock for approximately $11 million in cash in order to provide
working capital for GDI, to discharge certain GDI obligations and to provide
working capital for IG unrelated to the acquisition. Furthermore, in connection
with Genzyme's acquisition in October 1992 of Vivigen, Inc., a genetic
diagnostic services company, Genzyme entered into a management agreement with IG
under which IG managed all aspects of the business of Vivigen in exchange for an
annual fee in the amount of 3% of Vivigen's net service revenues and an annual
incentive fee in the event that Vivigen's annual operating cash flow exceed its
operating cash flow for 1992. Genzyme paid an aggregate of $3.3 million in
management fees to IG in 1995.
NEOZYME II. In May 1992, Genzyme and Neozyme II completed a public offering of
2,415,000 units, each unit consisting of one share of Neozyme II callable common
stock, one Series N warrant to purchase a share of Genzyme common stock and one
callable warrant to purchase a share of Genzyme common stock, which resulted in
gross proceeds to Neozyme II of approximately $85 million. Under the terms of
the agreements between Genzyme and Neozyme II, Genzyme licensed to Neozyme II
all technology owned or controlled and sublicensable by it that may be useful in
developing products for the treatment of cystic fibrosis and Neozyme II agreed
to utilize substantially all of the net proceeds of the offering to engage
Genzyme to perform research, development and clinical testing of products for
the treatment of cystic fibrosis. In 1995, Genzyme received an aggregate of
$25.2 million from Neozyme II under the agreements between the companies. Mr.
Termeer is Chairman of the Board of Neozyme II.
GTC. Genzyme currently holds approximately 48.0% of the outstanding common stock
of GTC, a company engaged in the application of transgenic technology to the
development and production of recombinant proteins for therapeutic and
diagnostic uses. GTC, through its wholly-owned subsidiary TSI Corporation, is
also a leading provider of preclinical efficacy and toxicology testing, in vitro
testing, and production of biologics for the pharmaceutical, biotechnology and
chemical industries. Mr. Termeer is Chairman of the Board of GTC. Genzyme and
GTC are parties to a services agreement under which GTC pays Genzyme for certain
basic services provided by Genzyme, such as treasury, data processing and
laboratory support services, a sublease agreement pursuant to which Genzyme
subleases a portion of one of its facilities in Framingham, Massachusetts to GTC
and a research and development agreement pursuant to which Genzyme and GTC each
perform certain research services for each other. During 1995, Genzyme received
approximately $2.8 million from GTC pursuant to the three agreements
60
<PAGE> 66
between the companies and GTC received approximately $0.7 million from Genzyme
pursuant to the research and development agreement.
On February 10, 1995, GTC sold 500,000 shares of its common stock to
Genzyme at a purchase price of $8.00 per share, or an aggregate purchase price
of $4 million, pursuant to a common stock put agreement between GTC and Genzyme
entered into at the time of GTC's initial public offering.
On May 23, 1995, GTC entered into an agreement to acquire all of the
outstanding stock of Biodevelopment Laboratories, Inc., a privately-held
laboratory ("BDL"), in exchange for shares of GTC common stock. In connection
with this acquisition, Genzyme entered into a Securities Exchange Agreement with
GTC pursuant to which Genzyme issued 33,945 shares of Genzyme General Division
Stock to BDL stockholders in exchange for 475,467 shares of GTC common stock on
July 3, 1995.
On June 8, 1995, GTC sold 1,333,333 shares of its common stock to Genzyme
in exchange for the cancellation of $3,999,999 of GTC's outstanding indebtedness
under a line of credit and term loan agreement (the "GTC Loan Agreement")
entered into in July 1994. The largest amount outstanding under the GTC Loan
Agreement during the fiscal year ended December 31, 1995 was $6.0 million. The
line of credit under the GTC Loan Agreement was refinanced in July 1995 when GTC
obtained a commercial bank line of credit secured in part by a guaranty of GTC's
obligations by Genzyme. The remainder of the GTC Loan Agreement was terminated
in December 1995 upon completion of a further refinancing by the commercial
bank, subject to Genzyme's continuing guaranty of a total of $9.8 million of
credit facilities provided to GTC by the commercial bank. In exchange for its
guaranty, Genzyme received a warrant to purchase 145,000 shares of GTC Common
Stock at a price of $2.84375 per share.
On February 7, 1996, Genzyme advanced $950,000 to GTC under a short-term
credit arrangement.
COMPARISON OF RIGHTS OF HOLDERS OF GENZYME GENERAL DIVISION STOCK
AND GENETRIX STOCK
At the Effective Time, the stockholders of Genetrix, whose rights are
governed by Delaware law and the restated certificate of incorporation and
restated by-laws adopted thereunder, will become stockholders of Genzyme, a
corporation governed by the Massachusetts Business Corporation Law (the "MBCL")
and articles of organization and by-laws adopted thereunder. In addition to any
differences resulting from governing state law, Genzyme's capital structure
includes two classes of common stock, Genzyme General Division Stock and Genzyme
TR Division Stock, each designed to track the performance of the Division to
which it relates. Genetrix, on the other hand, has one class of common stock and
one class of preferred stock, divided into six series, currently outstanding.
The following discussion summarizes the material differences between the
rights of holders of Genetrix Stock and holders of Genzyme General Division
Stock based on a comparison of the DGCL and the MBCL and differences between the
charters and by-laws of Genetrix and Genzyme. The restated certificate of
incorporation and restated by-laws of Genetrix are referred to herein as the
"Genetrix Charter" and the "Genetrix By-Laws," respectively, and the articles of
organization and by-laws of Genzyme are referred to herein as the "Genzyme
Charter" and the "Genzyme By-Laws," respectively. This summary does not purport
to be complete and is qualified in its entirety by reference to the Genetrix
Charter and Genetrix By-Laws, the Genzyme Charter and Genzyme ByLaws, the
Genzyme Rights Agreement referred to below and the relevant portions of the MBCL
and the DGCL.
PREFERRED STOCK
Under the Genetrix Charter, the holders of Genetrix Preferred Stock are
entitled to certain liquidation and dividend preferences, redemption rights and
special voting rights. Upon conversion of the Genetrix Preferred Stock to
Genzyme General Division Stock, the holders of Genetrix Preferred Stock will
lose these special rights and preferences.
DIVIDEND RIGHTS
The Genetrix Charter provides that the holders of shares of Series A,
Series B, Series E and Series F Preferred Stock of Genetrix are entitled to
receive dividends, out of any assets legally available therefor, at rates per
annum
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set forth in the Genetrix Charter. The holders of shares of Series C and Series
D Preferred Stock of Genetrix are not entitled to receive dividends. In
addition, the holders of Genetrix Common Stock are entitled to receive, to the
extent permitted by law, such dividends as may from time to time be declared by
the Genetrix Board. These rights are subject to the rights of holders of shares
of Genetrix Preferred Stock having preferences as to dividends.
Genzyme's Charter provides that dividends on the Genzyme General Division
Stock and Genzyme TR Division Stock may be declared and paid only out of the
lesser of funds of Genzyme legally available therefor and the Available General
Dividend Amount, as defined below (with respect to the Genzyme General Division
Stock), or the Available Tissue Repair Dividend Amount, as defined below (with
respect to Genzyme TR Division Stock). Under the MBCL, the payment of dividends
is permitted if the corporation is not insolvent, the dividend payment does not
render the corporation insolvent, and the dividend payment does not violate the
corporation's Articles of Organization. Subject to such limitations, the Genzyme
Board may, in its sole discretion, declare and pay dividends exclusively on
either class of common stock, or both, in equal or unequal amounts,
notwithstanding the amounts available for the payment of dividends on each
class, the respective voting and liquidation rights of each class, the amounts
of prior dividends declared on each class or any other factor. Genzyme has never
paid a cash dividend on any class of its capital stock and currently intends to
retain all earnings for use in its business.
As stated above, in addition to the statutory limitations under the MBCL,
dividends on the Genzyme General Division Stock and Genzyme TR Division Stock
would be limited to an amount not in excess of the Available General Dividend
Amount or the Available Tissue Repair Dividend Amount, respectively. The
"Available Dividend Amount" with respect to a particular class of common stock
is defined to mean generally the greater of (A) the excess of (1) the greater of
(a) the fair value of the net assets allocated to the division represented by
such class of common stock or (b) an amount equal to stockholders' equity
allocated to such division as of June 30, 1994, increased or decreased, as
appropriate, to reflect, after June 30, 1994, (i) the net income or loss of such
division, (ii) any dividends or other distributions (including by
reclassification or exchange) declared or paid with respect to, or repurchases
or issuances of, any shares of capital stock attributed to such division, but
excluding dividends or other distributions paid in shares of capital stock
attributed to such division to the holders thereof, and (iii) any other
adjustments to the stockholders' equity of such division made in accordance with
generally accepted accounting principles, over (2) the aggregate par value of
all outstanding shares of capital stock attributed to such division or (B) the
amount legally available for the payment of dividends determined in accordance
with the MBCL applied as if such division were a separate corporation. See also
"Comparison of Rights of Holders of Genzyme General Division Stock and Genetrix
Stock - Dividends and Repurchases of Stock."
EXCHANGE OF GENZYME TR DIVISION STOCK
Genetrix's Charter does not provide for either mandatory or optional
redemption of Genetrix Common Stock or Series A Preferred Stock, but the
Genetrix Charter provides for the redemption of Series B, Series C, Series D,
Series E and Series F Preferred Stock.
The Genzyme Charter provides that Genzyme TR Division Stock may be
exchanged for any combination of cash and/or Genzyme General Division Stock upon
the terms described below. Genzyme cannot predict the impact on the market
prices for the Genzyme General Division Stock and Genzyme TR Division Stock of
its ability to effect such exchanges. See also "Comparison of Rights of Holders
of Genzyme General Division Stock and Genetrix Stock - Sale, Lease or Exchange
of Assets and Mergers."
OPTIONAL EXCHANGE. The Genzyme Board may at any time determine to exchange all
outstanding shares of Genzyme TR Division Stock for any combination of cash
and/or Genzyme General Division Stock having a Fair Market Value equal to 130%
of the Fair Market Value of Genzyme TR Division Stock as determined by the
trading prices during a specified period prior to the first public announcement
by Genzyme of such exchange.
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The foregoing provision allows Genzyme the flexibility to redeem all
outstanding shares of Genzyme TR Division Stock and leave outstanding one class
of common stock that would represent the residual equity interest in all of
Genzyme's businesses. Subject to the limitations described above, the optional
exchange could be exercised at any future time if the Genzyme Board determined
that, under the facts and circumstances then existing, an equity structure
consisting of two classes of common stock was no longer in the best interests of
all of Genzyme's stockholders (including holders of Genzyme General Division
Stock and holders of Genzyme TR Division Stock). Such exchange may be
consummated, however, at a time that is disadvantageous to the holders of either
Genzyme General Division Stock or the holders of Genzyme TR Division Stock. See
"Risk Factors - Risks Related to Two Classes of Common Stock - No Rights or
Additional Duties With Respect to the Divisions; Potential Conflicts."
MANDATORY EXCHANGE. In the event of the Disposition, in one transaction or a
series of related transactions, by Genzyme of all or substantially all of the
properties and assets allocated to the Tissue Repair Division (other than in
connection with the Disposition by Genzyme of all or substantially all of its
properties and assets in one transaction or a series of related transactions) to
any person, entity or group (other than (A) any entity in which Genzyme,
directly or indirectly, owns all of the equity interest or (B) certain entities
formed in connection with obtaining financing for the programs or products of
the Tissue Repair Division), Genzyme is required, on or prior to the first
business day following the 90th day following the consummation of such
Disposition, to exchange each outstanding share of Genzyme TR Division Stock for
any combination of cash and/or Genzyme General Division Stock having a Fair
Market Value equal to 130% of the Fair Market Value of Genzyme TR Division Stock
as determined by the trading prices during a specified period prior to the first
public announcement by Genzyme of such disposition. Consequently, holders of
Genzyme TR Division Stock may receive a greater or lesser premium for their
shares than any premium paid by a third party buyer of the assets of the Tissue
Repair Division. In addition, any such exchange for shares of Genzyme General
Division Stock could be made at a time when Genzyme TR Division Stock may be
considered to be undervalued and the Genzyme General Division Stock is
considered to be overvalued.
CERTAIN OTHER EXCHANGE TERMS. Genzyme's Charter contains definitions of
"Disposition," "Fair Market Value" and "Substantially all of the properties and
assets of the Tissue Repair Division," as well as certain provisions with regard
to required notices of exchanges of Genzyme TR Division Stock, treatment of
fractional shares, rights to dividends, surrender and exchange of stock
certificates, payment of issue and transfer taxes and the treatment of
Convertible Securities.
VOTING RIGHTS
The Genetrix Charter provides that holders of the Common Stock and Series
A, Series B, Series E and Series F Preferred Stock of Genetrix have the 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, and each such
share of Genetrix Stock is entitled to one vote. Holders of Series C and Series
D Preferred Stock of Genetrix do not have any voting rights except to the extent
required by Delaware law.
Genzyme's Charter provides that holders of shares of Genzyme General
Division Stock and Genzyme TR Division Stock vote together as a single class on
all matters as to which common stockholders generally are entitled to vote. On
all such matters, each share of Genzyme General Division Stock would have one
vote, and each share of Genzyme TR Division Stock would, through December 31,
1996, have .29 vote. Holders of outstanding Genzyme General Division Stock and
Genzyme TR Division Stock currently have approximately 90% and 10%,
respectively, of the total voting power of Genzyme. On January 1, 1997 and on
January 1 every two years thereafter, the number of votes to which each share of
Genzyme TR Division Stock will be entitled would be adjusted to equal the ratio
of the Fair Market Value of one share of Genzyme TR Division Stock to the Fair
Market Value of one share of Genzyme General Division Stock as of such date. The
voting rights of Genzyme TR Division Stock would also be appropriately adjusted
so as to avoid dilution in the aggregate voting rights of either class in the
event the outstanding shares of either class are subdivided (by stock split,
reclassification or otherwise) or
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combined (by reverse stock split, reclassification or otherwise), or in the
event of the issuance of shares of either class as a dividend or a distribution
to holders of shares of that class. If shares of only one class of common stock
are outstanding, or if shares of any class of common stock are entitled to vote
separately as a class, each share of that class would have one vote.
The relative voting rights of Genzyme General Division Stock and Genzyme TR
Division Stock are adjusted from time to time as described above so that a
holder's voting rights may more closely reflect the market value of such
holder's equity investment in Genzyme. Adjustments in the relative voting rights
of Genzyme General Division Stock and Genzyme TR Division Stock may influence an
investor interested in acquiring and maintaining a fixed percentage of Genzyme's
voting power to acquire such percentage of both classes of common stock, and
will limit the ability of investors in one class to acquire for the same
consideration relatively greater or lesser voting power per share than investors
in the other class. To the extent the relative market values of Genzyme General
Division Stock and Genzyme TR Division Stock change prior to the first such
adjustment or in between any adjustments, however, an investor in one class of
common stock may acquire relatively more or less voting power for the same
consideration when compared with investors in the other class of common stock.
In addition to matters on which the holders of Genzyme General Division
Stock and Genzyme TR Division Stock vote together as a single class of stock,
Genzyme's Charter requires the approval by the holders of the affected class of
common stock at a meeting at which a quorum is present and the votes cast in
favor of the proposal exceed those cast against to:
(1) allow any proceeds from the disposition of the properties or assets
allocated to either division to be used in the business of the other
division without fair compensation;
(2) allow any properties or assets allocated to either division to be
used in the business of the other division or for the declaration or
payment of any dividend or distribution on any class of common stock not
attributed to such division without fair compensation;
(3) issue shares of either class of common stock without allocating the
proceeds of such issuance to the division represented by such class of
common stock (provided, however, that Genzyme may without such approval
issue General Designated Shares and TR Designated Shares);
(4) change the rights or preferences of any class of common stock so as
to affect the class adversely; or
(5) effect any merger or business combination involving Genzyme as a
result of which (a) the holders of all classes of common stock of Genzyme
shall no longer own, directly or indirectly, at least fifty percent (50%)
of the voting power of the surviving corporation and (b) the holders of all
classes of common stock of Genzyme do not receive the same form of
consideration, distributed among such holders in proportion to the market
capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
In addition to the voting rights provided in the Genzyme Charter, the
approval of the holders of a majority of the outstanding shares of each class of
common stock, voting separately as a class, is required under the current MBCL
to approve any amendment to the Articles of Organization that would alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely. The MBCL does not currently provide for any other
separate voting rights for a class of common stock. Consequently, because most
matters brought to a stockholder vote will only require the approval of a
majority of all of Genzyme's outstanding capital stock entitled to vote on such
matters (including both classes of common stock) voting together as a single
class and because the holders of Genzyme General Division Stock will initially
have more than the number of votes required to approve any such matter, such
holders would be in a position to control the outcome of the vote on such a
matter. See "Risk Factors - Risks Related to Two Classes of Common Stock - No
Additional Separate Voting Rights."
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LIQUIDATION RIGHTS
The Genetrix Charter provides that, upon the liquidation, dissolution or
winding up of Genetrix, the consolidation or merger of Genetrix into any other
corporation, or the consummation by Genetrix of a transaction or series of
transactions in which more than 50% of the voting power of Genetrix is disposed,
and after Genetrix has satisfied or made provision for its debts and obligations
and for payment to holders of Genetrix Preferred Stock of the aggregate Merger
Preference, holders of Genetrix Common Stock are entitled to receive their
respective pro rata share of the net assets, if any, of Genetrix remaining for
distribution to Genetrix stockholders, assuming at the time of such liquidation
that all shares of Genetrix Preferred Stock shall have converted into shares of
Genetrix Common Stock.
Genzyme's Charter provides that holders of outstanding shares of Genzyme
General Division Stock and Genzyme TR Division Stock would receive the assets,
if any, remaining for distribution to common stockholders on a per share basis
in proportion to the respective per share liquidation units of such class and
will have no direct claim against any particular assets of Genzyme or any of its
subsidiaries. Each share of Genzyme General Division Stock will have one
liquidation unit and each share of Genzyme TR Division Stock will have .29
liquidation units (equal to the number of votes to which each share of Genzyme
TR Division Stock was entitled on December 16, 1994). The liquidation units of
Genzyme TR Division Stock will be appropriately adjusted so as to avoid dilution
in the aggregate liquidation rights of either class in the event the outstanding
shares of either class are subdivided (by stock split, reclassification or
otherwise) or combined (by reverse stock split, reclassification or otherwise),
or in the event of the issuance of shares of either class as a dividend or a
distribution to holders of shares of that class, but will not otherwise be
adjusted.
A merger or business combination involving Genzyme or a sale of all or
substantially all of the assets of Genzyme will not be treated as a liquidation.
However, Genzyme may not, without approval by the holders of Genzyme TR Division
Stock at a meeting at which a quorum is present and the votes cast in favor of
the action exceed those cast against, effect any merger or business combination
involving Genzyme as a result of which (a) the holders of all classes of common
stock of Genzyme shall no longer own, directly or indirectly, at least fifty
percent of the voting power of the surviving corporation, and (b) the holders of
all classes of common stock of Genzyme do not receive the same form of
consideration, distributed among such holders in proportion to the market
capitalization of each class of common stock as of the date of the first public
announcement of such merger or business combination.
TR DESIGNATED SHARES AND GENERAL DESIGNATED SHARES
Prior to the formation of the Tissue Repair Division, the Genzyme Board
determined that the initial pro forma equity interest in the Tissue Repair
Division would be represented by 10 million shares of Genzyme TR Division Stock.
This number of shares of Genzyme TR Division Stock was established based on the
desired initial trading range of Genzyme TR Division Stock, prevailing market
conditions, financial and operating information of the Tissue Repair Division
and the price-earnings ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
the Tissue Repair Division. Five million shares of Genzyme TR Division Stock,
representing 50% of the initial pro forma equity interest in the Tissue Repair
Division, were issued in connection with Genzyme's acquisition of BioSurface
Technology, Inc. ("BioSurface") to holders of BioSurface Common Stock. The other
50% of the initial pro forma equity interest in the Tissue Repair Division was
represented by five million "TR Designated Shares." TR Designated Shares are
authorized shares of Genzyme TR Division Stock which are not issued and
outstanding, but which the Genzyme Board may from time to time issue, sell or
otherwise distribute without allocating the proceeds or other benefits of such
issuance, sale or distribution to the Tissue Repair Division. Genzyme issued
approximately 3,400,000 of such TR Designated Shares as a stock dividend to
holders of Genzyme General Division Stock of record on December 16, 1994, the
date of the acquisition of BioSurface. The remaining initial TR Designated
Shares were reserved for issuance upon the exercise of stock options and
warrants and the conversion of convertible notes outstanding on December 16,
1994.
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The shares of Genzyme TR Division Stock that are issuable with respect to the TR
Designated Shares are not outstanding shares of Genzyme TR Division Stock, are
not eligible to receive dividends, and cannot be voted by Genzyme.
The number of TR Designated Shares is subject to adjustment. The number
will be (A) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of Genzyme TR
Division Stock and dividends or distributions of shares of Genzyme TR Division
Stock to holders of Genzyme TR Division Stock and other reclassifications of
Genzyme TR Division Stock, (B) decreased by (1) the number of shares of Genzyme
TR Division Stock issued by Genzyme, the proceeds of which are allocated to the
General Division, (2) the number of shares of Genzyme TR Division Stock issued
upon the exercise or conversion of options, warrants and other securities
attributed to the General Division, and (3) the number of any shares of Genzyme
TR Division Stock issued by Genzyme as a dividend or distribution or by
reclassification, exchange or otherwise to holders of Genzyme General Division
Stock (including the 3,400,000 shares of Genzyme TR Division Stock distributed
to holders of Genzyme General Division Stock in December 1994 as described
above), and (C) increased by (1) the number of any outstanding shares of Genzyme
TR Division Stock repurchased by Genzyme, the consideration for which was
allocated to the General Division, (2) one for each $10.00 reallocated from the
General Division to the Tissue Repair Division from time to time upon an
exercise by the General Division of its option to allocate to the Tissue Repair
Division up to $30 million in exchange for TR Designated Shares, and (3) the
number equal to the fair value (as determined by the Genzyme Board) 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
(C)(2)) divided by the Fair Market Value of one share of Genzyme TR Division
Stock as of the date of the reallocation; Genzyme is prohibited by its Charter
from taking any action which would have the effect of reducing the number of TR
Designated Shares to a number which is less than zero.
The Genzyme Charter also contains provisions for General Designated Shares.
Currently, there are no General Designated Shares. However, General Designated
Shares may be created if, for example, the Genzyme Board determines that
programs or other assets reallocated from the Tissue Repair Division to the
General Division will be accounted for as an increase in General Designated
Shares rather than as a transfer of cash or other assets of the General Division
having a fair value equal to the Tissue Repair Division assets reallocated.
Notwithstanding the foregoing, Genzyme agreed with BioSurface to adopt a policy
that no Key TR Program (as defined in "Management and Accounting Policies
Covering the Relationship of Genzyme Divisions - Inter-Division Asset
Transfers") may be transferred out of the Tissue Repair Division without a class
vote of the holders of Genzyme TR Division Stock except in certain limited
circumstances, and no reallocation of other programs or assets of the Tissue
Repair Division will be accounted for as an increase in General Designated
Shares without a class vote of the holders of Genzyme TR Division Stock. Genzyme
has also agreed that this policy will not be changed without a class vote of the
holders of Genzyme TR Division Stock. Consequently, any decision by the Genzyme
Board to account for a reallocation of any programs or assets of the Tissue
Repair Division as an increase in General Designated Shares would require a
class vote of the holders of Genzyme TR Division Stock.
The number of General Designated Shares are subject to adjustment in a
manner substantially similar to adjustments to the number of TR Designated
Shares.
Whenever additional shares of any class of common stock are issued and sold
by Genzyme, Genzyme will identify (i) the number of such shares issued and sold
for the account of the Division to which they relate, the proceeds of which will
be allocated to and reflected in the financial statements of such Division and
(ii) the number of such shares issued and sold from the TR Designated Shares or
the General Designated Shares, which shall reduce the number of TR Designated
Shares or General Designated Shares, as the case may be, and the proceeds of
which may be used for any proper corporate purpose. In the event Genzyme
repurchases outstanding shares of any class of common stock, it will identify
the number of shares that are repurchased for consideration that was allocated
to the General Division and the number of shares that are repurchased for
consideration that was allocated to the Tissue Repair Division and the number of
TR Designated Shares or General Designated Shares may increase accordingly.
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MEETINGS OF STOCKHOLDERS
Delaware law provides that special meetings of stockholders may be called
only by the directors or by any other person as may be authorized by the
corporation's certificate of incorporation or by-laws. The Genetrix By-Laws
authorize the Chairman of the Board, the President or the Genetrix Board to call
special meetings of stockholders. The Genetrix By-Laws also provide for the call
of a special meeting upon written request of the holders of one-fifth or more of
the voting power of Genetrix. Massachusetts law provides that special meetings
of stockholders of a corporation with a class of voting stock registered under
the Securities Exchange Act of 1934, as amended (a "public company"), may be
called by a corporation's president or directors, and, unless otherwise provided
in the articles of organization or by-laws, must be called by its clerk or any
other officer upon written application of the owners of at least 40% of the
corporation's stock entitled to vote at such meeting. The Genzyme By-Laws
provide for the call of a special meeting of stockholders by the president or
directors of Genzyme, or upon written application of the owners of not less than
90% (or such lesser percentage as may be required by law) in interest of the
corporation's stock entitled to vote at such meeting.
INSPECTION RIGHTS
Inspection rights under the Delaware corporation statute are more extensive
than under the Massachusetts statute. Under the Delaware statute, stockholders,
upon the demonstration of a proper purpose, have the right to inspect a
corporation's stock ledger, stockholder list, and other books and records. Under
the Massachusetts statute, a corporation's stockholders have the right for a
proper purpose to inspect the corporation's articles of organization, by-laws,
records of all meetings of incorporators and stockholders, and stock and
transfer records, including the stockholder list. In addition, stockholders of a
Massachusetts business corporation have a qualified common law right under
certain circumstances to inspect other books and records of the corporation.
ACTION BY CONSENT OF STOCKHOLDERS
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting at
which all stockholders were present and voted consent to the action in writing.
The Genetrix Charter does not provide otherwise. Under Massachusetts law, any
action to be taken by stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing,
and a corporation may not provide otherwise in its articles of organization or
by-laws. Because the Massachusetts law may change in the future, the Genzyme
Charter and ByLaws contain a provision eliminating the right of stockholders to
take action by written consent, except as otherwise required by law.
CUMULATIVE VOTING
Under Delaware law, a corporation may provide in its certificate of
incorporation for cumulative voting by stockholders in elections of directors
(i.e., each stockholder casts as many votes for directors as he has shares of
stock multiplied by the number of directors to be elected). The Genetrix Charter
does not provide for cumulative voting. Massachusetts has no cumulative voting
provision.
DIVIDENDS AND REPURCHASES OF STOCK
Under Delaware law, a corporation generally is permitted to declare and pay
dividends out of surplus or out of net profits for the current and/or preceding
fiscal year, provided that any dividends out of net profits will not reduce
capital below the amount of capital represented by all classes of stock having a
preference upon the distribution of assets. Also under Delaware law, a
corporation may generally redeem or repurchase shares of its stock if such
redemption or repurchase will not impair the capital of the corporation. The
directors of a Delaware
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corporation may be jointly and severally liable to the corporation for a willful
or negligent violation of such provisions of Delaware law. Under Massachusetts
law, the payment of dividends and the repurchase of the corporation's stock are
generally permissible if such actions are not taken when the corporation is
insolvent, do not render the corporation insolvent, and do not violate the
corporation's articles of organization. The directors of a Massachusetts
corporation may be jointly and severally liable to the corporation to the extent
that a dividend authorized by the directors exceeds such permissible amounts and
is not repaid to the corporation. See also "Comparison of Rights of Holders of
Genzyme General Division Stock and Genetrix Common Stock - Dividend Rights."
CLASSIFICATION OF THE BOARD OF DIRECTORS
Delaware law permits (but does not require) classification of a
corporation's board of directors into one, two or three classes. The Genetrix
Board is not classified. Massachusetts law permits classification of a
corporation's board of directors, but in the case of a public company,
Massachusetts law requires classification into three classes and imposes certain
other requirements unless the directors of such public company elect by vote to
be exempt from such requirements. The Genzyme Board has voted to exempt the
corporation from such requirements because the Genzyme Charter contains its own
classification scheme. The Genzyme Charter provides that Genzyme's Board of
Directors is divided into three classes with the directors of each class being
elected for staggered three year terms.
REMOVAL OF DIRECTORS
Delaware law authorizes stockholders to remove directors with or without
cause by a majority vote. The Genetrix By-Laws provide for the removal of a
director or the board of directors, with or without cause, at a duly called
special meeting of stockholders. Unlike Massachusetts law, Delaware law does not
permit directors to remove other directors. Under Massachusetts law, except as
otherwise provided in a corporation's articles of organization or by-laws,
directors may be removed from office with or without cause by the holders of a
majority of the shares entitled to vote in the election of directors and with
cause by a majority of the directors then in office. The Genzyme Charter
provides that the sole method of removal of directors is for cause by the
holders of a majority of the shares entitled to vote in the election of
directors.
VACANCIES ON THE BOARD OF DIRECTORS
Under both Delaware and Massachusetts law, unless otherwise provided in the
charter or by-laws, vacancies on the board of directors and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the remaining directors. Neither the Genetrix nor Genzyme
Charter provides otherwise.
EXCULPATION OF DIRECTORS
Delaware law and Massachusetts law have substantially similar provisions
relating to exculpation of directors. Each state's law permits, and the Genetrix
and Genzyme Charters provide, that no director will be personally liable to the
corporation or its stockholders for monetary damages for breaches of fiduciary
duty except where such exculpation is expressly prohibited. The circumstances
under which such exculpation is prohibited are substantially similar, except
that in Massachusetts, a director is not exculpated from liability under
provisions of Massachusetts law relating to unauthorized distributions and loans
to insiders, while in Delaware, a director is not exculpated from liability
under provisions of Delaware law relating to unlawful payments of dividends and
unlawful stock purchases or redemptions.
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INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Both Delaware and Massachusetts law generally permit indemnification of
directors and officers for expenses, judgments, fines and amounts paid in
settlement incurred by them by reason of their position with the corporation, if
the director or officer has acted in good faith and with the reasonable belief
that his conduct was in the best interest of the corporation. However, Delaware
law, unlike Massachusetts law, does not permit a corporation to indemnify
persons against judgments or settlements in actions brought by or in the right
of the corporation (although it does permit indemnification of expenses in such
situations, but, if the person was adjudged liable, only if approved by the
Delaware Court of Chancery). The Genzyme By-Laws provide for the indemnification
of officers and directors to the maximum extent legally permissible, with
substantially the same effect as the Genetrix Charter as supplemented by
Delaware statutory provisions. However, because Massachusetts law does not
prohibit indemnification for judgments in actions by or in the right of the
corporation, the Genzyme By-Laws to this extent purport to afford Genzyme
officers and directors greater rights to indemnification for judgments in
derivative actions than would be available under Delaware law (but no
Massachusetts court has approved such indemnification under such circumstances).
INTERESTED DIRECTOR TRANSACTIONS
The Delaware corporate statute provides that no transaction between a
corporation and one or more of its directors or officers or an entity in which
one or more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for that reason. In
addition, no such transaction shall be void or voidable solely because the
director or officer is present at, participates in, or votes at the meeting of
the board of directors or committee which authorizes the transaction. In order
that such a transaction not be found void or voidable, it must, after disclosure
of material facts, be approved by the disinterested directors, a committee of
disinterested directors, or the stockholders, or the transaction must be fair as
to the corporation. The Massachusetts statute has no comparable provision.
However, the Genzyme Charter provides that no transaction by Genzyme will be
invalidated by the fact that one or more of Genzyme's directors or officers is a
party to the transaction or has a position or financial interest in a party to
the transaction. The Genzyme Charter also provides that any such interested
director may vote on the transaction, notwithstanding such interest.
SALE, LEASE OR EXCHANGE OF ASSETS AND MERGERS
Delaware law requires the approval of the directors and the vote of the
holders of a majority of the outstanding stock entitled to vote thereon for the
sale, lease, or exchange of all or substantially all of a corporation's property
and assets or a merger or consolidation of the corporation into any other
corporation, although the certificate of incorporation may require a higher
stockholder vote. The Genetrix Charter also requires that the holders of the
outstanding shares of the Series A, Series B, Series E and Series F Preferred
Stock of Genetrix vote in favor of such a transaction. Massachusetts law
provides that a vote of two-thirds of the shares of each class of stock
outstanding and entitled to vote thereon is required to authorize the sale,
lease, or exchange of all or substantially all of a corporation's property and
assets or a merger or consolidation of the corporation into any other
corporation, except that the articles of organization may provide that the vote
of a greater or lesser proportion, but not less than a majority of the
outstanding shares of each class, is required. Under Massachusetts law, the
articles of organization or by-laws may provide that all outstanding classes of
stock vote as a single class, but, in the case of a merger or consolidation, the
separate vote of all classes of stock, the rights of which would be adversely
affected by the transaction, is also required. The Genzyme Charter reduces the
stockholder vote required to approve such transactions from two-thirds to a
majority of each class outstanding and entitled to vote thereon, if the
transaction is approved by the Board of Directors. See "Comparison of Rights of
Holders of Genzyme General Division Stock and Genetrix Common Stock - Exchange
of Genzyme TR Division Stock" and "-Anti-Takeover Provisions."
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AMENDMENTS TO CHARTER
Under Delaware law, charter amendments require the approval of the
directors and the vote of the holders of a majority of the outstanding stock and
a majority of each class of stock outstanding and entitled to vote thereon as a
class, unless the certificate of incorporation requires a greater proportion.
The Genetrix Charter does not require a greater proportion. In addition,
Delaware law requires a class vote when, among other things, an amendment will
alter or change the powers, preferences or special rights of a class of stock so
as to affect them adversely. Under Massachusetts law, amendments to a
corporation's articles of organization relating to certain changes in capital
stock or in the corporate name require the vote of at least a majority of each
class of stock outstanding and entitled to vote thereon. Amendments relating to
other matters require a vote of at least two-thirds of each class outstanding
and entitled to vote thereon or, if the articles of organization so provide, a
greater or lesser proportion but not less than a majority of the outstanding
shares of each class. Under Massachusetts law, the articles of organization or
by-laws may provide that all outstanding classes of stock vote as a single
class, but the separate vote of any class of stock the rights of which would be
adversely affected by the amendment, is also required. The Genzyme Charter
reduces the stockholder vote to approve such amendments from two-thirds to a
majority of each class outstanding and entitled to vote thereon, if the
amendment is approved by the Board of Directors.
APPRAISAL RIGHTS
Dissenting stockholders have the right to obtain the fair value of their
shares (so-called "appraisal rights") in more circumstances under Massachusetts
law than under Delaware law. Under Delaware law, a stockholder is entitled to
appraisal rights in the event of certain mergers or consolidations. In general,
appraisal rights are not available in a merger under Delaware law with respect
to shares of any corporation which on the record date of the vote to approve the
merger are listed on a national securities exchange, quoted on the Nasdaq
National Market or held of record by more than 2,000 stockholders, unless the
consideration to be received in the merger is other than shares of stock of the
corporation surviving the merger or shares of stock of another corporation
which, at the effective date of the merger, will be either listed on a national
securities exchange, quoted on the Nasdaq National Market or held of record by
more than 2,000 stockholders. Appraisal rights are not available under Delaware
law in the event of the sale, lease, or exchange of all or substantially all of
a corporation's assets or the adoption of an amendment to its certificate of
incorporation, unless such rights are granted in the corporation's certificate
of incorporation. The Genetrix Charter does not grant such rights. Under
Massachusetts law, a properly dissenting stockholder is entitled to receive the
appraised value of his shares when the corporation votes (i) to sell, lease, or
exchange all or substantially all of its property and assets, (ii) to adopt an
amendment to its articles of organization which adversely affects the rights of
the stockholder, or (iii) to merge or consolidate with another corporation.
"ANTI-TAKEOVER" PROVISIONS
CONTRACTUAL MEASURES. The Charter and By-laws of Genzyme contain provisions that
could discourage potential takeover attempts and prevent stockholders from
changing the Genzyme's management, including authorization of the Board of
Directors to issue shares of preferred stock in series, enlarge the size of the
Board of Directors and fill any vacancies on the Board of Directors, and
restrictions on the ability of stockholders to call a special meeting of
stockholders, bring business before an annual meeting and nominate candidates
for election as directors. Genzyme also has agreements with certain officers
containing change of control provisions.
In addition, Genzyme has a stockholder rights plan. Under this plan, each
outstanding share of Genzyme General Division Stock also represents a right
that, under certain circumstances, may trade separately from the Genzyme General
Division Stock. The rights, which are not currently exercisable, under certain
circumstances will permit their holders (other than an acquiror) to purchase at
a favorable price large amounts of Genzyme General Division Stock or securities
of a successor to Genzyme with the result that an acquiror's interest in Genzyme
would
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be substantially diluted. The description and terms of the rights are set forth
in a Rights Agreement between Genzyme and American Stock Transfer and Trust
Company as Rights Agent.
Genetrix has not adopted any comparable anti-takeover plan.
BUSINESS COMBINATION STATUTE. Delaware's "Business Combination" statute is
substantially similar to Massachusetts' Business Combination statute. The
Delaware statute provides that if a person acquires 15% or more of the stock of
a Delaware corporation without the approval of its board of directors (an
"interested stockholder"), such stockholder may not engage in certain
transactions with the corporation for a period of three years; the Massachusetts
statute, however, has lowered the 15% threshold to 5%. Both the Delaware and
Massachusetts statutes include certain exceptions to this prohibition; for
example, if the board of directors approves the acquisition of stock or the
transaction prior to the time that the person became an interested stockholder,
or if the interested stockholder acquires 85% (in the Delaware statute) or 90%
(in the Massachusetts statute) of the voting stock of the corporation (excluding
voting stock owned by directors who are also officers and certain employee stock
plans) in one transaction, or if the transaction is approved by the board of
directors and by the affirmative vote of two-thirds of the outstanding voting
stock which is not owned by the interested stockholder, the prohibition does not
apply.
Genetrix currently is subject to the Delaware Business Combination statute.
Genzyme is subject to the Massachusetts Business Combination statute unless it
elects not to be governed by the statute in its articles of organization or
by-laws. Genzyme has not made such election and does not currently intend to
make such an election.
CONTROL SHARE ACQUISITION STATUTE. The Massachusetts Control Share Acquisition
statute provides that a person (hereinafter, the "acquiror"), who makes a bona
fide offer to acquire, or acquires, shares of stock of a corporation that, when
combined with shares already owned, would increase the acquiror's ownership to
at least 20%, 33 1/3% or a majority of the voting stock of the corporation, must
obtain the approval of a majority in interest of the shares held by all
stockholders, except the acquiror and the officers and inside directors of the
corporation, in order to vote the shares acquired. The statute does not require
the acquiror to consummate the purchase before the stockholder vote is taken.
The Control Share Acquisition statute permits a Massachusetts corporation
to elect not to be governed by these provisions by including such an election in
its articles of organization or by-laws. The Genzyme By-Laws contain a provision
pursuant to which Genzyme elected not to be governed by the Massachusetts
Control Share Acquisition statute. If at a future date the Board of Directors of
Genzyme determines that it is in the best interests of Genzyme and its
stockholders that Genzyme be governed by the statute, however, the Genzyme
By-Laws may be amended to permit Genzyme to be governed by such statute. Any
such amendment, however, would apply only to acquisitions crossing the
thresholds which occur after the effective date of such amendment.
Delaware does not have a control share acquisition statute.
MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
Genzyme currently has two classes of common stock outstanding: Genzyme
General Division Stock and Genzyme TR Division Stock. Stockholders of Genetrix
will receive shares of Genzyme General Division Stock in the Merger. The Genzyme
General Division Stock and the Genzyme TR Division Stock are intended to track
the performance of the General Division and the Tissue Repair Division,
respectively, of Genzyme.
Genzyme has adopted the following policies to govern the management of the
Tissue Repair Division and its relationship to the General Division. Except as
otherwise stated below, the policies may be modified or rescinded in the sole
discretion of the Genzyme Board without approval of Genzyme stockholders,
subject only to the
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Genzyme Board's fiduciary duty to Genzyme's stockholders. The Genzyme Board may
also adopt additional policies depending upon the circumstances. Any
determination of the Genzyme Board to modify or rescind such policies, or to
adopt additional policies, including any such decision that would have disparate
impacts upon holders of the two classes of common stock, would be governed by
the principles of Massachusetts law discussed under "Risk Factors - No Rights or
Additional Duties with Respect to the Divisions; Potential Conflicts." In
addition, generally accepted accounting principles require that any change in
policy be preferable (in accordance with such principles) to the previous
policy.
PURPOSE OF THE TISSUE REPAIR DIVISION. The purpose of the Tissue Repair Division
is to create a business with a comprehensive approach to the field of tissue
repair by developing and commercializing a portfolio of novel products for the
treatment and prevention of serious tissue injury (excluding products developed
on behalf of Genzyme Development Partners). In addition to the programs
initially assigned to the Tissue Repair Division, it is expected that the Tissue
Repair Division portfolio will expand through the addition of complementary
products and programs developed either internally or externally to the division,
including acquiring or in-licensing from outside of Genzyme. Other than the
method of financing, the Tissue Repair Division is operated and managed
similarly to other Genzyme divisions.
REVENUE ALLOCATION. Revenues from the sale of a division's products are credited
to that division. The cost of research done by one division for the benefit of
another division is charged to the division for which the work is done in the
manner described in the following paragraph. The division performing the
research does not recognize revenue as a result of such research.
EXPENSE ALLOCATION. All direct expenses are charged to the division for the
benefit of which they are incurred. Corporate and general and administrative
expenses and other shared services or other indirect costs are allocated to each
division in a reasonable and consistent manner based on utilization by the
division of the services to which such costs relate. To the extent borrowings
are deemed to occur between divisions, inter-division accounts will be
established with interest imputed at the rate then available to Genzyme for
short-term borrowings.
TAX ALLOCATIONS. Income taxes are allocated to each division based upon the
financial statement income, taxable income, credits and other amounts properly
allocable to such division under generally accepted accounting principles as if
each division were a separate taxpayer; provided, however, that as of the end of
any fiscal quarter of Genzyme, any projected tax benefit attributable to any
division that cannot be utilized by such division to offset or reduce its
current or deferred income tax expense may be allocated to any other division
without any compensating payment or allocation.
ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme
from a third party of any additional programs, products or assets (whether by
acquisition of assets or stock, merger, consolidation or otherwise), the
aggregate cost of the acquisition and the programs, products or assets acquired
will be allocated among the divisions to which such programs, products or assets
are assigned. Such assignment and allocation will be made by the Genzyme Board
taking into account such matters as the Genzyme Board and its financial
advisors, if any, deem relevant. Any such determination by the Genzyme Board
will be final and binding on all holders of all classes of common stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon any sale, transfer, assignment
or other disposition by Genzyme of any product, program or asset not consisting
of all or substantially all of the assets of a division, all proceeds from such
disposition will be allocated to the division to which the program, product or
asset had been allocated, and such proceeds will be used for the benefit of such
division. If a program, product or asset is allocated to more than one division,
the proceeds of the disposition will be allocated among such divisions based on
their respective interests in such program, product or asset. Such allocation
will be made by the Genzyme Board taking into account such matters as the
Genzyme Board and its financial advisors, if any, deem relevant. Any such
determination by the Genzyme Board will be final and binding on all holders of
all classes of common stock.
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INTER-DIVISION ASSET TRANSFERS. The Genzyme Board may at any time and from time
to time reallocate any program, product or other asset from one division to any
other division. All such reallocations will be done at fair market value,
determined by the Genzyme Board, taking into account, in the case of a program
under development, the commercial potential of such program, the phase of
clinical development of such program, the expenses associated with realizing any
income from such program, the likelihood and timing of any such realization and
other matters that the Genzyme Board and its financial advisors deem relevant.
The consideration for such reallocation may be paid by one division to another
in cash or, in lieu of cash or other consideration, the Genzyme Board may elect
to account for a reallocation of assets from the Tissue Repair Division to the
General Division as an increase in the General Designated Shares (shares of
Genzyme General Division Stock that Genzyme may issue without allocating any
consideration to the General Division) and a reallocation of assets from the
General Division to the Tissue Repair Division as either an increase in the TR
Designated Shares (certain shares of Genzyme TR Division Stock that Genzyme may
issue without allocating any consideration to the Tissue Repair Division) or a
reduction in the General Designated Shares, if any, except that a reallocation
of assets from the Tissue Repair Division to the General Division may not be
accounted for as an increase in General Designated Shares without a class vote
of the holders of the Genzyme TR Division Stock.
Notwithstanding the foregoing, no Key TR Program, as defined below, may be
transferred out of the Tissue Repair Division without a class vote of the
holders of the Genzyme TR Division Stock unless the Genzyme Board determines
that such Key TR Program has application outside of the field of tissue repair
(in which case it may be transferred out only for the non-tissue repair
applications). A "Key TR Program" is any of the following: (i) Vianain(R) for
debridement of necrotic or damaged tissue; (ii) TGF-(beta)2 for all indications
licensed from Celtrix Pharmaceuticals, Inc. as of December 16, 1994; (iii)
Epicel(sm) cultured epithelial cell autografts for tissue replacement or repair;
(iv) Acticel(sm) cultured epithelial cell allografts for tissue replacement or
repair; (v) CARTICEL(TM) Autologous Chondrocyte Service; and (vi) any additional
tissue repair program or product being developed from time to time in the Tissue
Repair Division which (a) constituted 20% or more of the research and
development budget of the Tissue Repair Division in any of three most recently
completed fiscal years or (b) has had a cumulative investment of $8 million or
more in research and development expenses by the Tissue Repair Division.
The foregoing policies regarding transfers of assets between divisions may
not be changed by the Genzyme Board without a class vote of the holders of the
Genzyme TR Division Stock.
ACCESS TO TECHNOLOGY AND KNOW-HOW. The Tissue Repair Division and the General
Division each have free access to all technology and know-how of Genzyme that
may be useful in such division's business, subject to any obligations or
limitations applicable to Genzyme.
DISPOSITION OF TR DESIGNATED SHARES. The TR Designated Shares may be (i) issued
upon the exercise of outstanding stock options and warrants and the conversion
of outstanding convertible notes allocated to the General Division, (ii) subject
to the restrictions set forth in the following paragraph, sold for any valid
business purpose, or (iii) distributed as a dividend to the holders of shares of
Genzyme General Division Stock, all as determined from time to time by the
Genzyme Board in its sole discretion. Genzyme distributed approximately 3.4
million of the initial 5.0 million TR Designated Shares as a stock dividend to
holders of Genzyme General Division Stock of record on December 16, 1994, and
reserved the remaining initial TR Designated Shares for issuance upon the
exercise or conversion of Genzyme General Division options, warrants and
convertible notes outstanding as of December 15, 1994. To the extent that any
such remaining initial TR Designated Shares are not used for such purposes, the
Genzyme Board may issue them for any other valid business purposes without
crediting any proceeds to the Tissue Repair Division.
ISSUANCE OF ADDITIONAL SHARES OF ANY CLASS OF GENZYME COMMON STOCK. If
additional shares of any class of common stock are issued and sold by Genzyme,
Genzyme will identify (i) the number of such shares issued and sold for the
account of the division to which they relate, the proceeds of which will be
allocated to and reflected
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in the financial statements of such division and (ii) the number of such shares
issued and sold that will reduce the number of Designated Shares from such
division and the proceeds of which may be used for any valid business purpose.
Notwithstanding the foregoing, Genzyme will not sell any shares of Genzyme TR
Division Stock without allocating the proceeds to the Tissue Repair Division
(except upon exercise or conversion of General Division options, warrants or
convertible notes outstanding as of December 16, 1994) unless (i) the Genzyme
Board of Directors determines that the Tissue Repair Division has cash
sufficient to fund its operations for at least the next 12 months or (ii) shares
of Genzyme TR Division Stock concurrently being sold for the account of the
Tissue Repair Division will produce proceeds sufficient to fund the Tissue
Repair Division's cash needs for the next 12 months.
RESERVATION OF SHARES OF GENZYME TR DIVISION STOCK. Genzyme has reserved
approximately 2,000,000 shares of Genzyme TR Division Stock for issuance to
Genzyme employees pursuant to grants made after December 15, 1994 under one or
more employee incentive plans.
OPEN MARKET PURCHASES OF SHARES OF ANY CLASS. Genzyme may make open market
purchases of any class of its common stock in accordance with applicable
securities law requirements; provided, however, that such purchases of Genzyme
TR Division Stock may not be made if as an immediate result thereof the number
of TR Designated Shares would represent more than 60% of the number of TR
Designated Shares plus the number of outstanding shares of Genzyme TR Division
Stock. Such restriction is intended to prevent Genzyme from using open market
purchases to effect a redemption of the Genzyme TR Division Stock without paying
the 30% premium required for a complete redemption of Genzyme TR Division Stock
under the terms of the Genzyme Charter. In addition, within 90 days of any open
market purchase of any class of common stock, Genzyme may not exchange shares of
such class for cash or shares of any other class of common stock. See
"Comparison of Rights of Holders of Genzyme General Division Stock and Genetrix
Stock - Exchange of Genzyme TR Division Stock."
CLASS VOTING. In addition to any shareholder approval required by Massachusetts
law, whenever the approval of the holders of a class of common stock is required
to take any action pursuant to these policies or the Genzyme Charter, such
requirement will be satisfied if a meeting of the holders of such class is held
at which a quorum is present and the votes cast in favor of the proposed action
exceed the votes cast against.
NON-COMPETE. Genzyme will not develop products outside of the Tissue Repair
Division that compete or would compete in the market with products being
developed or sold by the Tissue Repair Division.
LEGAL OPINIONS
The validity of the Genzyme General Division Stock to be issued in
connection with the Merger will be passed upon for Genzyme by Palmer & Dodge,
Boston, Massachusetts, counsel for Genzyme. Palmer & Dodge will also opine to
Genetrix upon certain of the federal income tax consequences of the Merger.
Peter Wirth, a partner in Palmer & Dodge, is a Senior Vice President, the
General Counsel and the Clerk of Genzyme. As of February 1, 1996, Mr. Wirth
beneficially owned 5,611 and 2,500 shares of Genzyme General Division Stock and
Genzyme TR Division Stock, respectively, subject to options exercisable within
60 days.
Rutan & Tucker, Costa Mesa, California, is acting as counsel for Genetrix
in connection with certain legal matters relating to the Merger and the
transactions contemplated thereby.
EXPERTS
The consolidated financial statements and financial statement schedule of
Genzyme Corporation, the combined financial statements of Genzyme General
Division and the combined financial statements of Genzyme Tissue Repair Division
as of December 31, 1993 and 1994 for each of the three years in the period ended
December 31, 1994 included in Genzyme's Annual Report on Form 10-K for the year
ended December 31, 1994, as amended by Amendments Nos. 1 and 2 thereto on Form
10-K/A, that have been incorporated by reference in this Prospectus/Proxy
Statement have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
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The financial statements and financial statement schedules of BioSurface
Technology, Inc. as of December 31, 1992 and 1993 and for each of the three
years in the period ended December 31, 1993, appearing at pages III-19 to III-42
of Annex III to the Company's Registration Statement on Form S-4 (File No.
33-83346), that have been incorporated by reference into this Prospectus/Proxy
Statement have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements of Genetrix as of December 31, 1993
and 1994 and for each of the three years in the period ended December 31, 1994
included in this Prospectus/Proxy Statement of Genzyme which is referred to and
made part of this Prospectus/Proxy Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing. Representatives of Ernst &
Young LLP are expected to attend the Special Meeting to respond to appropriate
questions and will have the opportunity to make a statement if they desire.
The balance sheets of Genzyme Development Partners, L.P. as of December 31,
1993 and 1994 and the related statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1994
included in Genzyme Development Partners' Annual Report on Form 10-K for the
year ended December 31, 1994 that have been incorporated by reference in this
Prospectus/Proxy Statement, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
FINANCIAL ADVISORS
Alex. Brown acted as financial advisor to Genetrix in connection with the
Merger. Pursuant to the terms of its engagement, Genetrix has agreed to pay
Alex. Brown a transaction fee, upon consummation of the Merger, equal to
$500,000 plus 5% of the amount by which the Merger Consideration exceeds
$35,000,000. Genetrix has also agreed to pay Alex. Brown a fee of $250,000,
creditable against the transaction fee, for rendering its opinion as to the
fairness, from a financial point of view, of the Merger Consideration to be
received by Genetrix stockholders. In addition, Genetrix has agreed to reimburse
Alex. Brown for its reasonable out-of-pocket expenses, including fees and
disbursements of counsel, and to indemnify Alex. Brown and certain related
persons against certain liabilities, including certain liabilities under the
federal securities laws, relating to, or arising out of, its engagement.
SOLICITATION COMPENSATION
Genetrix will bear the cost of solicitation of proxies, including the
charges and expenses of brokerage firms and others of forwarding solicitation
material to beneficial owners of stock in connection with the Special Meeting.
In addition to the use of mails, proxies may be solicited by officers and
employees of Genetrix in person or by telephone.
OTHER MATTERS
Genetrix knows of no other business that will be presented for action by
the stockholders at the Special Meeting. If other business is properly presented
for consideration at the Special Meeting, the enclosed proxy authorizes the
person named therein to vote the shares in their discretion.
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INDEX TO GENETRIX FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 and 1993.......... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 and
for the nine months ended September 30, 1995 and 1994 (unaudited)........................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and
1992 and for the nine months ended September 30, 1995 and 1994 (unaudited)............................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
and for the nine months ended September 30, 1995 and 1994 (unaudited).................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
</TABLE>
F-1
<PAGE> 82
Report of Independent Auditors
The Board of Directors and Stockholders
Genetrix, Inc.
We have audited the accompanying consolidated balance sheets of Genetrix, Inc.
as of December 31, 1993 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Genetrix, Inc. at
December 31, 1993 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 25, 1995
F-2
<PAGE> 83
Genetrix, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
-----------------------------------------
<S> <C> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,743,601 $ 1,050,007 $ 422,167
Trade accounts receivable, net of allowance for doubtful
accounts of $777,258 in 1993, $988,202 in 1994 and
$1,029,253 in 1995 2,543,654 4,479,222 4,249,371
Inventories 301,201 319,658 305,893
Prepaid expenses and other current assets 229,824 262,628 415,318
-----------------------------------------
Total current assets 6,818,280 6,111,515 5,392,749
Equipment, furniture and fixtures, net 2,083,398 4,051,522 3,874,895
Excess of purchase price over net assets, net -- 2,813,803 2,650,281
Other assets 1,538,662 173,125 186,843
-----------------------------------------
Total assets $10,440,340 $13,149,965 $12,104,768
=========================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 84
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C> <C>
Current liabilities:
Accounts payable $ 510,335 $ 1,318,697 $ 1,215,589
Accrued liabilities 2,343,201 2,620,276 1,782,108
Line of credit -- 500,000 1,000,000
Current portion of notes payable 1,347,178 602,352 207,655
Capital lease obligations due within one year 203,356 301,174 286,431
Current portion of deferred lease incentive 20,806 20,806 20,806
----------------------------------------------
Total current liabilities 4,424,876 5,363,305 4,512,589
Other liabilities 25,000 -- --
Capital lease obligations due after one year 110,058 209,572 215,328
Deferred lease incentive 227,613 206,807 191,203
Notes payable due after one year 256,879 135,135 79,055
Commitments and contingency
Stockholders' equity:
Convertible preferred stock, $.001 par value, 7,000,000 shares
authorized:
Series A, 1,148,040 shares issued and outstanding in 1993 and
1,530,720 in 1994 and 1995, respectively, liquidation
preference of $4,592,160 1,148 1,531 1,531
Series B, 114,804 shares issued and outstanding in 1993 and
153,072 in 1994 and 1995, respectively, liquidation
preference of $459,216 115 153 153
Series C, 10,120 shares issued and outstanding in 1993 and
13,327 in 1994 and 1995, respectively, liquidation
preference of $79,962 10 13 13
Series D, 37,500 shares issued and outstanding in 1994 and
1995, liquidation preference of $225,000 -- 37 37
Series E, 1,200,000 shares issued and outstanding in 1993 and
1,600,000 in 1994 and 1995, respectively, liquidation
preference of $8,000,000 1,200 1,600 1,600
Series F, 1,272,727 shares issued and outstanding in 1993 and
1,696,969 in 1994 and 1995, respectively, liquidation
preference of $9,330,330 1,273 1,697 1,697
Common stock, $.0025 par value, 20,000,000 shares authorized:
Class A, 3,927,739, 4,596,362 and 5,251,485 shares issued
and outstanding in 1993, 1994, and 1995, respectively 9,820 11,482 13,120
Class B, 654,623 shares issued and outstanding in 1994 -- 1,637 --
Additional paid-in capital 19,343,433 24,492,349 24,479,712
Accumulated deficit (13,961,085) (17,275,353) (17,391,270)
----------------------------------------------
Total stockholders' equity 5,395,914 7,235,146 7,106,593
----------------------------------------------
Total liabilities and stockholders' equity $ 10,440,340 $ 13,149,965 $ 12,104,768
==============================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
Genetrix, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1994 1994 1995
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues $ 13,819,304 $ 15,088,514 $ 19,833,953 $ 14,057,958 $ 16,391,429
Cost of revenues 7,398,924 7,960,642 10,784,454 7,836,318 8,420,651
--------------------------------------------------------------------------------
Gross margin 6,420,380 7,127,872 9,049,499 6,221,640 7,970,778
Operating expenses:
Selling, general and administrative 9,316,146 8,031,629 9,107,640 6,501,363 7,527,508
Amortization 1,268,776 1,288,799 1,043,820 932,748 395,580
Restructuring expenses -- -- 1,229,442 1,229,442 --
Write-down of intangibles -- 901,586 834,092 834,092 --
Offering expense 417,783 -- -- -- --
--------------------------------------------------------------------------------
11,002,705 10,222,014 12,214,994 9,497,645 7,923,088
--------------------------------------------------------------------------------
Operating (loss) income (4,582,325) (3,094,142) (3,165,495) (3,276,005) 47,690
Interest expense (236,901) (210,749) (209,118) (163,958) (170,341)
Interest and other income 175,507 109,659 60,345 101,489 6,734
--------------------------------------------------------------------------------
Net loss $ (4,643,719) $ (3,195,232) $ (3,314,268) $ (3,338,474) $ (115,917)
================================================================================
Loss per common share $ (1.20) $ (.81) $ (.69) $ (.72) $ (.02)
Weighted average common shares
outstanding 3,873,489 3,927,739 4,808,903 4,662,875 5,251,152
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
Genetrix, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Series F Class A
Preferred Preferred Preferred Preferred Preferred Preferred Common
Stock Stock Stock Stock Stock Stock Stock
---------------------------------------------------------------------------------
Balances at December 31, 1991 $1,148 $115 $ - $ - $1,200 $ - $ 8,435
Issuance of common stock:
Class A - 153,833 shares 385
Issuance of Class A common stock in exchange
for surrendered Class B common stock (400,000 1,000
shares)
Issuance of preferred stock:
Series C - 5,453 shares 5
Series F - 1,272,727 shares 1,273
Accretion of mandatory redemption value on
Series C and D preferred stock
Net loss
--------------------------------------------------------------------------------
Balances at December 31, 1992 1,148 115 5 - 1,200 1,273 9,820
Issuance of preferred stock:
Series C - 4,667 shares 5
Accretion of mandatory redemption value on
Series C and D preferred stock
Net loss
--------------------------------------------------------------------------------
Balances at December 31, 1993 1,148 115 10 - 1,200 1,273 9,820
Issuance of stock for acquisition 383 38 3 400 424 1,637
Common stock:
Class A - 654,623 shares
Class B - 654,623 shares
Preferred stock:
Series A - 382,680 shares
Series B - 38,268 shares
Series C - 3,207 shares
Series E - 400,000 shares
Series F - 424,242 shares
Extinguishment of note payable - 37,500 shares 37
Exercise of stock options - 10,000 shares 25
Accretion of mandatory redemption value on
Series C and D preferred stock
Net loss
--------------------------------------------------------------------------------
Balances at December 31, 1994 1,531 153 13 37 1,600 1,697 11,482
Exercise of stock options - 500 shares (unaudited) 1
Accretion of mandatory redemption value on
Series C and D preferred stock (unaudited)
Conversion of Class B to Class A common stock -
654,623 shares (unaudited) 1,637
Net loss (unaudited)
--------------------------------------------------------------------------------
Balances at September 30, 1995 (unaudited) $1,531 $153 $13 $37 $1,600 $1,697 $13,120
================================================================================
<CAPTION>
Class B Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1991 $ 1,000 $12,793,616 $ (6,122,134) $ 6,683,380
Issuance of common stock:
Class A - 153,833 shares 75,118 75,503
Issuance of Class A common stock in exchange
for surrendered Class B common stock (400,000 (1,000)
shares)
Issuance of preferred stock:
Series C - 5,453 shares 21,807 21,812
Series F - 1,272,727 shares 6,469,455 6,470,728
Accretion of mandatory redemption value on
Series C and D preferred stock (17,500) (17,500)
Net loss (4,643,719) (4,643,719)
---------------------------------------------------------------
Balances at December 31, 1992 - 19,342,496 (10,765,853) 8,590,204
Issuance of preferred stock:
Series C - 4,667 shares 18,663 18,668
Accretion of mandatory redemption value on
Series C and D preferred stock (17,726) (17,726)
Net loss (3,195,232) (3,195,232)
---------------------------------------------------------------
Balances at December 31, 1993 - 19,343,433 (13,961,085) 5,395,914
Issuance of stock for acquisition 1,637 4,995,478 5,000,000
Common stock:
Class A - 654,623 shares
Class B - 654,623 shares
Preferred stock:
Series A - 382,680 shares
Series B - 38,268 shares
Series C - 3,207 shares
Series E - 400,000 shares
Series F - 424,242 shares
Extinguishment of note payable - 37,500 shares 149,963 150,000
Exercise of stock options - 10,000 shares 4,975 5,000
Accretion of mandatory redemption value on
Series C and D preferred stock (1,500) (1,500)
Net loss (3,314,268) (3,314,268)
---------------------------------------------------------------
Balances at December 31, 1994 1,637 24,492,349 (17,275,353) 7,235,146
Exercise of stock options - 500 shares (unaudited) 1,499 1,500
Accretion of mandatory redemption value on
Series C and D preferred stock (unaudited) (14,136) (14,136)
Conversion of Class B to Class A common stock -
654,623 shares (unaudited) (1,637)
Net loss (unaudited) (115,917) (115,917)
---------------------------------------------------------------
Balances at September 30, 1995 (unaudited) $ - $24,479,712 $(17,391,270) $ 7,106,593
===============================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 87
Genetrix, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1994 1994 1995
-----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,643,719) $(3,195,232) $(3,314,268) $(3,338,474) $ (115,917)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 1,623,238 1,797,390 1,713,368 1,472,743 1,054,439
Loss on sale-leaseback of equipment, furniture
and fixtures -- 10,192 -- -- --
Loss on sale of equipment, furniture and fixtures 6,103 -- -- -- --
Write-down of intangibles -- 901,586 834,092 834,092 --
Issuance of common stock for services rendered 20,000 -- -- -- --
Provision for contractual allowance and doubtful
accounts 1,139,277 1,511,546 2,982,775 2,027,166 2,361,302
Amortization of deferred lease incentive (20,806) (20,806) (20,806) (15,604) (15,604)
Changes in operating assets and liabilities:
Accounts receivable (1,206,385) (1,969,101) (2,805,056) (1,806,527) (2,131,451)
Inventories (52,948) 13,000 43,372 (77,272) 13,765
Prepaid expenses and other current assets (72,016) (49,386) 141,886 (246,385) (152,690)
Accounts payable (16,253) (102,073) 808,362 544,518 (103,108)
Accrued liabilities 1,117,295 18,934 (1,280,648) (165,904) (851,058)
Other liabilities (111,003) -- (25,000) -- --
-----------------------------------------------------------------------
Net cash (used in) provided by operating activities (2,217,217) (1,083,950) (921,923) (771,647) 59,678
INVESTING ACTIVITIES
Purchase of short-term investments (454,429) -- -- -- --
Proceeds from short-term investments -- 2,975,580 -- -- --
Purchase of equipment, furniture and fixtures (991,027) (435,382) (411,839) (395,608) (158,056)
Proceeds from sale of equipment, furniture and
fixtures 1,800 132,501 -- -- --
Increase in other assets -- -- (13,125) (14,734) (13,718)
Acquisition of new businesses, net of cash received (466,343) -- (57,292) (57,292) (7,401)
-----------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,909,999) 2,672,699 (482,256) (467,634) (179,175)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 55,503 -- 5,000 5,000 1,500
Proceeds from line of credit -- -- 500,000 -- 500,000
Proceeds from issuance of preferred stock and
detachable warrants 6,470,728 -- -- -- --
Principal payments on notes payable (412,500) (98,809) (1,398,653) (1,097,500) (702,639)
Payments under capital lease obligations (174,124) (203,932) (395,762) (307,308) (307,204)
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,939,607 (302,741) (1,289,415) (1,399,808) (508,343)
-----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,812,391 1,286,008 (2,693,594) (2,639,089) (627,840)
Cash and cash equivalents at beginning of
year 645,202 2,457,593 3,743,601 3,743,601 1,050,007
-----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,457,593 $ 3,743,601 $ 1,050,007 $ 1,104,512 $ 422,167
=======================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 88
Genetrix, Inc.
Notes to Consolidated Financial Statements
December 31, 1994
(Information for the nine months ended September 30, 1994 and 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Genetrix, Inc. (the Company) was incorporated in the state of Nevada on January
22, 1988, and formally commenced operations on November 1, 1988. Prior to this
date, the Company was in the development stage, and its activities consisted of
capital raising efforts and other organizational activities. Effective May 7,
1990, the Company reincorporated in the state of Delaware. Existing stockholders
retained the same ownership interest in the Delaware company as in the Company
prior to reorganization.
The Company provides medical laboratory services, primarily in the area of
genetics, and operates laboratory facilities in Yonkers, New York; Alameda,
California; Philadelphia, Pennsylvania; Tampa, Florida; Las Vegas, Nevada;
Phoenix and Scottsdale, Arizona.
The Company has experienced losses and negative cash flows for the past several
years. Management plans to finance the Company through current operations and
utilization of the bank facility. If the financing arrangements contemplated by
management are not sufficient, the Company believes it will be able to seek
other financing alternatives and/or reevaluate operating plans.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Genetrix of New York, Inc., Genetrix of Georgia,
Inc., NMG Genetic Services, Inc., and Genetics Services of New Jersey, Inc. All
significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenues are recognized upon performance of services.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
F-8
<PAGE> 89
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories consist primarily of lab chemicals and serum and are stated at the
lower of cost or market, cost being determined using the first-in, first-out
method.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost. Depreciation is determined
using the straight-line method over estimated useful lives of the related assets
which range from three to ten years. Amortization of leasehold improvements and
property under capital leases is determined using the straight-line method over
the estimated useful life of the related asset or the lease term, whichever is
shorter. Amortization on property under capital leases is included with
depreciation expense.
Excess of Purchase Price Over Net Assets
Purchase prices of acquired businesses that are accounted for as purchases have
been allocated to the assets and liabilities acquired based on the estimated
fair values on the respective acquisition dates. Based on these values, the
excess purchase price over the fair market values of the net assets acquired are
being amortized over seven years on a straight line basis. Accumulated
amortization through December 31, 1994 and September 30, 1995 was approximately
$296,000 and $692,000 (unaudited), respectively.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (FAS 109) "Accounting for Income Taxes."
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FAS
109. As permitted under these new rules, prior years' financial statements have
not been restated. There was no cumulative effect adjustment resulting from the
Company's adoption of FAS 109.
Loss Per Share
Loss per share is computed on net loss and the weighted average number of common
stock and common stock equivalent shares outstanding during the year. All
outstanding stock options and warrants were excluded from the computation
because they were antidilutive.
F-9
<PAGE> 90
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consolidated Statement of Cash Flows
The Company paid interest of approximately $215,000, $187,000, $250,000 and
$164,000 (unaudited) and $170,000 (unaudited) for the years ended December 31,
1992, 1993 and 1994 and the nine months ended September 30, 1994 and 1995,
respectively. No income taxes were paid in 1992, 1993, 1994 or for the first
nine months in 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1994 1994 1995
--------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Capital lease obligations related to
acquisition of equipment $ -- $132,501 $ 79,900 $79,900 $298,217
Extinguishment of note payable through the
issuance of 37,500 shares of Series D
preferred stock in 1994 and through
issuance of 4,667 and 5,453 shares of
Series C preferred stock in 1993
and 1992, respectively 21,812 18,668 150,000 -- --
</TABLE>
Additionally, in connection with the acquisitions described in Note 2, the
Company assumed and incurred liabilities directly in conjunction with the
acquisitions as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1994 1995
-----------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Fair value of assets acquired $ 931,000 $-- $ 4,699,000 $ 232,000
Excess of purchase price over net assets including
related acquisition costs of approximately $118,000 -- -- 3,110,000 --
Fair value of liabilities assumed (465,000) -- (2,752,000) --
Fair value of equity issued -- -- (5,000,000) --
Fair value of note payable issued -- -- -- (225,000)
---------------------------------------------
Acquisition costs, net of cash received $ 466,000 $-- $ 57,000 $ 7,000
=============================================
</TABLE>
Reclassifications
Certain reclassifications have been made to the 1992 and 1993 financial
statements to conform to the 1994 presentation.
F-10
<PAGE> 91
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
In April 1994, the Company acquired substantially all of the assets and
liabilities of MediGene, Inc. for issuance of 654,623 shares of Class A common
stock, 654,623 shares of Class B common stock, 382,680 shares of Series A
preferred stock, 38,268 shares of Series B preferred stock, 3,207 shares of
Series C preferred stock, 400,000 shares of Series E preferred stock, 424,242
shares of Series F preferred stock and 408,013 warrants for the purchase of
Class B common stock, representing approximately 25 percent of the issued and
outstanding stock as of the date of the transaction. The transaction was valued
at $5,000,000 for financial statement presentation purposes, and the value of
the stock issued in connection with the acquisition was based on the estimated
fair value of the net assets and related business acquired. The acquisition was
accounted for under the purchase method of accounting, and accordingly, the
purchase price was allocated to the fair market value of the assets acquired,
which consist of accounts receivable, laboratory equipment, furniture and
fixtures, and goodwill.
Results of operations from the acquisition of MediGene, Inc. are included in the
accompanying statement of operations from its purchase date. The following
summarizes the unaudited pro forma combined results of operations for the two
years ended December 31, 1994 of the Company and MediGene, Inc. as if the
acquisition had occurred January 1, 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1994
------------------------------------
<S> <C> <C>
Net revenues $ 24,000,000 $ 23,000,000
Net loss 3,000,000 3,100,000
Loss per share (.76) (.64)
</TABLE>
In July 1992, the Company acquired certain assets from and entered into an
Operating Agreement with the Research and Education Institute, Inc., Harbor-UCLA
Medical Center (REI) for cash of $440,000 and a note payable aggregating
$600,000 including interest (Note 6), payable over four years. The purchase
price was assigned to the customer list acquired and was being amortized over 10
years. In January 1994, the Company ceased operations at the Harbor-UCLA
facility. Accordingly, the Company wrote off the remaining net book value of the
customer lists at December 31, 1993 in the amount of $760,000 (Note 11).
The pro forma effect of the REI acquisitions on net revenues, net loss and loss
per share of the Company for the year ended December 31, 1992 was not
significant.
F-11
<PAGE> 92
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amount used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
---------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Net operating loss carryforwards $ 3,722,000 $ 5,042,000 $ 5,200,000
Accrued vacation 69,000 123,000 167,000
Bad debts 311,000 620,000 586,000
Deferred lease incentive 98,000 91,000 85,000
Accrued expenses 298,000 235,000 128,000
Other 361,000 54,000 112,000
---------------------------------------------
4,859,000 6,165,000 6,278,000
Less valuation allowance (4,859,000) (6,165,000) (6,278,000)
---------------------------------------------
Net deferred tax assets $ -- $ -- $ --
=============================================
</TABLE>
The valuation allowance increased by approximately $1,306,000 and $113,000
during the year ended December 31, 1994 and the nine months ended September 30,
1995.
As of December 31, 1994, the Company had federal and state net operating loss
carryforwards of approximately $12,600,000 and $12,400,000, respectively. As of
September 30, 1995, the Company had federal and state net operating loss
carryforwards of approximately $13,000,000 (unaudited) and $12,800,000
(unaudited), respectively. The federal net operating loss carryforwards will
expire at various dates from 2001 through 2009 and the state net operating loss
carryforwards will begin to expire in 1995, if not utilized. Utilization of the
net operating losses will be subject to a substantial annual limitation due to
ownership change limitations provided by the Internal Revenue Code of 1986 and
similar state tax provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization.
The federal net operating loss carryforward differs from the accumulated deficit
primarily due to (a) losses incurred while the Company was operating under
Subchapter S Corporation status as defined in the Internal Revenue Code which
were allocated to the corporate shareholders and thus are not available to the
Company, and (b) temporary differences in the recognition of certain revenue and
expense items for financial and federal tax reporting purposes, consisting
primarily of certain accrued expenses and reserves that are not currently
deductible for income tax purposes.
F-12
<PAGE> 93
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
For the years ended December 31, 1992, 1993, 1994 and the nine months ended
September 30, 1994 and 1995, the statutory federal income tax rate of 34 percent
differs from the effective income tax rate (0 percent) due to the valuation
allowances provided.
4. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consists of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
---------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Equipment $ 2,246,268 $ 3,989,823 $ 4,278,512
Furniture and fixtures 390,015 541,198 700,342
Leasehold improvements 432,505 1,215,498 1,223,938
---------------------------------------------
3,068,788 5,746,519 6,202,792
Less accumulated depreciation and amortization (985,390) (1,694,997) (2,327,897)
---------------------------------------------
$ 2,083,398 $ 4,051,522 $ 3,874,895
=============================================
</TABLE>
5. LINE OF CREDIT
Effective December 31, 1994, the Company entered into a Loan and Security
Agreement (the Loan Agreement) with a bank. The Loan Agreement provides for
borrowings up to $1,500,000, subject to a borrowing base calculation during a
period expiring October 31, 1995. As of December 31, 1994 and September 30,
1995, the Company's borrowing base was $1,500,000. Interest is paid monthly at a
rate of two percent over the prime interest rate of the bank. Prime was
approximately eight and one half percent as of December 31, 1994. The bank holds
as collateral for the Loan Agreement substantially all assets of the Company
except those subject to lease agreements or those acquired subject to
installment payment arrangements. The Loan Agreement contains various
restrictive covenants on financial ratios and profitability levels among other
restrictions. The Company had drawn down the Loan Agreement $500,000 as of
December 31, 1994 and $1,000,000 (unaudited) as of September 30, 1995.
F-13
<PAGE> 94
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
6. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Note payable to NMG Genetic Services bearing
interest at 9%, requires monthly principal and
interest payments of $122,666; paid in full in
April 1995 $ 1,237,500 $ 480,609 $ --
Note payable to REI, net of $43,000 interest
imputed at 11%, due in annual installments of
$150,000, including interest and principal, final
payment due July 1996 366,557 256,878 138,262
Note payable to University of South Florida, net
of $22,000 interest imputed at 11%, due in
installments of $10,000, including interest and
principal, final payment due February 1997 -- -- 148,448
-----------------------------------------
1,604,057 737,487 286,710
Less amounts due within one year (1,347,178) (602,352) (207,655)
-----------------------------------------
$ 256,879 $ 135,135 $ 79,055
=========================================
</TABLE>
Annual maturities of debt are $602,352 in 1995, and $135,135 in 1996.
7. LEASING ARRANGEMENTS
The Company leases certain administrative facilities and equipment under leases
accounted for as capital or operating leases.
CAPITAL LEASES
The following amounts are included in equipment, furniture and fixtures as
assets recorded under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1993 1994 1995
--------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Cost $ 630,191 $ 1,145,392 $ 1,443,609
Less accumulated amortization (387,828) (586,114) (709,745)
-------------------------------------------
Net assets recorded under capital leases $ 242,363 $ 559,278 $ 733,864
===========================================
</TABLE>
F-14
<PAGE> 95
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
7. LEASING ARRANGEMENTS (CONTINUED)
Future minimum lease payments under capital leases, together with the present
value of the minimum lease payments as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 344,597
1996 161,368
1997 39,388
1998 20,614
1999 13,743
---------
Minimum lease payments 579,710
Less amount representing interest (68,964)
---------
Present value of net minimum lease payments 510,746
Less amount due within one year (301,174)
---------
Amount due after one year $ 209,572
=========
</TABLE>
OPERATING LEASES
The Company leases its administrative facilities and laboratories and certain
equipment under noncancelable operating leases with terms in excess of one year.
The aggregate future minimum annual rental commitment as of December 31, 1994
under operating leases having noncancelable lease terms in excess of one year is
as follows:
<TABLE>
<S> <C>
1995 $1,245,622
1996 991,324
1997 807,685
1998 817,723
1999 702,155
Thereafter 2,162,400
----------
$6,726,909
==========
</TABLE>
F-15
<PAGE> 96
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
7. LEASING ARRANGEMENTS (CONTINUED)
During 1990, the Company leased certain administrative and laboratory facilities
from Southwest Biomedical Research Institute (the Institute). During December
1990, the Company's former Chairman exercised his option to purchase the subject
building and land from the Institute. Simultaneously with this transaction, the
former Chairman sold the building and land to an unrelated third party. In
connection with this transaction, the Company entered into a fifteen year lease,
and as an incentive to enter into this lease, the Company received a payment of
approximately $311,000 from the buyer. This amount was deferred and is being
amortized on a straight-line basis over fifteen years.
Total rental expense amounted to approximately $635,000, $740,000, $1,079,000
and $803,000 (unaudited) and $793,000 (unaudited) for the years ended December
31, 1992, 1993 and 1994 and the nine months ended September 30, 1994 and 1995,
respectively.
8. STOCK OPTION AGREEMENTS
The Company has entered into nonqualified stock option agreements with certain
employees under which employees and consultants were granted options to purchase
shares of the Company's Class A common stock. Options were granted under these
agreements at exercise prices equal to or greater than the market value as
determined by the Board of Directors. The options become exercisable at varying
percentages based upon the term of employment, beginning three months from date
of grant, and expire at specified dates not exceeding five years from the date
of grant. A total of 164,254 stock options were granted in 1994 under these
agreements.
In September 1992, the Board of Directors approved a stock option plan (the
Plan) for eligible employees. The Plan provides for issuance of up to 500,000
stock options to purchase shares of Class A common stock. Options will expire at
specified dates not exceeding ten years from the date of grant. Incentive stock
options and non-qualified options granted under the Plan will vest over periods
not to exceed five years. All stock option grants under the Plan must be at
prices of at least 85% of fair market value of the stock at the date of the
grant, as determined by the Board of Directors. Stock options will be adjusted
for stock splits and stock dividends. A total of 57,000 stock options were
granted in 1994 under this plan with an option price of $3.00 per share. During
1994, no compensation expense resulted as the option price was greater than the
fair market value of the stock as of the option grant date.
F-16
<PAGE> 97
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTION AGREEMENTS (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
Number of
Options Option Price
----------------------------
<S> <C> <C>
Outstanding at December 31, 1991 519,500 $0.00 - $6.00
Granted 277,971 $3.00 - $6.00
Exercised (8,000) $2.00 - $3.00
Canceled (188,000) $1.50 - $3.00
---------
Outstanding at December 31, 1992 601,471 $0.00 - $6.00
Granted 601,266 $3.00
Exercised --
Canceled (189,500) $2.00 - $3.00
---------
Outstanding at December 31, 1993 1,013,237 $0.00 - $6.00
Granted 221,254 $3.00
Exercised (10,000) $ .50
Canceled (31,200) $3.00
---------
Outstanding at December 31, 1994 1,193,291 $0.00 - $6.00
Granted (unaudited) --
Exercised (unaudited) (500) $3.00
Canceled (unaudited) (87,800) $3.00
---------
Outstanding at September 30, 1995 (unaudited) 1,104,991 $0.00 - $6.00
=========
Exercisable at December 31, 1994 522,863
=========
Exercisable at September 30, 1995 (unaudited) 743,431
=========
</TABLE>
F-17
<PAGE> 98
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
9. CAPITAL STOCK
Common Stock
In November 1992, the Company entered into an agreement with a significant
shareholder whereby the shareholder agreed to restrict the resale of his
holdings until May 15, 1995, or earlier under terms defined in the agreement,
and to exchange 400,000 shares of Class B common stock for 400,000 shares of
Class A common stock. In consideration, the shareholder was to receive $187,500,
of which $175,000 is payable semiannually in five equal installments with the
final payment due in May 1995. The consideration payable under the agreement and
the exchange of Class B common stock for Class A common stock were recorded in
the accompanying financial statements as of December 31, 1992.
In accordance with the 1994 acquisition (Note 2), 654,623 shares of Class B
common stock and warrants for the purchase of an additional 408,013 shares of
Class B common stock were issued. The Class B common stock is convertible into
Class A common stock at the earlier of one year following the closing date of
the acquisition, the effective date of a public offering of the company's common
stock, or immediately preceding the closing of a sale of more than 50 percent of
the assets or common stock of the company. The warrants may be used to purchase
Class B common stock for an initial purchase price of $3.00 per share (subject
to adjustments) through October 10, 1996.
Preferred Stock
Under the Articles, the Company is authorized to issue 7,000,000 shares of
$0.001 par value, non cumulative preferred stock, of which the Company has
designated 4,698,830 shares as Series A through F. Holders of Series A, Series
B, Series E and Series F preferred stock have a non-cumulative dividend
preference of $0.27 for Series A and Series B preferred stock, $0.45 for Series
E preferred stock and $0.495 for Series F preferred stock. Holders of Series C
and D are not entitled to dividends. The liquidation price of Series A and
Series B preferred stock is $3.00 per share plus an amount equal to declared but
unpaid dividends. The liquidation price of Series E and Series F preferred stock
is $5.00 and $5.50 per share, respectively, plus an amount equal to declared but
unpaid dividends. The liquidation price of Series C and Series D preferred stock
is $6.00 per share subsequent to the distributions of Series A, Series B, Series
E, and Series F preferred stock. The Series A and B preferred stock are not
redeemable; the Series C preferred stock is redeemable at the option of the
Company at any time at the original issue price and is redeemable after January
31, 1996 at the holder's option, at the original issue price; the Series D
preferred stock is redeemable at the option of the Company at any time at the
original issue price and is redeemable after April 15, 1996 at the holder's
option (or earlier should certain conditions or events occur as defined in the
Articles), at the original issue price; the Series E and Series F preferred
stock is redeemable at the public offering price at the option of the Company on
the date of closing of an initial public offering.
F-18
<PAGE> 99
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
9. CAPITAL STOCK (CONTINUED)
Each share of Series A, Series C, Series D, Series E and Series F preferred
stock automatically converts to Class A common stock upon consummation of a
public offering, adjusted for minimum size and per share requirements as defined
in the Articles, or may at any time, at the option of the holder, be converted
to Class A common stock at certain conversion rates as defined in the Articles.
Each share of Series B preferred stock may, at the option of the holder, be
converted to Class A common stock after May 14, 1994 under certain conditions
and at certain conversion rates as defined in the Articles.
The holder of each share of Series A, Series B, Series E and Series F preferred
stock is entitled to one vote for each share held. Additionally, the Company
cannot sell or convey assets, merge, consolidate, acquire additional businesses,
or increase the size of its board of directors to a number greater than nine
members without the majority approval of the holders of the Series A, Series B,
Series E and Series F preferred stock. Holders of Series C and Series D
preferred stock have no voting rights except as provided by law.
The Series A and Series B preferred stock referred to above was purchased by
investors on May 14, 1990 under a Stock and Warrant Purchase Agreement (the
Purchase Agreement) for an aggregate purchase price of approximately $3,800,000.
Under the Purchase Agreement, the investors also received detachable warrants to
purchase 1,148,040 shares of the Company's Class A common stock for an initial
purchase price of $3.00 per share (subject to adjustment as defined in the
Purchase Agreement). These warrants expired May 14, 1995. The warrants may be
exercised at any time on or after the date the Company first redeems any shares
of its Series B preferred stock, or may be exchanged at any time the fair market
value of the Class A common stock, as defined in the Purchase Agreement, exceeds
the initial purchase price. At any time after three months following the
effective date of an initial public offering, the Purchase Agreement allows the
investors to require registration of the Class A common stock issuable upon
conversion of the Series A and Series B preferred stock, and warrants under the
Securities Act of 1933.
The Series E preferred stock referred to above was purchased by investors on
October 10, 1991 under Purchase Agreements for an aggregate purchase price of
approximately $6,000,000. Under the Purchase Agreements, the investors also
received detachable warrants to purchase 551,000 shares of the Company's Class A
common stock for an initial purchase price of $3.00 per share (subject to
adjustment as defined in the Purchase Agreements) through October 10, 1996. In
May 1992, the Company issued 136,000 shares of Class A common stock in exchange
for 475,000 of these warrants. The remaining warrants may be exercised at any
time.
F-19
<PAGE> 100
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
9. CAPITAL STOCK (CONTINUED)
Other
In 1992, the Company amended the terms of an existing Master Lease Agreement and
obtained a commitment for additional equipment lease financing in exchange for
issuing to the lessor a warrant to purchase 12,517 shares of Class A common
stock at an exercise price of $4.36 per share and a warrant to purchase 66,667
shares of Class A common stock at an exercise price of $5.00 per share. The
warrants expire on August 15, 1999, or earlier, subject to the terms of the
Agreement. The lease commitment expired in December 1993.
10. CONTINGENCY
The holder of Series A, Series E and Series F preferred stock may be entitled to
additional shares of the class of stock held if subsequent issuance's of stock
are at a per share price below the per share price paid at their initial
investment adjusted for subsequent issuances of stock. If subsequent share
issuances are for consideration other than cash, the value of the shares issued
will be established by the Board of Directors irrespective of the value ascribed
for financial statement purposes.
As noted in Note 2 to the financial statements, the Company issued 25 percent of
each class of stock and warrants outstanding as of April 29, 1994 as
consideration for the acquisition of certain of the assets and assumption of
certain of the liabilities of MediGene, Inc. For the purpose of its stockholder
arrangements, the Board of Directors determined the value of MediGene, Inc.'s
assumed net assets to be $15,961,000 (unaudited) using the methodology provided
by the Company's Certificate of Incorporation. Therefore, based upon the
valuation determined by the Board of Directors, the acquisition did not result
in the issuance of additional shares of stock to existing investors. However,
for financial reporting purposes the valuation was valued and recorded at
$5,000,000 in accordance with Accounting Principle Board Opinion No. 16.
Under the terms of a lease agreement signed in connection with a 1991
acquisition, the Company may be required to provide temporary financing for a
period not to exceed 120 days in the amount of $680,000 to the lessor in the
event the lessor's loan on the property is accelerated. In August of 1992, the
lessor received notice of acceleration from the lender, but to date has not
requested financing from the Company.
F-20
<PAGE> 101
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
11. INTANGIBLES WRITE-OFF
In August 1994, the Company consolidated its New York operations and closed down
its laboratory facility in Flushing, New York. Accordingly, the Company wrote
off its remaining book values related to noncompete agreements and customer
lists acquired when the facility was purchased ($528,000).
In August 1994, the Company closed its Atlanta facility. Accordingly, the
Company wrote off its remaining book values related to the facility customer
lists acquired ($306,000).
In January 1994, the Company closed operations at its Harbor-UCLA facility.
Accordingly, at December 31, 1993, the Company wrote off its remaining book
value ($760,000) in customer lists acquired when the facility was purchased
(Note 2). Additionally, the Company reevaluated the carrying value of other
customer lists at its Atlanta and New York facilities and determined that a
write-down of $140,955 was necessary and recorded such amount in 1993.
12. RESTRUCTURING EXPENSES
As a result of the Medigene acquisition (Note 2), the Company consolidated its
two New York laboratory operations into a single facility and consolidated their
Atlanta laboratory operations into the Florida facility. Accordingly, certain
one-time expenses were incurred to reduce duplicate costs of operations. During
the year ended December 31, 1994, the Company incurred approximately $574,000 in
termination benefits and approximately $655,000 in lease termination costs of
lease payments to maturity, net of any future sublease income, as the
appropriate facilities have been abandoned by the Company. Substantially all
termination benefits were paid by year-end. At December 31, 1994, approximately
$640,000 of restructuring accruals are included in the accrued liabilities line
item of the financial statements.
F-21
<PAGE> 102
Genetrix, Inc.
Notes to Consolidated Financial Statements (continued)
13. SUBSEQUENT EVENTS (UNAUDITED)
The Company intends to enter into an Agreement and Plan of Merger (the
Agreement) with Genzyme Corporation in December 1995.
If the merger is approved by the Company's shareholders, shares of the Company's
stock will convert into and become the right to receive, in the aggregate, that
number of shares of Genzyme Corporation General Division Stock (Genzyme Stock)
determined by dividing $38,500,000, less the purchase price adjustment amount,
as defined in the Agreement, by the closing market value of the Genzyme Stock
subject to minimum market price value thresholds (merger consideration).
The merger consideration shall be allocated among the holders of the Company's
outstanding stock by first allocating to holders of the Company's preferred
stock that number of shares of Genzyme Stock representing the liquidation
preference, as defined by the Company's Certificate of Incorporation. The
balance of the merger consideration shall be allocated ratably to holders of
Series A, Series B, Series E and Series F preferred shares, respectively, and
common shares on an as if converted basis, in accordance with the Company's
Certificate of Incorporation. Upon consummation of the merger with Genzyme
Corporation the following payments will be made: (1) a $1,000,000 management fee
to the Chief Executive Officer, (2) a $250,000 fee for financial advisory
services to an investment banking firm and (3) $148,000 in employee bonuses.
Effective November 7, 1995, the Company entered into a Loan and Security
Agreement with a financial institution. The Loan and Security Agreement provides
for borrowings up to $2,000,000, subject to a borrowing base calculation. The
Loan and Security Agreement expires on November 30, 1996. Interest is paid
monthly at a rate of LIBOR rate plus 5.375 percent. The financial institution
holds as collateral for the Loan and Security Agreement substantially all assets
of the Company except those subject to lease agreements or those acquired
subject to installments payment arrangements.
F-22
<PAGE> 103
Genzyme Corporation and Subsidiaries
Introduction and Index to Unaudited Pro Forma Financial Statements
and Notes to Unaudited Pro Financial Statements
Introduction:
These unaudited pro forma financial statements and the related notes
are presented to give effect to the merger (the "Merger") of Genetrix, Inc.
("Genetrix") with and into Genzyme Corporation's ("Genzyme") using shares of
the common stock of the Genzyme General Division (the "General Division")(as
described in Note 2), as previously described and the probable acquisition of
the assets of Genzyme Development Partners, L.P. ("GDP") by Genzyme (as
described in Note 3). Pro forma balance sheets and statements of operations
have been presented for both Genzyme and the General Division and assuming that
the Merger occurred as of the earliest period presented, January 1, 1992, using
the pooling-of-interests accounting method, and that the probable acquisition
of GDP occurred as of January 1, 1994, using the purchase accounting method. To
distinguish the effect of each transaction, a subtotal column has been included
on each financial statement to give effect to the Merger, after certain pro
forma adjustments, before consideration of the probable acquisition of GDP and
any related pro forma adjustments. The notes to the unaudited pro forma
financial statements are defined as related either to the Merger or the
acquisition of GDP.
<TABLE>
<CAPTION>
Index to Unaudited Pro Forma Financial Statements Page(s)
- ------------------------------------------------- -------
<S> <C>
Genzyme Corporation:
Pro Forma Consolidated Balance Sheets as of September 30, 1995......................... F-24
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1995......................................................... F-25
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1994......................................................... F-26
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1994................................................................ F-27
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1993................................................................ F-28
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1992................................................................ F-29
Genzyme General Division:
Pro Forma Combined Balance Sheets as of September 30, 1995............................. F-30
Pro Forma Combined Statements of Operations for the Nine Months
Ended September 30, 1995......................................................... F-31
Pro Forma Combined Statements of Operations for the Nine Months
Ended September 30, 1994......................................................... F-32
Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1994................................................................ F-33
Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1993................................................................ F-34
Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1992................................................................ F-35
Notes to Unaudited Pro Forma Financial Statements....................................... F-36 to F-40
</TABLE>
F-23
<PAGE> 104
Genzyme Corporation and Subsidiaries
Pro Forma Consolidated Balance Sheets
As of September 30, 1995
<TABLE>
<CAPTION>
Pro
Forma Historical
Genzyme Genzyme
Historical Historical Pro Foot Corp. Development
Genzyme Genetrix, Forma Note and Partners,
Corp. Inc. Adjs. Ref. Genetrix L.P.
---------- ---------- -------- ---- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 98,583 $ 422 $ - $ 99,005 $ 438
Short-term investments 8,026 - - 8,026 -
Accounts receivable, less allowance
for doubtful accounts 84,094 4,250 - 88,344 -
Inventories 46,385 306 - 46,691 -
Prepaid expenses and other current assets 12,279 415 - 12,694 -
Deferred tax assets - current 4,072 - - 4,072 -
-------- -------- -------- -------- --------
Total current assets 253,439 5,393 - 258,832 438
Property, plant & equipment, net 321,520 3,875 - 325,395 -
Other Assets:
Long-term investments 57,873 - - 57,873 -
Notes receivable-related party 1,429 - - 1,429 -
Intangibles, net of accumulated amortization 26,257 2,650 - 28,907 -
Deferred tax assets - noncurrent 28,473 - - 28,473 -
Other noncurrent assets 27,901 187 - 28,088 -
-------- -------- -------- -------- --------
Total other assets 141,933 2,837 - 144,770 -
-------- -------- -------- -------- --------
Total assets $716,892 $ 12,105 $ 0 $728,997 $ 438
======== ======== ======== ======== ========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable 11,422 1,216 - 12,638 -
Accrued expenses 37,340 1,803 - 39,143 -
Payable to Genzyme General Division - - - - 83
Income taxes payable 3,393 - - 3,393 -
Deferred revenue 2,016 - - 2,016 -
Current portion of long-term debt and
capital lease obligations 888 1,494 - 2,382 -
-------- -------- -------- -------- --------
Total current liabilities 55,059 4,513 - 59,572 83
Noncurrent liabilities:
Long-term debt and capital lease obligations 126,258 294 - 126,552 -
Other noncurrent liabilities 8,834 191 - 9,025 -
-------- -------- -------- -------- --------
135,092 485 - 135,577 -
Minority interest in subsidiaries 1,510 - - 1,510 -
Stockholders' Equity:
General Division Stock, $.01 par value 272 - 5 (A) 277 -
TR Stock, $.01 par value 120 - - 120 -
Treasury Stock, at cost (881) - - (881) -
Genetrix, Inc. convertible preferred stock - 5 (5) (B) 0 -
Genetrix, Inc. common stock - 13 (13) (C) 0 -
Additional paid-in capital 540,386 24,480 (5) (A)
5 (B) -
13 (C) 564,879 32,629
Accumulated deficit (12,102) (17,391) - (29,493) (32,274)
Other equity adjustments (2,564) - - (2,564) -
-------- -------- -------- -------- --------
Total division equity 525,231 7,107 0 532,338 355
-------- -------- -------- -------- --------
Total liabilities and division equity $716,892 $ 12,105 $ 0 $728,997 $ 438
======== ======== ======== ======= ========
<CAPTION>
Pro
Pro Foot Forma
Forma Note Genzyme
Adjs. Ref. Corp.
----- ---- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 99,443
Short-term investments - 8,026
Accounts receivable, less allowance
for doubtful accounts - 88,344
Inventories - 46,691
Prepaid expenses and other current assets (83)(D) 12,611
Deferred tax assets - current - 4,072
-------- ---------
Total current assets (83) 259,187
Property, plant & equipment, net - 325,395
Other Assets:
Long-term investments - 57,873
Notes receivable-related party - 1,429
Intangibles, net of accumulated amortization - 28,907
Deferred tax assets - noncurrent - 28,473
Other noncurrent assets 1 (E) 28,089
-------- ---------
Total other assets 1 144,771
-------- ---------
Total assets $ (82) $ 729,353
======== =========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable - 12,638
Accrued expenses - 39,143
Payable to Genzyme General Division (83)(D) 0
Income taxes payable - 3,393
Deferred revenue - 2,016
Current portion of long-term debt and
capital lease obligations - 2,382
-------- ---------
Total current liabilities (83) 59,572
Noncurrent liabilities:
Long-term debt and capital lease obligations 126,552
Other noncurrent liabilities - 9,025
-------- ---------
- 135,577
Minority interest in subsidiaries - 1,510
Stockholders' Equity:
General Division Stock, $.01 par value 13(G) 290
TR Stock, $.01 par value - 120
Treasury Stock, at cost - (881)
Genetrix, Inc. convertible preferred stock - 0
Genetrix, Inc. common stock - 0
Additional paid-in capital
92,632 (G)
(32,274)(F) 657,866
Accumulated deficit 1 (E)
32,274 (F)
(92,645)(G) (122,137)
Other equity adjustments - (2,564)
-------- ---------
Total division equity 1 532,694
-------- ---------
Total liabilities and division equity $ (82) $ 729,353
======== =========
</TABLE>
See notes to unaudited pro forma financial statements.
F-24
W
<PAGE> 105
Genzyme Corporation and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
Pro
Forma Historical
Genzyme Genzyme
Historical Historical Pro Foot Corp. Development
Genzyme Genetrix, Forma Note and Partners
Corp. Inc. Adjs. Ref. Genetrix L.P.
---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net product sales $223,086 $ - $ - $223,086 $
Net service sales 35,461 16,391 - 51,852 -
R&D revenue 19,166 - - 19,166 -
-------- ------- ------ -------- --------
Total revenue 277,713 16,391 - 294,104 -
Cost of products sold 85,893 - - 85,893 -
Cost of services sold 23,353 8,421 - 31,774 -
SG&A 79,442 7,923 - 87,365 87
R&D expense 50,931 - - 50,931 -
Purchase of in-process R&D - - - - -
Goodwill impairment and restructuring costs - - - - -
Charge for purchase options and
financing expenses - - - - -
Reduction for common costs - - (75)(H) (75) -
-------- ------- ------ -------- --------
Total operating expenses 239,619 16,344 (75) 255,888 87
-------- ------- ------ -------- --------
Operating income 38,094 47 75 38,216 (87)
Minority interest in net loss of subsidiaries 1,608 - - 1,608 -
Equity in net loss of unconsolidated affiliate (1,207) - - (1,207) -
Charge for impaired investments - - - - -
Settlement of lawsuit - - - - -
Investment income 4,628 7 - 4,635 22
Interest expense (732) (170) - (902) -
-------- ------- ------ -------- --------
Income before income taxes 42,391 (116) 75 42,350 (65)
Provision for income taxes (15,685) - 17(I) (15,668) -
-------- ------- ------ -------- --------
Net income $ 26,706 $ (116) $ 92 $ 26,682 $ (65)
======== ======= ====== ======== ========
Applicable to the General Division:
Net income (loss) $ 35,180 $ 35,156
Allocated tax benefit generated by
Tissue Repair Division 5,877 5,877
-------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 41,057 $ 41,033
======== ========
Income (loss) per General Division common
and common equivalent share $1.42 $ (0.02) $1.40
======== ======= ========
Historical weighted average shares outstanding 28,816 5,251 (5,251) 28,816
Shares issued as a result of Genetrix merger - - 547 547
Shares issued as a result of GDP acquisition - - - -
-------- ------- ------ --------
Pro forma weighted average shares outstanding 28,816 5,251 (4,704) 29,363
======== ======= ====== ========
Income (loss) per General Division common
and common equivalent share assuming full
dilution $1.30 $1.27
======== ========
Historical fully diluted weighted average shares
outstanding 31,671 31,671
Shares issued as a result of Genetrix merger - 547 547
Shares issued as a result of GDP acquisition - - -
-------- ------ --------
Pro forma fully diluted weighted average shares
outstanding 31,671 547 32,218
======== ====== ========
Applicable to the Tissue Repair Division:
Net income (loss) $(14,351) $(14,351)
Allocated tax benefit generated by
Tissue Repair Division - -
-------- --------
Net income (loss) attributable to TR Stock $(14,351) $(14,351)
======== ========
Income (loss) per Tissue Repair Division
common share $(1.62) $(1.62)
======== ========
Historical weighted average shares outstanding 8,871 8,871
======== ========
<CAPTION>
Pro
Pro Foot Forma
Form Note Genzyme
Adjs. Ref. Corp.
----------- --------
<S> <C> <C>
Net product sales $ - $223,086
Net service sales - 51,852
R&D revenue - 19,166
------- --------
Total revenue - 294,104
Cost of products sold - 85,893
Cost of services sold - 31,774
SG&A (1)(K) 87,451
R&D expense - 50,931
Purchase of in-process R&D -
Goodwill impairment and restructuring costs - -
Charge for purchase options and
financing expenses - -
Reduction for common costs (38)(L) (113)
------- --------
Total operating expenses (39) 255,936
------- --------
Operating income 39 38,168
Minority interest in net loss of subsidiaries - 1,608
Equity in net loss of unconsolidated affiliate - (1,207)
Charge for impaired investments - -
Settlement of lawsuit - -
Investment income - 4,657
Interest expense - (902)
------- --------
Income before income taxes 39 42,324
Provision for income taxes 11 (M) (15,657)
------- --------
Net income $ 50 $ 26,667
======= ========
Applicable to the General Division:
Net income (loss) $ 35,141
Allocated tax benefit generated by
Tissue Repair Division 5,877
--------
Net income (loss) attributable to
Genzyme General Division Stock $ 41,018
========
Income (loss) per General Division common
and common equivalent share $ 1.34
========
Historical weighted average shares outstanding 26,169
Shares issued as a result of Genetrix merger 547
Shares issued as a result of GDP acquisition 1,296 1,296
------- --------
Pro forma weighted average shares outstanding 1,296 30,659
======= ========
Income (loss) per General Division common
and common equivalent share assuming full
dilution $1.22
========
Historical fully diluted weighted average shares
outstanding 31,671
Shares issued as a result of Genetrix merger 547
Shares issued as a result of GDP acquisition 1,296 1,296
------- --------
Pro forma fully diluted weighted average shares
outstanding 1,296 33,514
======= ========
Applicable to the Tissue Repair Division:
Net income (loss) $(14,351)
Allocated tax benefit generated by
Tissue Repair Division -
--------
Net income (loss) attributable to TR Stock $(14,351)
========
Income (loss) per Tissue Repair Division
common share $(1.62)
========
Historical weighted average shares outstanding 8,871
========
</TABLE>
See notes to unaudited pro forma financial statements.
F-25
<PAGE> 106
Genzyme Corporationand Subsidiaries
Pro Forma Consolidated Statements of Operations
For the Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Pro
Forma Historical
Genzyme Genzyme
Historical Historical Pro Foot Corp. Development
Genzyme Genetrix, Forma Note and Partners
Corp. Inc. Adjs. Ref. Genetrix L.P.
---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net product sales $173,499 $ - $ - $173,499 $
Net service sales 38,188 14,058 - 52,246 -
R&D revenue 16,153 - - 16,153 -
-------- ------- ------ -------- --------
Total revenue 227,840 14,058 - 241,898 -
Cost of products sold 65,530 - - 65,530 -
Cost of services sold 24,600 7,836 - 32,436 -
SG&A 64,250 7,434 - 71,684 120
R&D expense 39,460 - - 39,460 1,095
Purchase of in-process R&D - - - - -
Goodwill impairment and restructuring costs - 2,064 - 2,064 -
Charge for purchase options and
financing expenses - - - - -
Reduction for common costs - - (75)(H) (75) -
-------- ------- ------ -------- --------
Total operating expenses 193,840 17,334 (75) 211,099 1,215
-------- ------- ------ -------- --------
Operating income 34,000 (3,276) 75 30,799 (1,215)
Minority interest in net loss of subsidiaries 1,216 - - 1,216 -
Equity in net loss of unconsolidated affiliate - - - - -
Charge for impaired investments - - - - -
Settlement of lawsuit - - - - -
Investment income 7,305 102 - 7,407 17
Interest expense (1,658) (164) - (1,822) -
-------- ------- ------ -------- --------
Income before income taxes 40,863 (3,338) 75 37,600 (1,198)
Provision for income taxes (14,302) - 1,351(I) (12,951) -
-------- ------- ------ -------- --------
Net income $ 26,561 $(3,338) $1,426 $ 24,649 $ (1,198)
======== ======= ====== ======== ========
Applicable to the General Division:
Net income (loss) $ 28,333 $ 26,421
Allocated tax benefit generated by
Tissue Repair Division 1,231 1,231
-------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 29,564 $ 27,652
======== ========
Income (loss) per General Division common
and common equivalent share $1.13 $ (0.72) $1.04
======== ======= ========
Historical weighted average shares outstanding 26,117 4,663 (4,663) 26,117
Shares issued as a result of Genetrix merger - - 547 547
Shares issued as a result of GDP acquisition - - - -
-------- ------- ------ --------
Pro forma weighted average shares outstanding 26,117 4,663 (4,116) 26,664
======== ======= ====== ========
Income (loss) per General Division common
and common equivalent share assuming full
dilution $1.05 $0.96
======== ========
Historical fully diluted weighted average shares
outstanding 28,109 28,109
Shares issued as a result of Genetrix merger - 547 547
Shares issued as a result of GDP acquisition - - -
-------- ------ --------
Pro forma fully diluted weighted average shares
outstanding 28,109 547 28,656
======== ====== ========
Applicable to the Tissue Repair Division:
Net income (loss) $ (3,003) $ (3,003)
Allocated tax benefit generated by
Tissue Repair Division - -
-------- --------
Net income (loss) attributable to TR Stock $ (3,003) $ (3,003)
======== ========
Income (loss) per Tissue Repair Division
common share $(0.91) $(0.91)
======== ========
Historical weighted average shares outstanding 3,291 3,291
======== ========
<CAPTION>
Pro
Pro Foot Forma
Form Note Genzyme
Adjs. Ref. Corp.
------------ --------
<S> <C> <C>
Net product sales $ - $173,499
Net service sales - 52,246
R&D revenue (913)(J) 15,240
------- --------
Total revenue (913) 240,985
Cost of products sold - 65,530
Cost of services sold - 32,436
SG&A (12)(K) 71,792
R&D expense (913)(J) 39,642
Purchase of in-process R&D - -
Goodwill impairment and restructuring costs - 2,064
Charge for purchase options and
financing expenses - -
Reduction for common costs (38)(L) (113)
------- --------
Total operating expenses ( 963) 211,351
------- --------
Operating income 50 29,634
Minority interest in net loss of subsidiaries - 1,216
Equity in net loss of unconsolidated affiliate - -
Charge for impaired investments - -
Settlement of lawsuit - -
Investment income - 7,424
Interest expense - (1,822)
------- --------
Income before income taxes 50 36,452
Provision for income taxes 475 (M) (12,476)
------- --------
Net income $ 525 $ 23,976
======= ========
Applicable to the General Division:
Net income (loss) $ 25,748
Allocated tax benefit generated by
Tissue Repair Division 1,231
--------
Net income (loss) attributable to
Genzyme General Division Stock $ 26,979
========
Income (loss) per General Division common
and common equivalent share $0.96
========
Historical weighted average shares outstanding 26,117
Shares issued as a result of Genetrix merger 547
Shares issued as a result of GDP acquisition 1,296 1,296
------- --------
Pro forma weighted average shares outstanding 1,296 27,960
======= ========
Income (loss) per General Division common
and common equivalent share assuming full
dilution $0.90
========
Historical fully diluted weighted average shares
outstanding 28,109
Shares issued as a result of Genetrix merger 547
Shares issued as a result of GDP acquisition 1,296 1,296
------- --------
Pro forma fully diluted weighted average shares
outstanding 1,296 29,952
======= ========
Applicable to the Tissue Repair Division:
Net income (loss) $ (3,003)
Allocated tax benefit generated by
Tissue Repair Division -
--------
Net income (loss) attributable to TR Stock $ (3,003)
========
Income (loss) per Tissue Repair Division
common share $(0.91)
========
Historical weighted average shares outstanding 3,291
========
</TABLE>
See notes to unaudited pro forma financial statements.
F-26
<PAGE> 107
Genzyme Corporation and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Pro
Forma Historical
Genzyme Genzyme Pro
Historical Historical Pro Foot Corp. Development Pro Foot Forma
Genzyme Genetrix, Forma Note and Partners Form Note Genzyme
Corp. Inc. Adjs. Ref. Genetrix L.P. Adjs. Ref. Corp.
---------- ---------- ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net product sales $238,969 $ -- $ -- $238,969 $ $ -- $238,969
Net service sales 49,686 19,834 -- 69,520 -- -- 69,520
R&D revenue 22,396 -- -- 22,396 -- (913)(J) 21,483
-------- -------- -------- -------- -------- -------- --------
Total revenue 311,051 19,834 -- 330,885 -- (913) 329,972
Cost of products sold 92,513 -- -- 92,513 -- -- 92,513
Cost of services sold 32,116 10,784 -- 42,900 -- -- 42,900
SG&A 85,731 10,151 -- 95,882 157 (12)(K) 96,027
R&D expense 55,334 -- -- 55,334 1,095 (913)(J) 55,516
Purchase of in-process R&D 11,215 -- -- 11,215 -- -- 11,215
Goodwill impairment and
restructuring costs -- 2,064 -- 2,064 -- -- 2,064
Charge for purchase options and
financing expenses -- -- -- -- -- -- --
Reduction for common costs -- -- (100)(H) (100) -- (50)(L) (150)
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 276,909 22,999 (100) 299,808 1,252 (975) 300,085
-------- -------- -------- -------- -------- -------- --------
Operating income 34,142 (3,165) 100 31,077 (1,252) 62 29,887
Minority interest in net loss
of subsidiaries 1,659 -- -- 1,659 -- -- 1,659
Equity in net loss of
unconsolidated affiliate (1,353) -- -- (1,353) -- -- (1,353)
Charge for impaired investments (9,431) -- -- (9,431) -- -- (9,431)
Settlement of lawsuit (1,980) -- -- (1,980) -- -- (1,980)
Investment income 9,101 60 -- 9,161 24 -- 9,185
Interest expense (1,354) (209) -- (1,563) -- -- (1,563)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 30,784 (3,314) 100 27,570 (1,228) 62 26,404
Provision for income taxes (14,481) -- 1,331(I) (13,150) -- 483 (M) (12,667)
-------- -------- -------- -------- -------- -------- --------
Net income $ 16,303 $ (3,314) $ 1,431 $ 14,420 $ (1,228) $ 545 $ 13,737
======== ======== ======== ======== ======== ======== ========
Applicable to the General Division:
Net income (loss) $ 30,194 $ 28,311 $ 27,628
Allocated tax benefit generated by
Tissue Repair Division 1,860 1,860 1,860
-------- -------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 32,054 $ 30,171 $ 29,488
======== ======== ========
Income (loss) per General Division common
and common equivalent share $ 1.22 $ (0.69) $ 1.13 $ 1.05
======== ======== ======== ========
Historical weighted average
shares outstanding 26,169 4,809 (4,809) 26,169 26,169
Shares issued as a result of
Genetrix merger -- -- 547 547 547
Shares issued as a result of
GDP acquisition -- -- -- -- 1,296 1,296
-------- -------- -------- -------- -------- --------
Pro forma weighted average shares
outstanding 26,169 4,809 (4,262) 26,716 1,296 28,012
======== ======== ======== ======== ======== ========
Income (loss) per General Division common
and common equivalent share assuming
full dilution $ 1.14 $ 1.05 $ 0.98
======== ======== ========
Historical fully diluted weighted average
shares outstanding 28,159 28,159 28,159
Shares issued as a result of
Genetrix merger -- 547 547 547
Shares issued as a result of
GDP acquisition -- -- -- 1,296 1,296
-------- -------- -------- -------- --------
Pro forma fully diluted weighted average
shares outstanding 28,159 547 28,706 1,296 30,002
======== ======== ======== ======== ========
Applicable to the Tissue Repair Division:
Net income (loss) $(15,751) $(15,751) $(15,751)
Allocated tax benefit generated by
Tissue Repair Division -- -- --
-------- -------- --------
Net income (loss) attributable to TR Stock $(15,751) $(15,751) $(15,751)
======== ======== ========
Income (loss) per Tissue Repair Division
common share $ (4.40) $ (4.40) $ (4.40)
======== ======== ========
Historical weighted average
shares outstanding 3,578 3,578 3,578
======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-27
<PAGE> 108
Genzyme Corporation and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Pro
Historical Historical Pro Foot Forma
Genzyme Genetrix, Forma Note Genzyme
Corp. Inc. Adjs. Ref. Corp.
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Net product sales $ 183,366 $ -- $ -- $ 183,366
Net service sales 50,511 15,089 -- 65,600
R&D revenue 36,494 -- -- 36,494
--------- --------- --------- ---------
Total revenue 270,371 15,089 -- 285,460
Cost of products sold 64,704 -- -- 64,704
Cost of services sold 34,558 7,961 -- 42,519
SG&A 78,716 9,320 -- 88,036
R&D expense 48,331 -- -- 48,331
Purchase of in-process R&D 49,000 -- -- 49,000
Goodwill impairment and restructuring costs 26,517 902 -- 27,419
Charge for purchase options and financing expenses
financing expenses -- -- -- --
Reduction for common costs -- -- (100) (H) (100)
--------- --------- --------- ---------
Total operating expenses 301,826 18,183 (100) 319,909
--------- --------- --------- ---------
Operating income (31,455) (3,094) 100 (34,449)
Minority interest in net loss of subsidiaries 9,892 -- -- 9,892
Equity in net loss of unconsolidated affiliate -- -- -- --
Charge for impaired investments (700) -- -- (700)
Settlement of lawsuit -- -- -- --
Investment income 12,209 110 -- 12,319
Interest expense (2,500) (211) -- (2,711)
--------- --------- --------- ---------
Income before income taxes (12,554) (3,195) 100 (15,649)
Provision for income taxes 6,459 -- 1,281 (I) 7,740
--------- --------- --------- ---------
Net income (loss) $ (6,095) $ (3,195) $ 1,381 $ (7,909)
========= ========= ========= =========
Applicable to the General Division:
Net income (loss) $ 8,456 $ 6,642
Allocated tax benefit generated by
Tissue Repair Division 9,564 9,564
--------- ---------
Net income (loss) attributable to General
Division Stock $ 18,020 $ 16,206
========= =========
Income (loss) per General Division common
and common equivalent share $ 0.69 $ (0.81) $ 0.60
========= ========= =========
Historical weighted average shares outstanding 26,250 3,928 (3,928) 26,250
Shares issued as a result of Genetrix acquisition -- -- 547 547
--------- --------- --------- ---------
Pro forma weighted average shares outstanding 26,250 3,928 (3,381) 26,797
========= ========= ========= =========
Applicable to the Tissue Repair Division:
Net income (loss) $ (23,860) $ (23,860)
Allocated tax benefit generated by
Tissue Repair Division (255) (255)
--------- ---------
Net income (loss) attributable to TR Stock $ (24,115) $ (24,115)
========= =========
Income (loss) per Tissue Repair Division
common share $ (7.43) $ (7.43)
========= =========
Historical weighted average shares outstanding 3,245 3,245
========= =========
</TABLE>
See notes to unaudited pro forma financial statements.
F-28
<PAGE> 109
Genzyme Corporation and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1992
<TABLE>
<CAPTION>
Pro
Historical Historical Pro Foot Forma
Genzyme Genetrix, Forma Note Genzyme
Corp. Inc. Adjs. Ref. Corp.
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Net product sales $139,568 $ - $ - $139,568
Net service sales 40,400 13,819 - 54,219
R&D revenue 39,111 - - 39,111
-------- ------- ------- --------
Total revenue 219,079 13,819 - 232,898
Cost of products sold 52,514 - - 52,514
Cost of services sold 27,254 7,399 - 34,653
SG&A 59,704 10,585 - 70,289
R&D expense 39,675 - - 39,675
Purchase of in-process R&D 51,100 - - 51,100
Goodwill impairment and restructuring costs - - - -
Charge for purchase options and financing expenses
financing expenses 16,905 418 - 17,323
Reduction for common costs - - (100)(H) (100)
-------- ------- ------- --------
Total operating expenses 247,152 18,402 (100) 265,454
-------- ------- ------- --------
Operating income (28,073) (4,583) 100 (32,556)
Minority interest in net loss of subsidiaries 1,678 - - 1,678
Equity in net loss of unconsolidated affiliate - - - -
Charge for impaired investments - - - -
Settlement of lawsuit - - - -
Investment income 21,981 176 - 22,157
Interest expense (7,099) (237) - (7,336)
-------- ------- ------- --------
Income before income taxes (11,513) (4,644) 100 (16,057)
Provision for income taxes (18,804) - 1,881 (I) (16,923)
-------- ------- ------- --------
Net income (loss) $(30,317) $(4,644) $ 1,981 $(32,980)
======== ======= ======= ========
Applicable to the General Division:
Net income (loss) $(30,012) $(32,675)
Allocated tax benefit generated by
Tissue Repair Division 203 203
-------- --------
Net income (loss) attributable to General
Division Stock $(29,809) $(32,472)
======== ========
Income (loss) per General Division common
and common equivalent share $ (1.33) $ (1.20) $(1.42)
======== ======= ========
Historical weighted average shares outstanding 22,370 3,873 (3,873) 22,370
Shares issued as a result of Genetrix acquisition - - 547 547
-------- ------- ------- --------
Pro forma weighted average shares outstanding 22,370 3,873 (3,326) 22,917
======== ======= ======= ========
Applicable to the Tissue Repair Division:
Net income (loss) $ (508) $ (508)
Allocated tax benefit generated by
Tissue Repair Division - -
-------- --------
Net income (loss) attributable to TR Stock $ (508) $ (508)
======== ========
Income (loss) per Tissue Repair Division
common share $ (0.17) $ (0.17)
======== ========
Historical weighted average shares outstanding 3,019 3,019
======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-29
<PAGE> 110
Genzyme General Division and Subsidiaries
Pro Forma Combined Balance Sheets
As of September 30, 1995
<TABLE>
<CAPTION>
Pro
Forma
Genzyme Historical Pro
Historical General Genzyme Forma
Genzyme Historical Pro Foot Division Development Pro Foot Genzyme
General Genetrix, Forma Note and Partners, Forma Note General
ASSETS Division Inc. Adjs. Ref. Genetrix L.P. Adjs. Ref. Division
---------- ---------- -------- ---- -------- ----------- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 52,955 $ 422 $ - $ 53,377 $ 438 $ - $ 53,815
Short-term investments 1,925 - - 1,925 - - 1,925
Accounts receivable, less allowance
for doubtful accounts 82,696 4,250 - 86,946 - - 86,946
Inventories 46,155 306 - 46,461 - - 46,461
Prepaid expenses and other current assets 12,114 415 - 12,529 - (83) (R) 12,446
Due from Tissue Repair Division 545 - - 545 - - 545
Deferred tax assets - current 4,072 - - 4,072 - - 4,072
-------- -------- -------- -------- -------- -------- --------
Total current assets 200,462 5,393 - 205,855 438 (83) 206,210
Property, plant & equipment, net 320,435 3,875 - 324,310 - - 324,310
Other Assets:
Long-term investments 55,870 - - 55,870 - - 55,870
Notes receivable-related party 1,429 - - 1,429 - - 1,429
Intangibles, net of accumulated
amortization 26,257 2,650 - 28,907 - - 28,907
Deferred tax assets - noncurrent 28,473 - - 28,473 - - 28,473
Other noncurrent assets 27,576 187 - 27,763 - 1 (S) 27,764
-------- -------- -------- -------- -------- -------- --------
Total other assets 139,605 2,837 - 142,442 - 1 142,443
-------- -------- -------- -------- -------- -------- --------
Total assets $660,502 $ 12,105 $ 0 $672,607 $ 438 $ (82) $672,963
======== ======== ======== ======== ======== ======== ========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable 10,167 1,216 - 11,383 - - 11,383
Accrued expenses 35,498 1,803 - 37,301 - - 37,301
Payable to Genzyme General Division - - - - 83 (83) (R) 0
Income taxes payable 3,393 - - 3,393 - - 3,393
Deferred revenue 2,016 - - 2,016 - - 2,016
Current portion of long-term debt and
capital lease obligations 645 1,494 - 2,139 - - 2,139
-------- -------- -------- -------- -------- -------- --------
Total current liabilities 51,719 4,513 - 56,232 83 (83) 56,232
Noncurrent liabilities:
Long-term debt and capital lease
obligations 126,258 294 - 126,552 - 126,552
Other noncurrent liabilities 8,101 191 - 8,292 - - 8,292
-------- -------- -------- -------- -------- -------- --------
134,359 485 - 134,844 - - 134,844
Minority interest in subsidiaries 1,510 - - 1,510 - - 1,510
Division Equity:
Division equity 472,914 - 5 (N)
(5) (N)
5 (O) -
13 (P)
24,480 (Q)
(17,391) (Q) 480,021 1 (S)
13 (U)
92,632 (U)
355 (T)
(92,645) (U) 480,377
Genetrix, Inc. convertible preferred
stock - 5 (5) (O) 0 - - 0
Genetrix, Inc. common stock - 13 (13) (P) 0 - - 0
Additional paid-in capital - 24,480 (24,480) (Q) 0 32,629 (32,629) (T) 0
Accumulated deficit (17,391) 17,391 (Q) 0 (32,274) 32,274 (T) 0
--------- --------- -------- -------- --------- -------- --------
Total division equity 472,914 7,107 0 480,021 355 1 480,377
-------- -------- -------- -------- -------- -------- --------
Total liabilities and division equity $660,502 $ 12,105 $ 0 $672,607 $ 438 $ (82) $672,963
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-30
<PAGE> 111
Genzyme General Division and Subsidiaries
Pro Forma Combined Statements of Operations
For the Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
Pro
Forma
Genzyme Historical Pro
Historical General Genzyme Forma
Genzyme Historical Pro Foot Division Development Pro Foot Genzyme
General Genetrix, Forma Note and Partners, Forma Note General
Division Inc. Adjs. Ref. Genetrix L.P. Adjs. Ref. Division
---------- ---------- ------- ---- -------- ----------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net product sales $219,374 $ - $ - $219,374 $ $ - $219,374
Net service sales 35,461 16,391 - 51,852 - - 51,852
R&D revenue 19,166 - - 19,166 - - 19,166
-------- ------- ------ -------- -------- ------- --------
Total revenue 274,001 16,391 - 290,392 - - 290,392
Cost of products sold 82,938 - - 82,938 - - 82,938
Cost of services sold 23,353 8,421 - 31,774 - - 31,774
SG&A 72,056 7,923 - 79,979 87 (1) (Y) 80,065
R&D expense 42,472 - - 42,472 - - 42,472
Purchase of in-process R&D - - - - - - -
Goodwill impairment and restructuring
costs - - - - - - -
Charge for purchase options and
financing expenses - - - - - - -
Reduction for common costs - - (75) (V) - - (38) (Z) (113)
-------- ------- ------ -------- -------- ------- --------
Total operating expenses 220,819 16,344 (75) 237,088 87 (39) 237,136
-------- ------- ------ -------- -------- ------- --------
Operating income 53,182 47 75 53,304 (87) 39 53,256
Minority interest in net loss of
subsidiaries 1,608 - - 1,608 - - 1,608
Equity in net loss of unconsolidated
affiliate (1,207) - - (1,207) - - (1,207)
Charge for impaired investments - - - - - - -
Settlement of lawsuit - - - - - - -
Investment income 3,891 7 - 3,898 22 - 3,920
Interest expense (732) (170) - (902) - - (902)
-------- ------- ------ -------- -------- ------ --------
Income before income taxes 56,742 (116) 75 56,701 (65) 39 56,675
Provision for income taxes (21,562) - 17 (W) (21,545) - 11 (AA) (21,534)
-------- ------- ------ -------- -------- ------ --------
Net income $ 35,180 $ (116) $ 92 $ 35,156 $ (65) $ 50 $ 35,141
======= ====== ======== ======
Allocated tax benefit generated by
Tissue Repair Division 5,877 5,877 5,877
-------- -------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 41,057 $ 41,033 $ 41,018
======== ======== ========
Income (loss) per General Division
common and common equivalent share $ 1.42 $ (0.02) $ 1.40 $ 1.34
======== ======= ======== ========
Historical weighted average shares
outstanding 28,816 5,251 (5,251) 28,816 28,816
Shares issued as a result of Genetrix
merger - - 547 547 547
Shares issued as a result of GDP
acquisition - - - - 1,296 1,296
-------- ------- ------ -------- ------ --------
Pro forma weighted average shares
outstanding 28,816 5,251 (4,704) 29,363 1,296 30,659
======== ======= ====== ======== ====== ========
Income (loss) per General Division
common and common equivalent share
assuming full dilution $ 1.30 $ 1.27 $ 1.22
======== ======== ========
Historical fully diluted weighted
average shares outstanding 31,671 31,671 31,671
Shares issued as a result of Genetrix
merger - 547 547 547
Shares issued as a result of GDP
acquisition - - - 1,296 1,296
-------- ------ -------- ------ ------
Pro forma fully diluted weighted average
shares outstanding 31,671 547 32,218 1,296 33,514
======== ====== ======== ====== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-31
<PAGE> 112
Genzyme General Division and Subsidiaries
Pro Forma Combined Statements of Operations
For the Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Pro
Forma
Genzyme Historical Pro
Historical General Genzyme Forma
Genzyme Historical Pro Foot Division Development Pro Foot Genzyme
General Genetrix, Forma Note and Partners, Forma Note General
Division Inc. Adjs. Ref. Genetrix L.P. Adjs. Ref. Division
---------- ---------- ------- ---- -------- ----------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net product sales $173,499 $ - $ - $173,499 $ $ - $173,499
Net service sales 38,188 14,058 - 52,246 - - 52,246
R&D revenue 16,153 - - 16,153 - (913) (X) 15,240
-------- ------- ------ -------- ------- ------ --------
Total revenue 227,840 14,058 - 241,898 - (913) 240,985
Cost of products sold 65,530 - - 65,530 - - 65,530
Cost of services sold 24,600 7,836 - 32,436 - - 32,436
SG&A 63,649 7,434 - 71,083 120 (12) (Y) 71,191
R&D expense 37,058 - - 37,058 1,095 (913) (X) 37,240
Purchase of in-process R&D - - - - - - -
Goodwill impairment and restructuring
costs - 2,064 - 2,064 - - 2,064
Charge for purchase options and
financing expenses - - - - - - -
Reduction for common costs - - (75) (V) (75) - (38) (Z) (113)
-------- ------- ------ -------- ------- ------ --------
Total operating expenses 190,837 17,334 (75) 208,096 1,215 (963) 208,348
-------- ------- ------ -------- ------- ------ --------
Operating income 37,003 (3,276) 75 33,802 (1,215) 50 32,637
Minority interest in net loss of
subsidiaries 1,216 - - 1,216 - - 1,216
Equity in net loss of unconsolidated
affiliate - - - - - - -
Charge for impaired investments - - - - - - -
Settlement of lawsuit - - - - - - -
Investment income 7,305 102 - 7,407 17 - 7,424
Interest expense (1,658) (164) - (1,822) - - (1,822)
-------- ------- ------ -------- ------- ----- --------
Income before income taxes 43,866 (3,338) 75 40,603 (1,198) 50 39,495
Provision for income taxes (15,533) - 1,351 (W) (14,182) - 475 (AA) (13,707)
-------- ------- ------ --------- ------- ----- --------
Net income $ 28,333 $(3,338) $1,426 $ 26,421 $(1,198) $ 525 $ 25,748
======= ====== ======= ======
Allocated tax benefit generated by
Tissue Repair Division 1,231 1,231 1,231
-------- -------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 29,564 $ 27,652 $ 26,979
======== ======== ========
Income (loss) per General Division
common and common equivalent share $ 1.13 $ (0.72) $ 1.04 $ 0.96
======== ======= ========
Historical weighted average shares
outstanding 26,117 4,663 (4,663) 26,117 26,117
Shares issued as a result of Genetrix
merger - - 547 547 547
Shares issued as a result of GDP
acquisition - - - - 1,296 1,296
-------- ------- ------ -------- ------ --------
Pro forma weighted average shares
outstanding 26,117 4,663 (4,116) 26,664 1,296 27,960
======== ======= ====== ======== ====== ========
Income (loss) per General Division
common and common equivalent share
assuming full dilution $ 1.05 $ 0.96 $ 0.90
======== ======== ========
Historical fully diluted weighted
average shares outstanding 28,109 28,109 28,109
Shares issued as a result of Genetrix
merger - 547 547 547
Shares issued as a result of GDP
acquisition - - - 1,296 1,296
-------- ------ -------- ------ ---------
Pro forma fully diluted weighted average
shares outstanding 28,109 547 28,656 1,296 29,952
======== ====== ======== ====== =========
</TABLE>
See notes to unaudited pro forma financial statements.
F-32
<PAGE> 113
Genzyme General Division and Subsidiaries
Pro Forma Combined Statements of Operations
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Pro
Forma
Genzyme Historical Pro
Historical General Genzyme Forma
Genzyme Historical Pro Foot Division Development Pro Foot Genzyme
General Genetrix, Forma Note and Partners, Forma Note General
ASSETS Division Inc. Adjs. Ref. Genetrix L.P. Adjs. Ref. Division
---------- ---------- ------- ---- -------- ----------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net product sales $238,645 $ - $ - $238,645 $ $ - $238,645
Net service sales 49,686 19,834 - 69,520 - - 69,520
R&D revenue 22,396 - - 22,396 - (913) (X) 21,483
-------- ------- ------ -------- ------- ------ --------
Total revenue 310,727 19,834 - 330,561 - (913) 329,648
Cost of products sold 92,226 - - 92,226 - - 92,226
Cost of services sold 32,116 10,784 - 42,900 - - 42,900
SG&A 84,767 10,151 - 94,918 157 (12) (Y) 95,063
R&D expense 51,696 - - 51,696 1,095 (913) (X) 51,878
Purchase of in-process R&D - - - - - - -
Goodwill impairment and restructuring
costs - 2,064 - 2,064 - - 2,064
Charge for purchase options and
financing expenses - - - - - - -
Reduction for common costs - - (100) (V) (100) - (50) (Z) (150)
-------- ------- ------ -------- ------- ------ --------
Total operating expenses 260,805 22,999 (100) 283,704 1,252 (975) 283,981
-------- ------- ------ -------- ------- ------ --------
Operating income 49,922 (3,165) 100 46,857 (1,252) 62 45,667
Minority interest in net loss of
subsidiaries 1,659 - - 1,659 - - 1,659
Equity in net loss of unconsolidated
affiliate (1,353) - - (1,353) - - (1,353)
Charge for impaired investments (9,431) - - (9,431) - - (9,431)
Settlement of lawsuit (1,980) - - (1,980) - - (1,980)
Investment income 9,072 60 - 9,132 24 - 9,156
Interest expense (1,354) (209) - (1,563) - - (1,563)
-------- ------- ------ -------- ------- ------ --------
Income before income taxes 46,535 (3,314) 100 43,321 (1,228) 62 42,155
Provision for income taxes (16,341) - 1,331 (W) (15,010) - 483 (AA) (14,527)
-------- ------- ------ -------- ------- ------ --------
Net income $ 30,194 $(3,314) $1,431 $ 28,311 $(1,228) $ 545 $ 27,628
======= ====== ======= ======
Allocated tax benefit generated by
Tissue Repair Division 1,860 1,860 1,860
-------- -------- --------
Net income (loss) attributable to
Genzyme General Division Stock $ 32,054 $ 30,171 $ 29,488
======== ======== ========
Income (loss) per General Division
common and common equivalent share $ 1.22 $ (0.69) $ 1.13 $ 1.05
======== ======= ======== ========
Historical weighted average shares
outstanding 26,169 4,809 (4,809) 26,169 26,169
Shares issued as a result of Genetrix
merger - - 547 547 547
Shares issued as a result of GDP
acquisition - - - - 1,296 1,296
-------- ------- ------ -------- ------ --------
Pro forma weighted average shares
outstanding 26,169 4,809 (4,262) 26,716 1,296 28,012
======== ======= ====== ======== ====== ========
Income (loss) per General Division
common and common equivalent share
assuming full dilution $ 1.14 $ 1.05 $ 0.98
======== ======== ========
Historical fully diluted weighted
average shares outstanding 28,159 28,159 28,159
Shares issued as a result of Genetrix
merger - 547 547 547
Shares issued as a result of GDP
acquisition - - - 1,296 1,296
-------- ------ -------- ------ --------
Pro forma fully diluted weighted
average shares outstanding 28,159 547 28,706 1,296 30,002
======== ====== ======== ====== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-33
<PAGE> 114
Genzyme General Division and Subsidiaries
Pro Forma Combined Statements of Operations
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Pro
Historical Forma
Genzyme Historical Pro Foot Genzyme
General Genetrix, Forma Note General
Division Inc. Adjs. Ref. Division
-------- ---- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Net product sales $183,366 $ -- $ -- $183,366
Net service sales 50,511 15,089 -- 65,600
R&D revenue 31,810 -- -- 31,810
-------- ------- ------ --------
Total revenue 265,687 15,089 -- 280,776
Cost of products sold 64,704 -- -- 64,704
Cost of services sold 34,558 7,961 -- 42,519
SG&A 78,015 9,320 -- 87,335
R&D expense 45,526 -- -- 45,526
Purchase of in-process R&D 24,000 -- -- 24,000
Goodwill impairment and restructuring costs 26,517 902 -- 27,419
Charge for purchase options and financing expenses
financing expenses -- -- -- --
Reduction for common costs -- -- (100) (V) (100)
-------- ------- ------ --------
Total operating expenses 273,320 18,183 (100) 291,403
-------- ------- ------ --------
Operating income (7,633) (3,094) 100 (10,627)
Minority interest in net loss of subsidiaries 9,892 -- -- 9,892
Equity in net loss of unconsolidated affiliate -- -- -- --
Charge for impaired investments (700) -- -- (700)
Settlement of lawsuit -- -- -- --
Investment income 12,209 110 -- 12,319
Interest expense (2,500) (211) -- (2,711)
-------- ------- ------ --------
Income before income taxes 11,268 (3,195) 100 8,173
Provision for income taxes (2,812) -- 1,281 (W) (1,531)
-------- ------- ------ --------
Net income (loss) $ 8,456 $(3,195) $1,381 $ 6,642
======= ======
Allocated tax benefit generated by
Tissue Repair Division 9,564 9,564
-------- --------
Net income (loss) attributable to Genzyme
General Division Stock $ 18,020 $ 16,206
======== ========
Income (loss) per General Division common
and common equivalent share $ 0.69 $ (0.81) $ 0.60
======== ======= ========
Historical weighted average shares outstanding 26,250 3,928 (3,928) 26,250
Shares issued as a result of Genetrix acquisition -- -- 547 547
-------- ------- ------ --------
Pro forma weighted average shares outstanding 26,250 3,928 (3,381) 26,797
======== ======= ====== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-34
<PAGE> 115
Genzyme General Division and Subsidiaries
Pro Forma Combined Statements of Operations
For the Year Ended December 31, 1992
<TABLE>
<CAPTION>
Pro
Historical Forma
Genzyme Historical Pro Foot Genzyme
General Genetrix, Forma Note General
Division Inc. Adjs. Ref. Division
-------- ---- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Net product sales $139,568 $ -- $ -- $139,568
Net service sales 40,400 13,819 -- 54,219
R&D revenue 36,445 -- -- 36,445
-------- ------- ------ --------
Total revenue 216,413 13,819 -- 230,232
Cost of products sold 52,514 -- -- 52,514
Cost of services sold 27,254 7,399 -- 34,653
SG&A 58,881 10,585 -- 69,466
R&D expense 37,324 -- -- 37,324
Purchase of in-process R&D 51,100 -- -- 51,100
Goodwill impairment and restructuring costs -- -- -- --
Charge for purchase options and financing expenses
financing expenses 16,905 418 -- 17,323
Reduction for common costs -- -- (100) (V) (100)
-------- ------- ------ --------
Total operating expenses 243,978 18,402 (100) 262,280
-------- ------- ------- --------
Operating income (27,565) (4,583) 100 (32,048)
Minority interest in net loss of subsidiaries 1,678 -- -- 1,678
Equity in net loss of unconsolidated affiliate -- -- -- --
Charge for impaired investments -- -- -- --
Settlement of lawsuit -- -- -- --
Investment income 21,981 176 -- 22,157
Interest expense (7,099) (237) -- (7,336)
-------- ------- ------ --------
Income before income taxes (11,005) (4,644) 100 (15,549)
Provision for income taxes (19,007) -- 1,881 (W) (17,126)
-------- ------- ------ --------
Net income (loss) $(30,012) $(4,644) $1,981 $(32,675)
======= ======
Allocated tax benefit generated by
Tissue Repair Division 203 203
-------- --------
Net income (loss) attributable to Genzyme
General Division Stock $(29,809) $(32,472)
======== ========
Income (loss) per General Division common
and common equivalent share $ (1.33) $ (1.20) $ (1.42)
======== ======= ========
Historical weighted average shares outstanding 22,370 3,873 (3,873) 22,370
Shares issued as a result of Genetrix acquisition -- -- 547 547
-------- ------- ------ --------
Pro forma weighted average shares outstanding 22,370 3,873 (3,326) 22,917
======== ======= ====== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-35
<PAGE> 116
Genzyme Corporation and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
1. Accounting Policies and Procedures
The accounting policies and procedures for Genzyme, Genetrix and GDP are
in conformity in all material respects. The pro forma financial statements
include both Genzyme, the registrant, and the General Division, the stock of
which is being used to effect the Merger and the proposed acquisition of GDP.
2. Genzyme Corporation's Merger with Genetrix, Inc.
On February 14, 1996, Genzyme announced that it had entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") to acquire
Genetrix, a privately held genetic testing laboratory based in Phoenix, Arizona,
and to merge Genetrix's operations with Genzyme's Integrated Genetics diagnostic
services business. The unaudited pro forma consolidated financial statements
assume the issuance of approximately 547,000 shares of Genzyme General Division
Common Stock ("Genzyme General Division Stock") for all the outstanding shares
of Genetrix preferred stock ("Genetrix Preferred Stock") and Genetrix common
stock ("Genetrix Common Stock", together with the Genetrix Preferred Stock
"Genetrix Stock").
The exchange of Genetrix Stock for Genzyme General Division Stock will be
based upon the Closing Price of Genzyme General Division Stock, which is defined
in the Merger Agreement as the average closing price of Genzyme General Division
Stock as reported by the NASDAQ National Market for the ten trading days ending
on the second trading date prior to the closing date of the Merger; provided,
however, that (i) if the average so determinined is less than $47.97 per share
or greater than $43.61 per share, the Closing Price will be $47.97 per share and
(ii) if the amount so determined is greater than $67.28 per share, the Closing
Price will be $67.28. At the effective time of the Merger, all outstanding
shares of Genetrix Stock will be converted into that number of shares of Genzyme
General Division Stock determined by dividing (A) the purchase price of
$38,500,000 net of purchase price adjustments of approximately $1,759,805 (of
which $1,682,305 represents certain merger costs and $77,500 represents an
estimated amount of current claims for which Genzyme is entitled to be
indemnified under the Merger Agreement) by (B) the Closing Price (the "Merger
Consideration"). The Merger Consideration will be allocated among the holders of
Genetrix Stock outstanding at the effective time of the Merger by (i) first
allocating to the holders of Genetrix Preferred Stock that number of shares of
Genzyme General Division Stock determined by dividing the aggregate amount to
which each such holder is entitled under the Sixth Amended and Restated
Certificate of Incorporation of Genetrix dated April 22, 1994 (the "Genetrix
Charter") (such holders' "Merger Preference") by the Closing Price, rounded down
to the nearest whole share and then allocating among the holders of Genetrix
Common Stock and the holders of Series A, B, E, and F of Genetrix Preferred
Stock that number of shares of Genzyme General Division Stock determined by
multiplying (A) the number of shares of each Genetrix Common Stock held by each
such holder and issuable upon conversion of the shares of Genetrix Preferred
Stock held by the each such holder by (B) the Conversion Factor (as defined
below), rounded to the nearest whole share. "Conversion Factor" means the
quotient obtained by dividing the number of shares of Genzyme General Division
Stock delivered as Merger Consideration (after subtracting the number of shares
allocable to holders of Genetrix Preferred Stock as the Merger Preference) by
the number of shares of Genetrix Common Stock outstanding and deemed to be
rounded to four decimal places. For purposes of determining the Conversion
Factor, each share of Genetrix Common Stock issuable upon conversion of the
Genetrix Preferred Stock will be deemed outstanding prior to the effective time
of the Merger.
F-36
<PAGE> 117
Genzyme Corporation and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
2. Genzyme Corporation's Merger with Genetrix, Inc. (continued):
For the purposes of the unaudited pro forma condensed consolidated
financial statements, the Closing Price of Genzyme General Division Stock was
assumed to be $67.28 per share, resulting in approximately 547,000 of Genzyme
General Division shares to be exchanged. The pro forma exchange of shares was
calculated as follows:
<TABLE>
<CAPTION>
Shares Exchanged:
- -----------------
<S> <C> <C>
Purchase Price $38,500,000
Purchase Price Adjustments (1,682,305)
-----------
36,817,695
Assumed market value for Genzyme General Division Stock 67.28
-----------
Shares issued 547,230
Shares allocated in satisfaction of Merger Preference (336,339)
Shares allocable to escrow (1,152)
-----------
Shares to be allocated to Genetrix Common Shareholders 209,739 (A)
Total Genetrix Common Shares Outstanding 11,609,894 (B)
(including participation of Preferred Series A, B, E, and F)
Conversion factor .0181 (A)/(B)
</TABLE>
Amounts at the effective time of the Merger may differ from the
information presented in the pro forma financial statements based on subsequent
changes in the closing price of Genzyme General Division Stock, the Purchase
Adjustment amounts and any other related items which may impact the amounts
reflected herein.
3. Genzyme Corporation's Offer to Purchase the Assets of Genzyme Development
Partners, L.P.
On January 31, 1996, Genzyme announced that it had made an offer to a
special committee of the independent directors of the general partner of GDP
also known as the Surgical Aids Partnership, to acquire substantially all the
assets of the partnership for approximately $93,000,000 payable in shares of
Genzyme General Division Stock which would be distributed to the limited
partners of GDP. The offer was made in lieu of Genzyme's existing option to
purchase the outstanding partnership interests for a lump-sum cash payment and
certain future royalty payments. The Genzyme General Division shares would be
valued at the average closing price for the 20 trading days immediately
preceding the fifth trading day prior to closing the acquisition, provided that
the average closing price is at least $60.99 and not more than $82.51. If the
average closing price of the stock during that period is more than $82.51,
1,127,136 shares would satisfy the purchase price, whereas if the average
closing price is less than $60.99, 1,524,840 shares would satisfy the purchase
price. The offer is subject to several conditions: (i) the special committee
must approve the offer; (2) the offer must be affirmed by a vote of two-thirds
in interest of the limited partners; (iii) the general partner must enter into a
definitive acquisition agreement; and (iv) Genzyme must be able to account for
the acquisition as a purchase of in-process research and development.
Although management of Genzyme cannot be certain that the acquisition
will be consummated, for purposes of these pro forma financial statements, it is
assumed to be probable that the acquisition will occur. Accordingly, information
related to the acquisition has been included in the pro forma financial
statements and related notes. The pro forma balance sheets and income statements
are presented assuming that this transaction occurred as of January 1, 1994,
using the purchase accounting method.
For the purposes of the unaudited pro forma condensed consolidated
financial statements, the market value of the Genzyme General Division Stock to
be issued for the acquisition of the assets of Genzyme Development Partners, LP
is assumed to be $71.75 per share, the closing price of Genzyme General Division
Stock on Monday, March 4, 1996, the most recent date for which information was
available, resulting in approximately 1,296,167 shares to be issued.
Amounts and the recording of such amounts at the effective time of the
acquisition may differ from current presentation depending on the facts and
circumstances relating to the purchase price and the status of the technology
proposed to be acquired from GDP as of such time. The FDA is convening a panel
to review one of the products under GDP's development on March 25, 1996.
F-37
<PAGE> 118
Genzyme Corporation and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
4. Pro Forma Adjustments Related to Genetrix Merger and Acquisition of
Genzyme Development Partners, L.P.:
These adjustments reflect the retirement of all Genetrix Common and
Preferred Stock, the retirement of all GDP partnership interests and the
issuance of Genzyme General Division Common Stock in the amounts described in
Notes 2 and 3. Additionally, all intercompany transactions between Genzyme and
GDP have been eliminated.
I. Pro Forma Adjustments to Genzyme Corporation's Consolidated Balance
Sheets:
Related to the Genetrix Merger:
A. Issuance of Genzyme General Division Stock related to the Merger
- an increase to General Division Common Stock and a decrease to
Additional Paid-In Capital ("APIC") of $5K, respectively.
B. Eliminate Genetrix Preferred Stock -a decrease to Genetrix
Preferred Stock and an increase to APIC of $5K, respectively.
C. Eliminate Genetrix Common Stock - a decrease in Genetrix Common
Stock and an increase to APIC of $13K, respectively.
Related to the Acquisition of GDP:
D. Eliminate Genzyme General Division's receivable due from GDP
against GDP's Payable to Genzyme General Division - a reduction to
Prepaid Expenses and Other Current Assets and a decrease in Payable
to Genzyme General Division of $83K, respectively.
E. Eliminate Genzyme General Division's 1% loss in GDP - an increase
to Other Non-Current Assets and Accumulated Deficit of $1K,
respectively.
F. Reclassify GDP's Accumulated Deficit of $32,274K against GDP's APIC,
$32,629K. The remaining GDP APIC of $355K represents the fair value
of the net assets of GDP to be acquired by Genzyme as of the
balance sheet date (Cash of $438K, net of an amount payable to
Genzyme of $83K).
G. Issuance of Genzyme General Division Stock for acquisition of
GDP, an increase to General Division Stock of $13K - an increase to
APIC of $92,632K and a charge of $92,645K to Accumulated Deficit for
the purchase of in-process research and development. ($93,000,000
less the net assets of GDP at the balance sheet date, $355,000).
II. Pro Forma Adjustments to Genzyme Corporation' Consolidated Statements of
Operations:
Related to the Genetrix Merger:
H. Eliminate certain administrative costs (i.e. audit, legal and
filing fees) of Genetrix which would not be incurred on a combined
basis - a Reduction for Common Costs of $100K in each of the years
ended December 31, 1992, 1993, and 1994, respectively, and $75K for
the nine-months ended September 30, 1994 and 1995, respectively.
I. Record the increase to income derived from the tax benefit of
assumed Genetrix losses, net of the reduction for certain common
administrative costs as described in Note H, at a statutory tax rate
of 41.4%. For pro forma financial statements, this item is presented
as an adjustment to the Statements of Operations only.
F-38
<PAGE> 119
Genzyme Corporation and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
4. Pro Forma Adjustments Related to Genetrix Merger and Acquisition of Genzyme
Development Partners, L.P. (continued):
II. Pro Forma Adjustments to Genzyme Corporation' Consolidated Statements
of Operations -(continued):
Related to the Acquisition of GDP:
J. Eliminate Genzyme General Division's research and development
revenue from GDP against research & development expenses.
K. Eliminate Genzyme General Division's 1% loss in GDP - a decrease
to SG&A expense.
L. Eliminate certain administrative costs (i.e. audit, legal and
filing fees) of GDP which would not be incurred on a combined basis
- a Reduction for Common Costs of $50K in the year ended
December 31, 1994 and $38 for the nine-months ended September 30,
1994 and 1995, respectively.
M. Record the increase to income derived from the tax benefit of
assumed GDP losses, net of the reduction for certain common
administrative costs as described in Note L, at a statutory tax rate
of 41.4%. For pro forma financial statements, this item is presented
as an adjustment to the Statements of Operations only.
III. Pro Forma Adjustments to Genzyme General Division's Combined Balance
Sheets:
Related to the Genetrix Merger:
N. Issuance of Genzyme General Division Stock related to Merger,
recorded as an increase and decrease of $5K to Division Equity
(General Division Common Stock and APIC), respectively.
O. Eliminate Genetrix Preferred Stock - a decrease to Genetrix
Preferred Stock and an increase to Division Equity (APIC), of $5K,
respectively.
P. Eliminate Genetrix Common Stock - a decrease in Genetrix Common
Stock and an increase to Division Equity (APIC), of $13K,
respectively.
Q. Reclassify Genetrix APIC and Accumulated Deficit to Division
Equity to conform to Genzyme General Division financial statement
presentation.
R. Eliminate Genzyme General Division's receivable due from GDP
against GDP's Payable to Genzyme General Division - a reduction to
Prepaid Expenses and Other Current Assets and a decrease in Payable
to Genzyme General Division of $83K, respectively.
S. Eliminate Genzyme General Division's 1% loss in GDP - an increase
to Other Non-Current Assets and Division Equity (Accumulated
Deficit), of $1K, respectively.
T. Reclassify GDP's APIC, $32,629K, and Accumulated Deficit, $32,274K,
to Division Equity to reflect net assets of GDP at the balance sheet
date of $355K (Cash of $438K net of an amount payable to Genzyme of
$38K).
F-39
<PAGE> 120
Genzyme Corporation and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
4. Pro Forma Adjustments Related to Genetrix Merger and Acquisition of Genzyme
Development Partners, L.P. (continued):
III. Pro Forma Adjustments to Genzyme General Division's Combined Balance
Sheet (continued):
Related to the Acquisition of GDP (continued):
U. Issuance of Genzyme General Division Stock for the acquisition of
GDP - increased to Division Equity of $13K and $92,632K,
respectively, for General Division Stock and APIC, and a charge of
$93,645K to Division Equity (Accumulated Deficit) for the Purchase
of in-process research and development ($93,000,000 less the net
assets of GDP at the balance sheet date, $355,000.)
IV. Pro Forma Adjustments to Genzyme General Division's Statements of
Operations:
Related to the Genetrix Merger:
V. Eliminate certain administrative costs (i.e. audit, legal and
filing fees) of Genetrix which would not be incurred on a combined
basis - a Reduction for Common Costs of $100K in each of the years
Ended December 31, 1992, 1993, and 1994, respectively, and $75K in
the nine-months ended September 30, 1994 and 1995, respectively.
W. Record the increase to income derived from the tax benefit of
assumed Genetrix losses, net of the reduction for certain common
administrative costs as described in Note V, at a statutory tax rate
of 41.4%. For pro forma financial statements, this item is presented
as an adjustment to the Statements of Operations only.
Related to the Acquisition of GDP:
X. Eliminate Genzyme General Division's research and development
revenue from GDP against research and development expenses.
Y. Elimination of Genzyme General Division's 1% loss in GDP,
recorded a decrease to SG&A expense.
Z. Eliminate certain administrative costs (i.e. audit, legal and
filing fees) of GDP which would not be incurred on a combined basis
- a Reduction for Common Costs of $50K in the year ended December
31, 1994 and $38K in the nine-months ended September 30, 1994 and
1995, respectively.
AA. Record the increase to income derived from the tax benefit of
assumed GDP losses, net of the reduction for certain common
administrative costs as described in Note Z, at a statutory tax rate
of 41.4%. For pro forma financial statements, this item is presented
as an adjustment to the Statements of Operations only.
F-40
<PAGE> 121
EXHIBIT A
======================================
AGREEMENT AND PLAN OF MERGER
AMONG
GENZYME CORPORATION,
GENETRIX, INC.
AND
THE PRINCIPAL STOCKHOLDERS
OF GENETRIX, INC.
NAMED HEREIN
-----------------------------
Dated as of January 11, 1996
-----------------------------
======================================
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 - THE MERGER.................................................... 1
1.1 The Merger................................................ 1
1.2 Effective Time............................................ 1
1.3 Closing................................................... 1
1.4 Effects of the Merger..................................... 1
1.5 Articles of Organization and By-laws...................... 2
1.6 Directors and Officers.................................... 2
1.7 Conversion of Stock....................................... 2
1.8 Options and Warrants...................................... 3
1.9 Closing of Genetrix Transfer Books........................ 4
1.10 Dissenting Shares......................................... 4
1.11 Exchange of Certificates.................................. 5
1.12 No Fractional Shares...................................... 6
1.13 Escrow of Shares.......................................... 6
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF GENETRIX.................... 6
2.1 Organization and Qualification............................ 6
2.2 Authority to Execute and Perform Agreements............... 7
2.3 Capitalization and Title to Shares........................ 7
2.4 Subsidiaries and Other Affiliates......................... 8
2.5 Financial Statements...................................... 8
2.6 Absence of Undisclosed Liabilities........................ 8
2.7 No Material Adverse Change................................ 9
2.8 Tax Matters............................................... 9
2.9 Compliance with Laws...................................... 9
2.10 No Breach................................................. 10
2.11 Actions and Proceedings................................... 10
2.12 Contracts and Other Agreements............................ 10
2.13 Bank Accounts and Powers of Attorney...................... 12
2.14 Properties................................................ 12
2.15 Intellectual Property..................................... 12
2.16 Customers................................................. 14
2.17 Accounts Receivable....................................... 14
2.18 Inventory................................................. 14
2.19 Employee Benefit Plans.................................... 14
2.20 Employee Relations........................................ 15
2.21 Transactions with Management.............................. 15
2.22 Insurance................................................. 15
2.23 Brokerage................................................. 15
2.24 Anti-Takeover Laws........................................ 16
2.25 Hazardous Materials....................................... 16
2.26 Proxy Statement and Registration Statement................ 16
2.27 HSR Filing................................................ 16
2.28 Genetrix Preferred Stock.................................. 16
2.29 Disclosure................................................ 17
</TABLE>
(i)
<PAGE> 123
<TABLE>
<S> <C>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
STOCKHOLDERS............................................................ 17
3.1 Authority to Execute and Perform Agreements.................. 17
3.2 No Breach.................................................... 17
3.3 Title to Shares.............................................. 17
3.4 Brokerage.................................................... 17
3.5 Disclosure................................................... 18
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF
GENZYME................................................................. 18
4.1 Organization................................................. 18
4.2 Authority to Execute and Perform Agreement................... 18
4.3 Capitalization............................................... 18
4.4 SEC Reports.................................................. 19
4.5 Financial Statements......................................... 19
4.6 No Material Adverse Change................................... 19
4.7 Actions and Proceedings...................................... 19
4.8 No Breach.................................................... 19
4.9 Proxy Statement and Registration Statement................... 20
4.10 HSR Filing................................................... 20
4.11 Disclosure................................................... 20
SECTION 5 - COVENANTS AND AGREEMENTS........................................ 20
5.1 Conduct of Business.......................................... 20
5.2 Corporate Examinations and Investigations.................... 22
5.3 Expenses..................................................... 22
5.4 Authorization from Others.................................... 23
5.5 Consummation of Agreement.................................... 23
5.6 Further Assurances........................................... 23
5.7 Proxy Statement; Registration Statement...................... 23
5.8 Genetrix Stockholder Meeting................................. 23
5.9 Public Announcements and Confidentiality..................... 24
5.10 Affiliate Letters............................................ 24
5.11 No Solicitation.............................................. 24
5.12 Filings Under HSR Act........................................ 24
5.13 Voting of Genetrix Stock..................................... 25
5.14 Genzyme SEC Filings.......................................... 25
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER.................................. 25
6.1 Approvals.................................................... 25
6.2 Registration Statement....................................... 25
6.3 HSR Act...................................................... 25
6.4 Absence of Order............................................. 25
6.5 Nasdaq Listing............................................... 25
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
GENZYME TO CONSUMMATE THE MERGER........................................ 26
7.1 Representations, Warranties and Covenants.................... 26
7.2 Affiliate Letters............................................ 26
</TABLE>
(ii)
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<TABLE>
<S> <C>
7.3 Opinion of Counsel to Genetrix.............................. 26
7.4 Merger Documents............................................ 26
7.5 Dissenting Shares........................................... 26
7.6 Pooling of Interests........................................ 26
7.7 Accountant's Letters........................................ 26
7.8 Escrow Agreement............................................ 26
7.9 Bank Accounts............................................... 26
7.10 Tax Opinion................................................. 27
7.11 Genetrix Employees.......................................... 27
7.12 Revenues.................................................... 27
7.13 Certificates................................................ 27
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF GENETRIX
AND THE PRINCIPAL STOCKHOLDERS TO CONSUMMATE THE MERGER................ 27
8.1 Representations, Warranties and Covenants................... 27
8.2 Opinion of Counsel to Genzyme............................... 28
8.3 Tax Opinion................................................. 28
8.4 Merger Documents............................................ 28
8.5 Certificates................................................ 28
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER.............................. 28
9.1 Termination................................................. 28
9.2 Effect of Termination....................................... 29
9.3 Termination Fee............................................. 29
9.4 Amendment................................................... 29
9.5 Waiver...................................................... 30
SECTION 10 - INDEMNIFICATION............................................... 30
10.1 Survival.................................................... 30
10.2 Obligation of Genetrix and the Stockholders to Indemnify.... 30
10.3 Limitations on Indemnification.............................. 30
10.4 Notice and Defense of Claims................................ 31
SECTION 11 - MISCELLANEOUS................................................. 31
11.1 Notices..................................................... 31
11.2 Entire Agreement............................................ 32
11.3 Governing Law............................................... 32
11.4 Binding Effect; No Assignment............................... 33
11.5 Variations in Pronouns...................................... 33
11.6 Counterparts................................................ 33
11.7 Disclosure Schedules........................................ 33
EXHIBIT
A - Form of Affiliate Letter............................................... A-1
</TABLE>
GENETRIX DISCLOSURE SCHEDULE
STOCKHOLDER DISCLOSURE SCHEDULE
GENZYME DISCLOSURE SCHEDULE
(iii)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of January 11, 1996 (this
"Agreement") is among Genzyme Corporation ("Genzyme"), a Massachusetts
corporation, Genetrix, Inc. ("Genetrix"), a Delaware corporation, and the
stockholders of Genetrix identified on the signature pages hereto (the
"Principal Stockholders"). The parties wish to effect the acquisition of
Genetrix by Genzyme through a merger of Genetrix with and into Genzyme on the
terms and conditions set forth in this Agreement. This Agreement is intended to
be a "plan of reorganization" within the meaning of ss.368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Accordingly, in consideration of the mutual representations, warranties
and covenants contained herein, the parties hereto agree as follows:
SECTION 1 - THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the Business Corporation Law of the
Commonwealth of Massachusetts (the "MBCL") and the General Corporation Law of
the State of Delaware (the "DGCL"), Genetrix shall be merged with and into
Genzyme (the "Merger"). The Merger shall occur at the Effective Time (as defined
in Section 1.2). Following the Merger, Genzyme shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate existence
of Genetrix shall cease.
1.2 Effective Time. As soon as practicable after satisfaction or
waiver of all conditions to the Merger, the parties shall cause the Merger to be
consummated by filing and recording articles of merger in accordance with
Section 79 of the MBCL and a certificate of merger in accordance with Section
252(c) of the DGCL (the articles of merger and certificate of merger as
appropriate for each state are referred to herein collectively as the "Merger
Documents") and shall take all such further actions as may be required by law to
make the Merger effective. The Merger shall be effective at such time as the
Merger Documents are duly filed with the Secretary of the Commonwealth of
Massachusetts and the Secretary of State of Delaware in accordance with the MBCL
and the DGCL, respectively, or at such later time as is specified in the Merger
Documents (the "Effective Time").
1.3 Closing. Immediately prior to the filing of the Merger
Documents, a closing (the "Closing") will be held at the offices of Palmer &
Dodge, One Beacon Street, Boston, Massachusetts (or such other place as the
parties may agree) for the purpose of confirming satisfaction or waiver of all
conditions to the Merger. Subject to the satisfaction or waiver of each of the
conditions specified in Sections 6, 7 and 8 hereof, the Closing shall take
place:
(a) Within three business days after the last to occur of
(i) the day the Merger is approved by the stockholders of Genetrix pursuant to
Section 5.8, or (ii) the date of expiration or termination of any waiting period
or extension thereof applicable to the Merger under the Hart-ScottRodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); or
(b) On such other date as the parties may agree.
The date on which the Closing occurs is referred to herein as the "Closing
Date."
1.4 Effects of the Merger. The Merger shall have the effects set
forth in Sections 80 and 81 of the MBCL and Sections 259, 260 and 261 of the
DGCL.
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1.5 Articles of Organization and By-laws. The articles of
organization and by-laws of Genzyme, in each case as in effect immediately prior
to the Effective Time, shall be the articles of organization and by-laws of the
Surviving Corporation immediately after the Effective Time. The purposes of the
Surviving Corporation, the total number of shares and the par value of each
class of stock that the Surviving Corporation is authorized to issue and a
description of each class shall be as set forth in the articles of organization
of Genzyme.
1.6 Directors and Officers. The directors and officers of Genzyme
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation immediately after the Effective Time, each to hold
office in accordance the articles of organization and by-laws of the Surviving
Corporation.
1.7 Conversion of Stock.
(a) For purposes of this Agreement, the following terms
shall have the respective meanings indicated:
(i) "Closing Market Value" means the average of
the closing prices of General Division Stock (as herein defined) as reported by
the Nasdaq National Market for the ten trading days ending on the second trading
day prior to the Closing Date; provided, however, that (i) if the average so
determined is less than $47.97 per share and greater than or equal to $43.61 per
share, "Closing Market Value" shall mean $47.97 and (ii) if the amount so
determined is greater than $67.28 per share, "Closing Market Value" shall mean
$67.28.
(ii) "Conversion Factor" means the quotient
obtained by dividing the aggregate number of shares of General Division Stock
delivered as the Merger Consideration (as defined in Section 1.7(b)(i)) (after
subtracting such number of shares of General Division Stock as are allocated to
the holders of Genetrix Preferred Stock (as herein defined) pursuant to clause
(i) of Section 1.7(c), but before subtracting such number of shares of General
Division Stock as would otherwise be allocable pursuant to Section 1.7(c) to all
Dissenting Shares (as defined in Section 1.10) if the holders thereof had not
properly exercised rights under Section 262 of the DGCL) by the number of shares
of Genetrix Common Stock (as herein defined) outstanding and deemed to be
outstanding immediately prior to the Effective Time, such quotient to be rounded
to four decimal places. For this purpose, each share of Genetrix Common Stock
issuable upon conversion of the Genetrix Preferred Stock will be deemed to be
outstanding immediately prior to the Effective Time.
(iii) "General Division Stock" shall mean the
common stock, $0.01 par value per share, of the General Division of Genzyme.
(iv) "Genetrix Common Stock" shall mean the
common stock, $0.0025 par value per share, of Genetrix; "Genetrix Preferred
Stock" shall mean the preferred stock, $0.001 par value per share, of Genetrix;
and "Genetrix Stock" shall mean collectively the Genetrix Common Stock and the
Genetrix Preferred Stock.
(v) "Purchase Price Adjustment Amount" shall
mean the sum of (A) $1,000,000, representing the management incentive fee
payable to Paul R. Sohmer, M.D., by Genetrix on or before the Closing Date, (B)
any amounts paid or payable to Alex. Brown & Sons Incorporated ("Alex. Brown")
on or before the Closing Date in excess of $250,000 in fees payable in respect
of the financial advisory services rendered by Alex. Brown in connection with
the Merger, (C) any legal or accounting fees of Genetrix paid or payable on or
before the Closing Date in respect
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of the Merger in excess of $250,000, (D) the aggregate amount of all bonuses
awarded to the employees of Genetrix by the Board of Directors of Genetrix at
the meeting of such Board held on November 14, 1995, (E) $50,000, representing
certain obligations to make severance payments under agreements with employees
of Genetrix and (F) $100,000, representing fees payable under a consulting
agreement between Genetrix and Jack Bratton.
(b) At the Effective Time, by virtue of the Merger and
without any action on the part of Genzyme or Genetrix:
(i) All shares of Genetrix Stock outstanding
immediately prior to the Effective Time, other than (1) shares held by Genetrix
as treasury stock or shares held by any subsidiary of Genetrix and (2)
Dissenting Shares (as defined in Section 1.10), shall be converted into and
become the right to receive, in the aggregate, that number of shares of General
Division Stock determined by dividing (A) $38,500,000 less the Purchase Price
Adjustment Amount by (B) the Closing Market Value; provided, however, that if
the Closing Market Value is less than $43.61, Genetrix shall have the right to
terminate this Agreement pursuant to Section 9.1(g) unless Genzyme, in its sole
discretion and in lieu of the number of shares determined pursuant to the
preceding clause, elects to deliver that number of shares of General Division
Stock determined by dividing (X) $35,000,000 less the Purchase Price Adjustment
Amount by (Y) the Closing Market Value. The number of shares of General Division
Stock delivered pursuant to this Section 1.7(b)(i) is referred to hereinafter as
the "Merger Consideration." The Merger Consideration shall be reduced by the
number of shares of General Division Stock that would otherwise be allocable
pursuant to Section 1.7(c) to all Dissenting Shares if the holders thereof had
not properly exercised rights under Section 262 of the DGCL.
(ii) All shares of Genetrix Stock held at the
Effective Time by Genetrix as treasury stock or by a subsidiary of Genetrix
shall be canceled and no payment shall be made with respect thereto.
(iii) All Dissenting Shares shall be treated in
accordance with Section 1.10.
(iv) All shares of Genzyme capital stock
outstanding at the Effective Time shall remain outstanding shares of the
Surviving Corporation.
(c) The Merger Consideration shall be allocated among the
holders of shares of Genetrix Stock outstanding immediately prior to the
Effective Time (i) by first allocating to the holders of Genetrix Preferred
Stock outstanding at the Effective Time, if any, that number of shares of
General Division Stock determined by dividing the aggregate amount to which each
such holder is entitled under Section (B)5. of Article IV of the Genetrix
certificate of incorporation by the Closing Market Value, rounded down to the
nearest whole share and subject to the payment of cash for fractional shares as
provided in Section 1.12, and (ii) then allocating among the holders of Genetrix
Stock outstanding at the Effective Time that number of shares of General
Division Stock determined by multiplying (A) the number of shares of Genetrix
Common Stock held by each such holder and issuable upon conversion of the shares
of Genetrix Preferred Stock held by each such holder by (B) the Conversion
Factor, rounded down to the nearest whole share and subject to the payment of
cash for fractional shares as provided in Section 1.12.
1.8 Options and Warrants. Each outstanding and unexercised option
and warrant to purchase Genetrix Common Stock that has not been terminated
pursuant to Section 5.1(a)(vi) of this Agreement shall, at the Effective Time,
cease to represent a right to acquire shares of Genetrix
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Common Stock and shall be converted automatically into an option or warrant to
purchase shares of General Division Stock in an amount and at an exercise price
determined as provided below:
(a) The number of shares of General Division Stock
subject to the new option or warrant shall be equal to the product of (i) the
number of shares of Genetrix Common Stock subject to the original option or
warrant and (ii) the Option/Warrant Conversion Factor (as herein defined). The
"Option/Warrant Conversion Factor" shall mean the quotient obtained by dividing
the aggregate number of shares of General Division Stock delivered as the Merger
Consideration (after subtracting such number of shares of General Division Stock
as are allocated to the holders of Genetrix Preferred Stock pursuant to clause
(i) of Section 1.7(c), but before subtracting such number of shares of General
Division Stock as would otherwise be allocable pursuant to Section 1.7(c) to all
Dissenting Shares if the holders thereof had not properly exercised rights under
Section 262 of the DGCL) by the number of shares of Genetrix Common Stock
outstanding and deemed to be outstanding immediately prior to the Effective
Time, such quotient to be rounded to four decimal places; provided that any
fractional shares of General Division Stock resulting from such multiplication
shall be rounded down to the nearest share. For purposes of calculating the
Option/Warrant Conversion Factor for each new option or warrant issued under the
terms of this Section 1.8, each share of Genetrix Common Stock issuable upon
exercise of such option or warrant and each share of Genetrix Common Stock
issuable upon conversion of the Genetrix Preferred Stock will be deemed to be
outstanding immediately prior to the Effective Time.
(b) The exercise price per share of General Division
Stock under the new option or warrant shall be equal to the quotient obtained by
dividing the exercise price per share of Genetrix Common Stock under the
original option or warrant by the Option/Warrant Conversion Factor; provided
that such exercise price shall be rounded to the nearest cent.
The adjustments provided herein with respect to any options that are "incentive
stock options" (as defined in Section 422 of the Code) shall be and are intended
to be effected in a manner consistent with Section 424(a) of the Code. The
duration, schedule of vesting and other terms of the new option or warrant
issued under the terms of this Section 1.8 shall be the same as the original
option or warrant except that all references to Genetrix shall be deemed to be
references to Genzyme. Genzyme shall (i) reserve for issuance the number of
shares of General Division Stock issuable upon exercise of each new option and
warrant as determined pursuant to this Section 1.8 and (ii) upon surrender of
the certificate or certificates representing the original Genetrix option or
warrant, issue to each holder thereof a document evidencing the assumption of
such option or warrant by Genzyme as provided herein.
1.9 Closing of Genetrix Transfer Books. At the Effective Time,
the stock transfer books of Genetrix shall be closed and no transfer of Genetrix
Stock shall thereafter be made.
1.10 Dissenting Shares.
(a) Shares of capital stock of Genetrix held by a
stockholder who has properly exercised dissenters' rights with respect thereto
in accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares") shall not be converted into Merger Consideration. From and after the
Effective Time, a stockholder who has properly exercised such dissenters' rights
shall no longer retain any rights of a stockholder of Genetrix or the Surviving
Corporation, except those provided under the DGCL.
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(b) Genetrix shall give Genzyme (i) prompt notice of any
written demands under Section 262 of the DGCL with respect to any shares of
capital stock of Genetrix, any withdrawal of any such demands and any other
instruments served pursuant to the DGCL and received by Genetrix and (ii) the
right to participate in all negotiations and proceedings with respect to any
demands under Section 262 of the DGCL with respect to any shares of capital
stock of Genetrix. Genetrix shall cooperate with Genzyme concerning, and shall
not, except with the prior written consent of Genzyme, voluntarily make any
payment with respect to, or offer to settle or settle, any such demands.
1.11 Exchange of Certificates.
(a) Genzyme shall authorize one or more persons to act as
Exchange Agent hereunder (the "Exchange Agent"). As soon as practicable after
the Effective Time, Genzyme shall cause the Exchange Agent to mail (i) to all
former holders of record of Genetrix Stock instructions for surrendering their
certificates representing Genetrix Stock in exchange for a certificate or
certificates representing shares of General Division Stock. Upon surrender of a
Genetrix Stock certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Genzyme, the holder of such
certificate shall be entitled to receive in exchange therefor (subject to the
escrow deposit required by Section 1.13) a certificate representing that number
of whole shares of General Division Stock into which the shares of Genetrix
Stock theretofore represented by such certificate so surrendered shall have been
converted pursuant to the provisions of this Agreement, and the certificate so
surrendered shall forthwith be canceled.
(b) Until surrendered in accordance with the provisions
of this Section, each Genetrix Stock certificate (other than for shares to be
canceled in accordance with Section 1.7(b)(ii) and Dissenting Shares, if any)
shall represent for all purposes the right to receive shares of General Division
Stock and, as provided in Section 1.12, cash in lieu of General Division Stock,
if any. No dividends or other distributions that are declared after the
Effective Time on General Division Stock and payable to the holders of record
thereof after the Effective Time will be paid to holders of certificates
representing Genetrix Stock until such holders surrender their certificates.
Upon such surrender, there shall be paid to the record holder of the
certificates representing shares of General Division Stock issued upon such
exchange, the amount of dividends or other distributions that become payable
after the Effective Time and were not paid because of the failure to surrender
certificates for exchange. In no event shall the persons entitled to receive
such dividends or distributions be entitled to receive interest thereon.
(c) The General Division Stock into which Genetrix Stock
shall be converted in the Merger shall be deemed to have been issued at the
Effective Time. If any General Division Stock certificates are to be issued in a
name other than that in which the Genetrix Stock certificate surrendered is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall deliver to the Exchange Agent all documents necessary to
evidence and effect such transfer and shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of General Division Stock in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(d) Certificates surrendered for exchange by any Genetrix
stockholder identified by Genetrix or Genzyme as an "affiliate" of Genetrix
within the meaning of Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"), shall not be exchanged for certificates representing General
Division Stock until Genzyme has received an executed Affiliate Letter from such
stockholder as provided in Section 5.10.
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<PAGE> 130
1.12 No Fractional Shares. No certificates representing fractional
shares of General Division Stock shall be issued upon the surrender for exchange
of Genetrix Stock certificates. No fractional interest shall entitle the owner
to vote or to any rights of a security holder. In lieu of fractional shares,
each holder of shares of Genetrix Stock who would otherwise have been entitled
to a fractional share of General Division Stock will receive upon surrender of a
Genetrix Stock certificate or certificates, as the case may be, an amount in
cash (without interest) determined by multiplying such fraction by the Closing
Market Value. Genzyme shall not be liable to any holder of shares of Genetrix
Stock for any cash in lieu of fractional interests delivered to a public
official pursuant to applicable escheat or abandoned property laws.
1.13 Escrow of Shares. At the Effective Time, Genzyme shall
deposit 10% of the total number of shares comprising the Merger Consideration
with an escrow agent reasonably satisfactory to Genetrix to be held and
disbursed by such agent in accordance with a form of escrow agreement (the
"Escrow Agreement") mutually satisfactory to the parties. Subject to the
conditions set forth therein, the Escrow Agreement shall provide that the
percentage of the Merger Consideration deposited with the escrow agent shall be
reduced from 10% to 5% upon expiration of the period ending six months after the
Effective Time. Such shares shall be deducted pro rata from the shares allocable
to each former holder of Genetrix Stock after subtracting such number of shares
of General Division Stock as are allocated to the holders of Genetrix Preferred
Stock pursuant to clause (i) of Section 1.7(c).
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF GENETRIX
Except as set forth on the disclosure schedule delivered to Genzyme on
the date hereof (the "Genetrix Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, Genetrix represents and warrants to Genzyme as set forth
below:
2.1 Organization and Qualification.
(a) Each of Genetrix and the Subsidiaries (as defined in
Section 2.4) is a corporation duly organized, validly existing and in good
standing under the laws of its state or jurisdiction of incorporation with full
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as now being and as heretofore
conducted. Each of Genetrix and the Subsidiaries is qualified or otherwise
authorized to transact business as a foreign corporation in all jurisdictions in
which such qualification or authorization is required by law, except for
jurisdictions in which the failure to be so qualified or authorized would not
have a material adverse effect on the assets, properties, business, results of
operations or financial condition of Genetrix and the Subsidiaries taken as a
whole (the "Business of Genetrix"). The Genetrix Disclosure Schedule sets forth
each jurisdiction in which Genetrix and the Subsidiaries is qualified or
otherwise authorized to transact business as a foreign corporation.
(b) None of Genetrix or the Subsidiaries files or is
required to file any franchise, income or other tax return in any other
jurisdiction (in the United States or outside of the United States), other than
its jurisdiction of incorporation, based upon the ownership or use of property
therein or the derivation of income therefrom.
(c) Genetrix has previously provided to Genzyme true and
complete copies of the charter and by-laws of Genetrix and each Subsidiary as
presently in effect, and neither Genetrix nor
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any Subsidiary is in default in the performance, observation or fulfillment of
either of its charter or by-laws. The minute books of Genetrix and each of the
Subsidiaries contain true and complete records of all meetings and consents in
lieu of meetings of the Board of Directors (and any committees thereof) and of
the stockholders since the time of each such corporation's incorporation and
accurately reflect in all material respects all transactions referred to in such
minutes and consents in lieu of meetings. The stock record books of Genetrix and
each of the Subsidiaries are true and complete.
2.2 Authority to Execute and Perform Agreements. Genetrix has the
corporate power and authority to enter into, execute and deliver this Agreement
and each agreement, document and instrument delivered by Genetrix pursuant to
this Agreement and, subject to the approval of this Agreement by the
stockholders Genetrix as provided in Section 5.8, to perform fully its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and each such other agreement, document and instrument and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Genetrix. No other action on the part of Genetrix
is necessary to authorize this Agreement or such other agreements, documents or
instruments or to consummate the transactions contemplated hereby or thereby
(other than approval by the stockholders of Genetrix of this Agreement and the
transactions described herein). This Agreement and each agreement, document and
instrument delivered by Genetrix pursuant to this Agreement has been duly
executed and delivered by Genetrix and constitutes a valid and binding
obligation of Genetrix, enforceable in accordance with its terms, except as
their enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws of general application affecting the rights and
remedies of creditors or general principles of equity.
2.3 Capitalization and Title to Shares.
(a) Genetrix is authorized to issue 20,000,000 shares of
Genetrix Common Stock, of which 5,251,485 shares are issued and outstanding, and
7,000,000 shares of Genetrix Preferred Stock issuable in series. Of such
Genetrix Preferred Stock, 1,530,720 shares have been designated Series A
Preferred Stock, all of which shares are issued and outstanding; 153,072 shares
have been designated as Series B Preferred Stock, all of which shares are issued
and outstanding; 22,223 shares have been designated as Series C Preferred Stock,
of which 13,327 shares are issued and outstanding; 37,500 shares have been
designated as Series D Preferred Stock, all of which shares are issued and
outstanding; 1,600,000 shares have been designated as Series E Preferred Stock,
all of which shares are issued and outstanding; and 2,181,819 shares have been
designated as Series F Preferred Stock, of which 1,696,969 shares are issued and
outstanding. Such shares are owned of record by the persons and in the amounts
set forth on the Genetrix Disclosure Schedule. No other class of capital stock
of Genetrix is authorized or outstanding. All of the issued and outstanding
shares of Genetrix's capital stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. None of the issued and
outstanding shares of Genetrix have been issued in violation of any federal or
state law or any preemptive rights or rights to subscribe for or purchase such
shares.
(b) The Genetrix Disclosure Schedule includes a true and
complete list of all outstanding rights, subscriptions, warrants, calls,
preemptive rights, options or other agreements of any kind to purchase or
otherwise receive from Genetrix any shares of the capital stock or any other
security of Genetrix, and all outstanding securities of any kind convertible
into or exchangeable for such securities. True and complete copies of all
instruments (or the forms of such instruments) referred to in this Section
2.3(b) have been previously furnished to Genzyme. There are no stockholder
agreements, voting trusts, proxies or other agreements or understandings with
respect to
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the outstanding shares of capital stock of Genetrix among one or more of the
stockholders of Genetrix and to which Genetrix is a party.
(c) Genetrix does not own beneficially any shares of
capital stock of Genzyme.
2.4 Subsidiaries and Other Affiliates.
(a) The Genetrix Disclosure Schedule sets forth all of
the Subsidiaries and the jurisdiction in which each is incorporated. All issued
and outstanding shares of each Subsidiary are owned directly by Genetrix free
and clear of any charges, liens, encumbrances, security interests or adverse
claims. As used in this Agreement, "Subsidiary" means any corporation or other
legal entity of which Genetrix or any Subsidiary owns, directly or indirectly,
50% or more of the stock or other equity interest entitled to vote for the
election of directors.
(b) Except as set forth above, there are not as of the
date hereof, and at the Effective Time there will not be, any other shares of
capital stock of any Subsidiary authorized or outstanding or any subscriptions,
options, conversion or exchange rights, warrants, repurchase or redemption
agreements, or other agreements, claims or commitments of any nature whatsoever
obligating any Subsidiary to issue, transfer, deliver, sell, repurchase or
redeem or cause to be issued, transferred, delivered, sold, repurchased or
redeemed, additional shares of the capital stock or other securities of Genetrix
or any Subsidiary or obligating Genetrix or any Subsidiary to grant, extend or
enter into any such agreement. There are no stockholder agreements, voting
trusts, proxies or other agreements, instruments or understandings with respect
to the capital stock of any Subsidiary.
(c) Except for the Subsidiaries, Genetrix does not
directly or indirectly own or have any investment in any of the capital stock
of, and is not a party to a partnership or joint venture with, any other person.
2.5 Financial Statements. Genetrix has previously delivered to
Genzyme (i) the audited consolidated financial statements of Genetrix at
December 31, 1994 and for the five years then ended (including the footnotes
thereto), in each case examined by and accompanied by the report of Ernst &
Young LLP, independent accountants (the "Audited Financial Statements") and (ii)
the unaudited balance sheets of Genetrix (the "Interim Balance Sheets") at March
31, June 30 and September 30, 1995, 1994 and 1993 and related statements of
operations and cash flows for the periods then ended (the "Interim Financial
Statements"). All of such financial statements referred to in this section are
collectively referred to herein as the "Genetrix Financial Statements." The
Genetrix Financial Statements have been prepared from, and are in accordance
with, the books and records of Genetrix and present fairly, in all material
respects, the financial position and the results of operations of Genetrix and
the Subsidiaries as of the dates and for the periods indicated, in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods involved except as otherwise stated therein, and
subject, in the case of the Interim Financial Statements, to normal and
recurring year-end audit adjustments, which are not, in the aggregate, material.
2.6 Absence of Undisclosed Liabilities. As at December 31, 1994,
Genetrix and its Subsidiaries had no liabilities of any nature, whether accrued,
absolute, contingent or otherwise (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others or liabilities for
taxes due or then accrued or to become due), required to be reflected or
disclosed in the December 31, 1994 balance sheet included in the Audited
Financial Statements that were not adequately reflected or reserved against on
such balance sheet. Genetrix and its Subsidiaries have no
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such liabilities, other than liabilities (i) adequately reflected or reserved
against on the December 31, 1994 balance sheet, (ii) reflected on the September
30, 1995 balance sheet included in the Interim Financial Statements, (iii)
incurred since September 30, 1995 in the ordinary course of business or (iv)
disclosed in this Agreement.
2.7 No Material Adverse Change. Since December 31, 1994, there has
not been (i) any material adverse change in the Business of Genetrix or (ii)
action by Genetrix and its Subsidiaries which, if taken on or after the date
hereof, would require the consent or approval of Genzyme pursuant to Section
5.1.
2.8 Tax Matters.
(a) Genetrix and its Subsidiaries have filed all tax
reports and returns required to be filed by them and have paid or will timely
pay all taxes and other charges shown as due on such reports and returns.
Neither Genetrix nor any of its Subsidiaries is delinquent in the payment of any
material tax assessment or other governmental charge (including without
limitation applicable withholding taxes). Any provision for taxes reflected in
the September 30, 1995 balance sheet included in the Genetrix Interim Financial
Statements is adequate for payment of any and all tax liabilities for periods
ending on or before September 30, 1995 and there are no tax liens on any assets
of Genetrix or its Subsidiaries except liens for current taxes not yet due.
(b) There has not been any audit of any tax return filed
by Genetrix or any of its Subsidiaries and no audit of any such tax return is in
progress and neither Genetrix nor any Subsidiary has been notified by any tax
authority that any such audit is contemplated or pending. Genetrix knows of no
tax deficiency or claim for additional taxes asserted or threatened to be
asserted against Genetrix or any of its Subsidiaries by any taxing authority and
Genetrix knows of no grounds for any such assessment. No extension of time with
respect to any date on which a tax return was or is to be filed by Genetrix or
any of its Subsidiaries is in force, and no waiver or agreement by Genetrix or
any of its Subsidiaries is in force for the extension of time for the assessment
or payment of any tax. For purposes of this Agreement, the term "tax" includes
all federal, state, local and foreign taxes or assessments, including income,
sales, gross receipts, excise, use, value added, royalty, franchise, payroll,
withholding, property and import taxes and any interest or penalties applicable
thereto.
(c) Neither Genetrix nor any of its Subsidiaries has
agreed to, or is required to, make any adjustments under Section 481(a) of the
Code by reason of a change in accounting method or otherwise.
2.9 Compliance with Laws.
(a) Genetrix and its Subsidiaries have all licenses,
permits, franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body material to the conduct of their respective
businesses (collectively, "Permits"); such Permits are in full force and effect;
and no proceeding is pending or, to the best knowledge of Genetrix, threatened
to revoke or limit any Permit. The Genetrix Disclosure Schedule contains a true
and complete list of all Permits.
(b) Genetrix and its Subsidiaries are not in violation of
any federal, state, local or foreign law, ordinance or regulation or any order,
judgment, injunction, decree or other requirement of any court, arbitrator or
governmental or regulatory body, including without limitation laws relating to
the operation of clinical testing laboratories, labor and employment practices,
health and safety,
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zoning, pollution or protection of the environment, including without limitation
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Waste (as defined in Section 2.25). During
the last three years, Genetrix has not received and, to the best knowledge of
Genetrix, no landlord of Genetrix or its Subsidiaries has received, notice of
and there has not been any citation, fine or penalty imposed against Genetrix
for, any such violation or alleged violation. To the best knowledge of Genetrix,
Genetrix has not received any such notice of violation more than three years ago
that has not been resolved.
(c) Since January 1, 1993, to the best knowledge of
Genetrix, except to the extent of the accrual concerning Medicare audits
reported on the Audited Financial Statements, all amounts billed by Genetrix to
Medicare reflect the actual cost incurred for its services including reasonable
allocation of overhead expenses in accordance with approved Medicare
reimbursement regulations and guidelines.
2.10 No Breach. Except for (a) the filing of a premerger
notification form pursuant to the HSR Act and (b) the filing of the Merger
Documents with the Secretary of State of Delaware and the Secretary of the
Commonwealth of Massachusetts, the execution, delivery and performance of this
Agreement by Genetrix and the consummation by Genetrix of the transactions
contemplated hereby will not (i) violate any provision of the certificate of
incorporation or by-laws of Genetrix; (ii) violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of the
effect of, or otherwise give any other contracting party the right to terminate,
or constitute (or with notice or lapse of time or both constitute) a default
under, any instrument, contract or other agreement to which Genetrix or any of
its Subsidiaries is a party or to which any of them or any of their assets or
properties is bound or subject, except for such violations, conflicts, breaches,
modifications or defaults under instruments, contracts or other agreements with
contracting parties (other than (A) instruments, contracts or other agreements
with the Customers identified in Section 2.16 of the Genetrix Disclosure
Schedule or (B) the contracts or other agreements set forth in Sections 2.12(a)
and 2.12(r) of the Genetrix Disclosure Schedule) as would not, individually,
have a material adverse effect on the Business of Genetrix; (iii) violate any
law, ordinance or regulation or any order, judgment, injunction, decree or other
requirement of any court, arbitrator or governmental or regulatory body
applicable to Genetrix or its Subsidiaries or by which any of Genetrix's or its
Subsidiaries' assets, properties or securities is bound; (iv) violate any
Permit; or (v) require any filing with, notice to, or permit, consent or
approval of, any other governmental or regulatory body.
2.11 Actions and Proceedings. There are no outstanding orders,
awards, judgments, injunctions, decrees or other requirements of any court,
arbitrator or governmental or regulatory body against Genetrix, any Subsidiary
or any of their securities, assets or properties. There are no actions, suits,
investigations or claims or legal, administrative or arbitration proceedings
pending or, to the best knowledge of Genetrix, threatened against Genetrix or
any Subsidiary. To the best knowledge of Genetrix, there is no fact, event or
circumstance now in existence that reasonably could be expected to give rise to
any action, suit, claim, proceeding or investigation.
2.12 Contracts and Other Agreements. The Genetrix Disclosure
Schedule sets forth a list of the following contracts and other agreements to
which Genetrix or any Subsidiary is a party or by or to which any of them or
their assets or properties are bound or subject:
(a) any agreement or series of related agreements
requiring aggregate payments after the date hereof by or to Genetrix or any
Subsidiary of more than $50,000;
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(b) any agreement with or for the benefit of any current
or former officer, director, stockholder, employee or consultant of Genetrix or
any Subsidiary;
(c) any agreement with any labor union or association
representing any employee of Genetrix or any Subsidiary;
(d) any agreement for the purchase or sale of materials,
supplies, equipment, merchandise or services that contain an escalation,
renegotiation or redetermination clause or that obligate Genetrix or any
Subsidiary to purchase all or substantially all of its requirements of a
particular product from a supplier, or for periodic minimum purchases of a
particular product from a supplier;
(e) any agreement for the sale of any of the assets or
properties of Genetrix or any Subsidiary other than in the ordinary course of
business or for the grant to any person of any options, rights of first refusal,
or preferential or similar rights to purchase any such assets or properties;
(f) any partnership or joint venture agreement;
(g) any agreement of surety, guarantee or
indemnification, other than agreements in the ordinary course of business with
respect to obligations in an aggregate amount not in excess of $50,000;
(h) any agreement containing covenants of Genetrix or any
Subsidiary not to compete in any line of business, in any geographic area or
with any person or covenants of any other person not to compete with Genetrix or
any Subsidiary or in any line of business of Genetrix or its Subsidiaries;
(i) any license or other agreement pursuant to which
Genetrix or any Subsidiary grants or is granted the right to use any Proprietary
Right (as defined in Section 2.15);
(j) any agreement with customers or suppliers for the
sharing of fees, the rebating of charges or other similar arrangements;
(k) any agreement with any holder of securities of
Genetrix or any Subsidiary as such (including, without limitation, any agreement
containing an obligation to register any of such securities under any federal or
state securities laws);
(l) any agreement obligating Genetrix or any Subsidiary
to deliver services under a "most favored nation" pricing clause;
(m) any agreement with a Customer identified in Section
2.16 of the Genetrix Disclosure Schedule;
(n) any agreement relating to the acquisition by Genetrix
or any Subsidiary of any operating business or the capital stock of any other
person;
(o) any agreement requiring the payment to any person of
a brokerage or sales commission or a finder's or referral fee (other than
arrangements to pay commissions or fees to employees in the ordinary course of
business);
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(p) any agreement or note relating to or evidencing
outstanding indebtedness for borrowed money;
(q) any lease, sublease or other agreement under which
Genetrix or any of the Subsidiaries is lessor or lessee of any real property or
equipment or other tangible property;
(r) any agreement with a private third party payor under
which Genetrix has billed $25,000 or more since January 1, 1995; and
(s) any other material agreement whether or not made in
the ordinary course of business.
Genzyme has been provided access to or has been furnished true and complete
copies of all the contracts and other agreements (and all amendments, waivers or
other modifications thereto) set forth on the Genetrix Disclosure Schedule. Each
of such contracts is valid, subsisting, in full force and effect, binding upon
Genetrix or a Subsidiary, except as its enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting the rights and remedies of creditors or general principles
of equity, and to the best knowledge of Genetrix, binding upon the other parties
thereto in accordance with their terms, and Genetrix and its Subsidiaries are
not in default under any of them, nor, to the best knowledge of Genetrix, is any
other party to any such contract or other agreement in default thereunder, nor
does any condition exist that with notice or lapse of time or both would
constitute a default thereunder.
2.13 Bank Accounts and Powers of Attorney. The Genetrix Disclosure
Schedule identifies all bank and brokerage accounts of Genetrix and its
Subsidiaries, whether or not such accounts are held in the name of Genetrix,
lists the respective signatories therefor and lists the names of all persons
holding a power of attorney from Genetrix or any of its Subsidiaries and a
summary of the terms thereof.
2.14 Properties.
(a) Genetrix and its Subsidiaries own and have good title
to all of their assets and properties reflected as owned on the December 31,
1994 balance sheet included in the Audited Financial Statements free and clear
of any lien, claim or other encumbrance, except for (i) the liens, claims or
other encumbrances reflected in the Interim Financial Statements, (ii) assets
and properties disposed of, or subject to purchase or sales orders, in the
ordinary course of business since December 31, 1994, (iii) liens or other
encumbrances securing the liens of materialmen, carriers, landlords and like
persons, all of which are not yet due and payable and (iv) liens for taxes not
yet delinquent.
(b) Genetrix and its Subsidiaries do not own any real
property and do not have any options or contractual obligations to purchase or
acquire any interest in real property. Genetrix or a Subsidiary has a valid
leasehold interest in all of the buildings, structures and leasehold
improvements, and owns or has a valid leasehold interest in all equipment and
other tangible property used in the conduct of their respective businesses, all
of which are in good and sufficient operating condition and repair, ordinary
wear and tear excepted. Genetrix has not received notice that any of such
property is in violation in any material respect of any existing law or any
building, zoning, health, safety, environmental or other ordinance, code or
regulation. There is no equipment located on the premises of Genetrix or any
Subsidiary that is on loan from another party.
2.15 Intellectual Property.
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(a) Section 2.15 of the Genetrix Disclosure Schedule sets
forth (i) all patents, know-how, mask works, trademarks, service marks, trade
names, logos and copyrights and all applications to register any of the
foregoing, (ii) all franchises, (iii) all trade secrets, inventions,
developments, customer lists, plans, drawings, designs, sketches, process
sheets, manufacturing or other processes, data compilations, specifications and
research results and (iv) other confidential information and legally protected
proprietary rights (collectively, "Proprietary Rights") used, marketed, licensed
or otherwise exploited in and material to the business of Genetrix and its
Subsidiaries as presently conducted or contemplated to be conducted and all
licenses, assignments and releases of Proprietary Rights of others material to
such business. The Proprietary Rights are sufficient to carry on the business of
Genetrix and its Subsidiaries as presently conducted or contemplated to be
conducted. Genetrix and its Subsidiaries have exclusive ownership of all
Proprietary Rights identified in Section 2.15 of the Genetrix Disclosure
Schedule or have obtained or may obtain on commercially reasonable terms any
licenses, releases or assignments to use all third parties' Proprietary Rights
material to the business of Genetrix and its Subsidiaries as presently conducted
or contemplated to be conducted (all such licensed third-party rights are
separately described in Section 2.15 of the Genetrix Disclosure Schedule).
Neither Genetrix nor its Subsidiaries has granted any rights in or licenses to
their respective Proprietary Rights to any third party and Genetrix or its
Subsidiaries has the right to use such Proprietary Rights free and clear of
claims or rights of others. No officer, employee, consultant, subcontractor or
other party, other than Genetrix or its Subsidiaries, has any rights in or
licenses to the Proprietary Rights of Genetrix and its Subsidiaries and, to the
extent such third-party rights exist for any reason, Genetrix or its
Subsidiaries have taken, or will have taken prior to the Closing Date, all
action necessary to cause such rights to be transferred to Genetrix or its
Subsidiaries.
(b) Neither Genetrix nor its Subsidiaries has received
any notices of infringement by Genetrix of any Proprietary Rights of others,
and, to the best knowledge of Genetrix, none of the present or contemplated
activities of Genetrix or its Subsidiaries or their products, services or assets
infringe on any Proprietary Rights of others, including unauthorized use of any
confidential information or trade secrets of any person, including, without
limitation, any former employer of any past or present employees of Genetrix or
its Subsidiaries. Genetrix is not aware of any infringement or violation by
others of the rights of Genetrix or its Subsidiaries in or to, their respective
Proprietary Rights.
(c) All patents, patent applications, trademarks,
trademark applications and registrations and registered copyrights (or
applications therefor) which are owned by or licensed to Genetrix or its
Subsidiaries or used or required to be used in the business of Genetrix and its
Subsidiaries as presently conducted or contemplated to be conducted are listed
in Section 2.15 of the Genetrix Disclosure Schedule ("Registered Rights"). All
of the Registered Rights have been duly registered in, filed in or issued by the
United States Patent and Trademark Office, the United States Register of
Copyrights, or the corresponding offices of other jurisdictions as identified in
said Section, and have been properly maintained and renewed in accordance with
all applicable provisions of law and administrative regulations in the United
States and in each such other jurisdiction.
(d) Each of Genetrix and its Subsidiaries has (i)
disclosed or made available its Proprietary Rights only to employees or
consultants who required such disclosure or access to conduct the business of
Genetrix and its Subsidiaries and who have executed written confidentiality
agreements governing their use of such Proprietary Rights; and (ii) required all
professional and technical employees and consultants to execute agreements under
which such employees and consultants are required to convey to Genetrix or its
Subsidiaries ownership of all Proprietary Rights conceived or created by them in
the course of their employment or relationship with Genetrix or its
Subsidiaries.
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(e) To the best knowledge of Genetrix, none of the
activities of the employees of Genetrix on behalf of Genetrix violates any
agreements or arrangements which any such employees have with former employers
currently in effect.
2.16 Customers. The Genetrix Disclosure Schedule sets forth the
customers of Genetrix and its Subsidiaries who, in the aggregate, accounted for
80% of the revenues of Genetrix and its Subsidiaries, considered as one
enterprise, during the 13 months ended September 30, 1995 (the "Customers"). The
relationships of Genetrix and its Subsidiaries with the Customers are good
commercial working relationships. During the last 12 months, no Customer from
which Genetrix received average monthly revenues of $1,000 or more during such
12-month period has canceled or otherwise terminated its relationship with
Genetrix or any of its Subsidiaries, or has decreased materially its usage or
purchase of the services of Genetrix or any of its Subsidiaries. Genetrix does
not know of any plan or intention of any Customer, and has not received any
written threat or notice from any Customer, to terminate, cancel or otherwise
materially and adversely modify its relationship with Genetrix or any of its
Subsidiaries or to decrease materially or limit its usage or purchase of the
services or products of Genetrix or any of its Subsidiaries.
2.17 Accounts Receivable. Subject to the allowances with respect to
accounts receivable set forth on the September 30, 1995 balance sheet included
in the Interim Financial Statements, all accounts receivable reflected on such
interim balance sheet and all accounts receivable arising subsequent thereto,
have arisen in the ordinary course of business of Genetrix or the Subsidiaries,
represent valid and enforceable obligations due to Genetrix or the Subsidiaries,
have been and are subject to no set-off, counterclaim or future performance
obligation on the part of Genetrix or a Subsidiary, and, subject to the
allowances set forth on such balance sheet, are fully collectible in the
ordinary course of business in the aggregate recorded amounts thereof in
accordance with their terms.
2.18 Inventory. Subject to related valuation allowances, the
portion of the inventory of Genetrix and its Subsidiaries comprised of
laboratory supplies and raw materials is and at the Effective Time will be
usable in the ordinary course of business. Based on its experience in prior
years, the portion of the inventory of Genetrix and its Subsidiaries comprised
of cases-in-process, if any, represents services performed and the costs
associated therewith, all of which will be invoiced to customers in the ordinary
course of business.
2.19 Employee Benefit Plans. The Genetrix Disclosure Schedule sets
forth a complete list of all pension, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance pay
and similar plans, programs or arrangements, including without limitation all
employee benefit plans as defined in Section 3 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (the "Plans"), maintained by Genetrix
or its Subsidiaries, copies of which have been previously furnished to Genzyme.
Neither Genetrix nor any Subsidiary maintains or contributes to any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and neither
Genetrix nor any Subsidiary has incurred any material liability under Sections
4062, 4063 or 4201 of ERISA. Each Plan maintained by Genetrix or a Subsidiary
that is intended to be qualified under either Section 401(a) or 501(c)(9) of the
Code is so qualified. Each Plan has been administered in all material respects
in accordance with the terms of such Plan and the provisions of any and all
statutes, orders or governmental rules or regulations, including without
limitation ERISA and the Code, and to the knowledge of Genetrix nothing has been
done or omitted to be done with respect to any Plan that would result in any
material liability on the part of Genetrix or a Subsidiary under Title I of
ERISA or Section 4975 of the Code. All reports required to be filed with respect
to all Plans, including without limitation annual reports on Form 5500, have
been timely filed. No "reportable event" as defined at Section 4043 of ERISA,
other than any such event for which the
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thirty-day notice period has been waived, has occurred with respect to any
pension plan subject to Title IV of ERISA. With respect to all pension plans
subject to Title IV of ERISA, such plans have no unfunded benefit liabilities,
all contributions to such plans under the minimum funding requirements of
Section 412 of the Code have been made and all premium payments to the Pension
Benefit Guaranty Corporation with respect to such plans have been made. All
claims for welfare benefits incurred by employees on or before the Closing are
or will be fully covered by third-party insurance policies or programs. Except
for continuation of health coverage to the extent required under Section 4980B
of the Code or as otherwise set forth in this Agreement, there are no
obligations under any welfare plan providing benefits after termination of
employment.
2.20 Employee Relations. Genetrix and its Subsidiaries have
approximately 228 full-time equivalent employees and generally enjoy good
employer-employee relations. Genetrix and its Subsidiaries are not delinquent in
payments to any of their respective employees or consultants for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to
such employees. Upon termination of the employment of any employees, neither
Genetrix, its Subsidiaries nor Genzyme will by reason of the Merger or anything
done prior to the Effective Time be liable to any of such employees for
severance pay or any other payments (other than accrued salary, vacation or sick
pay in accordance with Genetrix's normal policies). True and complete
information as to all current directors, officers, employees or consultants of
Genetrix and its Subsidiaries including, in each case, name, current job title,
base salary, bonus potential, commissions and termination obligations has been
previously furnished to Genzyme.
2.21 Transactions with Management. No executive officer or director
of Genetrix or any of its Subsidiaries has (whether directly or indirectly
through another entity in which such person has an interest, other than as the
holder of less that 1% of a class of securities of a publicly traded company)
any interest in (a) any property or assets of Genetrix or any of its
Subsidiaries (except as a stockholder), (b) any current competitor, customer or
supplier of Genetrix or any of its Subsidiaries, or (c) any person which is
currently a party to any material contract or agreement with Genetrix or any of
its Subsidiaries.
2.22 Insurance. The Genetrix Disclosure Schedule sets forth a list
of all policies or binders of fire, liability, product or professional
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of Genetrix and its Subsidiaries. Such policies
and binders are in full force and effect, are reasonably believed to be adequate
for the businesses engaged in by Genetrix or its Subsidiaries, as applicable,
and are in conformity with the requirements of all leases or other agreements to
which Genetrix or any of its Subsidiaries is a party and, to the best knowledge
of Genetrix, are valid and enforceable in accordance with their terms. Genetrix
and the Subsidiaries are not in default with respect to any provision contained
in any such policy or binder nor has Genetrix or its Subsidiaries failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion. There are no outstanding unpaid claims under any such policy or
binder. Genetrix has not received notice of cancellation or non-renewal of any
such policy or binder.
2.23 Brokerage. Except as otherwise disclosed to Genzyme in
writing, no broker, finder, agent or similar intermediary has acted on behalf of
Genetrix or its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby, and there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection herewith
based on any agreement, arrangement or understanding with Genetrix or its
Subsidiaries, or any action taken by any of them.
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2.24 Anti-Takeover Laws. Genetrix is not subject to Section 203 of
the DGCL or any "fair price," "business combination," "control share
acquisition" or similar statute that would apply to the transactions
contemplated by this Agreement in any jurisdiction in which Genetrix and the
Subsidiaries is or is required to be qualified or otherwise authorized to
transact business as a foreign corporation, except for jurisdictions in which
the failure to be so qualified or authorized would not have a material adverse
effect on the Business of Genetrix.
2.25 Hazardous Materials.
(a) There are no Hazardous Materials (as hereinafter
defined) generated, used, handled or stored by Genetrix or any of its
Subsidiaries, the proper disposal of which will require any material expenditure
by Genetrix or any of its Subsidiaries. There has been no generation, use,
handling, storage or disposal of any Hazardous Materials in violation of common
law or any applicable environmental law at any site owned or premises leased by
Genetrix or any of its Subsidiaries during the period of Genetrix's or such
Subsidiary's ownership or lease. There has not been, nor is there threatened to
be, any release of any Hazardous Materials on or at any such site or premises
during such period in violation of common law or any applicable environmental
law or which created or will create an obligation to report or remediate such
release. "Hazardous Materials" means any "hazardous waste" as defined in either
the United States Resource Conservation and Recovery Act or regulations adopted
pursuant to said Act, any "hazardous substances" or "hazardous materials" as
defined in the United States Comprehensive Environmental Response, Compensation
and Liability Act and, to the extent not included in the foregoing, any medical
waste.
(b) There is no environmental or health and safety matter
that could have a material adverse effect on the Business of Genetrix. Genetrix
has previously furnished to Genzyme copies of any environmental audits or risk
assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans and material correspondence with any
governmental agency regarding the foregoing.
2.26 Proxy Statement and Registration Statement. The information
furnished by Genetrix for inclusion in (a) the Proxy Statement (as defined in
Section 5.7) at the time the Proxy Statement is mailed, at the time of the
meeting of Genetrix's stockholders to vote on the Merger and at the Effective
Time, and (b) the Registration Statement (as defined in Section 5.7) at the time
the Registration Statement is declared effective and at the Effective Time,
including in each case any amendments or supplements thereto, does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading (subject,
if required, to a reasonable period of time for the parties hereto to take such
action as may be necessary to amend or supplement the Proxy Statement or
Registration Statement).
2.27 HSR Filing. Any information furnished by Genetrix and its
Subsidiaries for inclusion in the premerger notification form filed by Genzyme
pursuant to the HSR Act at the time the premerger notification form is filed and
at the Effective Time is true and correct and does not omit any material
information with respect to Genetrix and its Subsidiaries (subject, if required,
to a reasonable period of time for the parties hereto to take such action as may
be necessary to amend or supplement the premerger notification form).
2.28 Genetrix Preferred Stock. The Genetrix Disclosure Schedule
sets forth as of the Closing Date (i) the Conversion Rate and Conversion Price
(as such terms are defined in the Sixth Amended and Restated Certificate of
Incorporation of Genetrix dated April 22, 1994) for each
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outstanding series of Genetrix Preferred Stock and (ii) the pro rata share of
the Merger Consideration allocable to each share of Genetrix Stock.
2.29 Disclosure. The representations and warranties of Genetrix
contained in this Agreement do not contain any untrue statement of a material
fact, and, when taken together, do not omit to state any material fact necessary
to make such representations and warranties, in light of the circumstances under
which they are made, not misleading. There is no fact known to Genetrix that has
not been disclosed to Genzyme in this Agreement that is reasonably likely to
have a material adverse effect on the Business of Genetrix.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
STOCKHOLDERS
Except as set forth on the disclosure schedule delivered to Genzyme on
the date hereof (the "Stockholder Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, each of the Principal Stockholders, severally, represents and
warrants to Genzyme as to himself, herself or itself only as follows:
3.1 Authority to Execute and Perform Agreements. Each Principal
Stockholder has the full legal right and power and all authority and approvals
required to enter into, execute and deliver this Agreement and the Affiliate
Letter and to perform fully his, her or its respective obligations hereunder and
thereunder. This Agreement has been duly executed and delivered and is, and,
when executed and delivered pursuant hereto, the Affiliate Letter will be, the
valid and binding obligation of each Principal Stockholder, enforceable in
accordance with their terms, except as their enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting the rights and remedies of creditors or general principles
of equity.
3.2 No Breach. The execution, delivery and performance of this
Agreement and the Affiliate Letter and the consummation of the transactions
contemplated hereby and thereby will not (i) violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of the
effect of, or otherwise give any other contracting party the right to terminate,
or constitute (or with notice or lapse of time or both constitute) a default
under, any material instrument, contract or other agreement to which such
Principal Stockholder is a party or to which such Principal Stockholder or his,
her or its securities, assets or properties may be bound or subject; (ii)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, such
Principal Stockholder or upon the securities, properties or assets of such
Principal Stockholder; (iii) violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation relates to such Principal
Stockholder; or (iv) require any filing with, notice to, or permit, consent or
approval of, any other governmental or regulatory body.
3.3 Title to Shares. Each Principal Stockholder owns beneficially
and of record, free and clear of any lien, claim or encumbrance, the shares of
Genetrix Stock set forth opposite such stockholder's name in Section 2.3 of the
Genetrix Disclosure Schedule. There are no stockholder agreements, voting
trusts, proxies or other agreements or understandings with respect to the
outstanding shares of capital stock of Genetrix to which such Principal
Stockholder is a party.
3.4 Brokerage. Except as otherwise disclosed to Genzyme in
writing, no broker, finder, agent or similar intermediary has acted on behalf of
such Principal Stockholder in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions,
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finders' fees or similar fees or commissions payable in connection herewith
based on any agreement, arrangement or understanding with such Principal
Stockholder, or any action taken by such Principal Stockholder.
3.5 Disclosure. The representations and warranties of each
Principal Stockholder contained in this Agreement do not contain any untrue
statement of a material fact, and, when taken together, do not omit to state any
material fact necessary to make such representations and warranties, in light of
the circumstances under which they are made, not misleading.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF
GENZYME
Except as set forth on the disclosure schedule delivered to Genetrix on
the date hereof (the "Genzyme Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, Genzyme hereby makes the following representations and
warranties:
4.1 Organization. Genzyme is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation with
full corporate power and authority to own, lease and operate its assets and to
carry on its business as now being and as heretofore conducted.
4.2 Authority to Execute and Perform Agreement. Genzyme has the
corporate power and authority to enter into, execute and deliver this Agreement
and to perform fully its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Genzyme. No other corporate
action on the part of Genzyme is necessary to consummate the transactions
contemplated hereby other than the filings of the Merger Documents. This
Agreement has been duly executed and delivered by Genzyme and constitutes a
valid and binding obligation of Genzyme, enforceable in accordance with its
terms.
4.3 Capitalization. The authorized capital stock of Genzyme
consists of 100,000,000 shares of General Division Stock, of which 31,258,380
shares were issued and outstanding as of the date hereof, 40,000,000 shares of
Tissue Repair Division Common Stock, $0.01 par value per share ("Genzyme TR
Division Stock"), of which 11,936,358 shares were issued and outstanding as of
the date hereof, and 10,000,000 shares of preferred stock, $0.01 par value per
share ("Genzyme Preferred Stock"), issuable in series, none of which are
outstanding. Of the Genzyme Preferred Stock, 1,000,000 and 400,000 shares have
been designated as Series A Junior Participating Preferred Stock and Series B
Junior Participating Preferred Stock, respectively, and reserved for issuance
under Genzyme's shareholder rights plan. The shares of General Division Stock to
be issued in the Merger will be, when issued, duly and validly issued, fully
paid and nonassessable, not subject to any preemptive rights and not subject to
any restriction on transfer imposed by the articles of organization or by-laws
of Genzyme. As of the date hereof, except for (a) an aggregate of 6,272,719
shares of General Division Stock and an aggregate of 3,045,639 shares of Genzyme
TR Division Stock reserved for issuance under various stock option, stock
purchase and savings plans of Genzyme, (b) an aggregate of 3,191,581(*) and
430,863 shares of General Division Stock and Genzyme TR Division Stock,
respectively, reserved for issuance upon the exercise of outstanding warrants,
(c) an aggregate of 1,891,252 and 255,319 shares of General Division Stock and
Genzyme TR Division Stock,
- --------
(*) Does not include 2,415,000 callable warrants associated with Neozyme II.
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respectively, reserved for issuance upon the conversion of Genzyme's 6 3/4%
Convertible Subordinated Notes due 2001 and (d) the Series A and B Junior
Participating Preferred Stock reserved for issuance under Genzyme's shareholder
rights plan, there is no outstanding right, subscription, warrant, call,
preemptive right, option or other agreement of any kind to purchase or otherwise
to receive from Genzyme any shares of the capital stock of Genzyme and there is
no outstanding security of any kind convertible into or exchangeable for such
capital stock. All issued and outstanding shares of General Division Stock and
Genzyme TR Division Stock are validly issued, fully paid, non-assessable and
free of any preemptive rights.
4.4 SEC Reports. Genzyme has previously delivered to Genetrix its
(i) Annual Report on Form 10-K for the year ended December 31, 1994 (the
"Genzyme 10-K"), as filed with the Securities and Exchange Commission ("SEC"),
(ii) all proxy statements relating to Genzyme stockholder meetings held since
December 31, 1994 and (iii) all other periodic and current reports filed by
Genzyme with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since December 31, 1994. As of their respective dates, such
reports complied in all material respects with applicable SEC requirements and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Genzyme has timely filed with the SEC all reports required to be
filed under Sections 13, 14 or 15(d) of the Exchange Act since December 31,
1994.
4.5 Financial Statements. The consolidated financial statements
contained in the Genzyme 10-K and in Genzyme's quarterly report on Form 10-Q for
the quarters ended March 31, June 30 and September 30, 1995 (the "Genzyme
10-Qs") have been prepared from, and are in accordance with, the books and
records of Genzyme and present fairly, in all material respects, the
consolidated financial condition and results of operations of Genzyme and its
subsidiaries as of and for the periods presented therein, all in conformity with
generally accepted accounting principles applied on a consistent basis, except
as otherwise noted therein and subject (in the case of the unaudited financial
statements included in the Genzyme 10-Qs) to normal year-end adjustments, which
are not, in the aggregate, material.
4.6 No Material Adverse Change. Since December 31, 1994, there has
not been any material adverse change in the assets, properties, prospects,
results of operations or financial condition of Genzyme taken as a whole (the
"Business of Genzyme").
4.7 Actions and Proceedings. Except as set forth in the Genzyme
10-K or the Genzyme 10-Qs, there are no actions, suits or claims or legal,
administrative or arbitration proceedings pending or, to the best knowledge of
Genzyme, threatened against Genzyme or any other corporation or legal entity of
which Genzyme owns, directly or indirectly, 50% or more of the stock or other
equity interest entitled to vote for the election of directors that individually
or in the aggregate would have a material adverse effect upon the transactions
contemplated hereby or the Business of Genzyme. To the best knowledge of
Genzyme, there is no fact, event or circumstance now in existence that
reasonably could be expected to give rise to any suit, action, claim,
investigation or proceeding that individually or in the aggregate would have a
material adverse effect upon the transactions contemplated hereby or the
Business of Genzyme.
4.8 No Breach. Except for (a) the filing with the SEC pursuant to
the Securities Act of the Registration Statement and filings with various state
blue sky authorities, (b) the filing of a premerger notification form pursuant
to the HSR Act, (c) the filing of the Merger Documents with the Secretary of
State of Delaware and the Secretary of the Commonwealth of Massachusetts, (d)
the
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filing with the Nasdaq National Market of an application for listing of the
shares of General Division Stock to be issued in the Merger and (e) the filing
with the SEC of a registration statement on Form S-8 to register the shares of
General Division Stock issuable upon exercise of the options assumed by Genzyme
pursuant to Section 1.8, the execution, delivery and performance of this
Agreement and the Escrow Agreement by Genzyme and consummation by Genzyme of the
transactions contemplated hereby will not (i) violate any provision of the
articles of organization or by-laws of Genzyme; (ii) violate, conflict with or
result in the breach of any of the terms or conditions of, result in
modification of the effect of, or otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any instrument, contract or other agreement to
which Genzyme is party or to it or any of its assets or properties is bound or
subject; (iii) violate any law, ordinance or regulation or any order, judgment,
injunction, decree or requirement of any court, arbitrator or governmental or
regulatory body applicable to Genzyme or by which any of its assets or
properties is bound; (iv) require any filing with, notice to, or permit, consent
or approval of, any governmental or regulatory body or (v) result in the
creation of any lien or other encumbrance on the assets or properties of
Genzyme, excluding from the foregoing clauses (ii), (iii), (iv) and (v) any
exceptions to the foregoing that, in the aggregate, would not have a material
adverse effect on the Business of Genzyme or on the ability of Genzyme to
consummate the transactions contemplated hereby.
4.9 Proxy Statement and Registration Statement. The information
furnished by Genzyme for inclusion in (a) the Proxy Statement at the time the
Proxy Statement is mailed, at the time of the meeting of the Genetrix
stockholders to vote on the Merger and at the Effective Time, and (b) the
Registration Statement at the time the Registration Statement is declared
effective and at the Effective Time, including in each case any amendments or
supplements thereto, does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they are made,
not misleading (subject, if required, to a reasonable period of time for the
parties hereto to take such action as may be necessary to amend or supplement
the Proxy Statement or Registration Statement).
4.10 HSR Filing. Any information furnished by Genzyme for inclusion
in the premerger notification form filed by Genetrix pursuant to the HSR Act at
the time the premerger notification form is filed and at the Effective Time is
true and correct and does not omit any material information with respect to
Genzyme (subject, if required, to a reasonable period of time for the parties
hereto to take such action as may be necessary to amend or supplement the
premerger notification form).
4.11 Disclosure. The representations and warranties and statements
of Genzyme contained in this Agreement do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
SECTION 5 - COVENANTS AND AGREEMENTS
5.1 Conduct of Business. Except with the prior written consent of
Genzyme, which will not be unreasonably withheld, and except as otherwise
contemplated herein, during the period from the date hereof to the Closing Date,
Genetrix shall observe the following covenants:
(a) Affirmative Covenants Pending Closing. Genetrix will
and will cause its Subsidiaries to:
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(i) Preservation of Personnel. Use all
reasonable efforts to preserve intact their business organizations and keep
available the services of present employees, in each case in accordance with
past practice, it being understood that termination of employees with poor
performance ratings shall not constitute a violation of this covenant;
(ii) Insurance. Use all reasonable efforts to
keep in effect casualty, public liability, worker's compensation and other
insurance policies in coverage amounts not less than those in effect at the date
of this Agreement;
(iii) Preservation of the Business; Maintenance of
Properties. Use all reasonable efforts to preserve their businesses, advertise,
promote and market their services, keep their properties intact, preserve their
goodwill, and maintain all physical properties in good operating condition;
(iv) Intellectual Property Rights. Use all
reasonable efforts to preserve and protect the Proprietary Rights;
(v) Ordinary Course of Business. Operate their
businesses diligently and solely in the ordinary course; and
(vi) Options and Warrants. Use all reasonable
efforts (which shall not include the making of any cash payment or the
acceleration of vesting) to effect the termination of all outstanding options
and warrants to purchase Genetrix Stock that are not exercised as of the
Effective Time.
(b) Negative Covenants Pending Closing. Genetrix will
not and will cause its Subsidiaries not to:
(i) Disposition of Assets. Sell or transfer, or
mortgage, pledge or create or permit to be created any lien on, any of their
assets, other than sales or transfers in the ordinary course of business and
liens existing under arrangements disclosed herein;
(ii) Liabilities. (A) Incur any obligation or
liability other than in the ordinary course of Genetrix's or its Subsidiaries'
business, (B) incur any indebtedness for borrowed money or (C) enter into any
contracts or commitments involving payments by Genetrix or its Subsidiaries of
$50,000 or more, other than purchase orders or commitments for inventory
materials and supplies in the ordinary course of business;
(iii) Compensation. (A) Change the compensation
or fringe benefits of, or award bonuses to, any officer, director, employee or
consultant, except for ordinary merit increases for employees other than
officers based on periodic reviews in accordance with past practices, or (B)
enter into or modify any Plan or any employment, severance or other agreement
with any officer, director, employee or consultant of Genetrix or its
Subsidiaries;
(iv) Capital Stock. (A) Grant or accelerate the
exercisability of any option, warrant or other right to purchase, or to convert
any obligation into, shares of its capital stock, (B) declare or pay any
dividend or other distribution with respect to any shares of its capital stock
other than the redemption of the Series C Preferred Stock in accordance with the
provisions of the Sixth Amended and Restated Certificate of Incorporation of
Genetrix dated April 22, 1994, or (C)
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issue any shares of its capital stock, except upon the exercise of options or
the conversion of Preferred Stock outstanding on the date hereof;
(v) Charter and By-laws. Amend the certificate
of incorporation or by- laws of Genetrix;
(vi) Acquisitions. Make any material acquisition
of property other than in the ordinary course of Genetrix's or its Subsidiaries'
business;
(vii) License Agreements. Enter into, modify or
allow to lapse any license, technology development or technology transfer
agreement with any other person or entity, other than license agreements entered
into in the ordinary course of business on Genetrix's standard form as
previously delivered to Genzyme; or
(viii) Customer Agreements. Enter into or modify
any customer agreement, including without limitation any agreements with
hospitals or health maintenance or other managed care providers, from which
Genetrix or its Subsidiaries has received or expects to receive annual revenues
in excess of $10,000, other than agreements entered into in the ordinary course
of business providing for reimbursement for services provided thereunder at
rates not materially lower than rates charged by Genetrix for comparable
services under agreements with such organizations in effect as of the date of
this Agreement.
5.2 Corporate Examinations and Investigations. Prior to the
Effective Time, Genzyme shall be entitled, through its employees and
representatives, to have such access to the assets, properties, business, books,
records and operations of Genetrix and its Subsidiaries as Genzyme shall
reasonably request in connection with Genzyme's investigation of Genetrix and
its Subsidiaries with respect to the transaction contemplated hereby. Any such
investigation and examination shall be conducted at reasonable times and
Genetrix shall cooperate fully therein. No investigation by Genzyme shall
diminish or obviate any of the representations, warranties, covenants or
agreements of Genetrix or the Principal Stockholders contained in this
Agreement. In order that Genzyme may have full opportunity to make such
investigation, Genetrix shall provide the representatives of Genzyme during such
period with access to or copies of all such information and documents concerning
the affairs of Genetrix and its Subsidiaries as such representatives may
reasonably request and cause its officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with such representatives in
connection with such investigation.
5.3 Expenses.
(a) Subject to Section 9.3, if the Merger is not
consummated, each of Genetrix and Genzyme shall bear its respective expenses
incurred in connection with this Agreement and the transactions contemplated
hereby. It is further agreed that Genzyme shall pay all fees relating to the
registration and issuance of the shares of General Division Stock comprising the
Merger Consideration under applicable federal and state securities laws and the
premerger notification form filed by Genzyme. If the Merger is consummated,
Genzyme will, by operation of law, assume the obligation to pay Genetrix's
expenses in connection herewith, including without limitation (i) the $1,000,000
management incentive fee payable to Paul R. Sohmer, M.D., which amount shall be
payable at Closing, (ii) any fees payable to Alex. Brown, (iii) any legal or
accounting fees of Genetrix payable in respect of the Merger, (iv) the aggregate
amount of all bonuses awarded to the employees of Genetrix by the Board of
Directors of Genetrix at the meeting of such Board held on November 14, 1995,
which amount shall be payable at Closing and (v) obligations to make severance
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payments at Closing under agreements with employees of Genetrix. The provisions
of this Section 5.3 shall not affect the amount and operation of the Purchase
Price Adjustment Amount as provided in Section 1.7.
(b) Whether or not the Merger is consummated, each
Principal Stockholder shall bear its own expenses incurred in connection with
this Agreement and the transactions contemplated hereby.
5.4 Authorization from Others. Prior to the Closing Date, the
parties shall use all reasonable efforts to obtain all authorizations, consents
and permits required to permit the consummation of the transactions contemplated
by this Agreement, including without limitation all consents required from third
parties who have contractual relationships with Genetrix and its Subsidiaries.
5.5 Consummation of Agreement. Each party shall use all reasonable
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Effective Time, all to the end that the transactions contemplated
by this Agreement shall be fully carried out in a timely fashion.
5.6 Further Assurances. Each of the parties shall execute such
documents, further instruments of transfer and assignment and other papers and
take such further actions as may be reasonably required or desirable to carry
out the provisions hereof and the transactions contemplated hereby.
5.7 Proxy Statement; Registration Statement. The parties shall
cooperate in the preparation and filing with the SEC of a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act as soon as
practicable after the date hereof with respect to the General Division Stock to
be issued in the Merger and will use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
and to mail the Proxy Statement and the prospectus included in the Registration
Statement to the stockholders of Genetrix promptly thereafter. The prospectus in
the Registration Statement will also constitute a proxy statement (the "Proxy
Statement") of Genetrix for its stockholder meeting referred to in Section 5.8.
Genzyme agrees to consult with Genetrix prior to responding to any comment from
the SEC regarding the Proxy Statement. Prior to the Effective Time, Genzyme
shall use all reasonable efforts to qualify the shares of General Division Stock
to be issued in the Merger under the securities or "blue sky" laws of any state
of the United States in which a stockholder of Genetrix resides; provided,
however, that Genzyme shall not be obligated to qualify such shares in any state
with respect to which counsel for Genzyme has determined that such qualification
is not required under the securities or "blue sky" laws of such state, and in no
event shall Genzyme be obligated to qualify as a foreign corporation or to
execute a general consent to service of process in any state in which it has not
previously so qualified or has not previously so consented.
5.8 Genetrix Stockholder Meeting. Genetrix, acting through its
Board of Directors, shall, in accordance with applicable law and its certificate
of incorporation and by- laws:
(a) duly hold a meeting of, or solicit written consents
from, its stockholders as soon as practicable after the effective date of the
Registration Statement for the purpose of considering and acting on this
Agreement;
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(b) subject to the fiduciary duties of the Board of
Directors under applicable law as advised in writing by independent legal
counsel, include in the Proxy Statement the recommendation of its Board of
Directors that stockholders of Genetrix vote in favor of the adoption of this
Agreement; and
(c) use all reasonable efforts (A) to obtain and furnish
the information required to be included by it in the Proxy Statement and shall
cooperate with Genzyme in responding promptly to any comments made by the SEC
with respect to the Proxy Statement or any preliminary version thereof, (B) to
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time after the effective date of the Registration Statement and (C)
to obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby.
5.9 Public Announcements and Confidentiality. Any press release or
other information furnished to the press or any third party with respect to this
Agreement or the transactions contemplated hereby shall require the prior
approval of Genzyme and Genetrix, which approval shall not be unreasonably
withheld, provided that a party shall not be prevented from making such
disclosure as it shall be advised by counsel is required by law. Each party
shall keep confidential and shall not use for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement any information
or documents obtained from the other concerning its assets, properties, business
and operations, unless readily ascertainable from public information, already
known or subsequently developed by such party independently, received from a
third party not under an obligation to keep such information confidential or
otherwise required by law. Upon any termination of this Agreement, each party
shall collect and deliver to the other all copies of any documents obtained from
the other in connection with the transactions contemplated by this Agreement.
5.10 Affiliate Letters. Prior to the Closing Date, Genetrix shall
identify to Genzyme all persons who, at the time of the vote of the Genetrix
stockholders on the Merger, Genetrix believes may be "affiliates" of Genetrix
within the meaning of Rule 145 under the Securities Act. Genetrix shall use all
reasonable efforts to provide Genzyme with such information as Genzyme shall
reasonably request for purposes of making its own determination of persons who
may be deemed to be affiliates of Genetrix. Genetrix shall use all reasonable
efforts to deliver from each of the affiliates specified by Genzyme and each
Principal Stockholder who is identified as an affiliate by Genetrix has
delivered, or agrees to deliver, on or prior to the earlier of (i) the mailing
of the Proxy Statement or (ii) the thirtieth day prior to the Effective Time, a
letter in substantially the form attached hereto as Exhibit A (an "Affiliate
Letter").
5.11 No Solicitation. Genetrix and the Principal Stockholders will
not (i) solicit or initiate discussions with any person, other than Genzyme,
relating to the possible acquisition of Genetrix or all or a material portion of
the assets or capital stock of Genetrix or any merger or other business
combination with Genetrix (an "Acquisition Transaction") or (ii) except to the
extent reasonably required by fiduciary obligations under applicable law as
advised in writing by independent legal counsel, participate in any negotiations
regarding, or furnish to any other person information with respect to, any
effort or attempt by any other person to do or to seek any Acquisition
Transaction. Genetrix and the Principal Stockholders agree to inform Genzyme in
reasonable detail within one business day of their receipt of any offer,
proposal or inquiry relating to any Acquisition Transaction.
5.12 Filings Under HSR Act. As soon as practicable, each of Genzyme
and Genetrix shall file with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") a
premerger notification form and any supplemental information (other than
privileged information) which may be requested in connection therewith pursuant
to the
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HSR Act, which filings and supplemental information will comply in all material
respects with the requirements of the HSR Act. Each of Genetrix and Genzyme
shall cooperate fully with the other in connection with the preparation of such
filings and shall use all reasonable efforts to respond to any requests for
supplemental information from the FTC or the Antitrust Division and to obtain
early termination of any waiting period applicable to the Merger under the HSR
Act.
5.13 Voting of Genetrix Stock. Until this Agreement has been
terminated under Section 9.1, each Principal Stockholder agrees to vote all
shares of Genetrix Stock held by such Stockholder in favor of the approval of
this Agreement and the transactions contemplated hereby and not to exercise any
dissenters' rights it may have under Section 262 of the DGCL. Each Principal
Stockholder hereby grants to Genzyme for a period commencing on the date hereof
and continuing so long as this Agreement is in effect an irrevocable proxy,
which is coupled with an interest, to vote such shares of Genetrix Stock held by
it to approve this Agreement and the transaction contemplated hereby at the
Genetrix stockholder meeting referred to in Section 5.8 of this Agreement or any
adjournments or postponements thereof or to execute a written consent approving
this Agreement in lieu of such meeting as provided in Section 5.8. Such proxy
shall be void upon termination of this Agreement.
5.14 Genzyme SEC Filings. Genzyme shall furnish Genetrix with a
copy of each periodic or current report filed by it under the Exchange Act
promptly after filing the same. All filings made by Genzyme after the date
hereof pursuant to the Exchange Act will be made in a timely fashion, will
comply as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall
be subject to the satisfaction or waiver, at or before the Effective Time, of
each of the following conditions:
6.1 Approvals. All required approvals of the stockholders of
Genetrix and all consents and approvals required to make the representations and
warranties set forth in Sections 2.10, 3.2 and 4.8 of this Agreement true and
correct on and as of the Effective Time shall have been obtained, which consents
and approvals shall be deemed to include consents from the contracting parties
to the agreements set forth in Sections 2.10 and 3.2 of the Genetrix Disclosure
Schedule; provided, however, that if Genzyme waives the obtaining of any consent
from a contracting party set forth in Section 2.10 or 3.2 of the Genetrix
Disclosure Schedule, such consent shall not be a condition to Genetrix's
obligation to consummate the Merger.
6.2 Registration Statement. The Registration Statement shall have
been declared effective and shall remain effective and shall not be subject to a
stop order at the Effective Time.
6.3 HSR Act. Any waiting period applicable to the Merger under the
HSR Act shall have expired or terminated.
6.4 Absence of Order. No restraining order or injunction of any
court which prevents consummation of the Merger shall be in effect.
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6.5 Nasdaq Listing. The shares of General Division Stock to be
issued in the Merger shall have been listed on the Nasdaq National Market.
6.6 Escrow Agreement. The Escrow Agreement, in a form mutually
satisfactory to the parties, shall have been executed and delivered by all
parties thereto.
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
GENZYME TO CONSUMMATE THE MERGER
The obligation of Genzyme to consummate the Merger is subject to the
satisfaction or waiver by Genzyme, at or before the Effective Time, of the
following conditions:
7.1 Representations, Warranties and Covenants. The representations
and warranties of Genetrix and the Principal Stockholders contained in this
Agreement shall be true and correct in all material respects on and as of the
Effective Time with the same force and effect as though made on and as of the
Effective Time (with such exceptions as may be permitted under or contemplated
by this Agreement). Genetrix and the Principal Stockholders shall have performed
and complied in all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time. Each of Genetrix and the Principal Stockholders shall have
delivered to Genzyme a certificate, dated the Closing Date, to the foregoing
effect.
7.2 Affiliate Letters. Genzyme shall have received the Affiliate
Letters within the time period prescribed in Section 5.10.
7.3 Opinion of Counsel to Genetrix. Genzyme shall have received an
opinion of Rutan & Tucker, counsel to Genetrix, dated the Closing Date and in
form and substance reasonably acceptable to Genzyme.
7.4 Merger Documents. Genetrix shall have executed and delivered
the Merger Documents referred to in Section 1.2.
7.5 Dissenting Shares. The Dissenting Shares of Common Stock shall
not exceed 2% of the shares of Common Stock issued and outstanding on the
Closing Date and no holders of Preferred Stock shall have exercised dissenters'
rights under the DGCL.
7.6 Pooling of Interests. Genzyme shall have received a letter
from Ernst & Young LLP, independent accountants for Genetrix, to the effect that
Genetrix meets the requirements applicable to a combining company for pooling of
interests accounting treatment.
7.7 Accountant's Letters. Genzyme shall have received letters,
dated as of a date not more than two days prior to the date the Registration
Statement is declared effective and as of a date not more than two days prior to
the Closing Date, from Ernst & Young LLP, independent accountants for Genetrix,
in the form, scope and content contemplated by Statement of Auditing Standards
No. 72 issued by the American Institute of Certified Public Accountants, Inc.
relating to the financial statements and other financial data with respect to
Genetrix included in the Proxy Statement and Registration Statement and such
other matters as may be reasonably requested by Genzyme.
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7.8 Bank Accounts. Genetrix shall have delivered to Genzyme
documentation necessary to change the authorized signatories for bank and
brokerage accounts of Genetrix and its Subsidiaries as specified by Genzyme.
7.9 Tax Opinion. Genzyme shall have received an opinion of Palmer
& Dodge, counsel to Genzyme, dated the Closing Date, substantially to the effect
that, on the basis of the facts and representations set forth in such opinion,
or set forth in writing elsewhere and referred to therein, for federal income
tax purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and that no gain or loss will be recognized by and
there will be no corporate income tax liability to Genzyme or Genetrix by reason
of the Merger.
7.10 Genetrix Employees. As of the Effective Date, 90% of the
employees in each of the following classes, (i) laboratory personnel, (ii)
billing and reimbursement, (iii) genetic counseling and related services, (iv)
sales and marketing and (v) all employees of Genetrix as a group, shall continue
to be employed by Genetrix and shall not have indicated to either Genetrix or
Genzyme an intention to terminate their employment with Genetrix or with the
Surviving Corporation following the Effective Time. For purposes of determining
satisfaction of this condition, employees terminated by Genetrix for
performance-related reasons shall not be counted.
7.11 Revenues. If the Closing Date shall occur on or before
February 29, 1996, the revenues of Genetrix for the three months ending January
31, 1996 shall be not less than the product obtained by multiplying (i)
$5,700,000 less the aggregate revenues received by Genzyme from customers of
Genetrix after the date of the public announcement of the Merger (the "Revenue
Offset") by (ii) 85%; provided, that in the case of any such customer who was
also a customer of Genzyme prior to such announcement, only revenues in excess
of the average monthly revenues received by Genzyme from such customer during
the three months ending January 31, 1996 shall be included in the Revenue
Offset. If the Closing Date shall occur after February 29, 1996, the revenues of
Genetrix for the four months ending February 29, 1996 shall be not less than the
product obtained by multiplying (i) $7,600,000 less the Revenue Offset by (ii)
85%; provided, that in the case of any such customer who was also a customer of
Genzyme prior to such announcement, only revenues in excess of the average
monthly revenues received by Genzyme from such customer during the four months
ending February 29, 1996 shall be included in the Revenue Offset. For purposes
of this Section 7.11, revenues shall be determined on a basis consistent with
each party's audited statement of operations for the year ended December 31,
1994.
7.12 Certificates. Genetrix shall have furnished Genzyme with such
certificates of public officials as may be reasonably requested by Genzyme.
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF GENETRIX
AND THE PRINCIPAL STOCKHOLDERS TO CONSUMMATE THE
MERGER
The obligation of Genetrix and the Principal Stockholders to consummate
the Merger is subject to the satisfaction or waiver by them, at or before the
Effective Time, of the following conditions:
8.1 Representations, Warranties and Covenants. The representations
and warranties of Genzyme contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time with the same force and
effect as though made on and as of the Effective Time
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(with such exceptions as may be permitted under or contemplated by this
Agreement). Genzyme shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Effective Time. Genzyme shall have
delivered to Genetrix a certificate, dated the Effective Time, to the foregoing
effect.
8.2 Opinion of Counsel to Genzyme. Genetrix shall have received an
opinion of Palmer & Dodge, counsel to Genzyme, dated the Closing Date and in
form and substance reasonably acceptable to Genetrix.
8.3 Tax Opinion. Genetrix shall have received an opinion of Rutan
& Tucker, counsel to Genetrix, addressed to Genetrix and its stockholders and
dated the Closing Date, substantially to the effect that, on the basis of facts
and representations set forth in such opinion, or set forth in writing elsewhere
and referred to therein, for federal income tax purposes the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
no gain or loss will be recognized by Genetrix or its stockholders by reason of
the receipt of the shares of General Division Stock in the Merger (it being
understood that such opinion will not extend to cash payments in lieu of
fractional share interests and may not extend to shares of General Division
Stock received by Genetrix stockholders who receive their Genetrix shares
pursuant to stock options or otherwise as compensation); provided, however, that
in the event that counsel is unable or unwilling to deliver such opinion, then
this condition shall be deemed satisfied if such opinion is delivered by Palmer
& Dodge.
8.4 Merger Documents. Genzyme shall have executed and delivered
the Merger Documents referred to in Section 1.2.
8.5 Certificates. Genzyme shall have furnished Genetrix with such
certificates of public officials as may be reasonably requested by Genetrix.
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time on
or prior to the Closing Date, whether prior to or after approval by the
stockholders of Genetrix, as follows:
(a) by Genetrix or Genzyme if, without fault of the
terminating party, the Closing Date shall not have occurred on or before April
30, 1996, which date may be extended by mutual consent of the parties;
(b) by the Board of Directors of Genetrix upon written
notice to Genzyme if Genzyme has materially breached any representation,
warranty, covenant or agreement contained herein and has not cured such breach
within ten (10) business days of receipt of written notice from Genetrix or by
the Closing Date, whichever occurs first;
(c) by Genzyme upon written notice to Genetrix if
Genetrix or any Principal Stockholder has materially breached any
representation, warranty, covenant or agreement contained herein and has not
cured such breach upon the earlier of (i) ten (10) business days of receipt of
written notice from Genzyme or, if commercially impracticable to cure such
breach within such ten (10) business day period, thirty (30) calendar days, or
(ii) the Closing Date;
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<PAGE> 153
(d) by any party if any court of competent jurisdiction
or governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree or ruling shall have become final and nonappealable;
(e) by either Genzyme or Genetrix if the requisite
Genetrix stockholder vote approving the Merger is not obtained;
(f) by Genzyme if Genetrix's Board of Directors (i) fails
to include in the Proxy Statement its recommendation that Genetrix stockholders
vote in favor of the adoption of this Agreement, (ii) withdraws its
recommendation that stockholders vote in favor or (iii) promulgates a favorable
recommendation regarding an Acquisition Transaction;
(g) by Genetrix if the Closing Market Value of General
Division Stock is less than $43.61, provided that Genzyme may negate such
termination by notifying Genetrix within 24 hours of receiving notice from
Genetrix of termination of Genzyme's election to determine the Merger
Consideration by dividing (X) $35,000,000 less the Purchase Price Adjustment
Amount by (Y) the Closing Market Value (any notice under this clause to be given
by personal delivery in writing or by telephone communication confirmed by
receipted facsimile); or
(h) at any time with the written consent of all of the
parties.
9.2 Effect of Termination. If this Agreement is terminated as
provided in Section 9.1, this Agreement shall forthwith become void and have no
effect, without liability on the part of any party, its directors, officers or
stockholders, other than the provisions of this Section 9.2, Section 5.3
relating to expenses, Section 5.9 relating to publicity and confidentiality to
the extent provided therein and Section 9.3.
9.3 Termination Fee.
(a) In order to induce Genzyme to enter into this
Agreement and to reimburse Genzyme for its costs and expenses related to
entering into this Agreement and consummating the transactions contemplated by
this Agreement, Genetrix will make a cash payment to Genzyme in the amount of
Genzyme's reasonable out-of-pocket expenses in connection with this Agreement
and the transactions contemplated hereby (as evidenced by invoices and receipts
in reasonable detail) up to a maximum of $350,000 if and only if:
(i) Genzyme or Genetrix has terminated this
Agreement pursuant to Section 9.1(e) and at the time of such termination any
person (other than Genzyme) shall have made, or disclosed an intention to make,
a proposal to engage in an Acquisition Transaction;
(ii) Genzyme has terminated this Agreement
pursuant to Section 9.1(c) because of a willful breach; or
(iii) Genzyme has terminated this Agreement
pursuant to Section 9.1(f).
(b) In addition to the amount payable under Section
9.3(a), Genetrix will make a cash payment to Genzyme of $400,000 if and only if
within twelve (12) months following the termination of this Agreement Genetrix
is acquired in an Acquisition Transaction for consideration greater than
$38,500,000 less the Purchase Price Adjustment Amount.
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<PAGE> 154
(c) Any payments required under this Section 9.3(b) will
be payable by Genetrix to Genzyme (by wire transfer of immediately available
funds to an account designed by Genzyme) within five business days after demand
by Genzyme.
9.4 Amendment. This Agreement may not be amended except by an
instrument signed by each party hereto.
9.5 Waiver. At any time prior to the Effective Time, any party
hereto may, (a) extend the time for the performance of any of the obligations or
other acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party.
SECTION 10 - INDEMNIFICATION
10.1 Survival. Notwithstanding any right of any party to
investigate fully the affairs of the other party and notwithstanding any
knowledge of facts determined or determinable by such party pursuant to such
investigation or right of investigation, each party has the right to rely fully
upon the representations, warranties, covenants and agreements of each other
party in this Agreement or in any certificate, financial statement or other
document delivered by any party pursuant hereto. All such representations,
warranties, covenants and agreements shall survive the execution and delivery
hereof and the Closing hereunder, subject to the limitations set forth in
Section 10.3.
10.2 Obligation of Genetrix and the Stockholders to Indemnify.
(a) Subsequent to the Effective Time, the holders of
Genetrix Stock outstanding immediately prior to the Effective Time, shall, to
the extent of their pro rata interest in the shares held pursuant to the Escrow
Agreement, severally, indemnify and hold harmless Genzyme (and its respective
directors, officers, employees, agents, affiliates and assigns) from and against
all losses, liabilities, damages, deficiencies, costs or expenses, including
interest and penalties imposed or assessed by any judicial or administrative
body and reasonable attorneys' fees, whether or not arising out of third-party
claims and including all amounts paid in investigation, defense or settlement of
the foregoing pursuant to this Section 10 ("Losses") based upon, arising out of
or otherwise in respect of (i) any inaccuracy in, or breach of, any
representation, warranty or covenant of Genetrix contained herein or in any
certificate delivered pursuant hereto, (ii) the failure of Genetrix to file
timely Form 5500 for any Genetrix employee benefit plan and (iii) taxes payable
to Maricopa County.
(b) Subsequent to the Effective Time, each Principal
Stockholder shall severally indemnify and hold harmless Genzyme (and its
directors, officers, employees, agents, affiliates and assigns) from and against
all Losses based upon, arising out of or otherwise in respect of any inaccuracy
in, or breach of, any representation, warranty or covenant of such Principal
Stockholder contained herein or in any certificate delivered pursuant hereto.
10.3 Limitations on Indemnification. Notwithstanding the foregoing,
the right to indemnification under this Section 10 shall be subject to the
following terms:
(a) No indemnification shall be payable pursuant to
Section 10.2(a)(i) unless and until the amount of all claims for indemnification
pursuant to the applicable Section exceeds $100,000
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<PAGE> 155
in the aggregate, whereupon indemnification pursuant to such Section shall be
payable only for sums in excess of such amount.
(b) No indemnification shall be payable pursuant to
Section 10.2 after the earlier of one year after the Effective Time or the
issuance of the first audited financial statements of the combined corporation
(the "Expiration Date"), except with respect to claims made under the Escrow
Agreement prior to Expiration Date, but not resolved by the Expiration Date.
(c) All indemnification claims under Section 10.2(a)
shall be satisfied in full from the shares held pursuant to the Escrow Agreement
and no person shall have any right to recovery from any person who was a holder
of Genetrix Stock immediately prior to the Effective Time.
(d) All indemnification claims under Section 10.2(b)
shall be satisfied from the shares held pursuant to the Escrow Agreement only to
the extent of the shares allocable to the Principal Stockholder responsible for
the indemnification claim under Section 10.2(b).
(e) The limitations of Sections 10.3(a), (b) and (c)
shall not apply in the case of a fraudulent misrepresentation or intentional
breach by any party, but no person shall be liable for any such fraudulent
misrepresentation or intentional breach by any other person (except to the
extent of its share of the shares held under the Escrow Agreement if such
misrepresentation or breach is by Genetrix). The limitations of Sections 10.3(a)
also shall not apply in the case of claims under Section 10.2(a)(ii) and (iii).
10.4 Notice and Defense of Claims. Promptly after receipt of notice
of any claim, liability or expense for which a party seeks indemnification
hereunder, such party shall give written notice thereof to the indemnifying
party, but such notification shall not be a condition to indemnification
hereunder except to the extent of actual prejudice to the indemnifying party.
The notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within 30 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that it intends to defend
against such claim, liability or expense at its own cost and expense, then
defense of such matter, including selection of counsel (subject to the consent
of the indemnified party which consent shall not be unreasonably withheld),
shall be by the indemnifying party and the indemnified party shall make no
payment on such claim, liability or expense as long as the indemnifying party is
conducting a good faith and diligent defense. Notwithstanding the foregoing, the
indemnified party shall at all times have the right to fully participate in such
defense at its own expense directly or through counsel; provided, however, if
the named parties to the action or proceeding include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the indemnified party shall be paid
by the indemnifying party. If no such notice of intent to dispute and defend is
given by the indemnifying party, or if such diligent good faith defense is not
being or ceases to be conducted, the indemnified party shall, at the expense of
the indemnifying party, undertake the defense of such claim, liability or
expense with counsel selected by the indemnified party, and shall have the right
to compromise or settle the same exercising reasonable business judgment. The
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
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<PAGE> 156
SECTION 11 - MISCELLANEOUS
11.1 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed given when so
delivered in person, by overnight courier, by facsimile transmission (with
receipt confirmed by telephone or by automatic transmission report) or two
business days after being sent by registered or certified mail (postage prepaid,
return receipt requested), as follows:
(i) if to Genzyme, to:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attention: President
Tel: (617) 252-7500
FAX: (617) 252-7600
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Peter Wirth, Esq.
Tel: (617) 573-0304
FAX: (617) 227-4420
(ii) if to Genetrix or the Principal Stockholders, to:
Genetrix, Inc.
6401 E. Thomas Road
Scottsdale, Arizona 85251
Attention: President
Tel: (602) 945-4363
FAX: (602) 946-1005
with a copy to:
Rutan & Tucker
611 Anton Boulevard
Suite 1400
Costa Mesa, California 92626
Attention: Ronald P. Arrington, Esq.
Tel: (714) 641-3467
FAX: (714) 546-9035
Any party may by notice given in accordance with this Section 11.1 to the other
parties designate another address or person for receipt of notices hereunder.
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<PAGE> 157
11.2 Entire Agreement. This Agreement and the Escrow Agreement
contain the entire agreement among the parties with respect to the Merger and
related transactions, and supersedes all prior agreements, written or oral, with
respect thereto.
11.3 Governing Law. This Agreement is governed by the laws of the
Commonwealth of Massachusetts without regard to its conflict of law provisions,
except to the extent that the laws of the State of Delaware apply to the Merger
and the rights of Genetrix stockholders relative to the Merger.
11.4 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable without the prior written
consent of the other parties hereto.
11.5 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.7 Disclosure Schedules. The Disclosure Schedules are a part of
this Agreement as if fully set forth herein.
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<PAGE> 158
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first stated above.
GENZYME CORPORATION
By /s/ Henri A. Termeer
----------------------------------------------
Henri A. Termeer, President
By /s/ Evan M. Lebson
----------------------------------------------
Evan M. Lebson, Treasurer
GENETRIX, INC.
By /s/ Dr. Paul R. Sohmer
----------------------------------------------
Dr. Paul R. Sohmer, President
By /s/ Mark Smith
----------------------------------------------
Mark Smith, Treasurer
THE PRINCIPAL STOCKHOLDERS:
BERKELEY MEDICAL INVESTMENTS LIMITED
Per Pro KLEINWORT BENSON (JERSEY) LIMITED
/s/ Assistant Director - Securities, as Custodian
-------------------------------------------------
BERKELEY/NED DEVELOPMENT CAPITAL LIMITED
Per Pro KLEINWORT BENSON (JERSEY) LIMITED
/s/ Assistant Director - Securities, as Custodian
-------------------------------------------------
KB BERKELEY JAPAN DEVELOPMENT CAPITAL
LIMITED
Per Pro KLEINWORT BENSON (JERSEY) LIMITED
/s/ Assistant Director - Securities, as Custodian
-------------------------------------------------
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<PAGE> 159
KLEINER PERKINS CAUFILED BYERS V, a California
Limited Partnership
By /s/ Brook H. Byers
---------------------------------------------------
Brook H. Byers, General Partner
KPCB ZAIBATSU FUND I, a California Limited Partnership
By /s/ Brook H. Byers
---------------------------------------------------
Brook H. Byers, General Partner
ENTERPRISE PARTNERS, II L.P.
By /s/ Andrew Senyei
---------------------------------------------------
Andrew Senyei, General Partner
ENTERPRISE PARTNERS, II L.P. ASSOCIATES
By /s/ Andrew Senyei
---------------------------------------------------
Andrew Senyei, General Partner
FIMA FINANCE MANAGEMENT, INC.
By /s/ Ernest Rubenstein
---------------------------------------------------
Its: Attorney-in-Fact
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<PAGE> 160
Exhibit A
FORM OF AFFILIATE LETTER
January ___, 1996
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Ladies and Gentlemen:
Pursuant to the Agreement and Plan of Merger dated as of January
11, 1996 (the "Agreement") among Genzyme Corporation ("Genzyme"), a
Massachusetts corporation, Genetrix, Inc. ("Genetrix"), a Delaware corporation,
and certain stockholders of Genetrix, providing for the merger of Genetrix with
and into Genzyme (the "Merger"), the undersigned will receive shares of the
General Division Common Stock, $0.01 par value, of Genzyme (the "Genzyme
Shares") in exchange for the shares of capital stock of Genetrix (the "Genetrix
Stock") owned by the undersigned in accordance with Section 1 of the Agreement.
The undersigned has been advised that as of the date the Agreement is submitted
to the stockholders of Genetrix for adoption, the undersigned may be an
"affiliate" of Genetrix, as that term is defined for purposes of paragraph (c)
of Rule 145 of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act"), although nothing contained
herein shall be construed as an admission of such fact.
A. In connection therewith, the undersigned represents, warrants and
agrees that:
1. The undersigned shall not engage and has not engaged in any sale,
exchange, transfer, pledge, disposition or any other transaction that would
result in a reduction in the risk of ownership (any such transaction, a "Sale")
with respect to the shares of Genetrix Stock owned by the undersigned during
the 30 days prior to the effective date of the Merger.
2. The undersigned shall not engage in any Sale of the Genzyme Shares
until after such time as Genzyme has published financial results covering at
least 30 days of combined operations of Genzyme and Genetrix after the
effective date of the Merger. The undersigned understands that the
certificates representing the Genzyme Shares received by the undersigned will
be placed on the "stop-transfer list" maintained by Genzyme's transfer agent
and will remain so listed until the publication of such financial results.
3. The undersigned has no current plan or intent to engage in any
Sale of Genzyme Shares that would result in a reduction in the risk of
ownership with respect to more than 50% of the Genzyme Shares to be received by
the undersigned pursuant to the plan of merger evidenced by the Agreement. The
undersigned knows of no plan (written or oral) pursuant to which the holders of
shares of Genetrix Stock intend to engage in Sales of a number of Genzyme
Shares that would, in the aggregate, constitute more than 50% of the
<PAGE> 161
value of the Genetrix Stock outstanding immediately prior to the Merger. A
Sale of Genzyme Shares shall be considered to have occurred pursuant to a plan
if such Sale occurs in a transaction that is in contemplation of, or related or
pursuant to, the Agreement (a "Related Transaction"). In addition, shares of
Genetrix Stock with respect to which a Sale occurs prior to the Merger in a
Related Transaction shall be treated for these purposes as if such shares of
Genetrix Stock were exchanged for the Genzyme Shares and the Genzyme Shares
were disposed of in a Sale pursuant to a plan.
4. The undersigned shall not engage in any Sale of the Genzyme Shares
in violation of the registration requirements of the Act or the rules and
regulations of the SEC thereunder.
5. The undersigned has been advised that the issuance of the Genzyme
Shares to the undersigned pursuant to the Merger has been registered under the
Act on a registration statement on Form S-4. The undersigned has been advised
that if the undersigned is in fact an "affiliate" of Genetrix at the time the
Agreement is submitted for a vote of the stockholders of Genetrix and the
distribution by the undersigned of the Genzyme Shares has not been registered
under the Act, Rule 145 under the Act will restrict the undersigned's sales of
Genzyme Shares received in the Merger. The undersigned will not sell or
otherwise dispose of any Genzyme Shares, except pursuant to Rule 145(d) under
the Act (if applicable), an effective registration statement under the Act or
an exemption from the registration requirements under the Act (provided that
the undersigned may make bona fide gifts or distributions (including, if the
undersigned is a partnership, to its partners) without consideration, or
transfers by operation of law, so long as any donee or transferee agrees not to
sell, transfer or otherwise dispose of Genzyme Shares except as provided
herein).
6. The undersigned has carefully read this letter and the Agreement
and has discussed the requirements of each and the limitations upon the
disposition of the Genzyme Shares to be received by the undersigned pursuant to
the Merger Agreement, to the extent deemed necessary, with the undersigned's
counsel.
B. The undersigned understands and agrees that:
1. Genzyme is under no further obligation to register the sale,
transfer or other disposition by the undersigned of the Genzyme Shares issued
to the undersigned pursuant to the Merger Agreement or, except as provided in
paragraph C.1. below, to take any action necessary in order to make an
exemption from registration available.
2. Stop transfer instructions will be given to the transfer agent of
Genzyme with respect to the Genzyme Shares issued to the undersigned pursuant
to the Merger Agreement, and there will be placed on the certificate
representing such stock, or any certificates delivered in substitution or
exchange therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE "ACT") APPLIES. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH RULE 145(D) OR AN
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<PAGE> 162
EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
3. Unless the transfer by the undersigned of the Genzyme Shares is a
sale made in conformity with the provisions of Rule 145(d), or made pursuant to
a registration statement under the Act or an exemption from registration,
Genzyme reserves the right to put an appropriate legend on the certificates
issued to a transferee.
4. This agreement shall be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees, devisees and
successors of the undersigned and any pledgee holding Genzyme Shares as
collateral.
C. Genzyme represents and agrees as follows:
1. For so long as and to the extent necessary to permit the
undersigned to sell the Genzyme Shares pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Genzyme shall use its best efforts to file,
on a timely basis, all reports and data required to be filed with the SEC by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), so long as it is subject to such requirement, furnish to the
undersigned upon request a written statement as to whether Genzyme has complied
with such reporting requirements during the 12 months preceding any proposed
sale under Rule 145 and otherwise use all reasonable efforts to permit such
sales pursuant to Rule 145 and Rule 144. Genzyme has filed on a timely basis
all reports required to be filed with the SEC under Section 13 of the 1934 Act
during the preceding 12 months.
2. Genzyme agrees that the stop transfer instructions and legends
referred to in Paragraph B.2 hereof shall be terminated or removed if the
undersigned shall have delivered to Genzyme a copy of a letter from the staff
of the SEC, an opinion of counsel in form and substance reasonably satisfactory
to Genzyme or other evidence reasonably satisfactory to Genzyme to the effect
that such instructions and legends are not required for the purposes of the
Act. Following publication of financial results covering at least 30 days of
combined operations of Genzyme and Genetrix after the effective date of the
Merger and upon presentation of documentation reasonably satisfactory to
counsel to Genzyme that the Genzyme Shares received by the undersigned have
been sold in conformity with the provisions of Rule 145(d), such counsel shall
issue an opinion authorizing the termination of the stop transfer instructions
and the removal of the legends referred to in Paragraph B.2 hereof in respect
of such sale.
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<PAGE> 163
D. This letter agreement is governed by and shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
Very truly yours,
_____________________________
Print Name:
Address:
Accepted this _____ day of
January, 1996
GENZYME CORPORATION
By:___________________________________
David J. McLachlan
Senior Vice President - Finance
and Chief Financial Officer
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<PAGE> 164
EXHIBIT B
[ALEX. BROWN & SONS INCORPORATED LETTERHEAD]
December 22, 1995
Board of Directors
Genetrix, Inc.
6401 E. Thomas Road
Scottsdale, AZ 85251
Dear Sirs:
Genetrix, Inc. (the "Company" or "Genetrix") and Genzyme Corporation
(the "Purchaser" or "Genzyme") propose to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which the Company will be merged with the
Purchaser (the "Merger"). You have requested our opinion regarding the
fairness, from a financial point of view, of the aggregate consideration to be
received by the preferred and common Stockholders, taken as a whole, of the
Company ("Company Stockholders") pursuant to the Agreement. Our opinion does
not address the allocation of consideration among Company Stockholders, whether
pursuant to the Company's certificate of incorporation or otherwise.
Under the Agreement, the aggregate consideration will be paid in
Purchaser General Division Common Shares ("Purchaser Common Stock") and the
Purchaser will deliver to the Company Stockholders that number of shares of
Purchaser Common Stock determined by dividing $38,500,000 less the Purchase
Price Adjustment (as defined in the Agreement) ("Merger Consideration") by the
Closing Market Value (as defined in the Agreement) of Purchaser Common Stock
provided that (a) if the Closing Market Value is less than $43.61, the Company
shall have the right to terminate the Agreement unless the Purchaser elects to
deliver that number of shares of Purchaser Common Stock determined by dividing
$35,000,000, less the Purchase Price Adjustment, by the Closing Market Value,
(b) if the Closing Market Value is above $67.28 then the Purchaser agrees to
deliver that number of shares of Purchaser Common Stock determined by dividing
the Merger Consideration by $67.28 and (c) if the Closing Market Value is
between $47.97 and $43.61, the Purchaser agrees to deliver that number of shares
of Purchaser Common Stock determined by dividing the Merger Consideration by
$47.97.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate and other purposes. We have served as financial
advisor to the Board of Directors of Genetrix in connection with the
transaction contemplated by the Agreement and will receive a fee for our
services. We regularly publish research reports regarding the health care
industry and the businesses and securities of publicly owned companies in that
industry.
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Board of Directors
Genetrix, Inc.,
December 22, 1995
Page 2
In connection with this opinion, we have reviewed certain publicly
available financial information concerning Genzyme and comparable information
regarding Genetrix provided to us by the management of the Company. We have
reviewed certain internal financial analyses of Genetrix and Genzyme made
available to us by the management of the Company and the Purchaser,
respectively, and have held discussions with members of the senior management
of Genetrix and Genzyme regarding their respective businesses and prospects. In
addition, (i) we have reviewed a final draft of the Agreement dated December 22,
1995, (ii) compared certain financial information for Genetrix and Genzyme with
similar information for certain publicly traded companies which we deemed
similar to Genetrix and Genzyme, respectively, (iii) reviewed the financial
terms of certain recent business combinations which we deemed comparable in
whole or in part, and (iv) performed such other studies and analyses and took
into account such other matters as we deemed necessary.
We have assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by us for purposes of
this opinion. With respect to the financial projections used in our analyses,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Genetrix and Genzyme
senior management, respectively, as to the likely future performance of the
Company and Purchaser, respectively. In addition, we have not made an
independent valuation or appraisal of the assets of Genetrix or Genzyme, nor
have we been furnished with any such valuation or appraisal. Our opinion is
based on market, economic, financial and other conditions as they exist and can
be evaluated as of the date of this letter. Our opinion does not imply any
conclusion as to the likely trading range of Purchaser Common Stock following
consummation of the merger nor does it constitute a recommendation to any of
the Company Stockholders as to how they should vote with respect to the Merger.
It is understood that this letter is provided to the Board of Directors
of Genetrix in connection with its consideration of the proposed Merger and may
not be used for any other purpose without our prior written consent, except
that we consent to the inclusion of this opinion as an exhibit to any proxy
statement or registration statement distributed to the Company Stockholders in
connection with the Merger. The opinion expressed below addresses only the
fairness of the Merger Consideration payable to the Company Stockholders, taken
as a whole, and does not address the allocation of consideration among
Stockholders, whether pursuant to the Company's certificate of incorporation or
otherwise. Based on the analysis described above and subject to the foregoing
limitations and qualifications, it is our opinion that the Merger Consideration
to be reviewed by the Company Stockholders pursuant to the Agreement is fair
from a financial point of view to such holders taken as a whole, as of the date
of delivery of this letter.
Very truly yours,
/s/ Alex. Brown & Sons Inc.
-------------------------------
ALEX. BROWN & SONS INCORPORATED
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EXHIBIT C
PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
SECTION 262 - APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the rods
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a, b, and c, of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on a
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been
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received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may,in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including,
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without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the rights of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
262, L. '94, eff. 7-1-94.)
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GENETRIX, INC.
SPECIAL MEETING OF STOCKHOLDERS APRIL 16, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Genetrix, Inc. (the "Company") hereby appoints
Paul R. Sohmer, M.D. and Pat Arrington, and each of them acting singly, the
attorneys and proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned all the shares of capital stock of the Company
entitled to vote at the Special Meeting of Stockholders of the Company to be
held on April 16, 1996, and at all adjournments thereof, hereby revoking
any proxy heretofore given with respect to such shares.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE ALSO AUTHORIZED TO
VOTE UPON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
/x/ Please mark your vote as in this example.
1. Proposal to adopt the Agreement and Plan of Merger dated as of January
11, 1996 between Genzyme Corporation ("Genzyme") and the Company (the
"Merger Agreement"). Each share of the capital stock of the Company
outstanding at the effective time of the merger will be converted into
that number of shares of the General Division Common Stock, $0.01 par
value per share, of Genzyme, as provided in the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
- --------------------------------------------------------------------------------
PLEASE SIGN AND MAIL THIS PROXY TODAY
Please sign exactly as name appears on stock certificate. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partner, please sign in partnership name by authorized
person.
Date: , 1996
---------------------- -------------------------------
Signature
Date: , 1996
---------------------- -------------------------------
Signature (if held jointly)
<PAGE> 171
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of chapter 156B of the Massachusetts Business Corporation
Law grants Genzyme the power to indemnify any director, officer, employee or
agent to whatever extent permitted by Genzyme's Articles of Organization,
By-Laws or a vote adopted by the holders of a majority of the shares entitled to
vote thereon, unless the proposed indemnitee has been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his or
her actions were in the best interests of the corporation or, to the extent that
the matter for which indemnification is sought relates to service with respect
to an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Such indemnification may include
payment by Genzyme of expenses incurred in defending a civil or criminal action
or proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he or she shall be adjudicated to be not entitled to indemnification under
the statute.
Article VI of Genzyme's By-Laws provides that Genzyme shall, to the
extent legally permissible, indemnify each person who may serve or who has
served at any time as a director or officer of the corporation or of any of its
subsidiaries, or who at the request of the corporation may serve or at any time
has served as a director, officer or trustee of, or in a similar capacity with,
another organization or an employee benefit plan, against all expenses and
liabilities (including counsel fees, judgments, fines, excise taxes, penalties
and amounts payable in settlements) reasonably incurred by or imposed upon such
person in connection with any threatened, pending or completed action, suit or
other proceeding, whether civil, criminal, administrative or investigative, in
which he or she may become involved by reason of his or her serving or having
served in such capacity (other than a proceeding voluntarily initiated by such
person unless he or she is successful on the merits, the proceeding was
authorized by the corporation or the proceeding seeks a declaratory judgment
regarding his or her own conduct). Such indemnification shall include payment by
Genzyme of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he or she shall be adjudicated to be not entitled to indemnification under
Article VI, which undertaking may be accepted without regard to the financial
ability of such person to make repayment.
The indemnification provided for in Article VI is a contract right
inuring to the benefit of the directors, officers and others entitled to
indemnification. In addition, the indemnification is expressly not exclusive of
any other rights to which such director, officer or other person may be entitled
by contract or otherwise under law, and inures to the benefit of the heirs,
executors and administrators of such a person.
Genzyme also has in place agreements with certain officers and
directors which affirm Genzyme's obligation to indemnify them to the fullest
extent permitted by law and contain various procedural and other provisions
which expand the protection afforded by the Registrant's By-Laws.
Section 13(b)(1 1/2) of chapter 156B of the Massachusetts Business
Corporation Law provides that a corporation may, in its articles of
organization, eliminate the directors' personal liability to the corporation and
its stockholders for monetary damages for breaches of fiduciary duty, except in
circumstances involving (i) a breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unauthorized distributions and loans to insiders and (iv) transactions from
which the director derived an improper personal benefit. Section VI.C.5. of
Genzyme's Articles of Organization provides that no director shall be personally
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except to the extent that such
exculpation is not permitted under the Massachusetts Business Corporation Law as
in effect when such liability is determined.
Part II - 1
<PAGE> 172
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
See Exhibit Index immediately following signature page.
(B) FINANCIAL STATEMENT SCHEDULES.
The following Financial Statement Schedule of Genzyme is
incorporated by reference to Item 14 of Genzyme's Annual Report on Form 10-K for
its fiscal year ended December 31, 1994:
Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted since the required information is inapplicable
or has been presented in the financial statements and related notes.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Part II - 2
<PAGE> 173
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(f) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(g) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (f) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Part II - 3
<PAGE> 174
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused Amendment No. 2 to this Registration Statement (File No. 333-1105) to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cambridge, Commonwealth of Massachusetts, on March 14, 1996.
GENZYME CORPORATION
By: * HENRI A. TERMEER
--------------------
Henri A. Termeer, President
Pursuant to the requirements of the Securities Act of 1933, Amendment
No. 2 to this Registration Statement (File No. 333-1105) has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* HENRI A. TERMEER Director and Principal March 14, 1996
- ----------------------------------- Executive Officer
Henri A. Termeer
/s/ DAVID J. MCLACHLAN Principal Financial and March 14, 1996
- -----------------------------------
David J. McLachlan Accounting Officer
* CONSTANTINE E. ANAGNOSTOPOULOS Director March 14, 1996
- -----------------------------------
Constantine E. Anagnostopoulos
* DOUGLAS A. BERTHIAUME Director March 14, 1996
- -----------------------------------
Douglas A. Berthiaume
* HENRY E. BLAIR Director March 14, 1996
- -----------------------------------
Henry E. Blair
* ROBERT J. CARPENTER Director March 14, 1996
- -----------------------------------
Robert J. Carpenter
* CHARLES L. COONEY Director March 14, 1996
- -----------------------------------
Charles L. Cooney
* HENRY R. LEWIS Director March 14, 1996
- -----------------------------------
Henry R. Lewis
* By: /s/ DAVID J. MCLACHLAN
- -----------------------------------
David J. McLachlan
Attorney-in-Fact
</TABLE>
Part II - 4
<PAGE> 175
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
2 Composite conformed copy of Agreement and Plan of Merger
dated as of January 11, 1996, between Genzyme, Genetrix and
the Principal Stockholders of Genetrix. Filed herewith as
Exhibit A to the Prospectus/Proxy Statement. Pursuant to Item
601(b)(2) of Regulation S-K, the schedules referred to in the
Agreement and Plan of Merger are omitted. The Registrant
hereby undertakes to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
4.1 Articles of Organization, as amended, of Genzyme. Filed as
Exhibit 3.1 to Genzyme's Form 10-K for the year ended
December 31, 1994 (File No. 0- 14680), and incorporated
herein by reference.
4.2 By-Laws of Genzyme. Filed as Exhibit 3.2 to Genzyme's Form
8-K dated December 31, 1991 (File No. 0-14680), and
incorporated herein by reference.
4.3 Amended and Restated Rights Agreement dated as of October 13,
1994 between Genzyme and American Stock Transfer and Trust
Company. Filed as Exhibit 4 to Genzyme's Form 8-K dated
December 29, 1994 (File No. 0-14680), and incorporated herein
by reference.
* 5 Form of opinion of Palmer & Dodge.
* 8 Form of opinion of Palmer & Dodge with respect to certain
federal income tax matters.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
to Genzyme Corporation. Filed herewith.
23.2 Consent of Ernst & Young LLP, independent accountants to
Genetrix, Inc. Filed herewith.
23.3 Consent of Price Waterhouse LLP, independent accountants to
BioSurface Technology, Inc. Filed herewith.
23.4 Consent of Coopers & Lybrand L.L.P., independent accountants
to Genzyme Development Partners, L.P. Filed herewith.
* 23.5 Consents of Palmer & Dodge (contained in Exhibits 5 and 8).
* 24 Power of Attorney (included in the signature page hereto).
99 Fairness Opinion of Alex. Brown & Sons Incorporated. Filed
herewith as Exhibit B to the Prospectus/Proxy Statement.
* Previously filed on February 21, 1996 as the same numbered exhibit to this
Registration Statement on Form S-4 (File No. 333-1105).
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 2 to this
Registration Statement on Form S-4 of Genzyme Corporation of our reports dated
March 1, 1995 on our audits of the consolidated financial statements and
financial statement schedule of Genzyme Corporation, the combined financial
statements of Genzyme General Division and the combined financial statements of
Genzyme Tissue Repair Division as of December 31, 1993 and 1994 and for each of
the three years in the period ended December 31, 1994, which reports are
included in Genzyme Corporation's 1994 Annual Report on Form 10-K, as amended
by Amendments Nos. 1 and 2 thereto on Form 10-K/A.
We also consent to the references to our firm under the captions "Selected
Financial Data" and "Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Boston, Massachusetts
March 14, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Genetrix Selected Financial Data" and to the use of our report dated May 25,
1995 included in the Proxy Statement of Genetrix, Inc. that is made a part of
Amendment No. 2 to the Registration Statement (Form S-4) and Prospectus of
Genzyme Corporation for the registration of 547,230 shares of its General
Division Common Stock.
/s/ Ernst & Young, LLP
----------------------
Phoenix, Arizona
March 14, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4
of Genzyme Corporation of our report dated February 8, 1995, except as to Note
11, which is as of July 25, 1994 relating to the financial statements of
BioSurface Technology, Inc. as of December 31, 1992 and 1993 and for each of
the three years in the period ended December 31, 1993, appearing on page
III-20 of Annex III to the Prospectus/Joint Proxy Statement included in Genzyme
Corporation's Registration Statement on Form S-4 (No. 33-83346). We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE, LLP
- -------------------------
Boston, Massachusetts
March 14, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 2 to this
Registration Statement on Form S-4 of Genzyme Corporation of our report dated
March 1, 1995 on our audits of the financial statements of Genzyme Development
Partners, L.P. as of December 31, 1993 and 1994 and for each of the three years
in the period ended December 31, 1994, which reports are included in Genzyme
Development Partners' 1994 Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Boston, Massachusetts
March 14, 1996
